Working February 2001 Paper 14

Cape Breton provides pointers for the adjustment programs required by the decline of the old economy

Tom Kent Fellow Tom Kent is a former journalist, public servant, policy-maker and business executive. He served as Policy Secretary to Prime Minister Lester Pearson, and later as deputy minister of the Departments of School of Policy Studies Manpower and Immigration and Regional Economic Expansion. In 1971, he became President and C.E.O. of the Cape Breton Development Corporation and subsequently of Sydney Steel Corporation. During the seventies he was also a director of several federal-provincial enterprises, and for a time economic advisor to the Premier of Nova Scotia and chairman of the development advisory committee of the Council of Maritime Premiers. Mr. Kent was the founding editor of the journal Policy Options, and chair of the Royal Commission on Newspapers.

The Cape Breton Development Corpora- purpose quite well but were maintained tion need not, should not, be dying in the for little more than a decade. It suggests way it is. “Devco” has been widely repre- that the benefits would have been greater sented as a failure dragged out too long. if Devco had been started earlier in the In fact it had for a time considerable period of postwar prosperity. success in a role too difficult to be often attempted. The main failure was in the The second section comments on the political will to stick to its purpose. enfeeblement of Devco in the 1980s. The removal of its development function also This commentary is in three parts. The weakened, and has eventually led to the first, major section discusses the purpose abandonment of, Devco’s social purpose of Devco and the policies that served the in the operation of coal mining. 1 Third, a short epilogue pointing out that, rapid technological, and hence economic, while the Cape Breton case is extreme, change. Left to the intensities of market there will be increasing need to moderate economics, some of the impact is inhu- the socially disruptive consequences of mane. It is particularly and disruptively so accelerating economic change. There are for a community based on only one or two lessons from the Devco experience: the activities and itself remote from larger longer remedial action is delayed, the centres of industrial growth. Cape Breton more difficult and expensive it becomes, was the major Canadian case of this kind. and the more necessary for its effective- ness is a steady political will. Devco was not established for the purpose that many critics have invented The reason for it. It was not designed to avoid eco- Those of us who were present at the nomic change. It’s purpose was to ensure birth of Devco, some thirty three years that such change took place without the ago, had no illusions about everlasting, or sharpness of social disruption that there even greatly prolonged, life for the coal would otherwise have been. mines on which industrial Cape Breton was built. The reality was already written My viewpoint, and therefore bias, should in history. The entrepreneurs of a hundred be stated. During the conception and years ago briefly promoted Sydney as a early years of Devco I was in Ottawa, second Pittsburgh, but they created no concerned with the development of other way in which coal seams dipping under federal programs in the interface of the ocean could be economically mined economic and social policies. Devco was a for more than a few miles from shore; nor major experiment in that area and there- did they find any way for a plant located fore became a matter of great concern far from major manufacturing centres to when, in its first three years, it seemed market steel on the scale that the technol- increasingly to stumble. I went to Sydney ogy of its production increasingly required. in 1971, as Devco’s second president, remained so until 1977, and continued as In fact the economics that created a board member until 1982. About events Pittsburgh dissolved well before the end after that I can comment only as an of the twentieth century. The economics outside observer. of industrial Cape Breton had become weak before the end of the century’s first Modernised mining, with quarter. For the next forty years a foreign- pensions owned coal and steel industry was main- From the beginning it was apparent that tained thanks only to increasing govern- the public purpose — to lessen the social ment subsidies and at the price, neverthe- disruption from economic change — less, of deprivation for miners and their required four new policies. families. The old policy had come to a forced end. By the nineteen sixties, with the lessons The company, Dosco, set a new condition of the great depression and world war for continuing to operate its mines: learned — and, for a decade or two, government must provide grants to remembered — the federal government finance a modernisation program. This was prepared to recognise hard facts capital was in addition to the long- 2 about the social impact of increasingly established subsidies. In their final year, 1967-68, those cost federal taxpayers $30 areas with good coal close to shore. Two millions. That was before the inflation of new mines (Lingan and Prince) replaced the 1970s and following decades. In real three of the old ones. For the fourth and terms, it was much more — roughly four best (Number 26) substantial modernisa- times greater — than the federal govern- tion was thought worthwhile, and prob- ment’s average annual outlay on the Cape ably would have been if accident had not Breton mines during the subsequent 33 later destroyed it. The third new mine that years of Devco. But memories are too was consequently developed in the 1980s short for critics of federal spending on (Phalen) was not the success of the other Devco to be restrained by the greater two. subsidisation of Dosco shareholders that preceded it. Lingan and Prince greatly improved output per man, and modernisation also In the late 1960s there was virtual meant that the quality