The digital revolution of the 1990s seemed to mark a definitive break with the manufacturing economy that had thrived in the United States since the late-nineteenth century. With the pervasive use of information technology (IT) by banks, insurance companies, hospitals, clinics, even warehouses and retail stores, the era of industrial mass production in the United States faded into the past. Also redundant were the blue-collar workers who had manned the old assembly lines. With 80 percent of the American workforce now employed in white-collar service industries, economists assumed that there was no longer any need for a large industrial proletariat with limited skills, passively taking orders from above.
In the years since the long economic boom of the 1990s came to an end in 2000–2001, there has been growing evidence that this view of recent economic history is flawed. In fact, the findings of the three books under review here, along with much recent research, suggest that methods of production based on top-down standardization and tight control of work are as influential in the digital economy as they were in the industrial economy. Drawing upon the virtually unlimited powers of computers to monitor the activities of employees and their use of information, these methods have simply been readapted for the white-collar workplace.
What is striking is how they have been used in ways that put skilled workers in many professions at a disadvantage. In an economy more and more populated by “knowledge workers”—people who work primarily with information, for which they develop special skills and expertise—one would expect the productivity, or output per person, and real income of employees to move upward together, as an increasingly skilled workforce benefits from its own improved efficiency. But since 1995, the year when the “new economy” based on information technology began to take off, incomes have not kept up with productivity, and during the past five years the two have spectacularly diverged. Between 1995 and 2006, the growth of employee productivity exceeded the growth of employee real wages by 340 percent. Between 2001 and 2006, the first six years of George W. Bush’s presidency, this gap widened alarmingly to 779 percent.1
The gap helps explain why Wal-Mart casts such a long shadow over the US economy. Wal-Mart has demonstrated the effectiveness of applying industrial principles to the retail economy. It does so by combining an intensive use of information technology, a rapid growth of employee productivity, and a harsh, often punitive work regime that keeps even the most productive workers off balance and their wages at poverty levels. Studies have shown, for example, that the productivity of Wal-Mart employees has been as much as 41 percent higher than that of the company’s competitors, yet shop floor workers are paid far less than at other discount stores. According to researchers at the Union of Food and Commercial Workers in Washington, the average hourly wage of UFCW members at the unionized Safeway, Albertson, and Kroger supermarkets in California is $12.71; the comparable figure for Wal-Mart “associates” nationwide around $9.2
The Wal-Mart approach is being driven by technologies known as “enterprise systems,” or ES, which bring together computer hardware and software to standardize and then monitor the entire range of tasks being done by a company’s workforce. The industry leaders in these systems are the Big Three of corporate computing: IBM, SAP, and Oracle. Also prominent are management consultants such as Gartner and Accenture who advise corporations and public bureaucracies about which ES system to buy.
Corporate reliance on ES technology grew throughout the 1990s; by the year 2000 the Boston consultants AMR Research could write that most companies considered its use “as part of the cost of doing business, a necessary part of the organization’s infrastructure.”3 Among manufacturers, wholesalers, and retailers like Wal-Mart, ES offers obvious economic advantages. It relies on electronic tags, sensors, and “smart” chips to identify goods and components at different stages of the production and distribution chain, a practice that has brought enormous gains in productivity. Such innovations allow managers to find out immediately not only that production and distribution are falling behind schedule, but also why. Equipped with a flow of detailed, up-to-the-minute information about the status of a particular person or object in the supply chain, managers can “drill down”—a key phrase in the ES world—and immediately find the source of error: a bottleneck at a warehouse in Kansas City; a dysfunctional work team on the line in Detroit; a parcel sent to Portland, Oregon, when it should have been sent to Portland, Maine.
But during the last ten years ES has been more and more applied to complex white-collar businesses, public bureaucracies, and even universities. How can an automated regime that was designed to control the production and distribution of automobiles or VCRs be used to regulate the treatment of sick patients, the teaching of students in schools, the conversations between sales agents and customers, and the decisions to hire and fire employees? The answer is that ES technologies are able to reduce these complex human activities and reasoning to a series of processes and outcomes that can be mapped out and programmed by a computer.
