Update, 5 February: Mike P. Moffatt at Worthwhile Canadian Initiative debunks some of the media coverage of the closure:

After the U.S.-Canada Free Trade Agreement, GM Diesel closed their La Grange, Illinois plant and consolidated their production to the London plant, though kept the head office, research, design, and manufacturing of some components in La Grange. EMD London was a direct beneficiary of the U.S.-Canada Free Trade agreement, something I have yet to hear in the media. The domestic locomotive market, by itself, would not have supported the level of production we have seen over the last two decades.

In 2005, GM Diesel sold the Electro-Motive Division (including the GM Diesel plant in London and the head office in La Grange) to a couple of U.S. private equity firms, who re-named it Electro-Motive Diesel. In 2010, those firms sold EMD to Caterpillar.

[. . .]

We need to keep in mind that:

1. EMD has always been a U.S. corporation.
2. The intellectual property from research and design, etc. was from the head office in La Grange, Illinois.

So that leaves “know-how” which Cohn mentions in a follow-up paragraph. On Twitter, Colby Cosh asked: “Cohn talks about “know-how” but (a) know-how isn’t IP and (b) Cat doesn’t seem to have much use for the workers who have it, do they?” Caterpillar, however, did send a number of employees from London to their new plant in Muncie, IN, to train newly hired workers. I am Facebook friends with an EMD worker and I remember him objecting loudly to this last fall. But did Caterpillar really buy EMD so that it could obtain the talents of a dozen guys to teach advanced welding techniques?

There are a lot of narratives to this story, many of them unpleasant. A narrative about a U.S. company buying Canadian IP at 15 cents on the dollar does not pass the sniff test, however.

Update the second, 7 February: Andrew Coyne gets his inconvenient, yucky facts in our lovely flag-waving, anti-capitalist nationalistic fantasy:

EMD never received any subsidies from the federal government; certainly not since Caterpillar bought it. Indeed, looking through the hundreds of pages of “grants and contribution” in the Public Accounts, it may be the only company in the country that didn’t. The Harper visit to which Olive refers was to promote a tax break for the purchasers of locomotives, not the manufacturers. The visit occurred in 2008, two years before the Caterpillar purchase.

It’s not clear how the foreign investment laws could have been invoked to cover a purchase of an American company by another American company, or if they could, why this should be the pretext for “demanding job guarantees.” Presumably if it is wrong for a firm to close a plant or lay off workers, it is just as wrong whether it has recently been the object of a foreign takeover bid or not. Perhaps you will say we should bar all companies from closing a plant. Okay: why would they ever open one? If workers, once hired, cannot ever be laid off, why would they ever be hired?

Of course, there’s always Olive’s suggestion of a punitive tariff, through which the cost of keeping jobs in London locomotive plants could be shared by consumers and businesses across the country. (You’re welcome.) This would recreate the system of foreign branch plants that existed in the days before free trade, small factories producing exclusively for the domestic market. Rather than lament at foreigners stealing our jobs and technology, the nationalists could once again lament at being tenants in our own land.

Lorne Gunter says that recent reports about the federal government looking to sell off some or all of VIA Rail make lots of sense:

Bloomberg reported last week that the federal Tory government is quietly contemplating privatizing some or all of VIA Rail. Good. It’s about time, just as it was about time in 1991 when the Tories under Brian Mulroney thought about selling off VIA, or in 2000 when the Chretien Liberals considered it, or 2003 (Liberals again) or 2009 — the first time the current crop of Tories mulled it over.

It’s easy to imagine that every few years, Transport Canada bureaucrats return to the cabinet drawer marked “Keeping the Minister Preoccupied,” extract the file labelled “Secret Plans to Privatize VIA,” blow off the cobwebs and hand it to their latest boss. Then they sit back and wait for the predictable outcry from assorted special interests and from those few central Canadians who do actually use the train regularly.

Most years, VIA spends nearly twice as much as it makes. In 2010, for instance, VIA’s expenses were $536 million, while its revenues were just $274 million. That left a deficit of $262 million that had to be made up by Ottawa. Put another way, for every dollar VIA charges passengers for tickets, taxpayers put in 96 cents.

