Government cuts and corporate layoffs create a national mood of in security

JENNIFER WELLS March 11 1996


Government cuts and corporate layoffs create a national mood of in security

JENNIFER WELLS March 11 1996


Government cuts and corporate layoffs create a national mood of in security



Darlene Lafrentz was 19 when she marched into her job

at the Dairyland plant in Burnaby, B.C., working on the ice-cream packaging line. Eleven years later, she moved to cheese processing in nearby Abbotsford, where she operated a 20-foot “cheese tower,” which presses 700 lb. of curd at a time, draining off the whey. The pay was good—$50,000 a year, more if she put in some overtime—and so were the benefits.

Dairyland grew into Dairy World Foods and then to

Agrifood International. “Over the years,” says Lafrentz, “whenever they would buy a little dairy, I would think, ‘Oh great, the company is growing.’ You hear of other companies shutting down—they close their doors and they’re gone. I always thought it was better to work for a large company that is doing well. I thought I would be there forever.”

As it happened, Lafrentz was there until last Jan. 27. Cheese cutting was moving to Calgary. “So all the people in cutting got laid off and I got bumped. The guy who bumped me had 33 years.”

Lafrentz lays part of the blame for her job loss on computerization. But more than technology, she blames corporate greed. “If I was running a company,” she says, “I would try to do everything to make it profitable— but where is it going to end? Now when a company makes $1 billion in a year, they want to make $2 billion—then more and more and more. Why aren’t they happy with $1 billion? Why do they have to keep downsizing and increasing the workload?”

Agrifood’s revenues have, in fact, surpassed $1 billion, a hundredfold increase over Lafrentz’s tenure. And while the company does not release profit figures, a representative says they doubled over a 10-year span to 1992. There followed a merger, restructuring and downsizing, and while that slowed growth, it did not erode profits.

What has eroded is Lafrentz’s faith in the compact between corporations and workers, a view that reflects a growing backlash against big business that has become as transnational as the successful businesses that have come under fire.

Chief among the complaints is that while Canadian corporate profits reached a historic high in 1995, hitting $66 billion, some of the most profitable companies—including Bell Canada and General Motors of Canadalaid off workers. Running a close second has been worker frustration over paltry pay increases— wage settlements last year

in the private sector averaged 1.9 per cent, which did not even pace inflation, while public-sector workers, on average, did not see a penny’s increase on a dollar’s labor. Meanwhile, executive-level compensation reached stratospheric levels, heightening the mood of workplace fission. At the root of it all is a mounting sense of fear shared by workers, of uncertainty over how long the jobs they now hold will last, of watch-


Jobs created or lost since 1988

retail, services)


ing the latest casualties. Last week came announcements of job cuts at General Motors, London ^ life and Reader’s Digest, for a collective body count of more than 1,100. And those were the layoffs that hit the news. Many do not.

It is difficult to pick the defining moment in the growing debate. Perhaps it was when the banks reported 21per-cent increases in profits on average for 1995. (At the Bank of Montreal and Scotiabank, first-quarter results this year have surpassed even last year’s stellar perfor-

mances.) Or maybe it was the announcement out of AT&T Corp. in the United States on the first business day of the year that it will cut 40,000 workers, a fact that contrasts starkly with company chairman Robert Allen’s income of $7 million—excluding a truckload of stock options—for what Wall Street assessed as a lousy managerial year. Then there was the deadening realization that when such companies

make such announcements, their stock price goes up.

That was enough for Republican presidential hopeful Pat Buchanan, who can spot a campaign line when he sees one. America, he said, is suffering “from wages that seem to go down as the Dow Jones hits 5600.” Buchanan’s stance lit a fire under opponent Bob Dole—“The bond market finished a spectacular year. But the real average hourly wage is five-percent lower than it was a decade ago.” The discourse crosses party lines—Democratic Senator Edward Kennedy has called for “incentives for good corporate citizenship” to halt what he labels a “quiet depression.”

By last week what seemed like an all-party call to put America first had moved north. The Liberals’ speech from the throne, read by Gov. Gen. Roméo LeBlanc, called on the private sector to work with governments “to make the collective investments required to produce hope, growth and jobs.” Prime Minister Jean Chretien’s own speech a day later asked business to help redress “the human deficit of unemployment” A day after that, Industry Minister John Manley told a gathering at the Empire Club in Toronto that journalists repeatedly ask him: ‘What are you going to do about the fact that corporations are making record profits and laying people off in droves?”

