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Remarks for Economic Club of Canada Presentation

February 25, 2019

Remarks for Economic Club of Canada Presentation

February 26, 2019

Ray Pennings, Cardus Executive Vice President

“Is Construction in Ontario Open for Business?”

Check Against Delivery

Thank you Madam/Mr. Chairman and to the Economic Club of Canada for the invitation to be here and address you this afternoon.

It was just over a decade ago, November 25, 2008, that I stood at this podium seeking to answer the question, “Why is construction so expensive in Ontario?” My argument then was that Ontario’s system of organizing its construction workforce had fallen out of step with advances made in other parts of Canada. The result was, I argued, a construction industry less competitive and adaptive than in other parts of the country.

Making such a case is not a simple black-and-white argument. Any reasonable discussion needs to acknowledge that the various components that go into creating a productive and capable labour supply make simple prescriptions foolhardy. I won’t repeat today the history I provided a decade go—if you google “Why is construction so expensive in Ontario? Cardus,” all of the details are there for your reading pleasure. What has emerged is a “consensus system” of labour relations, by which I mean an infrastructure that presumes there are only two labour pools: craft union and non-union.

What I propose to do in the brief time I have today is to make three simple points.

  1. Recognize that the present “consensus system” of organizing construction labour in Ontario is the end of a journey from what might justifiably be called “hell to Hog-town.” If we fail to understand why the system was built at a given time, we are doomed to repeat past mistakes. However, if we fail to understand how times have changed, we will not be able to attend to the needs and challenges of today.
  2. Realize that whatever its merits, this consensus system has monopolistic impulses that need to be overcome if we are to maintain a healthy construction investment climate.
  3. Propose five specific areas that the industry and government might consider, which if dealt with properly could fast-forward progress toward an open-for-business construction climate in Ontario, one in which labour, contractors, and major purchasers of construction, including governments, can all win.

Before proposing adjustments to any system, it is always worthwhile to take a moment understanding how we got here.

Most of the systems that we take for granted today as part of our construction labour infrastructure, from apprenticeships to labour relations, find their roots in the post-depression economy. While a significant part of the physical infrastructure of Canada was built during this time, it was also a tumultuous time for the industry. By the time the sixties rolled around, labour peace was elusive and sometimes open violence was part of the sector; safety was a decidedly low priority; and the heavy and sometime ham-handedness of unions, employers, and attempted state regulation resulted in a significant underground construction economy. To put things bluntly, this industry was a mess.

The Goldenberg Royal Commission report in 1962 (and there were similar processes during the same time frame in other provinces) laid the framework for the labour relations, apprenticeship, and safety frameworks that we take for granted today. Today’s default methods of contracting, subcontracting, tendering, and bidding were mostly put in place during the sixties and seventies, the culmination being the introduction of the construction section of Ontario’s Labour Relations Act in 1978. The practical effect of these changes was a stark union/non-union divide in construction work in the province. It became practically unthinkable to find the skills to deliver major infrastructure projects—including the CN Tower, Rogers Center, and much of the skyline that is within a few blocks of where we sit—without accessing the hiring halls of craft unions that were organized by trade, and an extensive jurisdictional dispute mechanism was developed to manage the inevitable conflict that such competition between unions would foster. Central registration and bargaining, careful control of apprenticeship ratios to control labour supply, and a highly regulated credentialing and safety system resulted in vertical integration within the industry, relatively high barriers to entry for contractors, and effective oligopoly tendencies especially in the industrial sector and on major projects. Residential, light industrial, and low-rise construction became the purview of the non-union sector with roadbuilding and institutional work divided between the two, depending on niche and geography.

While the system took a bit to find its equilibrium, for the past few decades there can be little argument that the system has produced labour peace, significant improvements in safety records across the sector, and relative stability and opportunity across the sector.

So what’s the problem?

Ontario is not an island, and in an era that is driven by global capital decisions for investment, even a perception that Ontario has become a relatively expensive place to build things can be detrimental to the investment climate. The claim of the expense of construction in Ontario is subject to a great deal of nuance, but even the perception that Ontario is an expensive place to build stuff is a problem. Even if those who make such spending decisions are ill-informed, their perception at some point becomes reality. Which is why, in our opinion, in addition to measuring costs at any given time, we need be forward looking and think equally about the competitiveness of the industry. This is particularly true in construction where scholars such as David Arditi have noted that labour organization (which is different from costs) is one of the areas where construction has failed to innovate.

