BRIDGING THE GAP
MARCH 20, 1996
While corporate profits and Wall Street are experiencing record growth, many workers are facing declining wages and demoralizing job insecurity. Following a look at the wage-profit gap, economics correspondent Paul Solman of WGBH-Boston investigates how different forms of capitalism produce very different results for stockholders, workers, and communities.
PAUL SOLMAN: Now, corporate responsibility as seen by two businessmen and two economists. Al Dunlap is the former chairman and CEO of Scott Paper Company; Aaron Feuerstein is the owner of Malden Mills, a Massachusetts textile company; Heidi Hartmann is a labor economist and president of the Institute for Women's Policy Research; and Andrei Shleifer is a professor of economics at Harvard University. Welcome to you all. Mr. Dunlap, you became famous for your turnaround at Scott Paper, which entailed laying off thousands of people. What's your definition of corporate responsibility?
AL DUNLAP, Former CEO, Scott Paper Co.: (Boynton Beach, Florida) A corporation is in business to make money for its shareholders. That's the essence of the free enterprise system. Business is not a social experiment. Socialism has failed the world over. In fact, we have one of the lowest unemployment rates we've had in recent history.
PAUL SOLMAN: So it's just absolutely cut and dry for you, there is no social responsibility, except the responsibility to make profits for shareholders?
MR. DUNLAP: Here, a corporation that makes profits for its shareholders will, in fact, have the best product, the best facilities, and the best people. Corporations are responsible. The problem is because it's a political year, we're having this constant barrage by the politicians and the media demonizing executives in the free enterprise system. It's time that other executives, in addition to myself, speak up.
PAUL SOLMAN: Okay. Well, Mr. Feuerstein, nobody's demonizing you. You became famous for paying employees money even when you didn't have to when Malden Mills burned down. What does corporate responsibility mean to you as a CEO?
AARON FEUERSTEIN, Malden Mills: (Boston) Corporate responsibility to me means yes, you must, you must take care of the shareholder, but that is not your exclusive responsibility. The CEO has responsibility to his workers, both white collar and blue collar, as well, and he has responsibility to his community and city. And he has to be wise enough to balance out these various responsibilities and to, and to act justly for the shareholder, as well as the worker.
PAUL SOLMAN: But it cost a shareholder money in the case of you, you as shareholder having to pay to keep these people employed even when the mills were shut down and there was nothing for them to do, right? I mean, it cost it shareholder?
MR. FEUERSTEIN: Yes, it did cost the shareholder, nonetheless, the, the quality, the quality and the efficiency that we get in our factories is critical to the health of our company. And so I make it my personal business to see to it that I have loyalty and goodwill amongst my people. And that's what we enjoy at Malden Mills, and they're the valued asset. They're not just a cuttable expense. They're the people who make the quality for us, and our products, our polar tech products in the performance outer wear marketplace is the best in the marketplace, and only because I have very good workers, and I'm not about to tear that apart and to break that down for some short-term gain.
PAUL SOLMAN: Okay. Ms. Hartmann, is it the downsizing, such as we've heard about at companies like Scott Paper, that you think is causing the economic insecurity that we're hearing so much about and talking so much about?
HEIDI HARTMANN, Labor Economist: Well, I think it's not only the downsizing, it's also the fall in real incomes, real wages have been falling for men and most recently for women also, and also the families in the bottom of the income distribution are also losing in real terms, so they're insecure not just because they may be laid off but because they see their real incomes falling.
PAUL SOLMAN: But do you think that corporate responsibility has something to do with this in the sense that people don't feel that corporations are being as responsible as they should be, and that that's making them insecure because they might be next? I'm just posing the question.
MS. HARTMANN: Well, the polls certainly show that people feel there is a corporate responsibility. I mean, at least 1/3 of households have had a direct experience with a direct layoff, either theirself or someone else in their household, and that's quite a large number of households to be affected.
PAUL SOLMAN: So which of these two positions do you like, Mr. Feuerstein's version of capitalism, or Mr. Dunlap's?