Shortly after we got married, Elizabeth and I took the train from Toronto to Halifax and had a great time: it was a very enjoyable trip, and we thought of the train ride as part of the vacation, not just a means of transportation. I’ve always wanted to ride The Canadian all the way to Vancouver, but at no point in the last thirty years have I simultaneously had the time available for the trip (four days on the train in each direction) and the money (right now, with a big seat sale going on it’d cost $2,137 for coach seats or $5,253 if we took a cabin). If that’s only half of what the trip would cost at market rates, there’s no way the service could support itself.

So the annual VIA subsidy amounts to an income transfer from people in most of the country who never use a passenger train to people in the central core of the country who prefer to take the train rather than drive their cars from Toronto to Montreal, but wouldn’t do so if they had to pay anywhere close to the full fare for their trips.

Every time I write about the absurdity of keeping VIA rolling, I get letters from people who insist they prefer the train to flying, driving or taking the bus or who believe trains have a lighter environmental impact or who say they can’t afford other modes. Fine, but why is it taxpayers’ duty to split the cost of your unprofitable preferences with you, 50/50?

At the old locomotive plant now owned by U.S.-based multinational Caterpillar Inc., the Canadian Auto Workers union is not even on strike. The CAW has been locked out since New Year’s Day because it refused to sign its own death warrant by agreeing to slash wages in half for most workers from $34 an hour to $16.50.

When a powerful multinational negotiates in bad faith, it becomes a story that governments in Queen’s Park and Ottawa can no longer wash their hands of. To put it in language that resonates with Premier Dalton McGuinty: When a bully tries to humiliate people, you can’t just watch in silence.

When high-paying skilled local jobs can be shredded at the whim of a combative multinational giant, it dramatically undermines all the upbeat rhetoric we hear from McGuinty and Prime Minister Stephen Harper about Canada’s global appeal. It sends a signal that Ontario is not so much open for business as it is closed for unions.

We jump directly from Caterpillar’s demand for wage reductions to an assertion that the company is negotiating in bad faith (I guess, from the union’s point of view, anything other than a wage increase is proof). No indication whether the company’s demand is economically justifed — if sales of the plant’s railway locomotives are as bad as the wage offer implies, then the next step will be closing the plant — just straight over to bad-mouthing the company.

And, of course, it’s merely objective reporting to use pejorative descriptors when discussing the eeeeevil multinational firm. Not content merely to malign the company, he then calls on the Premier to support the union to the hilt:

So what can our anti-bullying premier do?

If I were McGuinty, I would ask myself a simple question: What would Bill Davis do?

The former Tory premier of Ontario wasn’t perfect, but he was always plugged in. He took labour seriously, listened closely to business and wooed foreign investors (remember Renault?). He knew how to leverage the power of the premier’s office to stand up for Ontario’s greater interests.

A phone call to Caterpillar’s corporate braintrust would show that Ontario’s premier is no pushover. If that didn’t work, a phone call to Harper — who is still trying to live down the tax breaks he gave the locomotive factory’s former owners a few years ago — might find a receptive ear.

And finally we get to a good point: the foolishness of governments in giving special tax breaks to certain industries or companies. If it’s in the company’s best interests to locate in your jurisdiction, they’ll probably do it. If you have to bribe them with tax breaks, low-interest or interest-free loans, or other special incentives, then once the incentive runs its course, the company has no further requirement to stay in your location.

Update: In the National Post, Kelly McParland has some suggestions for union leaders:

1. A lot of people (the membership figures suggest it’s the vast majority) think unions are concerned solely with their own members and couldn’t give a bird’s turd for anyone or anything else, including other working stiffs, members of other unions, the fortunes of the company they work for or the customers they deal with. When you display a total lack of interest in others, they generally adopt the same attitude towards you.

[. . .]

4. Union politics might consider moving out of the stone age. The world evolves over time, but unions persist in peddling the same trite bromides as if it’s still the dawn of the industrial revolution. The “us against them” mentality; the pretense that all employers exist to exploit workers and can never be trusted; the assumption that every contract must be succeeded by an even richer one no matter the health of the industry, the economy or the company; the fealty to leftwing political parties — all are symptoms of an exhausted, outdated perspective that has barely changed since “modern technology” meant the telephone.

