Shortly after succeeding Robert Findlay as president and chief executive officer of MacMillan Bloedel Ltd., Thomas Stephens read the riot act to workers of B.C.'s largest forest firm. "We are worth more dead than alive," he declared in the November 1997 issue of MB Journal Bulletin. "Someone could get more value breaking the company up and selling the assets than by continuing to run it as it is." He was also dismayed by morale: "I see a lot of chins on chests, people looking at their feet. There is a lack of passion." Mr. Stephens vowed to undertake an extensive series of lay-offs and management changes, and last week, to the horror of some employees, he made good on his promise to restructure the $5-billion-a-year company.

Mr. Stephens announced January 21 he would fire 2,700 of the firm's 13,000-strong workforce by the end of the year. Thirteen hundred of the lay-offs will be in B.C. The CEO will sell, spin off and close various several company-owned operations, including the firm's vaunted Research and Technology Centre in Burnaby.

The company's dramatic convulsion sent shockwaves across B.C., but it was just one sign that the province's formerly robust economy had fallen on sorry times. Punative NDP fiscal policy, combined with a legion of anti-business, pro-preservationist government initiatives actually started taking their toll more than two years ago. It was not until the recent Asian economic meltdown, however, and the sudden loss to B.C. of valuable overseas markets, that talk of a crisis became widespread.

Indeed, when Premier Glen Clark met last week with some of B.C.'s top business and labour leaders to discuss the province's ailing economy, observers called it an "emergency meeting." After the extraordinary gathering, the premier began sending out signals that he was considering cutting taxes to boost investment and help business survive the current dark days.

Economists and business leaders say, however, that much more can and should be done to reinvigorate B.C.'s faltering economy. As MacBlo's new plan suggests, business in B.C. must aim not only to adjust to the current unfriendly political and economic environment, but to grow. Strategies abound for boosting B.C.'s "second growth," but fundamental to their success is a more business-friendly provincial government.

The woes of B.C.'s three main resource sectors—forestry, mining and fishing—are well-documented. An estimated 14,000 forestry workers have been laid off since 1997 and the province is now the highest-cost timber producer in the world. Exploration expenditures for mining totalled $75 million last year, far short of the $200 million needed annually for the industry to be sustainable. As for commercial fishing, the salmon fleet has shrunk 22% and more cuts are on the way.

Economists predict that B.C.'s Gross Domestic Product will grow just 1.3% this year, far below the estimated Canadian average of 4.0%; it will be the fourth consecutive year the province has lagged behind the national average. Making matters worse, B.C. companies are fleeing to greener pastures. In the first half of last year alone, 46 firms relocated in low-tax, business-friendly Alberta.

Mr. Stephens had no such option in his bid to transform MB into a fat-free, high-return business. "Resource industries have hit the wall, and it's time to bite the bullet," says forestry analyst Jaak Puusepp. "Stephens is doing everything that has to be done."

Arkansas-born W. Thomas Stephens, 55, rose through the ranks of the Manville Corp. asbestos business of Denver. He became CEO in 1986, four years after the firm entered bankruptcy protection as a result of probable lawsuits from people with allegedly asbestos-related illnesses.

After persuading shareholders, creditors and personal-injury lawyers to keep the company intact, he developed a reorganization plan that included a US$3-billion trust fund to pay the injury claims. Manville went into the black in 1988, and today the value of its stock has tripled. Mr. Stephens left the company in 1996.

When MB directors hired the celebrated turnaround specialist last fall, the logging firm's annual harvest allotment had fallen 15% since 1992. Its three divisions—building materials, paper and packaging—were reeling from plummeting prices and skyrocketing stumpage, the fee charged for harvesting crown lands. The firm had also lost money in four consecutive quarters.

Of the 1,300 B.C. lay-offs under Mr. Stephens' plan, 570 will come from the paper operations, 727 jobs will be eliminated in the solid-wood division, and Vancouver head office staff will be slashed to 100 from 200. The closing of the Burnaby technology centre will put 80 people out of work (Mr. Stephens believes useful product development comes not from research, but "from people who are closer to the market") and 25 jobs will be lost when the company closes its Kelowna distribution centre. The layoffs will save $125 million a year. In addition, MB will create a separate public company from MB Paper. The firm's packaging business is also earmarked to become a separate entity, and medium-density fibreboard and oriented strand board manufacturing facilities will be sold.

In a January 21 conference call to investment managers, Mr. Stephens discussed long-term reorganization. "We think our privately owned timberlands have been underutilized, and we plan to manage them much more aggressively for their inherent value...of course, we have no stumpage barrier there." MB operates on one million hectares of crown land and 200,000 hectares of private land.

