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The Specter Haunting Your Office

1.

Donald Davis was not concerned about imports in the late 1960s, when he started out as CEO of the Stanley Works, the country’s leading manufacturer of hand tools. By the early 1980s, the challenge of competing against inexpensive tools made in Taiwan, Korea, and China had swept most of Davis’s other concerns aside. His first response was a plan to streamline management, reducing the company’s white-collar ranks through attrition. An old-school CEO who had been with Stanley most of his adult life, Davis considered layoffs a last resort. But by the time he stepped down as CEO in 1987, hundreds of factory workers had lost their jobs on his orders.

His successor, Richard Ayers, had the advantage of knowing what he was in for. An industrial engineer by training, Ayers mapped out a long-term strategy that called for layoffs, plant closings, and outsourcing: sledgehammer and crowbar production was moved to Mexico; socket wrench production to Taiwan. But the company also invested in making its domestic operations more efficient, and Ayers took special care to preserve jobs and facilities in New Britain, Connecticut, where Stanley had been a major employer for more than a century. By the mid-1990s, revenues had stabilized, profits were up, and Ayers could reasonably tell himself that his “evolutionary” approach had worked.

Wall Street, however, was not impressed. Securities analysts, comparing the jobs eliminated by Ayers with the layoff numbers at other old-line companies—Scott Paper (11,000), Sears (50,000), General Motors (94,000)—suggested that Stanley’s key problem might be leadership rather than imports. At age fifty-five, according to Louis Uchitelle’s The Disposable American, Ayers concluded that he did “not have the stomach” for any more job-cutting.

When Ayers retired, Stanley’s directors turned to an outsider. The new CEO, John Trani, approached the import question with a clear mind. In his seven years as CEO, he shifted virtually all tool production to East Asia and Mexico, closed forty-three of Stanley’s remaining eighty-three plants, cut the payroll from 19,000 to 13,500, and reduced its presence in New Britain to, in Uchitelle’s words, “a collection of mostly empty factory buildings and reproachful former workers.”

Through the story of the three Stanley CEOs, Uchitelle traces a mental journey taken by a great many top managers over the past few decades, and it would be hard to find a better distillation of the new mindset than his brief account of an interview with Trani in November 2004 (just a few days before he, too, retired, with an $8 million bonus and a $1.3 million-a-year pension). “Layoffs and plant closings,” Trani says, “are not such a rare event anymore that one generally makes a big deal out of them.” Scarcely mentioning the laid-off workers, he acknowledges no hesitation, no regret—in fact, no alternatives. The story, as he tells it, comes down to the difference between successful leaders, who “look at reality as it exists,” and unsuccessful ones, who make the mistake of “hoping for it to change.”

Trani came to Stanley from General Electric. In his attitude toward layoffs he resembled his former boss, Jack Welch, who had pushed more than a hundred thousand workers off the GE payroll. Welch’s combative style has gone out of fashion lately; in fact, Uchitelle had something to do with that. A longtime reporter for The New York Times, he was largely responsible for “The Downsizing of America,” an attention-getting series of Times articles on the mass layoffs of the early and mid-1990s. Those articles helped inspire a backlash. Few CEOs, questioned now about layoffs, would permit themselves to boast, as Trani did, of “taking out” workers—as in, “We took out 23 percent of the people” at Best Access, one of the companies Stanley acquired. In his actions if not his affect, however, Trani speaks for a school of management that remains ascendant. He drove Stanley down the path of a great and continuing migration—away from the postwar view of the corporation, whose success rested on a secure workforce and a strong local economy, toward what Greg LeRoy, in The Great American Jobs Scam, calls the “rootless corporation,” which defines success by financial measures alone, making it possible to “save” a company by destroying much of what it was.

The Downsizing of America” came out in March 1996—not the best moment, in hindsight, for a 40,000-word lament on the theme of growing economic insecurity. Inflation and unemployment were falling. The stock market was rising. In Silicon Valley, Washington, D.C., and other centers of optimism, influential commentators were turning out books and articles intended to explain why, unlike previous good times, these could be expected to last virtually forever. Even many of Uchitelle’s journalistic peers thought the Times had been too intent on telling an old, downbeat story to notice the new story of America’s astonishing resurgence. In The Disposable American, Uchitelle makes it plain that he is writing about a long-term change—one that neither began nor ended in the 1990s, and one that transcends even the wrenching adjustment of an economy moving from manufacturing toward information and service. “The permanent separation of people from their jobs, abruptly and against their wishes,” he asserts, has become “standard management practice.”