MS. HARTMANN: Well, I think Mr. Feuerstein's is right on the mark. I mean, we as a society collectively allow corporations to exist. We set the legal and economic and political frame work in which they can operate, and we have the right as a society to demand something back from them.
PAUL SOLMAN: Prof. Shleifer, you teach this stuff, you theorize about it. What do you feel when you hear the three people you've just heard on the two sides of the issue?
PROF. ANDREI SHLEIFER, Harvard University: (Boston) Well, I think the absolutely important thing to understand is that Mr. Feuerstein and Mr. Dunlap don't really disagree. They both seem to think that the principle responsibility of the corporation is to address the needs of the shareholders. Now, Mr. Dunlap gets called into companies which are in trouble, which are overstaffed, which are sleepy, which need a shake-up. They need somebody to come in and perhaps lay off some people and, so to speak, clean them up, and that's when he gets called in, and that's what maximizes the value of the shareholders in these companies. Mr. Feuerstein, who of course owns his own company, has made the decision that it is in his interest as the owner of that company to keep his people so that they're around, so that they receive some training, so that when his factory gets rebuilt, they're there to produce the goods that he can keep his market, so both of them are acting completely rationally, both of them are helping their shareholders, and the market system is working. The point here is that there are some companies that need the layoffs, and there are some companies for which the best strategy is to keep their people.
PAUL SOLMAN: Let me put the question to Mr. Dunlap. Do you believe that you are like Mr. Feuerstein, doing--believing in the same thing, and in which case, why didn't you take Mr. Feuerstein's approach? Why didn't you, uh, not play to Wall Street but play to the security of the workers instead?
MR. DUNLAP: Here, you have a failed argument there. You're, you're playing to the fears of the people.
PAUL SOLMAN: I'm not making an argument. I'm asking a question.
MR. DUNLAP: Let me tell you something. I created six and a half billion dollars of incremental value. That $6 1/2 billion enabled people to buy houses, buy cars, and to realize their dreams.
PAUL SOLMAN: Explain what you mean by--
MR. DUNLAP: That was my role.
PAUL SOLMAN: Excuse me. Explain what you mean. The $6 1/2 billion, you mean the increase in the value of the shares in the Scott Paper Company and, therefore, the shareholders had--were worth $6 1/2 billion more than before? Is that what you mean?
MR. DUNLAP: And the shareholders, our own employees owned $250 million of stock in that company, and it tripled. Here, if it were not for restructuring, and most people don't understand what restructuring is, restructuring is a great deal more than firing people. It's about getting the best management, the best products, the best facilities, and the best balance sheet. And without restructuring, America would have continued its downward trend of the last ten or twenty years, where we lost our basic shoe industry, our small appliances, our television industry. But for restructuring, the present unemployment would be double what it is. It is an important element of the free enterprise system, and without the free enterprise system, God help the American worker.
PAUL SOLMAN: Well, do you like what Mr. Feuerstein did, for example? I mean, do you think that he--he says it's in the interest of his company, of his shareholders and so forth, the long-term interest, to have really devoted workers.
MR. DUNLAP: There's--our workers were very devoted. He had a factory that burnt down, and, therefore, he had to keep his workers on. I had a corporation where every person stood the chance of losing their job, so I got rid of 35 percent of the people. But 65 percent of the people have a more secure future than they've ever had, and one of Americans largest corporations is now merged with another corporation, creating the second largest consumer products company in America, and I am very proud of that. Our workers are proud of that, and we did this without a single labor interruption or a single grievance. We must have been doing something right.
PAUL SOLMAN: Mr. Feuerstein, can you see yourself doing what Mr. Dunlap has done?