One caller reminded the CEO about the NDP's recently announced plan to lower stumpage rates; Mr. Stephens replied that stumpage is one of several problems preventing logging firms from achieving their full potential. He singled out the Forest Practices Code for special criticism: "We think it's over-engineered and bureaucratic." The code, combined with park creation and harvest reductions, will reduce coastal logging levels by 24% and eliminate as many as 25,500 direct and indirect jobs.

One of Mr. Stephens' boldest strategies is to maintain the idle status of sawmills in Port Alberni (Alberni Pacific, with 460 workers) and Nanaimo (Island Phoenix, with 340 workers) until unions agree to more flexible contracts. "Unless we are able to redesign the workplace, [these mills] will not start again," he declared. The facilities were closed late last year due to unfavourable market conditions.

Business observers were unanimous in their praise of Mr. Stephens' actions. "For years we've said these changes were needed," remarks Mr. Puusepp. "The only thing that held them up was lack of leadership." The stock market responded positively as well, with MB's share price rising to $17.50 by the end of last week, compared to just over $14 two weeks earlier.

The CEO's actions have already generated a positive buzz within the U.S. financial community. "B.C. is well-known for its inhospitable business climate," said Sherman Chao, a managing director of Merrill Lynch in New York. "Some people are suggesting that Tom could be a harbinger of fundamental change."

Analysts are particularly heartened by Mr. Stephens' determination to challenge labour. They note that Fletcher Challenge Canada Ltd.'s three B.C. mills have been strikebound since July when 2,400 members of the Communications, Energy and Paperworkers Union of Canada and the Pulp, Paper and Woodworkers of Canada rejected Fletcher's proposal to allow tradesmen assigned to one task to do another for which they are qualified. Doug Whitehead, Fletcher's new president and CEO, maintains that flexible work practices are commonplace in Manitoba and Ontario.

Mr. Puusepp comments, "It is crucial that Fletcher Challenge and MacBlo stand their ground. Once workplace flexibility is introduced, it will be easier to bring in other cost-savings labour reforms. And this could affect contracts in other resource industries."

Forest policy consultant Les Reed predicts that "without question, Stephens' tough mandates will be implemented by other CEOs. The forest industry has 40% [more mills than it needs], so it has to shrink. And unions will be increasingly pressured to make concessions." Canadian Forest Product Ltd.'s new CEO, David Emerson, has already closed that firm's Eburne sawmill and is considering dumping Canfor's paper division.

Not only is Mr. Stephens' reform philosophy regarded as vital in saving the forest industry, it can be applied to the mining and fishing sectors as well. "It's significant that he will intensify private land use," says resource economist Peter Pearse. "Private lands are the only place foresters have any degree of operating certainty. Uncertainty of tenure is at the root of resource industry downsizing."

Mr. Pearse disagrees with the familiar argument that privatization of crown lands and other resources is unlikely to occur in Canada. "It doesn't have to be all or nothing. And we don't have to go for fee-simple titles either. For example, a progressive government could formulate long-term leases that couldn't be altered without paying compensation to the tenant." (See story, page 20.)

The economist adds that the stumpage system, which charges companies a levy based on target revenues and frequently does not reflect real market values, could be replaced by an annual flat rent. "Then companies would have every incentive to harvest more wood for the open market and, more importantly, practise intensive silviculture," Mr. Pearse says. "Victoria wouldn't have to micromanage forests as it does now."

Also in need of tenure reform is the mining industry, B.C.'s second-largest resource industry. It generated revenues close to $4 billion over the last two years, pays $500 million in taxes annually and directly employs 10,000. Victoria's land-use policies and onerous environmental regulations have, however, prompted investors to flee the province. "Huge areas of B.C. are being labelled 'off-limits,'" complains Gary Livingstone, president and CEO of the Mining Association of B.C.

The most glaring example, he says, is the Muskwa-Kechika region north of Fort St. John. "Last November the NDP transformed one million hectares of the region into a park and another 3.3 million hectares into special management zones," he points out. These zones are said to contain the richest lead-zinc deposits in the province. "The NDP told us they will allow exploration of these sites, but in public advertisements they claim the Muskwa-Kechika is a 4.3-million-hectare park, implying industry isn't welcome," says Mr. Livingstone. "Which is it?"

Although mining is in a far more precarious state than forestry, considerably less action is needed to rescue it. "We are trying to persuade Victoria to change the Mineral Tenure Act so people whose claims are expropriated via land use decisions are compensated for a portion of the value of the minerals they would have mined," Mr. Livingstone says. He concedes it would be ideal if environmental regulations were relaxed, "but we could live with them if we obtained tenure security."