It is helpful to look at other Canadian jurisdictions. If we were having this discussion in the nineties, the “consensus model” that I’ve just described for Ontario would’ve applied in almost every jurisdiction except Quebec, with a bit of local variation. The dominance of craft unions for major work; strong vertical integration and control within subsectors, especially those that were unionized; and high barriers to entry for new competitors all contributed to a stable, but not necessarily competitive, environment. But two decades later, both the infrastructure in those environments and the competitive environment have changed considerably, with the Ontario consensus model being the outlier, at least in comparison to western Canada.

I’ve written extensively on these developments and have identified five factors that characterized these changes—let me just mention them.

  1. Organizing the unorganized. Organizations like Merit and others developed portable benefit and pension agreements, training programs, and so on. These organizations provided services that in the consensus model belonged only to the unionized sector, which created an alternative, capable labour pool.
  2. Pilot projects. There was a recognition and resolve on the part of certain owners that the consensus model wasn’t working, and through project agreements and other mechanisms, owners took risks to experiment with alternative approaches.
  3. Owners’ resolve. Given the dominance of a few major energy investors, it was possible for owners to collaborate (through associations like Construction Owners of Alberta and others) and force parties, who previously were not cooperative with each other, to a common table.
  4. Wall-to-wall organization. While the wall-to-wall method of organizing labour relations, in contrast to the craft model, was pioneered and championed by alternative unions, of which CLAC was the most prominent, it is telling that craft unions themselves adapted. In “Working Competitively in Tomorrow’s Construction,” I document how rather than thinking of the alternatives for organizing work in binary wall-to-wall/craft-model terms, there are in reality seven variations along a continuum that are actively practiced in the industry by all parties, including the traditional building trade unions, even though our legal structures have not caught up with the changes on the ground.
  5. Changing craft unionism. It is important to note that these changes are not simply driven by labour relations and legal considerations, but that emerging construction technologies and work practices to accommodate them are driving many of these changes.

So where does that leave Ontario compared to the rest of Canada?

Obviously not everything is transferable. Ontario is much more reliant on public infrastructure spending decisions than the decisions of market-driven energy and mineral investment capital, though if the perpetually “just-over-the-horizon” ring of fire starts to kindle this may change. But leaving aside the apples-and-oranges nuance of the conversation, Ontario’s labour environment has not made the adaptations that the rest of the country has. The infrastructure governing construction labour in Ontario remains centralized, organized to control rather than respond to market drivers. This tendency has led to a cultural outlook that often seems hesitant to innovate and experiment with new ways of organizing labour forces. This cultural timidity has worked its way into construction owners—many of which are public—that have traded stability for innovation and greater value, even while the money for major projects, especially infrastructure projects, has grown more and more scarce. Add to that the fact that our skilled construction labour force faces significant demographic pressures, and the outlook for Ontario construction industry is not as rosy as we would wish. This is an issue that influences Ontario’s overall economic performance. So the question I would ask today is, What type of structures are most likely to lead to a robust, creative, and innovative industry? Is it one size fits all, two mutually opposed competitors, or an ecosystem with lots of different people sharing similar commitments and ends, but trying many different things by different means? Is it a system in which we assume the status quo is the best we can do, or are we willing to make room for a wide diversity of approaches? And what government policies might be necessary to encourage this innovation?

My bias is evident at this point, so let me leave you with five specific suggestions. These are designed to be incremental in nature, recognizing that there are good reasons underlying the consensus system and that we should not throw out the baby with the bathwater. But certainly we can learn from other jurisdictions and understand that the monopolistic warts of the consensus model can be removed and a healthier system emerge that benefits all Ontarians.