If unions really want to save themselves, they might take a lesson from the market economy. If no one buys what you’re selling, it’s not because they buyers aren’t bright enough. It’s because people see no value in your product.

Update, 3 February: The plant is being closed. Here’s the official announcement:

Progress Rail Services has announced that it will close Electro-Motive Canada’s (EMC) locomotive production operations in London, Ontario.

Assembly of locomotives will be shifted from the London facility to the company’s other assembly plants in North and South America, which will ensure that delivery schedules are not impacted by the closing of the London facility.

All facilities within EMC, EMD and Progress Rail Services must achieve competitive costs, quality and operating flexibility to compete and win in the global marketplace, and expectations at the London plant were no different.

The collective agreement and cost structure of the London operation did not position EMC to be flexible and cost competitive in the global marketplace, placing the plant at a competitive disadvantage. While the company’s final offer addressed those competitive disadvantages, the gulf between the company and the union was too wide to resolve and as such, market conditions dictate that the company take this step.

But it’s not just about forecasts — it’s about the value of time saved because of a faster journey, right?

That’s true. The high-speed link would save about 40 minutes on a journey from London to Birmingham. How much that is worth is an interesting question.

If you have a morning meeting it might mean an extra 40 minutes in bed.

It might indeed, which is priceless. HS2 Ltd told me that they use numbers from the Department for Transport. The DfT apparently values leisure time at about £6 an hour — this, intriguingly, implies that the UK government’s official position is that anyone under the age of 21 is wasting their time earning the young person’s minimum wage and would be wise to chillax in front of the Nintendo.

What about business travel?

Well, business travel is valued at £50 an hour. Unless the business travel in question is commuting, in which case it’s £7 an hour.

What?

Doesn’t make a bit of sense to me, either. Perhaps the idea is that commuting is eating into your leisure time, which is almost valueless apparently, whereas business travel is eating into your employer’s time, which is precious indeed. Complain to the DfT if you don’t like it.

[. . .] And most of the inconveniences that make men swear or women cry are really sentimental or imaginative inconveniences — things altogether of the mind. For instance, we often hear grown-up people complaining of having to hang about a railway station and wait for a train. Did you ever hear a small boy complain of having to hang about a railway station and wait for a train? No; for to him to be inside a railway station is to be inside a cavern of wonder and a palace of poetical pleasures. Because to him the red light and the green light on the signal are like a new sun and a new moon. Because to him when the wooden arm of the signal falls down suddenly, it is as if a great king had thrown down his staff as a signal and started a shrieking tournament of trains. I myself am of little boys’ habit in this matter. They also serve who only stand and wait for the two fifteen. Their meditations may be full of rich and fruitful things. Many of the most purple hours of my life have been passed at Clapham Junction, which is now, I suppose, under water. I have been there in many moods so fixed and mystical that the water might well have come up to my waist before I noticed it particularly. But in the case of all such annoyances, as I have said, everything depends upon the emotional point of view. You can safely apply the test to almost every one of the things that are currently talked of as the typical nuisance of daily life.

G.K. Chesterton, “On running after one’s hat” (1908), republished in Quotidiana, 2007-12-10.

Last week, the feds indicted 11 Long Island Rail Road retirees and their alleged associates in a “massive fraud scheme” to steal a billion dollars through fake disability claims. But the bigger outrage is that for decades the LIRR has held state taxpayers and riders hostage — thanks to outdated Washington labor laws.

The first inkling of the scandal came in 2008, when a press report noted that nearly every LIRR worker retired early, getting an MTA pension and a federal benefit. Looking into the anomaly, federal prosecutors unearthed evidence that at least two doctors and other “facilitators” had for years signed off on fake injuries and ailments so that workers could take their pensions.

[. . .]

The state’s fear of an LIRR strike helps drive up the railroad’s costs. Last year, the Empire Center reported, the average LIRR worker pulled in $84,850 — not including benefits.

That’s more than anywhere at the MTA except headquarters — and 23 percent more than subway and bus workers make. Seven of the top 10 people who made more in overtime than they did in regular wages hailed from the LIRR — including one conductor who tripled his $75,390 salary. Plus, workers pay nothing for health benefits.

