I wrote the following piece for Maclean’s Magazine back in 1982. Impossible to read now without a strong pang of irony. Note how I foresaw the rise of state-owned mining companies in the Third World even as I predicted the eventual decline of a privately-owned Inco.
You have to wonder: would a nationalized Inco have eventually bought out a publicly-owned CRVD Vale, instead of the other way around?
Inco must be nationalized, and the sooner the better. The need is pressing not because the firm’s management has squandered the immense Canadian wealth of the Sudbury, Ontario, and Thompson, Manitoba, ore bodies in ill-advised adventures in Guatemala, Indonesia and the United States. Nor is it because Inco’s management has exercised almost legendary arrogance and callousness with regard to the Canadian environment and in dealing with its Canadian work force (this summer’s strike at the company’s Sudbury operation was the third in seven years).
Inco must be nationalized for strictly economic reasons: it may be necessary in order to save the Canadian nickel industry, for never before has it been threatened at it is today. As stated in World Mineral Markets Stage II, a report recently released by the Ontario ministry of natural resources, North American nickel production will actually decrease over the next 10 years, even though total world nickel demand should increase moderately.
The projections on world nickel production made in the report should be disquieting to all Canadians, and a truly national debate over its past management and future development is long overdue. The sad truth is that, despite the projected increase in demand for nickel during the next decade, Inco’s share of the market will continue to decline because of the nature of its competitors: most of the newer nickel-producing companies tend to be in the Third World and state-owned. In times of nickel oversupply and falling prices these publicly owned producers actually maintain production, slashing prices, even operating at a state-subsidized loss, if necessary, for their governments desperately need a source of stable employment or foreign exchange, or both.
Inco, on the other hand, behaves “responsibly” in a downturn. It closes mines in Canada, lays off workers and cuts production in an effort to balance supply and demand and to maintain stable prices. As a result, over the past 20 years Inco has seen its share of the overall world nickel market decline drastically – from 90 per cent in the 1950s to about 30 per cent today.
The firm’s behavior might not be so self-defeating if it could recapture some of the market share lost during a recession in the periods of higher demand and firmer prices that follow. But recent history has shown that this is not the case – once the Third World producers have snatched nickel customers away from Canada, they hang onto them.
And so a vicious circle, spiraling ever downward, is established. Because profitability must be the main priority for Inco management, it is forced to mothball perfectly competitive Canadian mines, because in times of oversupply they cannot earn a high enough rate of profit to justify their continued operation. During boom periods the mines may reopen, but only because the total demand is greater, not because Inco’s share of that demand has grown.
It is not hard to see where this is leading our Canadian nickel industry. With falling sales to an ever shrinking share of market, the industry is totally exposed to the boom-and-bust cycle of capitalist economies, offering only occasional employment, its still-modern plants growing older and more antiquated because declining profits must be used to pay shareholders’ dividends instead of being reinvested in Sudbury and Thompson.
On the other hand, if Inco were nationalized it could com0pete head-on with the state-owned producers. In many ways the company would be admirably suited for cutthroat competition once the fetters of the profitability priority were removed. In Sudbury Inco boasts a work force widely regarded as one of the most hardworking and productive groups to be found in the world of hard-rock mining. Offsetting Sudbury’s higher wage costs for the sulphide ores found here are much lower than those in the Third World, where ores are more energy-intensive in smelting. In fact, at full operating capacity, Inco is the lowest-cost nickel producer in the world.
Would the hard-nosed, price-slashing competition necessary to regain Canada’s lost nickel market share consign taxpayers to forever spending hundreds of millions of dollars in subsidies to a money-losing state-owned nickel company? No. Even saddled with massive debts because of corporate debacles abroad, and after deducting the $469-million loss of 1981, Inco still turned a $1-billion profit (most of it earned in Sudbury and Thompson) over the past decade. How much should Inco shareholders be paid for the company’s Canadian operations? With share prices now at an all-time low, the public sector could acquire 100 per cent of Inco’s $3-billion assets for a fire-sale price of $1-billon.
Free enterprisers will argue that the nationalization of Inco would inevitably lead to the kind of mismanagement that has plagued other Crown corporations. But remember – 1972 Inco was debt-free. Since then it has earned a net profit of $1 billion, while its corporate long-term debt now stands at $1.1 billion. Several of the projects that the debt was incurred to finance have already been written off, at a loss of $469 million in 1981! Could a group of bungling government bureaucrats have done any worse?
The final word here should go to the working people of Sudbury who have, for three generations, seated, bled and, yes, died (117 have been killed on the Inco property here since 1950 alone) for the company. Few, if any, Canadian cities of Sudbury’s size can claim to have equaled the staggering wealth that has been produced over the years by this city’s residents. Yet some parts of the Sudbury region do not yet have sewers and water, and there are sections of the city with no sidewalks. Worst of all, there are few jobs for the city’s young people, who are leaving the area in droves. The problem is that Inco’s profits in recent years have been invested everywhere but in Canada – with disastrous results.
The Inco workforce has a well-deserved reputation for union militancy. But one wonders what sacrifice its members might make, what productivity gains could result, if they were given a decision-making role in a state-owned Inco, if expanded and steady employment were guaranteed and if profits were pledged to develop downstream manufacturing in Sudbury, or at least in Canada. To be sure it will cost us taxpayers to bite this particular bullet, but over the long haul it is a decision that will repay our children, many times over.
This column originally appeared in the July 19, 1982 issue of Maclean’s Magazine, a Canadian publication.