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« Back to Is There an Upside to Downsizing? main page    Transcript for: Is There an Upside to Downsizing?Think Tank Transcripts:Is There an Upside to Downsizing? ANNOUNCER: 'Think Tank' is made possible by Amgen, recipient ofthe presidential National Medal of Technology. Amgen -- helpingcancer patients through cellular and molecular biology, improvinglives today and bringing hope for tomorrow. Additional funding is provided by the John M. Olin Foundation, theRandolph Foundation, and the Lynde and Harry Bradley Foundation. MR. WATTENBERG: Hello. I'm Ben Wattenberg. The good news is the American economy is changing and corporationsare getting lean and mean, unemployment is low, inflation is down,and the stock market is up. The bad news is the American economy ischanging and corporations are getting lean and mean. Millions ofAmericans have received the proverbial pink slip. Many more fear fortheir jobs. What does corporate downsizing mean for America, for theeconomy and for you? Joining us to sort through the conflict and the consensus areRobert Samuelson, author of 'The Good Life and Its Discontents: TheAmerican Dream in the Age of Entitlement, 1945 1995'; Isabel Sawhill,R.J. Miller Chair in Public Policy at the Urban Institute; IrwinStelzer, director of regulatory policy studies at the AmericanEnterprise Institute; and Lester Thurow, author of the recentlypublished 'The Future of Capitalism: How Today's Economic ForcesShape Tomorrow's World.' The question before this house: Is there an upside to downsizing?This week on 'Think Tank.' What we call downsizing today is nothing new. A changing economyis as American as pizza. The end of the 19th century witnessed arevolution in agriculture and manufacturing. New technologies creatednew industries and destroyed old ones. Thanks to the invention of theautomobile, the rubber and petroleum industries came into being, butblacksmiths and wagon companies were downsized and destroyed. Job losses and suffering seem to be inevitable by-products ofeconomic and technological change. Today American society is riding the crest of another revolution,the so-called Third Wave Economy, led by the information and servicesectors. Fiber optics and computer software are booming, and so areservice industries like express mail delivery and restaurant chains.But many workers feel that this Third Wave Economy has an undertowand they're being dragged down. In the last seven years, almost threemillion workers have been laid off, this time restructuring,downsizing and layoffs have reached beyond blue-collar workers andhit managers and professionals. And there is an argument about whether downsizing is anunavoidable result of economic changes or caused this time by bigbusiness firing people in order to reap short-term profits.Politicians have seized on downsizing as a major issue in the 1996election. But what is downsizing really doing to the economy? There'sanother side to the picture. The unemployment rate is only 5.6percent, lower today than its been in many years, and the averageworker between ages 45 and 54 holds a job for nearly 10 years, longernow than 20 years ago. The stock market is hitting all-time highs.That's good news for investors and the tens of millions of Americanswith pension plans. But critics say today's market rises at theexpense of long-term corporate health. Let's start out just going around the room once quickly and getsome definitions out there and some ideas. Bob Samuelson, what is corporate downsizing? What do you think itseffects are? MR. SAMUELSON: Well, I think downsizing is just a new label for anold phenomenon. As the companies change, some of them go out ofbusiness, some of them split up, some of them lay off workers, someof them drop divisions. And in management people like fads and theylike new labels, and so we have downsizing. But I think really whatis going on is just a new variant of what's always gone on. MR. WATTENBERG: Okay, Irwin Stelzer, is it a fad? MR. STELZER: Certainly the name is a fad and what is going on iswhat Bob described. Plus one other thing. I think the dominant, largeAmerican corporation is being replaced by lots of smaller ones.AT&T is going away somewhat. We have Sprint and MCI. So a lot ofthe downsizing you see is simply a loss of market share by oncedominant monopolies and a very healthy result. MR. WATTENBERG: Bel Sawhill? MS. SAWHILL: I think that there's something going on here that'srelated to the extra competition that American businesses now face ina world economy that's putting terrific pressure on them to be moreproductive, more competitive, than they were in the past and iscreating some