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February 3, 2010 - No. 25

Vale's "One Mine" Disconnect

Vale's "One Mine" Disconnect
Capital-Centred Restructuring versus Human-Centred Renewal
Vale's Capital-Centred View on Production Costs


Vale's "One Mine" Disconnect

Whose community? Our community! Whose resource? Our resource!
Who decides? We decide!

The not-so-secret plan leaked by Vale Inco management speaks volumes of the great disconnect between monopolies and Canadians. While Canadians are deeply concerned with the economic crisis, the wrecking of manufacturing, unemployment, the degrading of social programs and public services and the increasing attacks on trade union rights, the monopolies are conspiring to use the insecurity of the crisis to fatten their pockets at Canadians' expense and strengthen their dictatorial power and control over Canada's economy, politics and people.

Vale plans to reduce employment in its Sudbury mines by almost half and cut what it calls "current nickel production costs" from $4-5 per pound to less than $3. Forcing a strike of Inco workers by demanding concessions is the opening shot in its plan. The nucleus of Vale's egocentric plan is for greater guaranteed profit at the expense of miners and metallurgical workers and their communities, and for that profit to be taken out of the region and country. (See article "Vale's Capital-Centred View on Production Costs.")

Vale's One-Mine Plan for Capital-Centred Restructuring

Vale's not-so-secret "one-mine plan" released to the media bad-mouths Inco workers, salaried employees and even managers for having a "sense of entitlement" and "being mediocre." This is quite astounding given the fact that only a few short years ago Vale handed over $19 billion to a finance holding company to acquire Inco, which it now denigrates and wants to blow apart. The plan calls for capital-centred restructuring saying the "nickel business has to re-invent itself" to serve better a Vale global monopoly that demands more and more tribute and absolute servitude. (To view the not-so-secret-plan click here.)

The plan calls for a "one-mine approach," which although vague can only mean Vale's neo-liberal line with no other views tolerated or accepted. Vale's "one-mine approach" demands "high employment engagement" in support of Vale's strategy and a ridding of union influence. This is the George W. Bush line for worker/management arrangements: either you agree with the power that holds the authority of ownership or you are against the company and its one-mine neo-liberal line and should be fired.

Workers are not allowed to have any views or influence on working conditions, wages, benefits, the future of the mines and refineries or any other matter concerning production that conflict with the "one-mine" line, especially views organized and expressed collectively in a trade union. Workers and their communities are not allowed to have any views that contradict the monopoly on the direction of the economy and the role that nickel production could play in developing the nickel communities and regions, especially views organized collectively as a workers' political opposition that could become a powerful voice of public opinion and material force for a human-centred alternative.

Monopolies such as Vale and Xstrata are fixated on making as much money from Canada's resources in the fastest possible time. They are not concerned with leaving behind viable communities with sustainable economies, modern infrastructure and first-rate social programs. Monopolies are in the regions to exploit the best of the resources, take out what they can in the fastest possible time and then disappear leaving ghost towns in their wake. That is not an exaggeration. Just read the one-mine plan from beginning to end. Where in Vale's plan is there anything remotely connected with the concerns of the community and the long-term viability of the economy and region? Nowhere. The plan is narrowly concentrated on the needs of Vale owners of capital and debt and that is the big problem with the monopolies. Monopolies trump the people, the economy and even society itself.

In the plan's own words: Vale Inco needs to develop a one-mine approach, with an integrated business plan focused on cash generation and profitable operations, which is a rehash of its CEO's neo-liberal jargon of "being cash-flow positive under all business cycles." According to the plan, a one-mine approach means the company would have one production schedule and standard approaches to such things as shift schedules, equipment, incentives and discipline. Anyone who dares suggest that the "standard approach" is not in the best interests of workers, who may face many different and challenging situations, or is not in the long-term interests of the community and economy is branded "mediocre" with a "sense of entitlement" and should be drummed out of the nickel industry and community.