It was clear from the inflection in Manley’s voice that in his view the question is simplistic and misinformed. Which is exactly what he went on to say. “Even if we include the profits of our major banks,” said Manley, turning briefly to acknowledge the presence of Bank of Montreal president Tony Comper, sitting amongst other business leaders at the Empire Club dais, “corporate profits as a percentage of gross domestic product are only slightly more than half what they were 20 years ago—in 1974 they were 13.4 per cent.”

Profits as a percentage of GDP. As a mantra, it does not have much snap. Nevertheless, the business community has adopted it to convince its critics that it has not been greedy at all. Manley’s 1974 citation, however, was the high point in the past 40 years of Canadian corporate history and recalls a simpler time, before globalization and re-engineering and the battle to become low-cost producers in a fiercely competitive marketplace. A more appropriate benchmark, and one Manley also cited, is 1989. That year, according to Scotiabank, pretax profits were 9.2 per cent of GDP. Last year, corporate profits were 8.5 per cent of GDP. “The story has been a long, hard fight to recapture lost ground,” says Aron Gampel, deputy chief economist at Scotiabank. “We had such a sharp correction [in 1991 and 1992] that it has taken four or five years just to get back to the level we were at at the onset of the recession.”

Manley says Canada should cut its corporations some slack—perhaps three to six months—and not let job-creating expectations run wild. And to be fair, the private sector has been on the hire, creating 108,000 net new jobs last year. It is the cuts in the public sector, a fight that 55,000 members of the Ontario Public Service Employees Union took to the streets in Ontario last week, which is now hitting the employee rolls hardest. But now, while corporations on the whole are expected to post new profit highs this year, the pace of growth has slowed. Gampel predicts pretax profits will grow by 7.5 per cent, compared with 15 per cent last year and 36 per cent in 1994. “For a lot of companies, 1995 was a good year,” says Courtney Pratt, president of Toronto-based mining giant Noranda Inc. “But there’s no guarantee that it’s going to continue. So the notion that you have one

good year and then you start to relax and don’t keep the pressure up on the cost side—I don’t think that’s something we can afford to do.”

Given that Manley’s vision for Canada’s future includes a “motivating set of beliefs that is more than a targeted fall in the debt-to-GDP ratio”—and he is talking there of government debt—it seems only fair to question whether a corporation’s set of motivating beliefs should be more than this profit-to-GDP business. “Isn’t that what I’m saying?” asks Manley, in a post-speech interview. So there is, then, a social contract that binds corporations to employees? “I believe there is,” he says. “I believe there needs to be.” It still exists with some companies, he says, though his examples are U.S.-based. Before the next “iteration” of his jobs speech, he says, he will come up with some Canadian examples. In the meantime, what is needed is “patience on our side. We’d like to see the jobs today, right? That would be good news.

There is a need for patience in order to keep this on a constructive level.”

But the world of work has so wholly changed that the word “job” has become indefinable and the discourse that Manley is referring to is as controllable as foxes in a henhouse. Last month, in a speech to the George Washington University School of Business and Public Management U.S. Labor Secretary Robert Reich easily defined what the social compact used to be, when it was easily definable, in the 1960s and the 1970s. “So long as the company earned healthy profits, employees could be assured of secure jobs with rising wages and benefits, and their communities could count on a steady tax base. When the economy turned sour, employees might be laid off for a time. But when the economy revived, the work would return.” The compact, Reich made clear, linked the employer not just to the employee, but to the community at large. It would be “unseemly,” he said, for a business not to share the benefits of its success.

Layoffs in the 1970s, says Reich, were largely temporary,

The number of temporary jobs rose 21 per cent in five years

They are not any longer. John Challenger, a New York Citybased consultant whose company is one of the few to actually tally layoff data, says the United States has suffered more than three million permanent layoffs in the past six years. Business will say that it had to happen. In the late 1980s that was certainly true. The major companies that are successful today are the winners

in the fight to stay competitive in a borderless economy. That has meant massive restructuring, which, for the victors, resulted in huge productivity gains, which beget profits, which, of course, are the cornerstone of free enterprise.

But what scale of profit? A recent Fortune article assessed the woes of Home Depot, the mega U.S. hardware chain. Earnings growth has slowed. There is management turmoil. “The biggest concern,” says the magazine, “is the stock price.” Home Depot’s stock price has increased 28,000 per cent since it went public in 1981, yet the company has lost its investor appeal.

With those sorts of pressures, brought to bear most forcefully in recent years by institutional investors—including union pension funds—pushing for stock market rewards, who is to blame business for engaging in a little head-lopping in order to boost the stock? Chief executive officers themselves are vulnerable. “They’re changing as quickly as baseball managers,” says John Challenger. “If they don’t

produce those returns immediately, they’re driven out of the company.” Says Andrew Jackson, senior economist at the Canadian Labour Congress in Ottawa: ‘To be fair to corporations, to a large degree they are being driven to do what they’re doing by stock markets with short-term investment horizons.”

