Mr. Speaker, I would like to speak to the changes to the labour code proposed by the government under Bill C-66 which will affect about 700,000 workers in federally regulated industries.
I oppose the legislation because it attacks the wrong problem. The problem as government members see it is labour disputes that must be dealt with in a specific way. It will be much better in the long run to deal with the real problem, the existence of federally regulated industries.
Let me summarize my argument. Unions exist to get higher wages for their members. They might often say they just want job security and all kinds of other goodies like work regulation and safety. All that can be translated into higher income. Basically unions exist to benefit workers.
It is true by definition that if enterprises are suddenly required as a result of unionization to pay higher wages to their workers the extra money must come from somewhere. There are only four logical possibilities.
First, the money that has to be paid to workers could come from the profits. An old ideological position is that it is a struggle between capitalists and the working class. Many people will know this position will not likely have a very strong effect. If the profits of companies are squeezed too much it may seem as if they are stuck where they are at the moment, but the fact is that they can always leave. More important, in a region in which unions are very strong factories simply will not be established. There will be no investment. The extent to which higher wages going to the worker come from profits is extremely limited. In some types of industries it is more possible than others. I will explain that in a moment.
The second possibility is that the employer simply raises the prices of the product and services produced by the unionized firm that suddenly faces higher labour wages. Under those circumstances the benefits to workers come directly from the consumer. It would tend to be consumers of only a very small proportion of the product. Therefore it does not totally come out of their pockets.
If everyone in society were unionized and insisted on higher wages it is quite clear there would be higher prices and the gains made by workers with the higher nominal wages would be wiped out by what they had to buy. This kind of situation existed in countries like Sweden where unionization was almost universal, at which point there had to be tripartite agreements between government, industries and workers to ask how they could prevent this cycle of inflation from taking place.
The third way in which workers can be compensated when they insist on higher wages is at the expense of other workers. In a sense the higher costs of production due to the higher unionized wages are passed on in higher prices. It is the consumers who pay in the end for the workers whose union action brought higher wages.
The other possibility is that workers induce a substitution of capital for labour so that the company will make the same profits and will not have to pass on higher costs through higher prices for their output. They would save labour. As a result the workers in the industry before the wages were raised are now thrown into the non-unionized sector where, if they are to be absorbed, they get lower wages. This is what economists have found. Everything else remains the same between industries. The workers who are unionized have 10 per cent to 15 per cent higher wage rates than those who are not unionized.
When a union is squeezing a higher wage out of an employer through unionized action, where does the money come from? It comes in some industries from government.
There is no sense for any reasonable government in the industrial world to attack the activities of unions, as self-serving as they are. The right to organize and the right to try to get more money for their members are such ideological issues that any government which tried to confront the ability of unions to do so directly would suffer greatly. It is a cause that makes workers go to the barricades. People have been prepared to die for the cause. It is not worth any government taking on the unions directly, but society has an option to strictly limit the power of the unions by certain policies. The policy which I would recommend is to remove situations where there is an unlimited pot of money or a very large pot of money. That large pot of money has been created by government policy itself.
I would like to elaborate on that basic idea by considering that unionization can take place in four analytical classes of industries.
The first business that I would like to discuss involves small privately owned firms, where entry is easy. A lot of capital is not required. They typically have no more than ten employees. It is a mom and pop shop, a tailor or even a small manufacturer of drapes or whatever is locally produced.
In that kind of business everyone is just scraping by. Often the employers are just making enough money to stay in business. They do it because they feel that someday they might hit it big or they like to have their freedom. They are their own bosses. If these people rationally calculated how many hours they work and what their income is, they would realize that they work for very little money. They could probably earn more on the outside.
When I return to the university and to the Fraser Institute after the next election, a study of small business will be one of the projects which I hope to undertake. I want to know what makes them such good employers and what they give to society.
Unions in the small business sector are non-existent. Why? Everyone knows that if they unionize those small shops to get a higher wage the employer might just throw in the towel and leave. He is not making enough anyway. Alternatively, the company could be driven out of business because it cannot pass on higher wages through higher prices. Try to sell ice-cream, shoes or drapes at a higher price than the neighbour charges. They would be driven out of business.
The second category of business that I would like to discuss is where they have a small element of monopoly power. For example, the steel industry used to have a certain amount of monopoly power. I say used to have. So did the automobile industry. That was before transportation costs fell dramatically and before technology spread throughout the world at the push of a button.