Tenure reform is also required in B.C.'s commercial salmon industry, which in 1995 landed only $20 million worth of salmon compared to $49 million in management costs and $60 million in unemployment benefits collected by fishermen. Ottawa aims to minimize costs and bolster salmon stocks through a five-year licence-buyback scheme to cut the 4,234-strong fleet in half. Last year 800 boat owners sold their licences to the government; falling salmon prices will ensure that more owners will retire this year.

Fraser Institute economist Laura Jones says the fishery could be transformed into a profit powerhouse through Individual Transferrable Quotas (ITQs), which have revitalized money-losing fisheries in other countries. Under an ITQ system, each fisherman is allotted a fixed catch before the season starts, compared to B.C.'s current free-for-all. ITQs would eliminate the need to land huge catches quickly, and enable fishermen to work a longer season and avoid market gluts. The system would also give them a direct stake in the health of salmon stocks and therefore a conservation incentive.

The fate of the salmon fishery is largely in the hands of the federal government, but forestry and mining are in Victoria's bailiwick, and pundits see clear signs that the NDP goverment is prepared to act in these areas. During Prime Minister Jean Chretien's Team Canada trade mission last month, for example, Premier Clark told reporters he will make changes to help the mining sector, such as reducing taxes to offset the "disadvantages" of B.C.'s tough environmental rules.

Last week the NDP announced a proposed cut to stumpage that would save the industry $290 million yearly. And on January 28, during a meeting with billionaire entrepreneur Jimmy Pattison and 19 other business and labour leaders, the premier indicated he might increase the $1.5-million asset threshold of the corporate capital tax, below which companies are exempted from the annual 0.3% levy. He is also considering the possibility of reducing the 7% provincial tax on machinery and equipment.

But NDP foes insist the party is unwilling to be as aggressive as the new wave of B.C. corporate bosses. For example, economists have determined that stumpage must be reduced by $9 a cubic metre to offset the drop in lumber prices since last August alone; Victoria's proposed cut would reduce stumpage by only $5 a cubic metre. "Their reforms aren't worth two bits," opines Mr. Reed.

The B.C. Liberals, on the other hand, are ready to take far more aggressive action. On December 19 Grit MLA John Wilson and seven other Liberals arrived in Edmonton to meet Alberta Energy Minister Steve West and colleagues to pick up a few tips. The Klein government has given industrialists more decision-making power through a regulatory review of all provincial legislation and policies. "Useless bills are discarded," enthuses Mr. Wilson. "Any regulation that is installed purely to give government more power is thrown out. Policies that don't work or aren't reviewed within five years automatically expire."

The MLA adds that Alberta's forest code "has the same environmental standards as we do, but operates in reverse. There, logging is done first and then the job is assessed. If it is badly done, stiff penalties are handed out. Projects aren't pre-analyzed to death as they are here."

Mr. Wilson is using these findings to formulate a comprehensive Liberal action plan. "One thing is certain," he says. "We would launch a regulatory review for B.C. upon assuming power. And that's for starters." (See story, page 21.)

Still, no matter what government is elected, would not pro-business reforms cause environmental groups to declare war? Perhaps, but Mr. Wilson says, "They wouldn't be supported by the public. I think people are finally ready for a return to sanity."

It would seem so, if a confrontation between independent loggers and greens near Halfmoon Bay on January 23 is any indication. Members of the Friends of Homesite Creek, who tried to blockade a roadbuilding crew, were chased away with a backhoe and shoved to the ground. Sechelt RCMP describes the conflict as violent, and the greens fired off a press release complaining about their mistreatment; however, they failed to gain the sympathy of residents or generate much media coverage.

Mr. Puusepp dispels another fear: that green groups would counter industry reforms with boycotts. "First, they're not as powerful as they think," he says. "Second, it's time to call their bluff. Go ahead and boycott. They've never been able to launch one of any significance."

But even if tough-minded businessmen and a reform-minded government make all the right moves, B.C. is going to be a far different province in the 21st century. The salmon fleet will never return to its glory days; mining representatives say it will take several decades before investors are lured back; and Mr. Reed predicts the forest industry will "be 25% smaller than it is today. All the good wood has been cut."

Mr. Pearse sees this as a natural evolution. "For a century we developed resources with foreign capital for foreign demand," he says. "This created big companies, lots of profit, and technological advancement. But now we have to husband the resources—replant trees, process lower grades of ore, and farm salmon. Even with the proper incentives, this will take considerable effort, and displacement and pain is unavoidable."

He hastens to add that "our standard of living doesn't necessarily have to suffer. The biggest growth in B.C. is in the service sector. There will always be jobs, both low and high-paying."

That said, the economist can't help but "anguish frequently over the way we've mismanaged our resources. We've been blessed with an amazingly rich endowment, and yet we've squandered it. It's shocking we should be in this fix."

—Robin Brunet

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