In his global travels as chairman and CEO of manufacturing giant General Electric Co. , Jeffrey Immelt has heard all about the “resource curse.”
He’s heard it in Brazil, in Australia, in Russia – wherever a country’s natural resources boom is casting a shadow over domestic manufacturers.
And meeting with business leaders in Toronto this week, he heard it again.
Mr. Immelt has closely followed the debate that has erupted in this country about the uneven benefits of the natural resources boom. Many worry that relentless demand for Canadian energy, metals and other resources is undermining the competitiveness of the manufacturing sector by driving up the Canadian dollar and making goods here more expensive in global trade. The higher currency only adds to long-running pressures that threaten manufacturing jobs in North America in a world of global markets and abundant, cheap labour.
“Everybody is challenged by the same thing,” Mr. Immelt said. “And that is: How do we take the wealth of natural resources and create industry and industrial jobs for the rest of the country?”
Mr. Immelt presides over a manufacturing colossus with nearly $150-billion in annual revenue, including a significant amount tied to the global commodity boom through equipment made for the oil and gas industry and other resource sectors. Now GE is targeting Canada’s booming oil sands as a key market for its industrial products.
The CEO spent two days in Toronto this week, where he met with his Canadian staff and his customers, and delivered a keynote address to an elite audience at the C.D. Howe Institute’s patrons’ dinner. He also sat down with The Globe and Mail for an exclusive interview.
Mr. Immelt has a message for those who think the resource curse will smother manufacturing in Canada.
First, far from being cursed, Canada is in an enviable position with its resource bounty, and the higher currency will not stop GE from adding workers to supply the resources sector.
And second, manufacturers can thrive in North America – and in Canada specifically, Mr. Immelt said, if they follow today’s prescription for success. They must focus on productivity and invest in training and R&D. Governments need to keep taxes low and the regulatory burden light. And workers must re-adjust their expectations about wages.
The son of a former shop steward in a GE aviation plant in Ohio, Mr. Immelt has a personal stake in the issue – both in his leadership role at the global company and as chairman of U.S. President Barack Obama’s advisory council on jobs and competitiveness.
“We believe in manufacturing,” Mr. Immelt said.
“There are two things that create manufacturing jobs: One of them is super high-tech products like jet engines that we can manufacture very competitively anywhere in the world and particularly in North America. And the other is competitive wages.”
GE has negotiated with its unions to reduce the starting wages at new facilities that it is building to bring manufacturing jobs back to the United States.
In fact, the Fairfield, Conn.-based company has recently announced it is opening an appliance manufacturing plant in Louisville, Ky., that is repatriating 1,000 jobs from China and Mexico. But to do so, it dropped the starting wage to $15 an hour, well below the starting rate at its existing manufacturing plants. Still, Mr. Immelt said, the company expects 30,000 applicants for the 1,000 positions.
The company also watched with interest when Caterpillar Inc., closed a recently acquired locomotive plant in London, Ont., to move the jobs to Indiana.
GE has a unionized locomotive plant in Erie, Pa., where workers’ wages average in the mid-$20 range. But it is opening a new locomotive plant in Texas, where starting salaries will be about $17 an hour. Mr. Immelt said unions have to be realistic about the level of wages that will sustain manufacturing jobs.
“This is a moment in time where management and workers need to speak with each other with complete honesty and clarity about what it takes to compete,” he said. “And I have to give our unions relatively high marks in that they have been pro-active in working with the company.”
But it’s not all about lower wages. In Canada, GE has a dozen operations that combine manufacturing and design work. They include a Peterborough, Ont., plant that makes large motors for the oil industry; facilities in Guelph and Burlington, Ont., that produce water purification equipment for oil sands and other industrial customers; and an aviation manufacturing centre in Bromont, Que., that routinely wins global productivity awards.
In Alberta, it is manufacturing wellheads for the energy industry and pipeline components.
The company is launching an innovation centre in Calgary that is marrying engineering applications and GE products for the oil industry. And it is opening a new global “smart grid” centre in Markham, Ont., that will design and manufacture digital components for the power sector.
“We look at Canada as a growth region,” Mr. Immelt said. “We put Canada in the same category as Brazil, Australia, Middle East, Africa. The resources open up massive opportunity for GE in oil and gas and the oil sands specifically, and in all those places where technology is important.”
Certainly, the company will meet the demand from the Canadian resource sector from its global supply chain, but Mr. Immelt said the planned investments by the industry will create opportunity in the rest of the country.
His comments echo those of federal Natural Resources Minister Joe Oliver, who has insisted that the commodity boom, and in particular the growth in the oil sands, will benefit manufacturers across the country.
This week’s federal budget made it clear that the Harper government is counting on the resource sector to drive Canada’s economic growth, and is taking action – such as streamlining the regulatory review process – to encourage investment. The government estimates that resource companies will invest more than $500-billion to build 500 major projects in the next decade, mainly in the energy and mining sectors.
“This is one area where maybe GE can be a friend, and maybe we can find ways to build an industrial base here that can also serve the oil sands. We look at this as an opportunity for the company. It clearly is a challenge for the country – the haves and the have-nots, and how do you do a better job of creating common wealth, common good for all.”
Editor’s note: an incorrect location was given for General Electric's headquarters in an earlier version of this story. It is based in Fairfield, Conn. This version has been corrected.