H/T to Penn Jillette for the link.

My house is located less than a hundred feet from the Main Line, the principal passenger-rail artery out of Philadelphia to the west — Harrisburg, Pittsburgh, and ultimately Chicago and points west. Two dozen times a day passenger trains come bucketing by, but they’re barely a murmur through the dense secondary-growth woods between my back fence and the railroad right-of-way.

The loud ones are the night trains, the big heavy freights they route through when all the passenger cars are put to bed. They come through here rumbling like muted thunder in the still dark, long blasts of airhorns falling away like the mournful cries of vast creatures in a rusty ocean. Some people would find the noise intrusive, but I don’t; it comforts me.

[. . .]

This is my first house so near a railroad track, but I think I will always prefer that now. And I expect I’ll always keep at least one balky antique clock where I can hear it sound. The well-lived life may be full of large ideas and emotions and struggles to build something that will last, but the little details also matter.

Click to see the full image

At its peak, there were 92,449 kilometres of rail lines criss-crossing Canada from coast to coast. That was in 1976. Today, almost half the lines have been destroyed, dug-up, or abandoned — only 49,422 km remain in operation. Worldwide, the numbers are just as grim: from a high of 2,500,000 km in 1920, the Golden Age of rail travel, to 1,370,782 km now. Yet, there are still those who prefer the charm of the train to its air or auto brethren. Mark Ovenden is one such man. Ovenden, who enjoyed unexpected success with his 2007 book Transit Maps of the World, has recently released Railway Maps of the World. It is a celebration of beautiful maps, he says, but also a reminder of what we’ve lost. He spoke to the Post’s Mark Medley from his home in Paris.

Although the absolute reduction in rail lines in Canada is quite true, the railway companies could not earn a profit today if they’d kept all of those lines in operation. Some of the lines were abandoned as sources of traffic declined, either through depletion of the resource or improvements to road transportation. Some of the lines were abandoned once passenger traffic dropped below operating costs. Technological improvements in both locomotives and in control and signalling equipment allowed better use of the tracks, allowing redundant lines to be taken out of service.

Railways have to pay taxes on their right-of-way, so once a length of track becomes uneconomic, it will very quickly be taken out of service so that the railway doesn’t pay for maintenance of unused routes and can sell the land. For all the “romance of the rails”, railways are businesses which have to earn profits to continue operating.

Q: What does it say, then, that we were able to turn our back on railways so easily?

A: It’s a very complex and a very sad picture on many levels, from which luckily only in the last five, 10, 15 years we’re beginning to turn the corner. When you look at the influence and the power of the oil companies, and the whole automotive industry, they really were responsible — they saw it as a very deliberate policy to run down the railway services, and buy up things like streetcars and run them down again. The oil companies have blood on their hands, really. They were the ones who forced the railways to shut. They were the ones that had the tracks torn up. Under their influence people were forced to buy cars.

*cough*Bullshit*cough*

This is a lively combination of wishful thinking and conspiracy theorizing. It also nicely conflates the real business of the railways in North America — massive amounts of freight traffic — with a much smaller and unprofitable side-line — passenger service. Few railways ever earned much of their revenues from passenger traffic, which is why most modern subways, streetcars, and light rail systems are in the public sector. The railways can be built to maximize freight traffic (and therefore profit) or they can be built to maximize passenger traffic. Only organizations that do not have to earn a profit can justify concentrating on passenger service.

In the 1920s, automobiles changed from being super-expensive, finicky toys for the rich to being affordable to middle class and even some working class famlies and far more reliable (so you didn’t need to have a dedicated driver/mechanic for each vehicle). Unlike trains, where you could only go where the rails went and only when the train was going in that direction, a car allowed you to go anywhere there was a road, whenever you wanted.

It is difficult for us to grasp just how liberating this was for millions of Americans and Canadians — we’re so used to being able to go where we want at any time that we rarely even think about what it was like before the heyday of the car. Passenger trains had that kind of transformative effect in Europe, but less so in North America, where moving freight was always the primary purpose for building railways (setting aside the Union Pacific and the Canadian Pacific, as the construction of both were more influenced by government policy than profit-seeking).