The one-mine capital-centred approach would encourage a "culture focused on success of the division, rather than individual mine." But who defines success? If "success" were narrowly defined as a victory for the "division," would that not mean workers would be competing against workers to achieve a company-defined "success"? If "success" were narrowly defined as profit for the company to take out of the regions and Canada, would that not mean a failure for the nickel communities and potential long-term disaster?

According to a workers' opposition, would "success" not be that the added-value produced by workers is poured back into the nickel communities to guarantee their long-term viability? But that is not the monopoly way as defined by its narrow aim focused on cash generation and profitable operations, an aim obsessed with "being cash-flow positive under all business cycles." Would "success" mean an operation with low work injuries? Would "success" mean mining even low-grade ore bodies and doing everything possible to find new mining, refining, manufacturing, marketing and service possibilities even though that would harm the cash-flow and bottom line? Would success mean the pouring of mine added-value back into the communities to create a self-reliant regional economy without destructive business cycles? But that is not the monopoly way and would never be deemed a success. That type of human-centred success is only a feature of a workers' opposition, united and determined to fight against monopoly right and its one-mine dictate and egocentric aim.

The one-mine approach speaks of a "need to introduce language to enable flexible transfers between mines as required." "Introduce language"? Where would this language be introduced? In the collective agreement? In public opinion? When monopolies use the word "flexible" it generally means to trample on workers' rights.

The one-mine dictate says it wants to cut mine staffing to 1,500 and specifically cut Creighton Mine staff from 500 to 200 yet have Sudbury Inco produce 180-200 million pounds of nickel a year. The one-mine dictate focuses on "improving labour productivity by 25%." Yet the plan, in addition to cutting staff, proposes to cut projected capital expenditures in half, to $100 million a year.

Productivity is an objective process. To throw out numbers in the abstract is disinformation not a process of informing and enlightening. In the simplest terms, productivity in mining can be improved three ways: on the backs of workers by increasing the intensity of work, by introducing more mechanization through capital expenditures or by mining only those ore bodies that are the easiest to mine and abandoning all others. If the plan is to cut in half both capital expenditures and employment then an improvement in productivity of 25 per cent could only come on the backs of the remaining workers and by mining only the easiest ore bodies. That is an ugly capital-centred plan indeed and must be soundly denounced and rejected.

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Capital-Centred Restructuring versus
Human-Centred Renewal

Vale's "one-mine" dictate is a capital-centred plan opposed to the rights and needs of workers, their communities and the general interests of Canadian society. Vale launched the one-mine dictate in practice last summer with its demand for concessions, forcing a strike on Inco miners and metallurgical workers. The one-mine dictate has unfolded with the use of anti-worker mercenaries to restart production even when workers are engaged in a legal strike, thus poisoning the atmosphere in Sudbury. It has flared to the point of hiring anti-strike security mercenaries who are themselves a most violent provocation. The plan includes a propaganda campaign to portray workers' just resistance to company provocations and defence of an effective picket line and strike, as hooliganism and terrorism. The one-mine dictate appears to be heading towards the use of agents provocateurs to organize staged violent encounters, which is something Vale is importing from its fights to oppress people in poor developing countries. Whatever may happen during the just resistance of Inco workers defending their rights, Vale is the culprit for introducing this violence and turmoil into the nickel communities. The one-mine dictate with its forced strike and violent provocations is capital-centred restructuring, a declaration of class war and violence against Inco workers and their communities and Canadian society.

Workers and their allies need to unite, discuss and organize around their own human-centred program for renewal of their workplaces, communities and socialized economy in a concerted effort to forge a People's Canada. Resistance against Vale's violent restructuring and demands for concessions is an essential aspect of a human-centred renewal.

The one-mine dictate and violence of Vale reflect a great disconnect with the nickel communities and Canada. All Canadians should unite behind Inco workers in this fight to oppose Vale and its one-mine dictate to steal our resources and added-value and leave nothing behind for the future of our children and communities. The Vale takeover of Inco is a failure and net detriment to Canada. The Canadian and provincial governments have the social responsibility to intervene to defend the rights of Canadians and the general interests of society and restrict monopoly right. Workers and their allies have the social responsibility to organize themselves politically as an effective workers' opposition. This Canada belongs to Canadians, and workers and their allies have the right to a say-so and control over the direction of their economy, communities and country.

