MADELAINE DROHAN: VALUE ADDED

Imagining a future without a domestic auto industry

April 11, 2007

One of the saddest stories I covered during my eight years as a foreign correspondent in Europe was the launch of the last warship ever built at the Swan Hunter shipyard in Newcastle-upon-Tyne, England.

More than 2,700 ships had been built on Tyneside over the previous century. The shipyards, steel mills and coal mines powered the regional economy. Sons followed their fathers into good jobs in the yard and everyone thought it would continue forever.

But by the time HMS Richmond was ready to set to sea in 1994, low-cost competition from Japan and South Korea had whittled the 18 local shipbuilders down to one — Swan Hunter — and it was in receivership. The workers and their families who gathered on the dock that day knew they were unwilling witnesses to the end of an era. Many wept openly as the sailors onboard the navy frigate waved their white caps in farewell and the shipyard brass band played Auld Lang Syne.

I think of that scene often these days when I read about the declining fortunes of the North American automakers. Like the shipbuilders of Tyneside, the big U.S. auto companies once ruled their industry before being humbled by Japanese and South Korean competitors.

Yet even now there is a reluctance to contemplate a future in which they do not play a significant role. What other industry or industries, could employ so many people in well-paid jobs in Ontario and Quebec? Who else could replace their sizeable contribution to the economy, especially in Ontario?

However, the lesson of Swan Hunter was that in an age of global competition, no industry is invulnerable. If someone on the other side of the world can produce the same thing you do at a cheaper price, your days are numbered and you better start thinking about what comes next.

Some will quibble with this analysis, pointing out that while the North American automakers are hemorrhaging jobs and money, Asian car plants in Canada are in robust good health and thus the future of the overall industry is assured. In the short-term that is undoubtedly true.

But it does not take a great leap of imagination to conceive of a future in which the North American automakers have all gone bust and the Asian carmakers have moved manufacturing to low-cost countries, such as China, leaving the central Canadian economy with a great, gaping hole to be filled.

There are plenty of examples, albeit on a smaller scale, of plants or even entire industries closing in Canada, leaving communities adrift. Think of the cod fishery off the East Coast, or the paper mills across the country that have closed in the past two years. (CBC News Online's recent feature Three Towns looks at three such communities.) Are there lessons to be learned from these examples that could be applied on a larger scale?

Steven High, who holds the Canadian research chair in public history at Concordia University in Montreal and has written a book on industrial decline, says that often the people most affected by a closure fail to see the writing on the wall. They might know intellectually that their jobs are threatened, but they fail to prepare for that eventuality. "It's so much more than a paycheque for these people," he says. "It's part of their identity."

This was also true of the shipyard workers in Newcastle and is undoubtedly true for Canadian auto industry workers.

But surely it's not entirely up to individual workers to plan for a future without a key industry. They can move to find work, although often at great personal cost. Think of the thousands of easterners now toiling away in the Alberta oilsands. But outward migration destroys communities and local economies. Shouldn't governments — municipal, regional, provincial and even federal — have a role to play? The answer here is more nuanced.

Governments do not have a great track record for picking industrial winners, although there are exceptions. Going back to Newcastle for a moment, the British government tried to attract new industry to the area and enticed South Korean electronics manufacturer Samsung Electronics to set up a new factory, with the aid of some financial incentives. But the new jobs created were lower paid than the shipbuilding work, and they tended to attract the wives and daughters of laid-off workers, rather than the workers themselves.

Initiatives by local governments sometimes work. Elliott Lake, a former mining town in northern Ontario, transformed itself into a retirement community after the last mines in the area closed down. The people of Chemainus on Vancouver Island got out the paint brushes and covered the town in murals in a successful bid to become a tourist destination after the local forestry and mining industries failed.

But there are also plenty of failures of schemes dreamt up in desperation. Unfortunately, the future of such towns usually becomes a front-burner issue only when there is a crisis, says High.

And neither example is particularly helpful when considering the fate of southern Ontario and Quebec without the auto industry. Would government intervention on a grander scale work? Some say it is already, with the provincial government working hard in the past decade to attract new Asian car plants.

However, not everyone thinks the government money being spent saving the auto industry is a good idea.

Joe Martin, the director of Canadian business history at the Rotman School of Management in Toronto, says that while government support can smooth transitions, such as that of the wine industry after the Canada-U.S. Free Trade Agreement, governments should not spend public resources on industries that are destined to fail.

In these cases, says Martin, it should be left to the market to fill the gap. "If the government gets too involved, they can make tremendous errors," he says.

Ultimately, the most powerful protection for a community is having a range of industries, so that if a key plant or industry closes, others can keep the economy afloat. The problem is that when things are going well, too little thought is given to diversifying the economy.

When the crisis hits, it is already too late. This would seem to be a good argument for thinking deeply now about what to do if the auto industry folds, as unpalatable as that might be for politicians.

Swan Hunter had a reprieve of sorts after the 1994 launch I attended. It was purchased in 1995 by an investor who thought shipbuilding still had a future in Britain. It turns out he was wrong. The shipyard limped along until July 2006, when it closed again and was put up for sale. The local development agency is now studying plans to build shops and housing on the land.