problems for some group of workers. MR. WATTENBERG: Lester Thurow, is there -- MR. THUROW: Well, I think the thing that's different is companieshave always gone out of business and laid people off, but whatfrightens people is it's now profitable companies that are layingpeople off, as opposed to companies like your buggy whip maker thatwere basically going out of business. And the other thing, of course,is, if you look at people who are downsized, they take a big cut inwages. And if you're over age 55, this is really devastating becauseyou're not likely to get reemployed. MR. WATTENBERG: The argument was made, and I think you talkedabout it, Les, that AT&T has cut these 40,000 jobs and that'sbecome sort of a symbol, but haven't other telecommunicationscompanies -- I mean, MCI, Sprint, the cellular companies, theInternet companies -- this is a booming industry. Haven't they pickedup jobs? MR. THUROW: Yes, it's like your introduction. It's simultaneouslyoptimism and pessimism. The pessimism, of course, is, if you look atAT&T, here used to be the prime American corporation that gaveyou a good job with high real wages and rising wages. They're laying-- you know, this is not the first layoffs at AT&T. This is thethird or fourth round of layoffs. On the other hand, the optimisticside is you've got all kinds of opportunities for companies -- youknow, new companies to do new things. And, if you look at totalemployment in the telecommunication industry, it's about the same asit was five or six years ago. And so it's optimism -- MR. WATTENBERG: But the consumer has many more options in -- MR. THUROW: Yeah, the consumer does, but if you are that workerfor AT&T, it's pessimism. MR. STELZER: Well, I think we have to keep in mind what you'vehinted at, which is what the consumer is getting. I mean, the priceof telecommunications services is just coming down enormously, andthat's partly the result of increased competition, which is reflectedin this so-called AT&T downsizing. Remember, AT&T was a huge,cozy monopoly that didn't have to respond to market forces -- MR. THUROW: But, see, most of that's technology, because if youlook at the rate of decline in prices in telecommunication, it didn'tspeed up after deregulation. It's been going down at about the samepace over the last 20 years. And the big thing is technology. Now, Ithink we did some very positive things as the result of the split-upof AT&T, but let's not give them -- give the split-up all thecredit for the decrease in the price of phone calls. Most of that'stechnology. MR. STELZER: Well, and also deregulation, which has increased therange of consumer options. I mean, I did a lot of work with AT&T,and the markets were orderly. The rate of introduction of new servicewas orderly. It's not anymore, which is a wonderful thing forconsumers. MR. WATTENBERG: And being disorderly is a hallmark of capitalismand a good thing, you say? MR. STELZER: I think disorder is a great thing in markets. MR. THUROW: Yeah, but you do have this group of older executives-- you know, the guy who's given 25 years of his life to AT&T orwhomever. That person didn't used to get laid off, you know, beforethey retired. MR. WATTENBERG: Weren't so many of these people downsized out? Iremember just before the 1992 election GM announced a big downsizing-- 78,000 people -- MR. THUROW: They were losing money. MR. WATTENBERG: Well, but waita minute. You know, down at the bottom of the story it said that theywere all either early retirements or early outs, buyouts, that it wasgoing to be over a five-year period. There really was not much there.Why are the corporations, I mean, behaving, it seems to me,idiotically and sort of flexing their muscles, saying, 'Look how manypeople we downsized,' when in point of fact they could almost besaying it's organic and, you know, it's -- MR. SAMUELSON: But there is something that has changed here, andit's true that some of the people who lose their jobs are being --the jobs are being eliminated through attrition or buyouts or earlyretirement, but some people are just being outright fired. And a lotof the people who are losing their jobs through buyouts don't reallywant to leave. They're taking that because it's the best option andthey may find another job and the buyout may be reasonably generous.But I think corporate behavior has changed in the last 10 or 15years; I don't think it's in the last 18 months. But in the '70s andeven through parts of the early '80s, corporate managers consideredthemselves responsible, tried to avoid layoffs among their careerworkers, among precisely the people you are talking about. Now theyare not. But I think what we need to recognize is in some ways -- notfor