Restrict Monopoly Right! Resist Vale's Violent One-Mine Neo-Liberal Dictate!
Fight for Human-Centred Renewal of the Socialized Economy,
the Economic Base of a People's Canada!
Victory to Inco Workers and the Nickel Communities in Their Just Strike Struggle!

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Vale's Capital-Centred View on Production Costs

When Vale speaks of "production costs" it lumps together the costs of machinery, fuel and other supplies with the claims of workers on the added-value they produce. To put workers' claims on what they produce in the same category as production costs is deliberate mischief-mongering. The wages, benefits and pensions of Inco workers are legitimate claims on the added-value active workers produce. Only those with a capital-centred mindset could possibly misconstrue wages as a cost of production. Mining and metallurgical workers can only consume what they have produced. There is no other source but the added-value workers produce and exchange for other commodities.

Vale Inco owners of capital and debt can only claim (and consume) as profit of enterprise and interest what Inco workers have produced. There is no other source for Vale Inco profit and interest but the added-value workers have produced.

Production costs arise from a transfer of value that has already been produced. This transferred-value, unlike active workers' work-time, cannot give rise to new value, only an equivalent value that is consumed in the production process. Production costs are those things that have already been produced, mostly somewhere else such as machinery, tools, fuel and other supplies needed in the production process. Costs of production do not add value but rather facilitate the production of new value by active workers. Costs of production, unlike active workers, simply transfer their own value to the new commodity during the production process. The cost of production is returned when the commodity is sold.

Inco miners and metallurgical workers use costs of production such as machines, tools and fuel to produce new added-value mostly in the form of nickel. Added-value produced by active workers becomes the source of claims by those same workers, retired workers, owners of capital and debt and government taxes. Those claims cannot come from costs of production, as income from those costs simply replaces the original expenditure. The wages of workers, the profit and interest claimed by owners of Vale Inco capital and debt, and government taxes all come out of the new added-value workers produce. Those claims on added-value by workers, owners of capital and government cannot be considered costs of production unless one of those groups takes a very subjective narrow view and declares the claims of others as a cost to themselves. In that sense, workers could just as easily denounce the claims of owners of capital and debt as costs of production to themselves and their communities.

To lump workers' claims on added-value together with costs of production reveals an ulterior motive to place owners of capital at the centre of the economic universe demanding the actual producers pay them tribute. This is similar in intent to medieval monarchs and lords placing themselves and the earth at the centre of our solar system demanding tribute from the actual producers, which at that time were mainly peasants.

When Vale executives speak of reducing costs of production and falsely include workers' wages and benefits as part of those costs, they are using "costs of production" as a euphemism for stealing wages, benefits and pensions from Canadian workers and their communities and turning that added-value into profits and interest seized by owners of capital and debt and taken out of the regions and economy.

Reducing real costs of production such as machinery, fuel and other supplies does not give rise to any additional value. Reducing costs of production per pound reduces the intrinsic value of nickel but does not produce any additional value. Reducing real costs of production can only result in more money to the company if the nickel market price moves higher than its intrinsic value or price of production, which the monopolies always try to do through global manipulation of prices. But monopoly manipulation of prices is a major cause of economic dislocation and crisis, as the last few years have dramatically witnessed.

Reducing workers' claims on the added-value they produce does not result in any more added-value but does transfer wages, benefits and pensions from workers to owners of capital and debt. This phenomenon also is a factor in causing economic crises and making them more profound and long-lasting. Reducing workers' claims on what they produce can be particularly devastating in smaller communities that rely on one or two major industries such as Sudbury.

For further analysis of Vale's neo-liberal line of "being cash-flow positive in all business cycles" see TML article Vale Insists All Units Must Be "Cash-Flow Positive" below.

