Q: In many ways the problems in the economy are being laid at the feet
of corporate leaders. How much of that is accurate?
Roach: It's hard to say how much of this populist rhetoric is
perception versus reality, but it's happening. And my sense is, it will
continue to build over the next several months and years. It is deeply rooted
in the new economics of the 1990's, economics that are putting significant
pressure on workers through the twin forces of layoffs and real wage
And it's a pretty pervasive issue that workers have become increasingly
conscious of, not just through their own economic issues, but through the
rhetoric on the campaign trail and the attention that has occurred in the arena
of public opinion.
Q: You call it the "new economics of the 90's." What do you mean by
Roach: Well, the new economics of the 90's, as I see it, is all
about corporate survival through boosting productivity in an effort to regain
and recapture our competitive prowess. The good news is, we've done it. America
is back on the top of the global competitive sweepstakes in a fashion that we
have not seen in the United States since the 1960's.
But the bad news is really how we've gone about doing it. There's
obviously been a lot of inroads made in terms of bringing new technologies into
the workplace: outsourcing, reengineering, reinventing corporations. But the
plain fact of the matter is, there's also been a lot of pressure brought to
bear on the lifestyles and the rewards that have been paid out to American
workers. So we've had a rather paradoxical outcome of the new competition of
Shareholders have done really well, but the average worker has not. And I
don't think that's sustainable for a long period of time.
Q: In other words, you're saying that at some point this will all
trickle down to the workers?
Roach: Well, I think that our system is such that accountability is
key. We cannot persist for a long period of time with one small slice of our
society reaping all the rewards.
And, I think, the first half of the 90's was about rewarding shareholders.
And, I think, the second half of this decade is going to be a clear discussion
about how to ship some, but not all of those, rewards back to the average
Q: Are companies going to voluntarily start paying more? Is it going
to have to be done by legislation?
Roach: Well, I think the pendulum shifts because corporate leaders
have brought to their attention the notion that they may have gone too far down
the path of slash and burn cost cutting by squeezing labor. This awareness
comes about, not so much because of their own innate brilliance, but again
because of the threats of what's going on in the legislative arena in
Washington, through legislation that would clearly raise the cost of doing
business for corporate America.
And also, again, by being vilified in newspapers, magazines and on
Q: Do you think any of this legislation is worthwhile? Do you think it
can be a healthy effort?
Roach: No, I think that re-regulatory initiatives would be an
unmitigated disaster for corporate America, for the financial markets, and for
the U.S. workers. That would really be deja vu 1970's. It would
be altering the efficiency by which corporate America desperately needs to
maintain its competitive edge.
However, it's the threat of those initiatives, and the possibility that we
may be on the cusp of seeing some of these laws come to pass, I think, that
will bring corporate America to its senses and begin to alter many of the
restructuring practices that have caused this type of uproar across the
Q: Do you think there was ever a time when corporate leaders did have
more of a sense of community, of what is being termed social responsibility?
Is that for real or are we just being nostalgic?
Roach: I think that we're being overly nostalgic in sensing that the
world has changed. The corporate leaders have gone away from the kind of
benevolence of yesteryear and into the heartless, cruel world of the new global
village of the 1990's. I think that corporate leaders have always done their
best to have a profitable operation, and to maximize returns to
The tactics by which they've gone about this have changed from time to
time, as have the competitive stakes in the context of which these decisions
are being made. There's undoubtedly a case that can be made that would
certainly indicate that today's world is far more complex than it was 10 years
ago, 20 years ago or 100 years ago.
So the tools that are at the disposal of corporate leaders have certainly
altered dramatically and, in many cases, are making life a lot tougher for the
Q: What kinds of things are you talking about when you say the "tools"
Roach: I think that corporate decision-makers right now are
bringing new elements to bear on many of the strategic decisions that have an
impact on American workers, such as new technologies in the work place,
outsourcing, shifting jobs that used to be in-house off to third party vendors.
There's been a lot of re-engineering which really involves a radical
rethink of basic processes in both white collar and blue collar functions.
These are new strategic tools that have not been in place in decades past. And
in many cases, they're long overdue. They're removing the bloat. But they're
putting a large class of American workers through an economic angst that they
have not had to go through in the past. And this is new, and this is part of
the pressure that's being brought to bear on workers who are feeling cut out of
this prosperity of the 1990's.
Q: This idea that you have a duty to stockholders. For instance, all
the analysts who follow Briggs & Stratton, and they say to me, "Briggs has a
fiduciary responsibility first and foremost to the stockholders." Is this a
Roach: The notion that the corporate managers are always seeking to
maximize return for every minute of every day to shareholders, I think, is
really being distorted. In theory, of course, that's what corporate leadership
is all about.
But shareholders are in it for the long haul, not necessarily there to grab
each short term tick of earnings performance. And over time, as best I can
understand it, if workers are generating returns to shareholders, and are not
getting paid for it, then eventually there will come a time when workers will
not be delivering the returns that managers want to give to
So there has to be an equitable distribution of the contribution of the
workforce to both shareholders and rewarding the workers themselves.
Otherwise, the entire system of corporate governance is up for grabs.
Q: So, the pressure from Wall Street on corporate leaders, is that
newer than it used to be?
Roach: No, I don't think that Wall Street has all of a sudden
changed the rules, and they've decided to reward blood, pain and layoffs with
tremendous share price appreciation. I think the environment itself has really
changed corporate behavior a lot in the past 15 years.
In the early 1980's corporate America had its back against the wall. We
had a massive foreign trade deficit, a loss of market share at home and abroad.