The push, in part, is coming from everyday people, who have invested in equity-based mutual funds and do not want to see four-per-cent returns on the investments they are now told they will need in order to be able to afford to retire. “For a private investor,” says Jackson, “an investment isn’t going to go ahead unless it meets a threshold rate of return. You basically have to match the best rate of return that’s available anywhere in the global economy.” And as the Home Depot example illustrates, the tyranny of market demands never ends. A company’s performance yesterday is irrelevant to shareholders who care only about future earnings streams.

What Jackson is saying is that paying attention to the bottom line is not wrong—it is, after all, essential—but limiting, particularly when companies reach for the layoff as a performance booster. When Goldfarb Consultants prepared a report for Scotiabank last fall on Canadians’ attitudes towards savings and investment they found that one quarter of employed people were concerned about losing their jobs in the next year. In the Maclean’s year-end poll, Canadians cited unemployment as their chief concern.

Workers know that the old-style megacorporation

that once husbanded thousands of workers through their careers is no longer. John Challenger says that employees are lucky to get seven years at a company today. The newest trend is not flipping from one full-time job to another, but flipping from full-time to part-time. A recent study by the Canadian Council on Social Development says that the number of temporary jobs in Canada rose by 21 per cent in the five years to 1994, so that today one in every 10 employed Canadians is part of the temporary workforce. “It’s not that the labor market is being turned upside down,” says Chris Clark, policy analyst at the council and co-author of the report. “The real issue is that it’s part of a trend towards other forms of nonstandard employment, which now make up about a third of all jobs.”

The temporary workforce, according to the study, sees wages for women that are on average $2 per hour less than their full-time counterparts. For men, the “wage penalty” is $2.85. “It’s more than the dollar reduction,” says Clark. “I think it’s the insecurity that people are

Time On Their Hands

Number of Canadians working part time because they cannot find full-time employment

1981 268,000 1982 379,000 1983 467,000 1984 502,000 1985 509,000 1986 506,000 1987 479,000 1988 446,000 1989 437,000 1990 452,000 1991 587,000 1992 702,000 1993 800,000 1994 793,000

having the most problem with.” Seventy-five per cent of temporary workers, says Clark, find jobs that last fewer than six months. According to the CLC’s Jackson, only about 60 per cent of people work full time, full year, for the same employer. Scotiabank’s Gampel argues that wage-settlement data ignore a growing trend, the pay-for-performance types of compensation that have been introduced at such companies as Bank of Montreal and MacMillan Bloedel. “In order to engineer consistent, strong performance,” he says, “companies are very cautious in terms of their payouts.” That makes sense, he says, “when you’re trying to maintain your competitiveness in a rapidly changing environment.” Those pressures, says Noranda’s Pratt, are intensifying. Noranda pays its employees through variable compensation packages. Last year, says Pratt, end-of-year bonus payments in excess of 10 per cent of base wages were paid out at the company’s top performing plants.

Still, it is clear that an economic penalty is being paid in the domestic economy, where consumer confidence is at a postwar low. The recovery that business has trumpeted for the past two years has been lopsided, favoring exporters of pulp, newsprint, nickel and so on. For months now, the government has been betting on lower interest rates to kick-start the economy at home. But, says Clark, “people aren’t able to make the decisions that will get the economy running again. You can’t get into a mortgage, or buy a car or appliances when you’re not sure what you’re going to be doing in six months.”

Ken Pattison has a mortgage, though small, and a car, paid for. As of last October, he had 22 years of unbroken work, a career that started at Texaco and continued at Imperial Oil Ltd. after its Texaco takeover in 1991. Pattison was a tax return administrator, until the October day when his supervisor told him he had five minutes to clear out his desk. “It’s called, initially, devastation,” says Pattison. He has taken a part-time job selling greens fee coupons to golfers. He is 43, married with two children. Now, he says, noting the irony, it is not easy to watch those television commercials that say “You’re on your way with Esso.” Pattison is not sure what he will do next.