From the Party Press
Vale Insists All Units Must Be "Cash-Flow Positive"
- K.C. Adams, TML Daily, July 21, 2009 -

Don't we all wish to be cash-flow positive.

This expression reflects the narrow outlook of monopoly capitalism and its subjective egocentrism. In business, the expression "cash flow" is generally descriptive of a management practice organizing incoming and outgoing streams of cash. This involves arranging purchase of material inventory and other expenses with income from sales of goods and services. Even healthy companies do not always have a positive cash flow for reasons outside their control, which necessitates a line of credit. Also, emergencies such as the current economic crisis wrecking sales and freezing credit can make a positive cash flow impossible and bankruptcy a possibility for otherwise strong companies.

Vale removes the verb "to have" from the expression and turns a fairly routine management practice organizing cash flow, into an absolute noun phrase or predicate using the copular or linking verb "to be": to be "cash-flow positive."

Vale is or will be cash-flow positive in all business cycles according to its directors. Vale and each of its operations are or will be "cash-flow positive" or else.

This is silly posturing, which even goes against normal business practice. Just imagine every business "being cash-flow positive" in the normal course of buying and selling, without the intervention of credit either in the form of a line of credit or bills of exchange. Capitalism would grind to a halt rather quickly.

Vale's absolute (cash-flow positive) expresses a desire of monopoly right to dominate as an empire and dictate terms to others not just workers but suppliers and buyers of their goods, and demand that all serve its empire as subjects. Vale even hypocritically denies the role of credit in maintaining an effective cash flow that does not damage a company's interests. It also denies the role of credit in the expansion of production (extended reproduction) even though Vale is one of the largest borrowers in the world and an active participant in the financial sector as trader of derivatives, hedger and lender.

Capitalism cannot function with all companies simultaneously "being cash-flow positive." This would require a level of cooperation and planning in contradiction with capitalism's division of the socialized economy into competing privately-owned parts. Originally, credit from industrial capital having been transformed into loanable capital, especially bills of exchange, allowed capitalism to function and extend reproduction. But expansion through credit inevitably gives way to surplus goods and services that cannot be realized because the masses are relatively and absolutely impoverished and incapable of buying them.

The business cycle is now global and more destructive given such practices as monopoly control of prices above or below their prices of production, the siphoning of value into the financial sector and its parasitic practice of making money out of money, which draws even more wealth into the financial oligarchy. These practices promote anarchy in the production of goods and services, uneven development or underdevelopment of economies, infrastructure and the delivery of social programs and tend to impoverish the working class and poor countries even further especially in relation to the capacity of modern means of production. This contributes to global and national trends towards a growing gap between rich and poor, the concentration of wealth and power in fewer hands and powerful global monopolies that can even manipulate and dominate states. The most powerful imperialist countries such as the U.S. Empire spend enormous sums on weaponry and waging war to capture sources of raw material, markets and spheres of influence all of which generates more severe and longer-lasting economic crises.

Not all businesses have equal opportunity in the world of monopoly right. The state and the savings of the masses have become the largest creditor and source to manage cash-flow for those with political power. This results in business winners and losers according to who benefits from pay the rich schemes. The investment bank Goldman Sachs is a winner because it had its chairperson and significant shareholder Henry Paulson as secretary of the U.S. Treasury doling it billions of Troubled Asset Relief Program (TARP) dollars, a pay-the-rich scheme that has continued under President Barack Obama's Treasury Secretary Timothy Geithner who as former president of the Federal Reserve Bank of New York comes from the same monopoly capitalist cabal.

Looking at Vale's 2008 Financial Report

For a time, monopolies can manipulate market prices to generate positive cash flows beyond a capitalist's wildest dreams. Vale had a positive cash flow of almost $20 billion in 2008 mainly from high market prices and despite paying $2 billion in interest and fees, losing over a billion dollars in trading derivatives, and being in an industry that is subjected to extreme tension from a falling rate of return on invested capital because of industrial productivity.

