Technology and new business practices

Some in academia and policymaking circles are proposing that unskilled workers in the first-world have been displaced, not by workers in other countries who work for lower wages, but by new technologies and the more efficient business practices that these new technologies spawn. In addition, the trend of replacing workers with machines in the manufacturing sector is now spreading to educated mid-level white-collar workers. The workers who aren’t displaced face downward pressure on their wages because they are confronted with the threat of being displaced, and are increasingly in intense competition with each other for fewer and fewer well-paying jobs. In the United Kingdom, if you wish to see the true employment situation, visit a Job Centre, see the despair, see the amount of people compared with the amount of pathetic jobs on offer…An even better idea, apply for a job. If you apply for a good one, it is common place to be one of up to seven hundred applicants. Despite this you might be lucky enough to get an interview…Don’t worry though, if you are willing to lower your sights a little and apply for a poorish job, the list may be down as low as a hundred or two. (Terry Burton, National Poverty Hearing at Church House, (3/19/96) In Western Germany, local companies have been investing heavily into labor-saving technology which has allowed companies to shed more than 1 million workers in the past four years. (The Economist, p. 18) Charles Handy warns that we are being afflicted with a new disease of which some readers may not have heard the name, but of which they will hear a great deal in the years to come – namely technological unemployment. (Charles Handy, p. 12)

The decline of the manufacturing sector in the United States has been well-documented, and has been going on for years in the coal mining industry, auto-manufacturing, steel manufacturing, and in industry after industry, companies have been replacing human labor with machines. (Rifkin, p. 136) This plant is the Starship Enterprise of the steel industry,î boast Milan Kosanovich, the president of Gallatin, which is a venture of the Canadian steelmakers Dofasco Inc., and Co-Steel Inc. With 200 people we will produce as much steel as it used to take 5,000 people to make. (John Holusha, The International Herald Tribune (July 1995) In the United Kingdom Dunlop’s productivity has risen over 40 percent with 30 percent fewer workers…General Electric reduced worldwide employment from 400,000 in 1981 to less than 230,000 in 1993 while tripling its sales. (Rifkin, pp. 136-138)

The most popular example given for the decline of labor in the manufacturing sector is in the production of automobiles, which Peter Drucker called the industry of industries. (Rifkin, p. 129) In looking at the world’slargest car manufacturer, General Motors, we see that whereas GM employed 500,000 people at its peak in the 1970’s, today it can make as many cars with 315,000 workers. (The New York Times, (3/6/96)

American blue-collar workers who have lost their jobs in the past have been able to find employment in the service sector and the government sector, but these sectors are now witnessing the same type of re-engineering that improved the efficiency of the manufacturing sector in the past. Corporate re-engineering is based on the simple fact that you don’t need 13 layers of managers to run AT&T when you have improved information technology. (Jay Mathews, The Washington Post (2/24/96)

Disconcerting as corporate downsizing has been the past several of years it looks to be a trend that will continue into the foreseeable future. The Manufacturing Institute makes note of the fact in their White Paper that the use of computers and computer-based production processes – such as computer-aided design, computer-aided manufacturing and just-in-time inventory systems – boosted productivity in manufacturing by 3.6 percent in 1995. Some studies suggest that these productivity gains will soon spread to the service sector, where productivity gains were less than 1/4 the gains in manufacturing last year. (NAM White Paper, p. 16)

Those who look at the issue of technology and downsizing are arguing that the massive layoffs that have recently been announced by AT&T, IBM, and other Fortune 500 companies are the harbinger of things to come for labor in the countries of Europe, North America and Japan. According to a senior Wall Street investment banker, most of its big corporate clients tell him privately that they have plenty of downsizing still to do. The big four banks will tell you they’re only just beginning, he says. They don’t want to talk about it because they don’t want to go to Washington and get lectured. (Editorial, The Financial Times (5/20/96) p. 8)

It is important to note that in the United States the fact is while less than one percent of all US companies employ 500 or more workers, these big firms still employed more than 41 percent of all workers in the private sector at the end of the last decade (1980’s). And it is these corporate giants that are re-engineering their operations and letting go a record number of employees. (Rifkin, p. 10) In fact, figures from Morgan Stanley, the US investment bank, suggest nearly 2.5 million workers were laid off in the course of re-structuring between 1991 and the end of 1995. Since downsizing, by its nature, has occurred mainly at larger corporations, the number enjoying the safe career structure once offered by IBM or AT&T has fallen. Total employment in the large Fortune 500 companies is 11.5 million, down from 16.5 million in 1979. (Stephanie Flanders, The Financial Times (4/29/96), p. 15) Added to the decline in the number of jobs offered by large corporations is the decline in the number of jobs available in the government sector as well. Government is also scaling back, although not as drastically as corporations…Between 1979 and 1993, 454,000 public service jobs vanished. (The New York Times (3/3/96)

Recently, the policy of downsizing has been coming under attack as a corporate strategy that seeks short-term gains on Wall Street at the cost of long-term damage to the competitiveness of American companies. Stephen Roach, America’s downsizing guru, has recanted his early espousal of the virtues of downsizing. He now says that the productivity resurgence of recent years has been built on the back of slash-and-burn strategies that have put extraordinary pressures on the workforce. It’s no surprise that many workers are fearful and insecure. I’m now convinced this approach is not a permanent solution, especially when the educational attainments of young workers are so plainly lagging. Tactics of open-ended downsizing and endless cuts in real wages are ultimately recipes for industrial extinction. (Stephen Roach, Daily Mail (5/16/96) p. 8)

The Financial Times recently published that for several years, it has been the conventional corporate wisdom that slim is beautiful…Now it appears that downsizing is suddenly out of fashion as stories emerge in the US about how it has proved a business failure for many companies. In spite of these stories, there seems little evidence of the trend being reversed in the UK, while in much of continental Europe job-cutting has only begun. (Richard Donkin, The Financial Times (5/24/96) p. I) Rick Mauer, an Arlington Virginia management consultant warns that cost-cutting has become the holy grail of corporate management, but what helps the financial statement up front can end up hurting it down the road. (Alex Markels and Matt Murray, The Wall-Street Journal (5/14/96) p. A1)