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Jim Stanford: Union makes a deal under threat of a legislated end to their strike

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay, coming to you today from Toronto. And in Canada, two major strikes are on. Air Canada, the national airlines, and the Canadian post office. Only weeks after the election of a majority Conservative government, this new government, only days into these two strikes, announces it’s going to pass legislation in Parliament ending both strikes. The autoworkers, Canadian Auto Workers, who represent these striking workers at Air Canada as of, I don’t know, an hour ago, as we tape this interview, have just come to a tentative–I shouldn’t say tentative agreement–have come to an agreement with Air Canada. Now joining us to talk about both strikes is Jim Stanford. He’s an economist at the Canadian Auto Workers’ union. Thanks for joining us, Jim.


JAY: Alright. So we were about to do the interview about the strike, and you walked in, you told us there’s actually a tentative agreement as of just a few minutes ago.

STANFORD: Yes. We reached it this morning.

JAY: So what’s–first of all, what were the issues? And what’s the deal?

STANFORD: The big issue, Paul, at the Air Canada strike was the pension plan. Air Canada, like most pension plan sponsors, had a big deficit in the pension plan. That is, of course, the legacy of the financial meltdown that happened in 2008 and 2009, as well as other factors, like longer life expectancy and so on. But the main issue, the main problem was the financial crisis. And then they were demanding the elimination of the defined benefit pension plan for all future employees, and major, major cutbacks in the pensions for existing workers as well. That was the dominant issue. If it hadn’t have been for that, we would have been able to reach an agreement with Air Canada without a work stoppage.

JAY: Okay. So let’s break down what that means, first of all, defined benefit package versus defined contribution [crosstalk]

STANFORD: Defined benefit is where the company agrees to pay you a certain pension that’s calculated in dollars based on your years of service, the number of years you worked for the company, and the salary you were making when you were retired. It’s the most secure and reliable form of pension. The alternative is often called defined contribution. In essence, it’s not a pension plan; it’s a savings account, a personalized savings account. The company puts in a certain percentage of your income each year. It might be 3 percent, 4 percent. Then you choose where you want it invested, and then you cross your fingers and hope that when you retire there’ll be enough money to live on–a very, very insecure system.

JAY: So if you had had your retirement in stock market and hit the 2008 crash, you might not have had a pension.

STANFORD: Humungous risks that pensioners face under that system. First of all, how did the markets perform? When did you retire? Did you retire at the peak of the roller coaster or at the trough of the roller coaster? What are interest rates at when you retire? Because the savings have to be converted into a lifetime annuity, and the interest rate at any given point in time will determine how much income you get from that annuity. So enormous risks. And the experience of recent years has really shown that personalized savings model is a very, very poor approach to trying to plan for pensions. In fact, you can’t plan for pensions. There’s been a lot more emphasis on the need to restore and strengthen the defined benefits system, but corporations right now feel they’ve got the offensive, and they’re demanding the abolition of defined benefit pensions all around North America.

JAY: And they have the offensive because of high unemployment. They’re able to threaten people about their jobs.

STANFORD: Not to mention the fact that they clearly have governments in their corner in the process, which is what we’ve seen in Technicolor with this strike in Canada.

JAY: Okay. So Air Canada’s argument is: we took the hit because we’re responsible for paying you a defined benefit when the stock market goes down; why should we take that risk? And how can we plan for the future, says Air Canada, if we have to suffer the consequences?

STANFORD: And it’s not easy, realistically, for companies to provide defined benefit plans. I mean, this opposition doesn’t come out of thin air. It is expensive and it is risky. It’s better that the company take the risk than the individuals. The best system of all, Paul, would be a more comprehensive public pension system which covered all workers, whether you were in a union or not, like in Canada our Canada Pension Plan or like in America the Social Security system. Our Canada Pension Plan is very secure. It’s the most secure pension plan in the country. The problem is it only replaces about 25 percent of your income when you retire. So if we were to expand the Canada Pension Plan, which is what unions and antipoverty activists have proposed, that would take some of the pressure off the corporate-sponsored plans. But, again, the Conservative government in Canada has no interest in doing that. They want to leave it up to individuals to go out and invest and take the responsibility for themselves, as they say.

JAY: They want the free market approach, except they didn’t want the free market approach when it came to negotiating your salary. Then there isn’t a free market approach. Then they want to illegalize the strikes. But let’s back up a second. So Air Canada apparently is facing a situation, and many companies across North America, particularly the older ones, where they have more people on pension than they actually have working for them. So they’re saying, again, how are we supposed to deal with that situation? So do you get any corporate buy-in to this idea that you should have an expanded public pension plan? I mean, I guess it’s somewhat the same way if General Motors actually liked the Canadian public health care insurance plan, ’cause it took the burden off them. Why wouldn’t the corporate sector actually like this?

STANFORD: I think you would get some buy-in, actually, from employers, especially those who are sponsoring their own plans that might be integrated with the Canada Pension Plan. On the other hand, you’ve also got the majority of private sector employers that don’t offer any pension at all to their workers. For those employers, workers are a throwaway input. You work your life, you turn 65, and you get thrown out onto the street with no compensation for your pension at all. Those employers are the ones, especially the small-business community, that very energetically opposed any expansion in the Canada Pension Plan because employers are obliged to pay half of the cost of that plan. So I’d say, you know, from a company like Air Canada, they could see the benefits of an expanded public plan, but for the business community as a whole, they generally were not in favor of it.

