Monday, February 15, 2010

Newsweek: Layoff the Layoffs - Our Overreliance on Downsizing is Killing Workers & the Economy

An interesting story in Newsweek, if for nothing else it is the antithesis of almost all precepts of 'dog eat dog' American capitalism corporation socialism.  I suppose we can paint this as the war of 'human capital' (now nearly completely disposable) versus 'capital capital'; a pretty interesting opening salvo specific to the airline industry.  How this relates to America's "short termism" (make all decisions for the very near term, when most executives and political leaders get the benefits - while not giving a rat's behind about long term implications to the larger society) - is also a related concept.  [Sep 9, 2009: WSJ - Vanguard's John Bogle, Warren Buffet Speak Out Against Short Term Nature of Markets] As is America's love affair with financial innovation over building business in the past few decades. [Oct 6, 2009: Private Equity Skewered in New York Times]  After all, who cares about the carcass you leave behind when you feed at the public trough of capital markets, leaving a path of destruction in your path.  You got yours - and that's the #1 indicator of success nowadays.  Of course if you whisper these things out loud you are a 'socialist'. ;)

One of those food for thought articles - but certainly nothing I can see ever changing in Cramerica.   At least not until the full nirvana American economy (i.e. the "workerless economy" where only C-level executives are employed - mostly engaged in lobbying for more handouts - while the jobless worker bees also relies on government to survive... or survives on their new career: daytrading.)  is reached. ;)

Via Newsweek:
  • On Sept. 12, 2001, there were no commercial flights in the United States. It was uncertain when airlines would be permitted to start flying again—or how many customers would be on them. Airlines faced not only the tragedy of 9/11 but the fact that economy was entering a recession. So almost immediately, all the U.S. airlines, save one, did what so many U.S. corporations are particularly skilled at doing: they began announcing tens of thousands of layoffs. Today the one airline that didn't cut staff, Southwest, still has never had an involuntary layoff in its almost 40-year history. It's now the largest domestic U.S. airline and has a market capitalization bigger than all its domestic competitors combined. As its former head of human resources once told me: "If people are your most important assets, why would you get rid of them?"
  • It's an attitude that's all too rare in executive suites these days. As the U.S. economy emerges from recession, Americans continue to suffer through the worst labor market in a generation. While the pink slips are slowing as the economy rebounds, the lack of jobs remains the most visible—and politically troublesome—reminder that despite what the economic indicators may tell us, for much of the population, the Great Recession hasn't really gone away.
  • Companies have always cut back on workers during economic downturns, but over the last two decades layoffs have become an increasingly common part of corporate life—in good times as well as bad. Companies now routinely cut workers even when profits are rising. Some troubled industries seem to be in perpetual downsizing mode; the U.S. auto industry, to take just one example, has been shedding employees consistently for decades.
  • There are circumstances in which layoffs are necessary for a firm to survive. If your industry is disappearing or permanently shrinking, layoffs may be necessary to adjust to the new market size, something occurring right now in newspapers. Sometimes changes in technology or competitors' embrace of cheaper overseas labor makes downsizing feel like the only alternative.
  • But the majority of the layoffs that have taken place during this recession—at financial-services firms, retailers, technology companies, and many others—aren't the result of a broken business model. Like the airlines' response to 9/11, these staff reductions were a response to a temporary drop in demand; many of these firms expect to start growing (and hiring) again when the recession ends. They're cutting jobs to minimize hits to profits, not to ensure their survival. (higher profits = higher stock price = higher exec pay = the only sign of success in America anymore) As for firms that have no choice but to cut jobs, if your company is the 21st-century equivalent of the proverbial buggy-whip industry, don't fool yourself—downsizing will only postpone, not prevent, your eventual demise.
  • For many managers, these actions feel unavoidable. But even if downsizing, right-sizing, or restructuring (choose your euphemism) is an accepted weapon in the modern management arsenal, it's often a big mistake. In fact, there is a growing body of academic research suggesting that firms incur big costs when they cut workers. Some of these costs are obvious, such as the direct costs of severance and outplacement, and some are intuitive, such as the toll on morale and productivity as anxiety ("Will I be next?") infects remaining workers.
  • But some of the drawbacks are surprising. Much of the conventional wisdom about downsizing—like the fact that it automatically drives a company's stock price higher, or increases profitability—turns out to be wrong. There's substantial research into the physical and health effects of downsizing on employees—research that reinforces the seemingly hyperbolic notion that layoffs are literally killing people.
  • There is also empirical evidence showing that labor-market flexibility isn't necessarily so good for countries, either. A recent study of 20 Organization for Economic Cooperation and Development economies over a 20-year period by two Dutch economists found that labor-productivity growth was higher in economies having more highly regulated industrial-relations systems—meaning they had more formal prohibitions against the letting go of workers.
  • In the last decade layoffs have become America's export to the world. At a conference in Stockholm a few years ago, business executives told me that to become as competitive as America, Sweden needed to make it easier to lay people off. In Japan, lifetime employment, which never applied to most of the labor market, is under attack. There are daily calls for European countries to follow the U.S. and make labor markets more "flexible." But the more you examine this universally accepted tactic of modern management, the more wrongheaded it seems to be.
The story goes on from there, this is only page 1 of 3... worth the full read.  Certainly it fights against almost all dogmatic notions that have become embedded in the United States of Corporations.

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