of much of the coal unanimity. Politically, Conservatives offered for sale was raised by means of a agreed with Liberals and New Democrats new preparation plant and improved that the mines of industrial Cape Breton handling facilities. More and better coal had to be taken into government owner- with a smaller workforce meant higher ship. It was the one practicable way to wages. Though health and safety condi- avoid the social devastation of sudden tions were not improved as much as they closure. The agreement was not, of course, could have been, the industry did regain to avoid eventual closure. No one outside some of the confidence and purpose that Cape Breton dreamed that was possible. had been absent since oil began to The purpose of public ownership was to replace coal as the energiser of industry, reduce mining employment gradually of rail transport and of shipping (which enough to provide time for effective had been particularly important because economic and social adjustments. This did of Sydney harbour’s Atlantic location). not mean, however, that the existing four mines could be continued, for any signifi- Still, the workforce of the productive cant period, as they were. They were too new mines was — as was necessarily inefficient; there were too many questions intended — a good deal smaller than that about their safety. The phase-down of the of the old ones. Not only did mining industry could therefore be made reliably employment remain much less than Cape gradual, rather than sudden, only if parts Breton’s communities had been built for; of it were substantially modernised. no one could give assurance that mining would be sustainable beyond the working But how? The submarine workings of the life — perhaps 25 years — of Lingan and mines were already too far advanced, Prince. Therefore, while Devco’s basic requiring long haulages of men and coal, policy for the coal industry was moderni- for better equipment in itself to do much sation, a second was equally essential to good; though employment could by that its purpose. means be somewhat reduced, there would be little improvement in the industry’s There had been no regular, committed finances. Hence the most dramatic of pensions for miners. Devco instituted both Devco’s policies: paradoxically, the effi- a non-contributory pension plan (with cient way to phase down gradually was to previous Dosco employment taken into 3 open new mines. There were still two account) and, for those who wished, contributory pensions. They were in structure and demonstration projects as addition to early retirement benefits for well as the financing of many private workers who had to be laid off. The scale enterprises. The fishery was helped to of the plans was not all that a humanitar- diversify before stocks collapsed, and was ian would wish for men who had worked supplemented by aquaculture when that years in the deeps. But it was, for the was hardly known in Canada. Farming was circumstances of the industry, good; and it improved. Small processing and manufac- has done much to ease the impact of turing enterprises, urban and rural, were Cape Breton’s economic troubles. started or expanded.

Diversification Such projects were far from removing The third Devco policy was to develop Cape Breton’s entrenched unemployment; other sources of employment in Cape but compared to anything that had been Breton. The difficulties were massive. As done before, they added up to major Devco took over the mines, Dosco walked progress. In the 1970s the earned incomes away from the Sydney steel plant; its of enough Cape Bretoners improved operation, in provincial government enough to constitute an encouraging ownership, has been more precarious beginning for a realistic program of even than mining. And there had been diversified development. This was little to industrial Cape Breton but Dosco. achieved, of course, in the context of a Other business experience was limited buoyant national economy. To recognise almost entirely to retailing, fishing and that is not, however, to dismiss Devco’s local construction. Most of the activities of role. The Canadian economy had been rural Cape Breton had been in even longer almost continuously buoyant for the decline that coal and steel. Earlier efforts postwar quarter of a century before 1970. by the Nova Scotia government to encour- The benefits had not penetrated to the age new industries had come or were north-eastern periphery of the continent. coming to nothing but disappointed What was different in the 1970s was that people, wasted money and, in the most Devco helped to provide the impetus, notorious case of the Glace Bay heavy organisation and resources that enabled water plant, rusted pipes. more Cape Bretoners to take developmen- tal advantage of the national circum- Devco in its first few years understand- stances. ably clutched at many things. The one major success was the expansion of the International conditions were also pulp and paper plant at Port Hawkesbury. favourable. In the mid-1970s high oil Otherwise Devco’s early development prices raised the demand for coal. Devco’s financing went almost entirely into finances did not get the full benefit projects without roots in the island’s because the federal government heavily resources and people. They proved to be subsidised the cost of imported oil for straws. In 1972 there was a shift to the eastern Canada, thereby reducing Devco’s careful development of projects better return from contracts to sell coal at prices fitted to their environment. Most were that equalised the costs of generating small but they were numerous; and power by coal or by oil. Devco’s finances through the 1970s, the successes were were also distorted by retirement and many, the failures fewer. Tourism was the disability benefits for the larger workforce of 4 sector that gained most, thanks to infra- the past. If these two factors had been taken into account, Devco’s mines would, for some tages from education are increasing all years at least, have recorded