Vale's 2008 report gives general details of the claims of "personnel," those who produce and deliver its social product. The claims of Vale workers on the added-value they produced in 2008 are quite small compared with the enormous costs of circulating and fixed capital (material consumed during the production process plus expenses from such items as contracting out machinery repair), which are called transferred-value. Using capital-centred accounting, Vale lumps together workers' claims on added-value with costs of production (transferred-value) into one category it calls "costs of goods sold (COGS)." Of the total "costs of goods sold," "personnel expenses" or claims of workers on added-value accounted for only 12.1 percent ($2.139 billion) out of the total COGS ($17.641 billion).

Added-value is the value contributed by Vale workers transforming raw material into use-value. Added-value is the additional value generated by the work-time of workers from which workers can claim their wages, benefits and pensions, owners of capital can claim profit of enterprise, interest, fees and rent, and governments can claim taxes.

Added-value claimed by Vale workers = $2.139 billion. To review added-value claimed by owners of capital and government see Vale's 2008 report.

Transferred-value is the already produced use-value that is consumed in the production process. The use-value is transferred to the new social product and recouped when the new social product is realized (sold). Transferred-value does not represent new value and consequently cannot be the object of claims. Capital-centred accounting has no categories for transferred-value and added-value.

A partial view of Vale's transferred-value can be obtained by deducting workers' claim on added-value (personnel) from COGS: $17.641 billion minus $2.139 billion = $15.502 billion.

This shows the enormous amount of capital employed to activate the working class and generate added-value from which owners of capital can claim profit. This is a major cause of crisis within the capitalist system as the rate of return on invested capital trends in inverse direction to the development of industrial productivity. Monopolies try to overcome this trend in many ways such as pressuring workers to make concessions, directing the state to give them public funds, setting market prices for their social product above prices of production, forcing down market prices of those products and services consumed during the production process and using the pooled savings of workers as a source of investment capital and credit under the control of monopoly capital. All these monopoly practices contribute to causing recurring economic crises.

To gain a feel for how capital-intensive mining and refining has become compare workers' 2008 claims on added-value with Vale's gross annual income of $38.509 billion. Workers' claim of $2.139 billion out of a gross income of $38.509 billion is but 5.6 percent. However, it is important to keep in mind that Vale's 2008 gross income is distorted upwards by the wildly inflated market prices for basic commodities, which continued for most of 2008 based on prior sales contracts. Those inflated prices have caused economic disruption and extreme friction around the world as can be seen in the bitter dispute between China and Rio Tinto, the Anglo-U.S. global mining and financial monopoly.

Squeezing that 5.6 percent or 12.1 percent relative to Vale's COGS is not going to solve the problem of a falling rate of return on invested capital. But importantly for owners of capital, lowering workers' claims does transfer revenue from workers' pockets to profit of enterprise, and for owners of capital that is a big deal. It does not solve any problem related to the economic crisis or the problem of a trend towards a lower rate of return on invested capital but for owners of Vale capital it would transfer workers' money directly into their already bulging pockets and that is good even though it will have a negative effect on the socialized economy generally.

Workers' claims of $2.139 billion in 2008 comes directly out of realized added-value which is the only source of claims for workers, profit of enterprise, interest, fees, rent and taxes. (See Table 4 in attached Vale 2008 Report for itemized claims)

Reducing the actual costs of production (transferred-value) may be considered important at times but generally, a reduction in transferred-value only results in an equivalent reduction in the value of production. Better productivity can reduce costs per unit of production, which helps a monopoly compete, but results in an accelerated lowering of the rate of return on investment. The trend of rising relative costs of production (the percentage of transferred-value per unit of production compared with added-value from workers) through increased productivity is a well established capitalist trend, which results in fewer workers producing an equivalent social product and the unintended consequence of less added-value per unit of investment. The relative size of added-value is reduced compared with the actual costs of production resulting in a drop in the rate of return on invested capital even if workers' wages and benefits were slashed to near zero.

Note also that under capital-centred accounting costs for fixed capital other than repair work that is contracted out is not reported in the total of "costs of goods sold." The transfer of value from machines and buildings to the social product and returned as a realized cost of production is listed under "income" not as an expenditure returned.