In the past those kinds of industries had what we call an oligopoly position. They were protected by natural processes in the economy. The cost of transportation was high. There was limited entry because of the scale that was required to build an automobile factory or a steel factory. Under those circumstances workers were somewhat successful in organizing because they were able to drive up the price and the price could be passed on. The price of steel in an automobile is still relatively low and automobile prices are not affected if unions in the steel industry raise the price a bit.
In the sixties, seventies and into the eighties we had huge, very disturbing strikes in the steel and automobile industries. They are gone. The reason is there are no oligopoly profits and there are no opportunities to pass on increases in the cost of production through higher product prices. That is because of free trade. It is because of the low cost of transportation.
We have now a very strict limit on the power of unions. Even international unionization has been shrinking where it was once almost universal. Even in Canadian industries where this is the
case, they have strong limits on their ability to push through the benefits that they think their union members deserve.
The third category in which unions have been very powerful in the past were industries in which there exists what we call economic rent. Economic rent is a surplus in the value of a product above the cost of production. This typically is found in natural resource industries.
Let us take gold. A gold mine may have a cost of production of $100 an ounce but the price that the gold fetches is $450. The question is what to do with the $350. It is in industries like these that unions were strong because they wanted a bigger share. It can be applied to copper, to tin, to whatever can be mined.
It was also true in the B.C. forest industry. We inherited from nature, undisturbed for millennia, for hundreds of thousands of years, mature forests where it might cost $3,000 to cut down a tree but the price would be $10,000. The government did not at that point try to get that $7,000 but took only the residual of whatever the cost of production was.
It can be imagined that under those circumstances, unions were happy to go on strike and the employers were happy to give in to get a bigger share of that $7,000 difference between what it costs to cut down the tree and get it to market and the $10,000 it sold for. That is how British Columbia in the post war years got itself the highest wages in the forestry industry anywhere in the world.
The honeymoon of natural resource industries has ended. There are very few resources left right now where it is possible for unions to tap into this economic rent. The power of unions in British Columbia has decreased and is decreasing continuously with the disappearance of this economic rent.
I now would like to turn, as my time is winding down, to the fourth category of industries where unions are powerful. The most powerful unions are typically found in industries that have a deep pocket. Who has the deepest pocket? The government.
Therefore government owned industries typically have the strongest unions. When they raise the wages of their members, who pays for them? Not at the cost of capital. It is sometimes through higher prices but it is typically, simply at the cost of subsidies.
The world has realized that this is the case and that is why everywhere in the industrial world we have privatized those industries that previously had been owned and run by government. Subsidies have ended but there is a very subtle additional area that we are now talking about, industries that are regulated by the state.
In Canada we still have 700,000 workers employed in this sector. Here the action is subtly different. Regulation means that the firms are allowed to operate a monopoly. They have the protection from the state that there will be no competition. For example, the airlines used to be that way. Courier services are that way. There are 700,000 workers still working in this kind of field.
We now know from studies that as a result of the monopoly guaranteed by the government and the regulation, costs in the airline industries around the world rose dramatically.
I will never forget started it all, the deregulation movement in the United States which spread to Canada. There were airlines that flew between states and therefore were subject to federal communications agency regulations. However, there were some that were not regulated because they were intra-state flights.
What we had as a result of this was that a flight between Boston and Washington D.C. cost exactly twice as much as a flight between San Francisco and Los Angeles. The former was regulated and the latter was unregulated.
How does regulation affect the whole situation? What happens is that the pilot unions say: "My responsibility for flying a 747, which costs $100 million, is very large. I am responsible for the lives of 500 passengers. I shall not take on this job unless I am paid $300,000 a year". At that point the employer says: "No, you cannot have $300,000, $250,000 is enough. No, you have to take a strike". What did they do? After a song and dance, very occasionally taking a strike, the employer said: "Sorry, here is your $300,000". The civil aviation board now has to raise prices because its costs have gone up. That is how we got double the cost of tickets in the regulated and non-regulated sector.
It is quite clear that what we have in Canada with 700,000 workers being subject to such regulations is they are facing exactly the same incentives as do the regulated airline industries. Imagine if the Canadian regulations would allow the diversion of wheat board exports to any harbour on the west coast other than Vancouver and Prince Rupert. Does anyone think that the unions would have as strong a position as they have now? No way. They would know, almost like the guys in the small shops, that if he strikes his business will go away and there will be fewer jobs in the end.
My conclusion is that Bill C-66 is attacking a symptom when we have a much more serious malady which is regulation and government ownership in industries where as a result there is practically no competition. Let us restore competition and see what happens to the power of unions. That is the way to go.