the individual worker who gets laid off now and might not havebeen laid off in comparable circumstances 20 years ago, but in someways for society this may be a beneficial development. MR. WATTENBERG: Bel, what do you think of that? Do you buy that? MS. SAWHILL: Well, I do think something has changed from the '60sor the '70s, but I think that there's so much focus on a fewcompanies -- you know, the AT&T story or the IBM story or the GMstory -- and when we look at the actual numbers of people who areinvolved, although one would never want to minimize the impact onindividual communities or families, nevertheless, overall these arenot large numbers of people. The unemployment rate right now is aslow as it has been, with the exception of about three or four othertimes, in the last 25 years. So we must be creating jobs at the sametime that we're destroying them. Otherwise, the unemployment ratewouldn't be so low. MR. THUROW: But that's a little bit like saying the rape rate islow and, therefore, women shouldn't worry about rape, because,objectively, your probability of being raped is not very high. That'sall true, but, you know, the real issue -- see, I think there'ssomething you mentioned in the beginning that's key. As late as the'81-'82 -- '80-'81 recession, most of the people who were laid offwere blue-collar workers, and they were used to being laid off. Theywere laid off; they were hired back. This was kind of a normal thing.But very few people in the recessions up until '90-'91 werewhite-collar workers and managers. And what has changed is who getslaid off. MR. SAMUELSON: To some extent we've democratized this. It is -- MR. THUROW: Oh, I didn't say it was terrible. MR. SAMUELSON: Yeah, to some extent. So it gets more visibilitybecause the people who run programs like this, who write for The NewYork Times, can more easily identify with the people who are beinglaid off. But in terms of the social harm that's being caused, it's abit more traumatic for those people because it's true. A lot of thosepeople never expected to be laid off and never thought they wouldhave to worry about it. So there is a little bit more anxiety,perhaps, among that subset of people, but, as Bel points out, jobsare being created very rapidly. The anxiety, to some extent, I think,is causing moderation in wage behavior which has sustained theeconomic expansion, and I would say, in their totality, our labormarkets are probably working better today than they were working 20years ago. MR. WATTENBERG: But isn't that nice, clean expression --moderation and wage expansion -- I mean, isn't that somebody notgetting more money? I mean, it sounds nice, but -- MR. SAMUELSON: But it's -- but, you see, it's just the old kind ofdilemma of economics. It's sort of things that look bad for anindividual may be good for the entire system, and then, therefore, insome ways good for everybody. MR. STELZER: But, see, I -- MR. SAMUELSON: When you look at -- MR. STELZER: Sorry. MR. WATTENBERG: Go ahead. No, go ahead. MR. STELZER: Well, I mean, first of all, let's clear up thedownsizing question. There's a re-sizing going on. The fact is, whenAT&T lays off a whole bunch of workers, very often what's being--what's replacing those jobs are lots of small companies. Most ofthe jobs that have been added in the economy in the past 10 or 15years are small companies. Well, it's a big headline when you lay off10,000 workers. It isn't a big headline when you hire 10. So I thinkyou have a disjunction in that you have a transfer of employment fromvery big companies to much smaller companies. Second -- MR. THUROW: See, I think that -- MR. WATTENBERG: You are sort of surrounded by 'optimoids' here. MR. THUROW: See, I think -- MR. WATTENBERG: You are a 'pessimoid.' MR. THUROW: I think there's a problem coming down the pike forcorporate America out of all of this. And you see it very clearly ifyou, like myself, where you work in a business school, used to be adean of a business school. MR. WATTENBERG: At MIT. MR. THUROW: At MIT. Because what'shappening, if you look at people who are getting MBAs, they arecurrently cynical beyond belief and don't believe in corporateloyalty whatsoever. And so what you've got in corporate Americaanymore is kind of schizophrenia, because the other thing the bigcorporations are saying, in addition to the fact that we've got todownsize, rightsize or whatever the word is, teamwork. And how do youpreach team work at the same time you're downsizing? MR. WATTENBERG: And this is why you have a very nervous view ofthe future of capitalism as you describe in your book? MR. THUROW: I think this is one of the things that's going tocreate tremendous problems going out into