During the runup to this week’s federal budget, Ottawa’s focus was on how to get business to create jobs—and what role, if any, the government might play. Grasping for a way to package its job-creation efforts, Chrétien’s advisers pushed a ‘Team Canada” approach, deemed successful in selling Canadian business abroad.

selling That explains why many Liberals eagerly embraced the so-called First Jobs initiative, a pilot project conceived by the U.S.-based Boston Consulting Group after a meeting last summer between thenTreasury Board head Art Eggleton and Boston’s Toronto-based senior vice-president, David Pecaut. “One of the points I made,” says Pecaut of the meeting, “was that I didn’t think the traditional approach-governments going out to try to create jobs—would work any more. Art called my bluff and asked what I would do to create jobs. He threw down the gauntlet”

Through the fall, Pecaut and his Boston Consulting cohorts canvassed business leaders. What struck a chord with most were the dreadful job statistics for young Canadians, with 16.1 per cent of under25s unemployed. For one business titan, it came as a surprise that the old days of getting fellow CEOs to hire progeny have long since passed.

From this came the proposed youth initiative, designed to provide 50,000 one-year internships for new graduates from the high-school level on up who would be paid at least minimum wage. About 30 companies have signed on to the idea, from banks— the Toronto Dominion and the Royal—to newspaper publisher Torstar and Noranda. Courtney Pratt is a believer. “It’s a meaningful job experience we’re talking about,” he says. “We’re not just talking about hiring a university graduate and asking him to go to the filing room.”

In its original inception, First Jobs proposed that signatory companies set hiring levels at one per cent of their payrolls, an idea that Chrétien had originally set in the throne speech last week, but which had been tossed out by the time it was read in Parliament. Getting dispirited youth into the labor force is but one part of the problem. Training workers is another. Paul Cantor, chief executive officer of Torontobased National Trust Co., talks about the need for corporations to provide a “lifelong learning process” while people are in their jobs. “When you say to somebody

you’re going to be redundant in three months, let’s talk about a retraining program, it’s too late.”

That is precisely the kind of worker dislocation that befell Glenn Chartrand in January when he returned to work in a Bank of Montreal mail room after an operation to remove calcium deposits in his elbow. “I went back to work on Jan. 27,” recalls Chartrand,41, who lives in suburban Montreal. “That was the day they told me that my job was no longer required because of ‘operational changes.’ It was a real shocker. They gave me two months to find another

job in the bank, but I don’t know computers or keyboarding.” So Chartrand accepted a severance package—two weeks’ pay for each of his 21 years of service—and left. Chartrand says his layoff is affecting his former co-workers. “Instead of nine people doing the job, they found that eight people could do it,” he says. “The eight people left can do it, but they have been telling me that they are pushed and pushed and pushed. They are all shaking because a couple more are supposed to be going, but they don’t know where or when.”

Ottawa is keenly aware that when workers like Chartrand become labor-force detritus, they remain voters. In his speech to the Empire Club, John Manley talked about workers who get left out of the new

economy and who could “eventually erode the necessary political support for the very policies that are necessary for economic growth and prosperity.” Robert Reich has mused about reducing or eliminating taxes for those companies that provide skills-enhancing, pension-paying, profitsharing jobs—“things that do not necessarily improve the returns to shareholders.”

It is views such as Reich’s that make the First Jobs initiative seem modest perhaps even inconsequential. Last week, Manley’s own department was dotting the i’s on more substantial proposals for the budget including a technology fund aimed at fostering high-tech and aerospace manufacturing. “Canada does not have a major [computer]

chip fabricating facility,” says Manley. “Its a G-7 country, a high-technology country. This is a problem for us.” But Canada is not the only G-7 country with a jobs problem. In fact, at the next meeting of the group of leading industrialized nations, in France in June, the jobs issue is scheduled to take the main stage. By then, ministers like Manley may have a clearer view of the government-worker-corporation team talk that is gathering steam in Canada. In Germany, Chancellor Helmut Kohl spent last fall debating remedies with business and labor. In late January, Kohl, who has been strug-

gling with an unemployment rate on par with Canada’s at 9.5 per cent, announced an Alliance for Jobs agreement, a tentative new compact under which workers have agreed to take pay cuts in exchange for job creation. The pay cuts would reduce salary increases to the rate of inflation, which still makes the salary rewards higher than those being won in Canada. The German case is not wholly transferrable—German workers have enjoyed handsome nationwide wage settlements regardless of corporate performance—but emphasizes that the jobs debate has moved to a first-place tie on the international agenda.

Germany’s alliance efforts are aimed at boosting a near-dead domestic economy, in which spending has collapsed in the face of job

insecurity. The strength of resolve will be tested at the end of April, when contracts covering Germany’s four million publicsector workers expire. What Kohl and Team Germany hope to avoid is the sort of social upheaval that has rocked France, when workers took to the streets to protect job security and benefits. The new “iteration” of Team Canada is not even close to contemplating such a fallout. But then, two months ago, the backlash against job losses amid fat corporate profits seemed a containable phenomenon, a NIMBY— not in my backyard—issue for the ’90s. It is no longer.