JAY: They’d rather just shift the burden of the risk to [crosstalk]

STANFORD: Onto individuals and say–you know, it’s again part of this ideology of individual responsibility that’s out there. If you want to, you know, eat something better than dog food when you retire, it’s up to you to save the money as you work, and it’s up to you to pick the right mutual fund to put that money into. And if you end up eating dog food, it’s your own fault. That is the model. It is a model that has failed miserably in countries around the world. But that is the dominant ideology right now.

JAY: Now, in this new agreement, what happens with new employees? ‘Cause Air Canada always seemed more or less willing to make a kind of deal on existing employees, but they want new employees not to have a defined benefit pension. Now, what happened to new employees here?

STANFORD: So in terms of the existing workforce, the existing defined benefit pension plan is preserved. The basic formulas are all in place. We’ll make some fine-tuning adjustments to some of the rules around early retirement and some of those issues, but more or less the pension will remain in place. For new employees, where we were at loggerheads, the company wanted to do away with the defined benefit principle entirely. The issue of the pension plan for new employees will be referred to a neutral, third-party arbitrator. The two sides will jointly pick the arbitrator, and the arbitrator will choose among the two offers that the two sides put forward. So it remains to be seen. That’s not–.

JAY: Why did you agree with that? ‘Cause new employees are going to say, did you throw us under the bus here?

STANFORD: Right. Well, and this is the divide-and-rule technique that employers use in trying these two-tier or new-hire type models, ’cause the other side of the coin is that all the existing workers are tempted to say, why am I out on strike experiencing all this cost for something that isn’t going to affect me at all? And that’s what the companies bank on with this approach. And it’s up to us as a union movement to sort of maintain solidarity there and say, look, there’s principles at stake that we want to keep in place for the next generation. That’s how the union movement makes progress is over many long years of incremental improvements. The key factor here, the monkey wrench that got thrown in, was the government after 16 hours of the strike indicated they were going to legislate the Air Canada workers back on the job. They had all kinds of nonsense about how this was jeopardizing Canada’s economic recovery and other ridiculous claims. They clearly were just signaling that they were going to take the employer’s side in this fight, and they would legislate some kind of arbitrated settlement to it.

JAY: Yeah. And you’re saying “ridiculous”, and I guess because only 1 percent of flights were actually canceled because of the strike so far.

STANFORD: Well, and, I mean, does the country depend on one airline? That’s nonsense. There are other competing airlines. That’s one of Air Canada’s problems. There was no–you couldn’t find two serious economists in the country who would agree that this strike was jeopardizing Canada’s economic recovery. This is just the Conservatives’ all-purpose line now to justify anything they want to do, including unprecedented intrusions into private negotiations between private parties. Air Canada is not a government operation. It’s an airline. So this was shocking. It took all kinds of people aback at how the–I guess now that they have a majority, the velvet glove has come off, and the Conservatives really showed whose side they were on. And so, in our judgment, referring the new-hire issue to an arbitrator, where we could negotiate the terms of the reference to the arbitrator so it would be a more neutral process, that was preferable for us than having the Conservatives basically dictate the content of the final settlement.

JAY: And given the sort of history or precedents with arbitrators, it would be a pretty big decision for an arbitrator to get rid of defined benefit pension plan would be such an enormous decision [crosstalk]

STANFORD: Right. In a classic arbitration setting, you don’t expect dramatic change to come from an arbitrator. They usually try to, you know, cut the difference between the two sides and come up with an agreement that looks sort of mutual or middle-of-the-road or whatever. That’s the tradition in arbitration. The Conservative legislation was clearly contemplating something different. Basically, the arbitrator would be doing the dirty work for the company. It will be a risk for us. It’s not our preference to do it this way. We have other experience with arbitration in pension matters. I think if we can present the case to the arbitrator that a defined benefit plan is sustainable and reasonable and a fair thing to do for the workers, then we have a shot at preserving the principle of defined benefits for new hires.

JAY: And what happens if the arbitration goes the wrong way from your point of view?

STANFORD: Well, that will be an enormous setback, and it’s a setback that has been accomplished elsewhere. As you know, many, many companies, including most airlines in the US, many manufacturing companies, the major automakers in the US, global mining companies like Vale, they have all been making that elimination of defined benefit pensions a defined centerpiece of their demands from their unions, and more often than not they have won that demand. So we are determined to stem the tide as much as we can. And this is where the labor movement has to step up. But government also has a role to play, because the pension system sets the context for workplace pensions. So if the government was actually interested in protecting workers’ pensions, they would expand the public system, they would put in place a more stable, sustainable funding system for workplace plans and some kind of insurance or backstop plan for private pensions in cases when the company goes out of business. Even the US has a system like that. But in Canada we don’t. That would be, I think, the preferable approach for policy. Unfortunately, this government has already indicated that they are going to use the power of the state to enhance the demands of private companies trying to take stuff away from workers. It’s shocking and it’s shameful.

JAY: Thanks for joining us.

STANFORD: My pleasure, Paul.

JAY: Thank you for joining us on The Real News Network.

End of Transcript

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Jim Stanford

Jim Stanford is an Economist in the Research Department of the Canadian Auto Workers, Canada's largest private-sector trade union. He received his Ph.D. in Economics in 1995 from the New School for Social Research in New York. He also holds economics degrees from Cambridge University in the U.K. (1986) and the University of Calgary (1984). Jim is the author of Paper Boom (published in 1999 by James Lorimer & Co.) and co-editor (with Leah F. Vosko) of Challenging the Market: The Struggle to Regulate Work and Income (McGill-Queen's University Press, 2004).