A Tune from the Nickelodeon – by Charles Baird (October, 1982)

Most of your readers will have sensed that they were being given a fevered caricature of Inco and the international mineral market in Mick Lowe’s Podium piece “Why Inco Must Be Nationalized”, in the July 19, 1982, issue of Maclean’s. Mr. Lowe is a Sudbury-based freelance journalist, well-known to us for his numerous Inco-related articles of the past, and we question his qualifications as a commentator on the international marketplace.

For example, a key statement in Mr. Lowe’s article is that Inco was debt-free in 1972 and now owes $1.1 billion. He also charges that “Inco’s profits in recent years have been invested everywhere but in Canada.” In fact, Inco’s debt in 1972 exceeded $500 million. This money, as well as profits, was used to finance an investment program of more than $1 billion undertaken in Ontario and Manitoba from 1967 to 1972. Inco has continued to invest in Canada, but did indeed invest outside Canada for two reasons: because Canadian nickel supplies were seen to be inadequate to meet market demand; and to diversity the company’s revenue sources so as to be less dependent on the world metal cycle.

Regrettably, there is no basis for any assumption that Inco’s shareholders have realized more from Inco’s Canadian operations than others. For example, from 1970 to 1980 the tax take from Inco by Canadian governments increased from $54 million to $260 million, or by 382 per cent, and our Canadian unionized workers’ hourly wage rates and related fringe benefits increased from $5 million to $15 million, or by some 200 per cent. About 85 per cent of Inco’s revenues are derived from products sold outside Canada. Thus, Inco makes a truly massive contribution to Canada’s balance of payments ($1.1 billion in 1981 andmore than $4 billion in the past five years). In the same period, from 1970 to 1980, Inco shareholder dividends declined from $1.46 in 1970 to 81 cents in 1980, or by 45 per cent.

Canadians have not generally been in favor of the nationalization of industry, and Mr. Lowe’s economic rationale is not likely to persuade Canadians that nickel and Inco shold be an exception. Apart from anything else, it would be hard to convince the average Canadian taxpayer – who earns a good deal less than the average Inco worker – that he should pick up losses in order to maintain Inco jobs and wages. The Lowe proposal also faces difficulties in terms of his own objective of maintaining higher levels of production and employment.

Governments everywhere are running out of money, and taxpayers, out of patience. There is greater recognition that large government deficits such as those in Canada and the United States are the principal villain causing the current painfully high interest rates. These in turn have deepened the recession and contributed to the job losses which concern us all.

There is no more graphic example of what can happen to government-supported industrial losses than the current position of the steel industry in the European Community (EC). Every state-owned producer in the EC has been losing money and is being forced into massive and permanent layoffs far beyond what is being faced by Canadian nickel workers.

The unavoidable conclusion is that nationalization is not the solution. But there are real problems, and Mr. Lowe has performed a service in provoking a look at what they are and how they must be solved.

As Mr. Lowe accurately states, Inco does face the prospect of excess nickel capacity in the world for several years ahead. We believe he is also accurate in stating that, at full operating capacity, Inco is the lowest-cost nickel producer in the world. Contrary to Mr. Lowe’s thesis and assertions, in 1981 Inco actually used its efficiency to stem the erosion of its market share.

The international economic reality that Mr. Lowe describes as facing  Inco and Canadian nickel is also facing the whole Canadian mining industry and Canadian producers of most primary commodities. Overall, prices on world markets are at Depression lows and world nickel consumption has declined for the third consecutive year, while wages and energy costs continue to escalate in our inflationary economy. No change in government and no change of ownership of Inco or of any other primary producer can alter that reality. This economic reality has made Canadian poorer. The situation will change only when world demand improves and then only if Canadian production is cost competitive.

The 70s saw dramatic and unforeseen developments such as the explosion of energy prices. Companies, unions and governments were all let to make mistakes. The question for Canadians is, what are we going to do about it? Do we think we can stand the degree of confrontation between business, labour and government that has developed over the past decade? Can we cope with the tough international economic environment if we do not do a much better job of working together in the future?

The thinking underlying some of Mr. Lowe’s comments is not encouraging from his point of view. His position appears to be that Inco’s strikes are always management’s fault. He would no doubt be offended if a member of Inco management were to propose the elimination of the United Steel Workers of America local in Sudbury. The complaint would be that capitalist management was trying to eliminate unions.

But Mr. Lowe is obviously not offended by suggesting the same fate for Inco as a private enterprise company. Most Canadians believe we need both free trade unions and free enterprise companies. People who suggest eliminating one or the other, no matter how genuine their feelings may be, do not contribute to this need to work together and adjust together.

Canadians have been told that they should be ashamed of being just “hewers of wood and drawers of water” – the image projected by those who are negative to the resource base of the Canadian economy. They have also been told they are not risk takers. Yet there are few industrial enterprises with more sophisticated technology and financial security risks for investors than those in the internationally exposed natural resource sector.

Canadians offer a solid resource base, skilled workers, experienced geologists, knowledgeable metallurgists and risk-oriented management and investors. What the industry needs today is stability, understanding from governments, realism and a problem-solving approach from both management and unions.

Charles Baird was the former chairman of Inco Limited. This column was originally published on October 4, 1982 in MacLean’s magazine, a Canadian publication.