Of Contracts and Covenants
Of Contracts and Covenants

Of Contracts and Covenants

January 1 st 1994

Nineteen ninety-three was the year when great agreements were made and many small ones broken. The North American Free Trade Agreement (NAFTA) became a reality. After many years of frustrating negotiations, the nations of the world completed the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) and then sat down to form a new bureaucracy—the World Trade Organization (or WTO)—to act both as a watchdog and an administrator. Whether the watchdog will become as toothless as the United Nations has often been, only time will tell.

Partly in response, the nations of the Pacific Basin started to talk about their own version of NAFTA and, GATT notwithstanding, the European Community—whose own agreements in 1993 made them into a European Union—began to sound more aggressive about the need to protect their workers against unfair competition from other parts of the world.

The reputedly conservative French Prime Minister Mr. Edouard Balladur said a most interesting thing. He was thinking of the emergence of the Chinese industrial giant when he asked whether West Europeans could "take it for granted that we will remain sufficient leaders in a sufficient number of sectors to survive—in the face of countries with populations infinitely larger than ours and with levels of social protection infinitely smaller." Then he added, "I say we should leave this to the market, but only up to a certain point. What is the market? It is the law of the jungle, the law of nature. And what is civilization? It is the struggle against nature."

His was a challenging way of describing the kinds of debates the events of 1993 would be kindling in 1994 and for many years to come, especially from the point of view of workers—and people depending on social assistance—in smaller countries like Canada which are still, because of their size, somewhat on the periphery of the large economic and political battles. From whatever perspective, the 1993 trade agreements—global, North American, and European—represented the economic counterparts of the great political United Nations covenants of the mid-1960s.

Nineteen ninety-three was also the year when great domestic peace-seeking agreements—great because of their implications and historical settings—were simultaneously pursued in three key countries: South Africa, Israel, and Northern Ireland. Their coincidence was almost symbolic if not bordering on the prophetic. There the contributing circumstances and the sought solutions were both political and economic in nature, coupled with the same human rights interests that had inspired the covenants of the United Nations.

Donald Harman Akenson, a Canadian professor in the history of religion at Queen's University, had just written a book titled God's Peoples: Covenant and Land in South Africa, Israel, and Ulster where he had drawn remarkable parallels among those three nations—peoples whose histories, in all three cases, were rooted in historical national covenants of a religious character. In all three countries there was an implication that those covenants had been broken and that a fundamental healing of the human spirit had to take place.

The Tragedy of the Commons

Unfortunately, 1993 was also the year when employers began to break their covenants with their workers on an unprecedented scale. Like those who were signing or trying to sign great covenants, employers were also citing global factors and especially a need to remain globally competitive—whether the competitor was a province of Canada, a large multinational corporation, or a small company. Such employers were certainly "thinking globally and acting locally" in ways never anticipated by the originators of that slogan.

Will their short-term thinking actually lead to long-term benefits? One study after another seemed to show that the corporate benefits of ruthless job-shedding rarely met expectations, other than temporary upticks in stock exchange share quotations. Where employers did benefit, the costs were simply shifted to the community. Garrett Hardin's Tragedy of the Commons was rampant.

The tragedy of the commons takes place when each person whose cattle have free grazing rights on the commons (or the glebe, as it used to be called in Canada) benefits by putting one extra head of cattle out to graze. But, by the same token, the community as a whole bears the cost because it suffers from the resulting overgrazing.

Individual companies (or government agencies, for that matter) may well benefit (if only in the short term) as a result of large-scale job terminations, but the cumulative social costs are never spelled out. In this respect they resemble Canada's so-called tax expenditures. Those are the costs of tax revenues that governments forego by virtue of special exemptions or arrangements for particular interest groups.

Unlike straight subsidies, such revenue losses are almost invariably invisible; as in the tragedy of the commons each individual interest group receives a benefit but the community as a whole carries the cost, and no government has dared to make the costs explicit, let alone publish them. Whether the new opposition parties in the Canadian government will be inclined to force the publication issue—for the first time in the country's history—will be interesting to watch.

Broken promises

Last year was a banner year for broken promises, both in the case of contracts and the trustworthiness of governments. While covenants were being made or restored on the macro scale, promises were being broken on the micro scale. The contract breakers were pleading necessity.

For example, for the first time in modern memory, Japanese employers began to breach their life-long job security guarantees and Japanese housewives coined a new word to describe their sit-at-home husbands. The world's wonder economy was under stress. By December 1993, department store sales in Tokyo had fallen for the 22nd consecutive month. Ninety-two per cent of 330 companies in a Japanese survey had plans to invest in China, where wages were minimal. (One hundred and fifty of the companies named China in their top five investment destinations compared with 65 for the United States and only 18 for the United Kingdom and Germany. Canada was not mentioned.)

In Europe, nearly 18 million people were officially unemployed. A leaked European Commission document predicted that unemployment would remain at "alarming" levels for at least three or four years. In the United States, new jobs were typically at the lowest pay levels, continuing a process of creating a growing class of the "working poor."

Respectable economists were beginning to speculate that Karl Marx might have been right after all with his theory of immiseration (the growing poverty of the proletariat). They linked Marx's theory to a theorem formulated in the 1920s by Swedish economist and statesman Bertil Ohlin, known as "factor price equalization." It meant that over time the so-called factors of production, including skilled and unskilled labour (and wages), would converge across the world but at the lowest common denominators.

The Financial Times of London noted that this theory had been "casting a shadow over the free trade case for the last 70 years or so." It also observed that in a more open trading environment production becomes more footloose and "small cost changes can cause production to migrate between countries. This results in more labour turnover and less training effort." On the other hand, said the Financial Times, there are countervailing forces but "so far the debate is very incomplete."

No easy answers

One of the world's large companies that lobbied strongly for the Uruguay Round of GATT was Unilever, the Anglo-Dutch food and consumer products manufacturer. Its production plants are located in 80 countries. The chairman of Unilever has said that, while he was encouraged by the great agreements of 1993, he was far less sanguine about reducing long-term unemployment, which he considered "the biggest threat to the world economy. There is little companies can do on their own—his version of the tragedy of the commons. "We will generate wealth by using every ounce of innovation and

technology—to make products and services. But we are able to generate a unit of wealth these days with lower labour content than before. There-in lies the dilemma. Where that takes us, I'm not sure. But it is an area where the old, easy, answers no longer apply."

Yes, in 1993 covenants were made (or restored) at the macro scale, but agreements at the micro scale were being broken, whether out of necessity or out of greed. Worried about the unemployment outlook, the Prime Minister of France had a vision of "civilization having to fight nature." Rarely had labour unions faced such a complex and challenging year ahead. Not only was the tragedy of the commons a reality. To deal effectively with such dilemmas also required a high degree of openness and honesty.

Dirk de Vos
Dirk de Vos

Dirk de Vos


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