the future. Because, if youlook at the attitude of those people who are going into themanagement cadres, it is a very different attitude than the peoplewho went into the management cadres 20 years ago. MR. STELZER: I think you've just said the opposite of what Bobsaid. The labor market is working better. You don't have peoplesalted away in big corporations with low productivity. You have themmoving where they can get paid more, where their marginal revenueproduct is higher. You have more fluid labor markets. You have greatloyalty in Germany to corporations, and you have an 11 percentunemployment rate. You have great immobility in France; you have a 121/2 percent unemployment rate. A fluid labor market may be morenervous making -- MR. WATTENBERG: Isn't -- I mean, as Les says, isn't corporateloyalty a good competitive tool for a corporation to have? Aren't weeroding that? I mean, don't you want to have loyal, trustworthy,honest, you know, et cetera? MR. STELZER: I'm for trustworthy and honest. I don't know whatloyal means. In other words, if you want to have employees who arecosseted, who are kept on, as the steel industry used to do, and thensuddenly gotten rid of, or kept on forever -- MR. WATTENBERG: And like the big networks, by the way. MR. STELZER: Look, the only way living standards can go up is ifproductivity goes up. MS. SAWHILL: The big problem is wages. You know, real earningshave really not been going up particularly for the less educatedmales, and that's because productivity has been growing very, veryslowly. So, if we're concerned about what's happening to incomes, wehave to be concerned about productivity. And if we're concerned aboutproductivity, then it seems to me that all firms have to be worriedabout whether they're going to be, you know, using people asefficiently as possible. And that's going to lead to some downsizing.And that's the fallout from trying to become competitive and havingproductivity growth and higher standards of living. I don't thinkthat there aren't some social problems associated with this. I thinkthere are. But, you know, that's the fundamental economic problem -- MR. THUROW: I want to talk about where loyalty and teamwork areimportant. Suppose you're Intel and designing a new chip where you'vegot a team of three or four engineers doing it. You can't afford alot of turnover in that team. And what you're telling a generation ofAmericans is, 'No matter what you're doing and how important it is tothe company's future, if somebody else offers you a dollar more, getout the door.' MR. WATTENBERG: Well, why can't you sign an employment contractfor the length of the development of that chip, for example? MR. SAMUELSON: Or why can't Intel pay them more? MR. WATTENBERG: I mean, I assume that's what they do. MR. SAMUELSON: Or Intel can pay them more. MR. THUROW: Because the answer is that the knowledge about thatchip to Intel's competitors, and Intel already knows what it's doing,so that I'm more valuable to the competitor. And you've hadsemiconductor firms in Silicon Valley that have gotten into all kindsof trouble because of turnover in their engineering ranks. And theidea that you can run corporations with people coming and goingcrazily just doesn't work. MR. SAMUELSON: But, you know, that is true up to a point, and thatis the dynamic that most large corporations face. They have to keeptheir costs down, so if they've got too many workers, they've got toreduce their workforces. A lot of companies, by the way, don't havetoo many workers. Not everybody is downsizing. Not everybody isthrowing people out the door. But, on the other hand, most largecorporations do have to maintain some sort of continuity, and theyneed to maintain good relationships. And that's why, in fact, mostmiddle-aged workers, especially middle-aged workers reasonablyskilled, have stable jobs. It's because companies recognize in theirown economic self-interest they must maintain stable relationships. Now, you talk about the semiconductor industry. This has alwaysbeen a problem in the semiconductor industry, going back to the '60s.Intel itself was a spin-off of an earlier semiconductor company. Andit's been a problem because what you have in these new industriesparticularly is you have a lot of very ambitious, high-energy peoplewho often want to make a lot money, often simply want to run theirown show, and they're not willing to play third or fourth fiddle toother people. MR. WATTENBERG: What about the politics of this thing? Forgettingwhether or not you think it's bad or good, hasn't it become acorrosive political issue? I mean, you had Pat Buchanan raising it.The labor unions are raising it, saying it's a terrible thing.President