And companies had to figure out a new way to compete or in many cases they'd go
out of business.
They thought long and hard, and what they came up with was largely a recipe
that involved slashing labor costs, not surprisingly. Labor accounts for 70
percent of all production expenses in the U.S. And investors, when they
figured out that corporations were serious about slashing labor costs,
celebrated because this was the opportunity for expanded profit margins. And
that is the stuff that makes for long-lasting bull markets.
But, ultimately, that type of strategy can only go for so long. If all
you're doing is boosting profit margins by slashing labor, eventually you end
up with no one working for you.
Q: A lot of corporate leaders are saying, "All that talk from
economists, and mostly the media, is wrong. Wages are going up. Social
mobility is great." Is all of that true?
Roach: I don't think so. I think that over the last ten years the
numbers speak for themselves. Compensation per hour, which includes straight
time wages, benefits, vacation leave, gain sharing, have risen an average of
about half a point per year. That's probably one-fourth the pace of worker
productivity gains. And far below the sharp increases in share prices and
Q: What's going on here? Has corporate streamlining gone too
Roach: It's quite possible that it has. I think there are perfectly
legitimate reasons why corporate America had to struggle for competitive
survival a decade ago. Massive foreign trade deficit, loss of marketshare at
home and abroad. We had to get our act together.
And corporate leaders went into this deep think and came up with a strategy
that there were too many workers on payrolls and the bloat had to be
eliminated. And, of course, in many cases those redundancies are legitimate.
They had to go.
But, we haven't just had layoffs. Workers who have been victimized through
no fault of their own, the survivors have been underpaid relative to the
contribution they had been delivering over the past decade. And my sense is
that we probably have now gone too far in squeezing labor and labor alone in an
effort to boost our competitiveness.
Q: Why are so many CEO's saying it's just not true?
Roach: Well, I think, CEO's want to pretty much deflect the
responsibility for squeezing labor to external conditions in the environment.
-- whether it's the deregulation, globalization, cheap Third World labor,
factors beyond their control that are forcing them to compete.
Q: How does the fact that wages are not going up for most workers
affect the economy?
Roach: Wage stagnation means that, in general, consumers feel
pretty shaky about their ability to stand on goods and services. And families
really have to struggle to make ends meet. It means that if you want to boost
your purchasing power, you have to work longer. And you probably have to ask
your spouse to join the workforce. So, families are under tremendous
The net result is that overall purchasing power, real disposable personal
income, continues to rise at roughly about a 3 percent annual rate, which is
not a bad increase. But, in a stagnant, real-wage environment families have had
to stretch a lot to get that type of income growth.
Q: In other words, spouses have had to go to work?
Roach: Spouses have gone to work. And the primary workers, the
major breadwinner of the family, has had to extend his or her work day to
Q: Is Wall Street at fault here, the pressure on corporate managers for
Roach: I think it's really a bit of an exaggeration to blame the
financial markets. Investors are pretty agnostic as to how earnings are
delivered. They don't have a preference for slashing labor or holding real
wages constant. They pay just as much for a company if the corporate leaders
can figure out new and different ways, say through technology, outsourcing,
reengineering to generate earnings.
At the end of the day investors are paying for the discounted present value
of an earnings stream, irrespective of how that is attained.
Q: When the economy is strong, stock prices go down. Why is
Roach: Wall Street and Main Street can diverge at times when
investors have really formed overly optimistic expectations about the investing
environment. At the start of this year, for example, investors were convinced
that the economy was weak, interest rates were coming down and inflation was
dead. Those, in retrospect, were assumptions that were all wrong, and they
were far too optimistic.
And, as the economy has shown some signs of coming back and some of our
commodity prices have risen, and interest rates have moved up, investors have
had to rethink those expectations. And it's that "rethink" that makes markets
move very sharply. It doesn't necessarily mean good news is bad news; it just
means that we've gotten too hopeful in thinking the good news would continue
Q: So, you don't think Wall Street and Main Street are at odds with
Roach: Look, from time to time Wall Street and Main Street can go
down different paths and diverge. At the end of the day, they must end up at
the same destination. And, I think, that's what the new economics of the 1990s
are all about. The first half of the decade has been glorious for Wall Street.
The second half may be a lot better for Main Street.
Q: Is there any way that Wall Street can reward social responsibility,
or at least a return to giving workers a fair shake?
Roach: I think at the end of the day, Wall Street and the workers
are in it together. Because if corporate leaders figure out competitive
strategies that also give workers an equitable reward, then I think the
productivity gains that have first been uncovered through restructuring will be
sustained, and earnings performance will ultimately end up exceeding investor
expectations over the longer haul.
There may be a period, though, a transitional period where if workers get
more, earnings will get hit on a short term basis and the markets will respond.
That's inevitable. Markets go up and down. It's been a one-way bull market for
a long, long time.
Q: So you think corporations should be paying workers more, not
necessarily for the workers' benefit, for their own benefit?
Roach: Absolutely. Corporations cannot sustain their long term
performance and their market share with disgruntled, disenfranchised, underpaid
workers. There is absolutely no way that that is a strategy for long-term
Q: What would you advise Secretary Reich to do?
Roach: Look, I think that all public leaders, the Secretary of
Labor included, really serve the useful purpose of stirring up the debate. And
Labor Secretary Reich, you may not agree with his point of view, but he has
raised many key issues that the corporate leaders are now having to come to
grips with, as are investment managers and advisors.
The debate is a healthy one. It's long overdue. I think it's very important
to raise the flag as to where the stresses and strains of America's competitive
strategies are going.