"Depreciation, amortization & exhaustion = $2.807 billion for 2008."

This is the amount (of transferred-value) returned to the monopoly when social product is sold to compensate for the original purchase of machines etc. Fixed means of production are consumed little by little and their original purchase price is returned as the machines transfer their value to the new social product. The transfer of value is income only in the sense of being part of the gross income but should not be considered income in the same sense as realized added-value, which is new value contributed by the work-time of Vale workers. Fixed transferred-value does not represent anything in addition to the value of plants and machines transferred to the social product.

The original purchase price of fixed capital goods such as machines is reported as "Cash flows from investing activities -- Item: Additions to property, plant and equipment (2008) = $8.972 billion." The total amount is listed as a deduction from gross income and as it is transferred to new production in coming years, it is listed as "income."

Note that the 2008 reported total of depreciation, amortization & exhaustion of fixed capital (fixed transferred-value of $2.807 billion) is greater than the claims of personnel on added-value ($2.139 billion).

In its 2008 report, Vale describes the "miracle" of the explosive growth of its empire and "Net cash provided by operating activities" (almost $20 billion) with these self-serving words:

"During the expansionary cycle, maximization of production was key to maximizing value and we had managed to grow our aggregate output of bulk and non-ferrous mineral products by a compound annual average rate of 11.2% since 2003."

Vale here fails to mention that most of the "compound average rate of" growth resulted from leveraged acquisitions (Inco etc.) and the spike in basic commodity prices. Vale partially hints at these phenomena admitting that remarkably high market prices contributed to its positive cash flow in 2008:

"In 2008, our gross operating revenues [gross income] achieved a historical high of US$38.509 billion, 16.3% up on the US$33.115 billion reached in 2007.

"Higher prices of products contributed with US$4.932 billion, 91.4% of the total increase of US$5.394 billion over 2007, while sales volume growth added US$462 million."

The power of positive pricing! Of course, those monopoly prices played a significant role in wrecking the socialized economies of many countries and other sectors but all is for the best when it serves the empire and its drive to be "cash-flow positive."

The "expansionary cycle" has ended and Vale has changed its tactics to meet the economic crisis, which it helped create. Market prices have come down considerably but not to previous lows but still that way of achieving a positive cash-flow is now temporarily blocked. The expansionary cycle left Vale with a stupendous positive cash-flow but also with a large debt. The big positive cash flow is now gone but the debt must be serviced whatever the prices of basic commodities may be in the coming years. And word from Vale is that it is going to use its cash reserves as collateral to borrow more to acquire even more properties to grow its empire (e.g., its planned acquisition of U.S. fertilizer monopoly Mosaic Co. for $20 billion now controlled by Cargill).

During what Vale calls the current "contractionary" period, the report says: "The priority has moved to cost minimization as an important tool for value creation [sic] and we are seeking that goal through several initiatives to reduce operational and investment costs."

"Value creation" for owners of Vale equity will come from reducing the claims of Vale workers on the added-value they produce during this "contractionary" period. Interesting conception of creating value by stealing the claims of workers on the added-value they have produced. This parasitic idea comes from the same monopoly capitalist minds that think money can be expanded in the financial sector without going back into the goods producing sectors or that something can be consumed without having been produced.

Also, "value creation" is impossible through reducing the costs of production unless monopoly control of market prices forces them above the prices of production. "Value creation" by stealing workers' claims on added-value is what is behind Vale's insistence on all business units being "cash-flow positive" during all business cycles. It is propaganda to fool workers and middle strata that do not consciously unite and defend their rights and the rights of all in the class struggle against monopoly right. This propaganda ties in with the unscientific insistence that concessions are somehow solutions to the economic crisis, which they are not. An opening round in this battle is Vale's demand for concessions from Vale-Inco miners and refiners. Defeating Vale's anti-worker anti-social campaign for concessions under the hoax of "being cash-flow positive" is extremely important not just for Vale-Inco workers but all Canadians and their socialized economy.

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