profits. the time. In a scientific world, fewer and fewer jobs are unskilled. It is above all our In this environment, and with the close human resources that we cannot afford to collaboration between Devco and the leave under-developed”. Nova Scotia government that flourished in the mid-70s, there were a few years when Nowhere was that more relevant than it even seemed possible that there could for Cape Breton, with its natural resources be European and North American invest- depleted. New industries that could ment in a new Cape Breton steel plant. For survive would be industries requiring new that, however, the world did not remain skills. The opportunities for better employ- kindly; in the later 1970s the long postwar ment that they might provide would expansion in steel-making came to a depend on education and training, for sharp end. Even so it remained true that older workers where possible and, cru- the decade was the most prosperous cially, for younger people with their life’s period — a few war years perhaps apart work ahead. — experienced by Cape Bretoners. Devco came late to the need, and Might-have-been, and UCCB education was not, directly, within the It is tempting to speculate what might mandate of a federal agency. But its close have been achieved if policies of the liaison with the provincial government Devco kind had been started twenty years during the 1970s enabled Devco to earlier. The need was apparent. It might contribute encouragement, planning and not be fanciful to think that, in a setting assistance. The University College of Cape favourable to development for a genera- Breton was established, combining the tion instead of a few years, new enter- stimulus of broader education with prises could have become sufficiently improved facilities for technological rooted, diversification could have been training. Though it was established later broad enough, for Cape Breton subse- and matured more slowly than Cape quently to cope with business cycles and Breton needed, UCCB has over the past 25 setbacks quite as well as other regions. years been a major force for community renewal. Some of the fruits are now If so, the success would have owed a appearing in the development of techno- great deal to the fourth of the major logically advanced enterprises employing Devco policies: education and training. It local talent. is only in recent years that the media have helped to make “developing our human Devco did not merely create time for resources” a standard cliché of business adjustment to the loss of coal and steel. It and politics. It is, however, forty years and worked from inside Cape Breton, whereas more since shapers of public policy began the supplementary activities established to recognise that a country’s economic earlier — notably an oil refinery and two and social progress would increasingly heavy water plants — were responses depend less on its physical resources and from outside to circumstances that did more on the breadth of knowledge and not last. Devco’s achievement was to show creativity among its people. In the words that a more solidly diversified economy of a policy document of 1961, “The advan- could be created by the enterprise of 5 Cape Bretoners. In 1968 the end of coal concerned for practicable lessening of the and steel would have made Cape Breton a human damage from economic change. black hole. In 2001 there is life after. The legislation therefore established It could have been better life sooner if one corporation, one president and board there had been more than a decade to provide the direction for both its coal favourable to the growth of the seed and development divisions. Experience sown in the 1970s. Much of it lay dormant showed that the two could then be in the 1980 recession and beyond. The mutually supportive and reinforcing in cause was in part outside either local or serving a common purpose for Cape national control: in considerable part, but Breton. by no means entirely. There was also a collapse of political will. The wrecking of the corporation shifted the responsibility for development to a Dismemberment new agency that was simply a subsidiary Despite the adverse circumstances, more of a larger agency for the Atlantic region could have been done, more wisely, to and which was itself organised essentially continue the diversification of the Cape in the fashion of a government depart- Breton economy. Much worse than the ment rather than a corporation able to omissions, however, was an act of destruc- shape its actions to the particular needs tion. The new federal government that of its one area of responsibility. Dimin- took over in 1984 tore Devco apart. ished vigour and inventiveness were the Though it remained the Cape Breton inevitable consequence. Development Corporation in name, its development function — its broad re- The effect on coal operations was even sponsibility for the island economy, for more clear-cut. Though the social purpose the employment opportunities of Cape of Devco remained written in the statute, Bretoners — was stripped from it. Devco it had increasingly little significance for became a coal company, period. the corporation itself, for the Ottawa politicians who had transformed it, or There were people who thought it indeed for the new Liberals who replaced should have been that way from the them. The loss of purpose has been beginning. They argued that running the evident in much of the subsequent mines and developing the economy conduct of lay-offs and of industrial generally were different tasks requiring relations generally. It became bitterly separate agencies. Many miners agreed; evident in the scale of retirement and they resented the development role of separation benefits that Devco offered Devco as a distraction from their interests. when it finally stopped work in what had Allan J. MacEachen, the driving force in always been the principal mining area, the the creation of Devco, wisely insisted south side of Sydney harbour. otherwise. A coal company in government