The Cold War has ended and budgets have been cut to reduce deficits, so military spending is declining. This change poses economic challenges, for we must rethink the purpose of the defence industry, which has lived in a padded cocoon, as an overprotected sector with a business culture alien to the rules of the market. If military production were marginal, the market could probably be left to sort it out. However, it functions as an economic support to the high-tech sectors and to research and development (R & D)-and therefore to quality jobs. We cannot ignore it. The same problem exists all around the world: how to preserve technological and employment gains while military suppliers integrate into the civilian economy. This is the problem of military conversion.
At a recent Montreal conference it became clear that most of the countries that have moved towards conversion, such as Germany, Sweden, and France, have given priority to establishing sectoral and regional policies. The primary objective of their policy is not to maintain existing plants but to help new fields of activity emerge. While this model suits countries with economic strategies and industrial policies, it does not adapt well to economies where the state is less interested in planning the economy.
Besides, workers and unions who have to deal with concrete local problems, including job loss, would not support this approach. Union strategies focus mostly on companies directly affected by lost employment, rather than on general conversion of the economy. Thus the sharp loss of jobs since the mid-1980s (about 600,000 layoffs in Europe and 460,000 in North America) has lent a lot of credibility to corporate conversion projects.
Various English industries (e.g. the Newcastle and Barrow factories of the Vickers Group and the British Aerospace complex in Bristol) have taken their cue from the Lucas Aerospace plant conversions of 10 years ago. However, all of these initiatives ran up against the "old school tie" attitudes of British management. Likewise, on this side of the Atlantic, the employer at the Unisys plant in St. Paul, Minnesota, is blocking a conversion project that the union has demanded for the past four years.
Perhaps the main obstacles to conversion are the labor relations culture and the traditional adversarial role of unions versus management. At any rate, countries traditionally more open to union-management partnership have had good results, for example with tank manufacturers in Germany and in the great shipyards of Sweden. In both countries, the major union and employer associations were the main players in the debate, so there was little resistance at the company level. In some companies, conversion projects were taken up by senior management. In other cases, such as German naval shipyards, the unions nevertheless ran into employer obstinacy.
Partnership does not sit well with North American labor relations practices. Corporate management's diversifications beyond the military market have often involved business acquisitions that resulted in downsizing, plant closings, and layoffs. Moreover, the still-sacred nature of management rights makes it difficult to import European models. Still, we should note the unique example of CALSRART, a California consortium of companies and unions, which is supporting the shift of aeronautic plants, hard hit by the cancellation of military programs, into the production of electric cars. However, the individual companies themselves eventually will have to introduce new products at the local level and, unfortunately, the conversion model at the company level still has to be invented.
The obstacles are so great that it is impossible to convert or even diversify a military plant in a climate of confrontation. The main problem is the "cost plus" culture of guaranteed profits, that has allowed the military industry to disregard such factors as the price of products-which are the very basis of commercial markets. The military's special requirements for security have enabled defence manufacturers to behave in a bureaucratic way that makes them uncompetitive in civilian markets. Accustomed to operating in a market where the government is often the only customer, these companies also fail to develop good marketing systems.
If a conversion project is to succeed, it must find a new product, attract investors, improve the company's competitiveness, increase productivity, reorganize the work, train the labor force, and rethink administrative practices. Such a project requires a spirit of cooperation.
Conversion is a major issue for the economies of certain Canadian regions, including Montreal, where the country's main military manufacturers are concentrated. Although it represents only 5% of manufacturing deliveries, the military market plays a key role in the region in such sectors as aeronautics and communications systems. Approximately 20% to 24% of R & D activities depends on military projects. In 1991, 25,000 jobs, totalling 10% of manufacturing employment, came from contracts awarded to about 500 companies manufacturing military products.
Yet these companies are in decline. Since 1987, military activity in the Montreal region has dropped 40%, with job losses of 22%. Downsizing is now giving way to plant closing. Several major industrial players are threatened. Various economic and political bodies are looking for solutions. After cries of alarm from certain unions, the Montreal Urban Community and the City of Montreal have jointly called on a regional parity committee to pool economic forces and put together a conversion strategy that can build a consensus between the labor and management partners. At a forum, Rendez-vous Economique 1993, the participants unanimously chose to support conversion of the military industry in the Montreal region. The Liberal Party of Canada, which forms the new federal government, and the Bloc Quebecois, now the Official Opposition in the House of Commons, take the same approach. A consensus seems to be emerging, yet important issues remain unresolved. How can transition processes be initiated within a company to meet both the employer's objectives of profitability and the workers' concerns about jobs?
The agreement recently concluded between the management and union at Expro, a gunpowder and explosives manufacturer with 75% of its production going to military use, offers the defence industry a path that deserves further exploration. Expro, a company southwest of Montreal, made headlines several times in the past for its dangerous working conditions, strikes, lockouts, and even illegal dealings.
Interest in conversion is nothing new at Expro. Since 1985 the union, which includes production employees, has worked with its members to sensitize them to the structural problems facing the entire munitions industry. Various resolutions debated and adopted in general meetings laid the groundwork for conversion. Since 1991, the year of the collapse of the Canadian munitions market which Expro supplies, the company's management has also committed itself to a process that has gradually transformed it. A union-management committee was set up at the end of 1991 to explore the prospects for diversification. It took 22 months of discussion, the replacement of the company's management, and several debates within the union on questions as tough as the organization of work and joint management before negotiations could begin on the "social contract" finalized in November 1993.
The agreement tackled the problem of the company's competitiveness. The union granted concessions allowing a 15% reduction in the total wage budget, including a 5% cut in the hourly rate. These concessions were accompanied by recovery measures tied to eventual increases in productivity. A work organization committee, with a mandate to bolster these gains, was also established. To stabilize the company, the parties agreed to maintain industrial peace for six years. They also set up a joint management structure involving the transfer of 30% of the company's ownership to a workers' cooperative that was given 30 vetoes and two seats on the Board of Directors. In addition to the work organization committee, four other joint committees were created. A job stabilization plan and strict control of subcontracting completed this pact between the union and the company's management. Finally, the parties planned a feasibility study to develop a specific conversion project by September 1994. This article of the agreement supports a process begun two years ago, which made it possible to identify promising avenues for conversion.
This adjustment and recovery plan, based on joint management, provides executives and workers with a certain number of guarantees and strengthens cohesion within the company, which can embark on conversion by correcting some of the faults of the military market. With this agreement, Expro vastly improves its chances of success. Its track record shows how conversion can serve as a powerful tool for corporate revitalization and democratization. This is an exemplary approach which may open the way to a new conversion model.
The interest in the approach at Expro displayed by unions at other military suppliers, economic agencies of all levels of government, several business representatives, and the academic community encourages our belief that this experience will influence the future of conversion, not only in Montreal and Quebec, but everywhere in Canada.
Yves Belanger is a professor with the Political Science department, Université du Québec au Montréal and Director of the Groupe de recherche sur l'industrie militaire (GRIM). Pierre Paquette is secretary-general of the Confédération des syndicats nationaux (CSN).