MR. DUNLAP: Never, never. I can't imagine that his workers are satisfied with what he did. What Malden Mills always did in, in the past, we understand as well as Mr. Dunlap does that a--there is a legitimate necessary downsizing as a result of computerization and better machinery. Technological advance requires the reduction of, of people. If you have a machine that once made 20--that needed 20 people and now you have it and it only needs 10 people, so you have to cut back. We understand that, but we at Malden, because we were sensitive to the human equation and worried about our people, we always tried--not always successfully--but we always tried to take the cutback at the same time that we were expanding some part of our business, and in that way we're able to alleviate the pain. And we concentrate less on--and I don't know what their situation was--I can only talk for myself--we concentrate less on the cuttable expense of the labor and more on research and development to make better quality products and to differentiate ourselves--and to innovate and to differentiate ourselves from our competitors in the market place. And that's where the real profit can be made, and we couple that with marketing and merchandising and branding so that we are able to, to have a profit, together with our workers enjoying prosperity. We pay more than the average mill does, and so that's fine, because we don't concentrate on the pay, we concentrate on where the real profit is in making the product better.
PAUL SOLMAN: Prof. Shleifer, that sounds like a difference, I think, to most people in our audience, what the two people are saying here. So is it--are we missing something again, or are they really saying the same thing, or is there a difference in those two approaches?
PROF. SHLEIFER: Look, Mr. Feuerstein has an innovative, lean company, and he can afford--it's his best strategy--he can afford to keep all his people. Not all companies are so fortunate. There are companies like AT&T who see a lot of the competition coming in. They don't need the same staffing as they had before. There are companies like IBM who face a huge decline in demand for the large computers because people want to buy PC's. The essence of a market economy is that there are companies that don't need all the people that they have that can, that, therefore, have the ability to have the labor that they need, not all the people that they used to have. And it's very nice that Mr. Feuerstein is in this position, and he sounds like he's a great executive, but just because he hasn't laid any people off doesn't mean that nobody should lay people off.
PAUL SOLMAN: Okay. Heidi Hartmann, if you don't like Mr. Dunlap's form of capitalism as much as you might like Mr. Feuerstein's, is there something that government can do? I mean, is there something that we as a society, in other words, can do, and do you think we ought to be doing it to lessen the insecurity, to make things more stable, as they clearly are in Mr. Feuerstein's company?
MS. HARTMANN: Yes. I think there's two issues. One is when is the downsizing necessary, and it obviously sometimes is for technological and other reasons, but is it sometimes a fad, is it sometimes just something that looks good to Wall Street in the short run but is really hurting the company in the long run? And I think what it--what the government's role is, is to really try to get the best behavior out of corporations to move the corporation to the, to the behavior that will help us all in the long run.
PAUL SOLMAN: I want to get one more issue in here, if I can in the time we have remaining. Mr. Dunlap, you've also gotten a lot of flak--I don't keep meaning--meaning to keep baiting you here, but about your CEO--about your pay package--it was like $100 million--or that was what was reported--and do you think--do you have any misgivings in the sense that, you know, that people feel that that's unfair, that, you know, people were laid off while you came away doing extremely well?
MR. DUNLAP: As I said before, I created $6 1/2 billion of value. I received less than 2 percent of the value I created. I also took a great personal risk with my own funds by buying stock, and I'd also like to comment that God forbid we get the government anymore involved in industry. They have the worst balance sheet, products nobody wants, a bloated cost structure, and they're horribly mismanaged.
PAUL SOLMAN: Mr. Feuerstein, do you as a CEO--how do you as a CEO feel about CEO pay these days? We were hearing--seeing that skewing or the incredible rise in CEO pay in the last few years that Graef Crystal was talking about.
MR. FEUERSTEIN: I really think it's unconscionable that at the very time that you have so much suffering amongst the workers as a direct result of the downsizing that the CEO would take so many times more than ever was heard of before. And I also would like to add that the--I said that the downsizing, technological downsizing was something that we have to do. There are other kinds of downsizing. There's the downsizing where you close up one company and you open up in a foreign country at, at very low rates. There's the business of outsourcing, contracting downsizing, where you get rid of your own workers and you hire in contractors at half the pay.
PAUL SOLMAN: Well, we'll hear--
MR. FEUERSTEIN: The workers of America can understand the technological downsizing, but they cannot understand the other, and it breaks their spirit and their feeling that the American dream is for them as well.
PAUL SOLMAN: Well, thank you all very much. We've run out of time, as usual.