ownership would still be a coal company. Despite strong representations, the It would be run, quite properly, by the corporation was doggedly unyielding standards its managers knew, the stand- until Ottawa eventually sponsored bind- ards of the coal industry. It would not be ing arbitration. The outcome was a moral run by the standards of public good, victory, at least, for the mineworkers. The 6 arbitrator ruled, in effect, that the conver- for the workforce will be as inexpensive as sion of Devco to a coal company did not possible. And since the jobs lost will be a allow it to set aside its original statutory few hundred, not the thousands that were obligation to minimise hardship arising once at stake, there will nowadays be little from the downsizing or closure of a mine. more than local concern. In detail the ruling did not go far. There is still too little help for the men who, The issue is not the way that mining though somewhat short of 25 years’ communities would like, naturally and service with Devco, are in their forties, traditionally, to see it. There may be even late forties, and will often have great arguments about how much and how difficulty getting new jobs. However, the long coal could have been mined in Cape arbitration did re-assert, and at least Breton if this or that had been done partially re-apply, the basic principle of differently at one time or another. But the Devco, the principle of public concern die is now cast. The further life of Prince with the social consequences of economic can in any event be measured only in change. years, not generations. And there will not be, in foreseeable circumstances, any new Abandonment mine. Nevertheless there is at the beginning of 2001 no sign that the principle will be But that sad reality only makes privatisa- respected in Devco’s final act. Its remain- tion now the more mysterious and the ing mine — Prince, on the north side of more crass. The motive surely cannot be the harbour — will be handed over as crudely ideological. After more than thirty soon as possible to a private operator. This years of federal ownership, even the most is proudly billed as the government fervent of free-enterprisers in Ottawa can getting out of the coal business: where, hardly see divestment of one remaining the pride implies, it should not be. The mine as a matter of principle. It is also reason why it has been there — to save a hard to see any strong financial motive, community deserted by coal as a private ulterior or otherwise. The likelier factor is, business — is carefully ignored. simply, ceasing to care. Locally, there is no pleasure and little reward to be had from Prince was started during my presidency managing a public corporation dimin- of Devco and I am gratified that, 25 years ished as Devco is. In Ottawa, neither later, its continued operation is thought to politicians nor bureaucrats have anything be profitable. But why, at this late stage, now to lose by washing the troubles of change the ownership? There is no doubt Cape Breton miners out of their minds. what a private business will do. It will work the mine hard, perhaps high-grading, Such exhaustion is understandable. certainly aiming to get the maximum Charitably, many would say it is only return on its investment sooner rather human. It should be unacceptable. It is not than later. That is entirely proper business what people are in public life for. The behaviour in the interests of shareholders. judgement will be plain. It will be betrayal. But it means that Cape Breton’s remaining Devco embodied a principle of public mine jobs will end sooner rather than policy that the rapidity of change has later. And again, the private business’s made essential. People cannot be isolated responsibility will be to its shareholders, from the adverse effects that change 7 not the community. The separation terms inevitably has for many. But the process of change can be modified, its social disrup- attention. Technological change continues tions slowed and moderated. That was to accelerate. Its economic repercussions, what Devco was for, in a particularly shifting the nature and the location of the difficult situation. It did considerably less activities that are and are not in demand, than might have been; but compared with will become correspondingly sharper. The what would have been without Devco, it did winners are many, but the losers are not a great deal of good. It would have done few. The dynamism of the new economy is more if its way had not been lost, by the wonderful, but it does not fit easily with Mulroney government, half-way through its the equitable and equable society in existence. But that is not reason for the which people generally want to live. The present government to abandon it; the uncertainties and disruptions are too miners of Prince may now be few, but that is great, and not of the kind that the market not reason to withdraw from them the economy itself will moderate. We are principle on which Devco was created. taking a road to increasing social division and discontent unless we recognise a new Epilogue emphasis for the constructive role of It is a principle that will become increas- government: in no way to resist economic ingly important for Canadian public change, but to moderate its social policy. The Cape Breton case is extreme in disruptions. its scale but not unique in its nature. Remote mining and logging communities There is, in other words, a broadening sometimes lose their economic base. need of the kind to which Devco was a Many aboriginal communities had their response. The broader response will not main resource diminished long ago, but it call for anything like the Devco organisa- is now that remediation is becoming a tion, but it will require the same public pressing necessity. purpose to energise it. And again, the program requirements will be less difficult There is also a general reason why the and expensive if they are promptly lessons of the Devco experience will repay undertaken with a steady political will.

8