  1. Open tendering. I mention open tendering first because with Bill 66 before the Ontario legislature, it is a step that the current government has put forward. Cardus has for twenty years been arguing that restricting bids based on affiliations rather than objective job-related criteria is a matter of fundamental justice, not to mention of significant economic consequence. Using union affiliation as a proxy for safety or training standards is anachronistic and stifles the sort of innovation that is required. Freeing municipalities, school boards, and quasi-public entities like OPG to engage with the entire marketplace is a long-overdue first step toward Ontario construction competitiveness. Everyone knows that the market is huge—OPG currently has two projects worth over two billion combined, and this is on top of an equal amount in some of our most municipal centres: the Region of Waterloo, Toronto, Hamilton, and Sault Ste. Marie in the North.
  2. Ontario’s apprenticeship and training programs. Flexibility and the active encouragement multi-employer groups to administer programs, recognizing that there are emerging forms of organization that look different than traditional union hiring halls, is necessary to modernize our system.   Ontario employers have long been laggards when it comes to investment in training—The way construction work is organized on the ground is changing. Yes, young construction workers still have to deal with the reality of moving from project to project, employer to employer—a reality given that every step of progress on a construction site is a step toward the end of the worker’s job security for that job—but there are other ways of dealing with this than traditional hiring hall model. Government and official agencies can take a proactive stand in encouraging creative arrangements that achieve the objectives of our regulatory model, without insisting that new structures be able to fit in the old check-boxes. At the very least, it can provide a legal and regulatory environment that does not favour any one body, but which encourages industry to craft solutions that work for particular niches and industries, and which realizes that labour needs in Thunder Bay are different than those in Napanee, and that those are different from labour needs in Toronto. Encouraging diverse approaches to organizing labour is not only perfectly in line with the industry’s goal of diversifying the makeup of its workforce. We would argue that encouraging underrepresented parts of our population to enter the trades—women and indigenous workers, to name just two underrepresented groups—is more likely to be encouraged by a diversity of approaches than by two blocks.
  3. Safety. Thankfully, the entire industry has upped its safety game. The unjust and disrespectful conditions that were too commonly faced by construction workers a few decades ago are rare to nonexistent. However, safety can never be taken for granted. That does not mean, however, that the only way to ensure safety is by very prescriptive input-driven process controls dictated from above. What would it look like for us to modify our safety regime to incorporate stringent outcome-based measures, to allow innovative approaches (as we do in the Canadian federation, where different provinces seek to achieve similar goals in different ways), and to proactively seek to learn with and celebrate the successes of innovation? Safety belongs to the entire industry, not just a few. Finding ways to encourage the entire industry—big and small, in Trenton, and Timmins, as well as in Toronto—to continue in its shared solidarity on safety can only help the industry as a whole.
  4. Labour-relations infrastructure. We need to ensure that labour-relations infrastructure has the greatest impact on the relationship between employers and workers, and does not become a subtext in a larger game of contractual restrictions for owners and buyers of construction. While the legal complexities have some rationale and can’t simplistically be wished away, most industry insiders would surely admit that some of the legal complications are cover for brass-knuckles fights for market share and have very little to do with protecting working conditions for workers.   The jurisprudence regarding terms like “construction employer” and “key man” should not remain as determinative of who can compete as they are today.   A healthy market is one in which workers can meaningfully choose to join, leave, or change unions within a stable labour-relations environment; where there is opportunity for new entrants into a market to compete (with the corollary that from time to time there will also be companies that lose out and exit the market); and where owners and investment decisions can reward innovation and productivity, within the framework of a level and fair playing field for all.
  5. Data collection. We need to collect data in a manner that reflects the diversity of the industry. Presently, we think of the industry in a binary union/non-union environment and often collect and present data accordingly. But that is anachronistic, and often misses important labour-market information in places with unique needs. The reality is that the two pillars of the consensus model have, more so in other jurisdictions than Ontario but also on the ground in this province, morphed into three pillars, or maybe even more. And the lines between them are no longer as impenetrable as they once were. Let’s recognize that reality, collect and report data in a manner that reflects the true diversity of the workforce, and include each player as an equal part of a broader industry rather than trying to define the industry in our own terms. We need to get over the mentality of using both law and data to protect turf, and adopt a mindset that sees the competition among a variety of pools as the most effective means to build an industry that is functioning at its best, and that is in growth rather than maintenance mode.

Much more could be said, but that is why there is an august panel assembled to discuss and build on these opening remarks.

In summary, my answer to the question I was assigned, “Is Ontario construction open for business?,” is a qualified one. Yes it is open, but on far more restricted terms than is necessary. We should not be surprised that investment dollars are going elsewhere when others have made adaptations over the past few decades and have left us behind with a workable but outdated consensus model. But we need not despair. There are plenty of practical and incremental steps that can be taken to unleash the innovation and creativity of those in this industry and drive progress. Look around you at the incredible infrastructure that has been built. The energy and creativity that imagined those buildings, roads, and bridges can be put to work to building a better and more prosperous tomorrow.

I thank you for your attention.

Topics: Work, Unions