It’s a fair statement. Over the past quarter-century, the victims (and potential victims) of layoffs have come to include managers, professionals, and workers in such growth industries as banking and telecommunications. Hardly any company is too successful nowadays to consider a large-scale cutback in jobs. Early last year, Intel was showering cash on its shareholders in the form of dividends and share buybacks after reporting record 2005 profits of $12.1 billion (partly thanks to a custom-made tax break known as the American Jobs Creation Act). None of that kept CEO Paul Otellini from announcing, several months ago, plans to eliminate 10,500 jobs—10 percent of Intel’s total—in order to become a “more agile and efficient” company.

The modern layoff is frequently a hidden layoff, entered in the personnel records as a buyout, an early retirement, or the severing of relations with someone deemed a contractor rather than an employee. Procter and Gamble has unloaded some 20,000 employees since 1993, Uchitelle says, while scarcely registering a blip on the Bureau of Labor Statistics’ count of involuntarily displaced workers. With all their omissions, however, even the official data suggest a sharp decline in job security. In 1978, a middle-aged American male could expect to remain with the same employer for eleven years, according to BLS figures. Now it’s 7.5 years. Over that same period, the average duration of unemployment has lengthened from thirteen to almost twenty weeks. The long-term economic damage that people suffer has grown, too. If you factor in the impact of foregone pay raises in the old job and lower wages in the new one, according to the Princeton University economist Henry S. Farber, the typical laid-off college graduate now suffers a 30 percent loss of income, up from 10 percent in the early 1980s.

Uchitelle sees Jack Welch as a pivotal figure. Before he came along, a CEO was expected to manage the existing enterprise. Welch enlarged the job description: lifting a page from the corporate raider’s playbook, he promised to manage the shareholders’ capital as well, by maintaining a steady lookout for more profitable places to put it. There is a case to be made for his approach. It may be better for a company—better even for its workers, and for the economy—to have layoffs spread over time rather than deferred until a moment of crisis. What today’s managers like to call a “flexible workforce” has arguably helped American corporations seize opportunities they would have missed if the US had the kind of employment protection that exists in, say, France. Uchitelle is not dogmatic on these points. He simply wants it acknowledged that we are going through something more than a few bumps on the road to “a new equilibrium at the high end of innovation and production.” Permanent disequilibrium, he argues, would be a more accurate picture of where we’re headed.

Uchitelle’s harsh view of the new workplace order sets him at odds not only with corporate leaders but with economic advisers to the last four presidents. Layoffs, he reminds us, were a hot issue in the 1992 presidential campaign. Although Ross Perot’s “great sucking sound” is better remembered, Bill Clinton also came down hard on companies that closed factories where Americans made “a decent standard of living” while opening “sweatshops to pay starvation wages in another country.” Candidate Clinton wanted corporations to spend at least 1.5 percent of their earnings on “continued education and training.” (Companies that made such a commitment were less likely to let employees go, research showed.)

But once he became President Clinton—and as the budget deficit moved to the center of his thinking—continued education and training got a new name and spin. Now the Clintonites began to speak of “lifetime learning,” which was more exhortation than policy and directed mainly at employees, not employers. Americans who had lost their jobs or who sensed their skills becoming outmoded were told that they could take charge of their careers, go back to school, and emerge retooled and “reempowered.”

While the policy experts may have believed some of this, it bore little relation to the experience of laid-off workers around the country, according to Uchitelle. There were many retraining programs, but scarcely any actual retraining, he says, largely because few appropriate jobs were waiting to be filled even in the surging economy of the late 1990s. The first order of business in many retraining programs was to defuse anger and lower expectations—a process known in the trade, he reports, as “housebreaking.” In The Disposable American, Uchitelle describes an Indianapolis program created largely for United Airlines mechanics who lost their jobs when the company bailed out of an advanced maintenance shop for narrow-body jets. The mechanics show up looking for tips about companies that might be hiring or new careers beckoning. What they receive, mostly, is airy wisdom about attitude, interpersonal relations, and the inner self; at least one classful gets free copies of the global best seller Who Moved My Cheese?, which warns those in economic distress not to be led into indignation or dismay by the overly complex human brain. Far better, the book suggests, to adopt the existential pragmatism of mice: No cheese in that corner? Check out this corner.

Uchitelle is a fine reporter. In The Disposable American, he follows several of United’s mechanics as they head out into the world of the downsized. After twenty-five years in the airline industry, Ben Nunnally, a specialist in delicate wingskin repairs, becomes a window-washer. Erin Breen goes back to college, gets an engineering degree, and winds up as a janitor in the Indianapolis public schools. Tim Dewey, who has been through one layoff already, resolves to go into business for himself rather than run the risk of a third. With his wife and children, he moves to the Florida panhandle to run a water taxi service, impulsively charging the $54,000 purchase price on three credit cards. He spends five months “hawking boat rides to passing tourists,” as Uchitelle puts it, before the business goes bust and the family goes bankrupt. A few hard knocks later, he grabs a chance to return to his old line of work for $17 an hour (half his United pay) as an employee of one of the non-union subcontractors he and his former coworkers had scorned.

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