Clinton is on board. You now have the situation, becauseClinton has been in office for three years, even the Republicans aresaying, 'Oh, my god, these corporate nasty brutes are laying offpeople.' Isn't this in itself a corrosive situation? MR. SAMUELSON: Well, I don't know how this is going to play outpolitically, and I'm not sure it's easy for either party to exploitit. Clinton is a very -- he's always played on people's insecuritiesand anxieties. On the other hand, he is the incumbent now, and if hesays people are more insecure now than they were three or four yearsago, it seems to me it's going to ricochet on him. I think that theseare basically issues that are disconnected from politicalpersonalities. They maybe try to be exploited by politicians, butthese are economic trends, and we ought to get away from the notionthat politicians cause, either for good for ill, anything good or badthat happens in the economy. They are not omnipotent, and I thinkit's going to be very difficult to play this issue on the economy. MR. WATTENBERG: I would like to say amen to that. I happen toagree with that, that politicians are making this case that they sitdown in the basement of the White House with a little machine andthey do something called create jobs. And, you know, Democratsbelieve it. Republicans lie about it because they don't even believeit. And it's just not so. Would you like to rebut that, Bel Sawhill? MS. SAWHILL: No, I actually have quite a lot of sympathy with thatargument, particularly on this whole downsizing question. I think itwould be counterproductive to try to do the kinds of things theEuropeans do -- you know, go in and tell employers that they have tokeep their workers, they have to provide certain benefits -- and youget so many safety nets that the labor market stops working and youadd double-digit unemployment. And, so for all of our so-calledinsecurity, we at least have low unemployment; we have more growth.And so I think government could make matters worse. Now, that doesn't mean that outside of corporate America weshouldn't strengthen some safety nets for those who are earning lowwages. I'm in favor of things like a higher minimum wages, a strongerearned income tax credit which provides a subsidy for low-incomeworking families, and some portable health insurance and those kindsof things. MR. WATTENBERG: Les Thurow, you have described yourself, I think,as the last Euro-optimist. MR. THUROW: Right. MR. WATTENBERG: Bel, has just said that it isn't working in Europe-- MR. THUROW: Oh, I wouldn't put all the restrictions on labor thatthe Europeans did. I'm a European optimist for other reasons. MR. WATTENBERG: You wrote that Europeans aren't creating jobs, butthat their wages are going up. MR. THUROW: They've protected the wages of the existing employeesat the cost of not creating jobs. I don't think that's right -- MR. WATTENBERG: And unemployment has gone way up. MR. THUROW:Unemployment's gone way up. Now, we have a lot of hiddenunemployment, too. You know, if you look at this new unemploymentindex that we've just put out, where you add in the part-timers thatwant full-time work and you add in the people who don't meet one ofthese technical tests for being unemployed but they still say they'relooking for work and if you look at, you know, you've got eightmillion Americans working temporary jobs and you've got eight millionpeople who are now called self-employed contractors -- a lot of themare professionals who are too proud to call themselves unemployed --I think we have more unemployment than 5.6. MR. WATTENBERG: You have to subtract the first 4 or 5 percentbecause it's frictional unemployment of people who have left theirjobs voluntarily. I mean, just that goes up and down. MR. THUROW: But, see, I -- your original question was: Forgetwhether it's true or false, what's the politics of it? It seems to methe politics of it is, if Mr. Buchanan had been running in theDemocratic primaries, he would have gotten more than 25 or 30 percentof the vote. Because, if you think of it, he was sounding likeRoosevelt. 'Malefactors of great wealth.' You know, all of these kindof phrases. And I think there is a floating hostile group out therethat are a little bit like that movie 'Network.' Remember where hesaid, 'Throw open the window, throw your head out and scream, `I'mmad as hell'.'' I think a lot of -- MR. WATTENBERG: 'And I'm not going to take it anymore.' MR. THUROW: 'I'm not going to take it anymore.' And I think thereare a lot of Americans who have put their head out the window andsaid, 'I'm mad as hell; I'm not going to take it anymore.' And thenthe question is, does the political process respond in an intelligentway with some things that make sense, or does the political processrespond in a non-intelligent way? But respond it will. MR. WATTENBERG: Today is 1996. Transport yourself 20 years intothe future. It's now 2016. What's it going to look like? MR. SAMUELSON: I have no idea. MR. WATTENBERG: You write for a newspaper, and you have no idea? MR. SAMUELSON: No idea. MR. WATTENBERG: Well -- MR. SAMUELSON: You know, what can I say? MR. WATTENBERG: Well, you can say capitalism is going to solve itsproblems. MR. SAMUELSON: I will tell you this. In the early '60s, if youwould have brought 100 economists into a room and said, 'Will theUnited States ever have double-digit inflation outside postwar time?'I doubt you would have gotten one to say yes. And yet, within a dozenyears, we had double-digit inflation. You can look at almost everymajor crisis we have had, and most of them were unpredicted. So theanswer is, I don't know. If you're asking, do I think capitalism is going to survive? Yeah,I think it's going to survive in some form not all that different ina social sense from what we have today, because it's survived for 200years, and it's part of the political culture of the United States.It is not simply an economic system which we have and can discard forsomething else. It is a part of our political and popular culture.So, yes, I think capitalism is going to survive. MR. WATTENBERG: All right, Irwin Stelzer? MR. STELZER: Since I won't be around in 20 years -- I'm much olderthan you -- I can be braver. The notion that there's a middle classout there waiting to explode seems to me a bit far-fetched. Themiddle class out there is buying houses in record numbers, buyingcars in record numbers, borrowing money, doing all the things thatpeople who expect to have a future to look forward to. So I don't seeany incipient revolution. I see people becoming acquainted with whatused to afflict only -- insecurity that used to afflict only bluecollar people who didn't write letters to The Washington Post and TheNew York Times. I see the decline of the, quote, 'good corporation,'the paternalistic corporation, deciding how to deploy its monopolyprofits as a good thing, and so, therefore, I'm relatively optimisticabout the future. MR. WATTENBERG: Bel Sawhill? MS. SAWHILL: You know, there is something new here, which is thatAmerican workers are having to compete with workers all around theworld, many of whom are coming up educationally and yet earning muchlower wages. So there's going to be this continuing pressure, itseems to me, downward pressure, on wages in this country from thisglobal competition, and somehow or other we're going to have to makesome adjustments that don't interfere with the efficiency andcompetitiveness of our economy, but deal with some of the socialfallout from this. MR. WATTENBERG: Will we be successful at that? MS. SAWHILL: Who knows? MR. THUROW: I think we're going to get a very unhappy middleclass, because whatever you believe about absolute wages, thedistribution is spreading out, and you get this very widespreadsentiment at the moment among the middle class that 'my children arenot going to happen the standard of living that I had; they're goingto have a lower standard of living.' And I think in a country likethe United States, that is politically explosive. Now, I think we'regoing to have capitalism 20 years from now because there's no othersystem that exists. Socialism, communism, all these others -- Naziism-- all these other things have gone away. But I think, if you thinkyou don't have an unhappy middle class, then you're not living in thereal America. MR. WATTENBERG: Okay. Thank you, Lester Thurow, Robert Samuelson,Isabel Sawhill and Irwin Stelzer. And thank you. Please send your comments and questions to NewRiver Media, 1150 17th Street, NW, Washington, DC, 20036. Or we canbe reached by e-mail at thinktv@aol.com or on the World Wide Web atwww.thinktank.com. For 'Think Tank,' I'm Ben Wattenberg. ANNOUNCER: This has been a production of BJW, Incorporated, inassociation with New River Media, which are solely responsible forits content. 'Think Tank' is made possible by Amgen, recipient of thepresidential National Medal of Technology. Amgen -- helping cancerpatients through cellular and molecular biology, improving livestoday and bringing hope for tomorrow. Additional funding is provided by the John M. Olin Foundation, theRandolph Foundation, and the Lynde and Harry Bradley Foundation. END Back to top  Think Tank is made possible by generous support from the Smith Richardson Foundation, the Bernard and Irene Schwartz Foundation, the Lynde and Harry Bradley Foundation, the John M. 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