Nowhere have these technologies been more rigorously applied to the white-collar workplace than in the health care industry. The practices of managed care organizations (MCOs) have provided a chilling demonstration of how enterprise systems can affect the work of even the most skilled professionals, in this case the physician. The goal is to standardize and speed up medical care so that insurance companies can benefit from the efficiencies of mass production: faster treatment of patients at reduced cost, with increased profits earned on increased market share.
In the mid-1990s MCOs relied heavily on a procedure known as “utilization review” to contain costs and standardize treatments. Case managers without medical training, relying on guidelines often derived from proprietary databases, ruled on whether a requested treatment would or would not be paid for. This micromanagement of doctors’ diagnostic reasoning provoked such an outcry from patients and physicians alike that in 2000 leading MCOs such as United Healthcare and Aetna announced that they were giving up such reviews and freeing doctors from administrative control.4
But there has been less to this liberation of physicians than meets the eye. Doctors I first interviewed ten years ago now say that MCO case managers simply interfere with their decision-making after rather than before treatment decisions are made. The same case managers, armed with the same guidelines, contest whether procedures such as MRIs and CAT scans have been done according to strict and detailed guidelines, then deny or reduce payments by alleging that the tests don’t meet their standards. Physicians must still employ full-time assistants whose sole task is to wrangle with MCOs over the minutiae of payments and treatments.
A second and cruder method used by MCOs to enforce medical industrialization is to keep payments to doctors for patient visits so low that doctors must dramatically increase the number of patients they see to cover their overhead. In his 1999 book on the history of medical education, Time To Heal, Dr. Kenneth Ludmerer chronicles the acceleration of “patient throughput.” During the late 1980s most physicians felt that examining thirty patients a day was “pushing the limit.” But by the mid-1990s many MCOs required doctors to see twenty-five to thirty patients a day and some primary care physicians reporting having to treat “as many as seventy patients a day.” Doctors spent an average of eight minutes talking to each patient, less than half as much as a decade earlier. Ludmerer told me recently that he believes the pressure to increase patient “throughput” has continued to increase over the past six years.5
The managed care approach has been poorly suited to the realities of illness. For example, research published in 1999 by the Journal of the American Medical Association showed that for-profit health care providers that relied on this kind of standardization, such as Aetna and Humana, performed significantly worse than their counterparts in the treatment or prevention of cancer, diabetes, and heart disease.6 But many of these health care companies think that ES technologies have made them profitable, and it seems unlikely that these practices will be discarded anytime soon.
In The Culture of the New Capitalism, a book based on a series of lectures given at Yale in 2004, Richard Sennett describes how the widespread use of enterprise systems has given top managers much greater latitude to direct and control corporate workforces, while at the same time making the jobs of everyday workers and professionals more rigid and bleak. The call centers of the “customer service” industry, where up to six million Americans work, provide an egregious example of how these workplace rigidities can make life miserable for employees.7
At call center companies such as AmTech and TeleTech, call center companies to whom many corporations outsource their “customer relations management,” agents must follow a script displayed on their computer screens, spelling out the exact conversation, word for word, they must follow in their dealings with customers. Monitoring devices track every facet of their work: minutes spent per call, minutes spent between calls, minutes spent going to the bathroom. At the same time managers can speed up or reconfigure this digital assembly line simply by throwing a switch and reprogramming the software—specifying less time per call and between calls—much as Henry Ford controlled the line at his Detroit plants in the 1920s.
The most powerful passages in Sennett’s book describe how these unnerving changes are destroying aspects of white-collar employment that he believes are essential to the well-being of workers, whether they are nurses, call center agents, bank officers, or mid-level managers at Con Edison. He describes how the spread of ES has resulted in a declining emphasis on creativity and ingenuity of workers, and the destruction of a sense of community in the workplace by the ceaseless reengineering of the way businesses operate. The concept of a career has become increasingly meaningless in a setting in which employees have neither skills of which they might be proud nor an audience of independently minded fellow workers that might recognize their value.
“An organization in which the contents are constantly shifting,” Sennett writes of the new-model corporation,
requires the mobile capacity to solve problems; getting deeply involved in any one problem would be dysfunctional, since projects end as abruptly as they begin…. “I can work with anyone” is the social formula for potential ability. It won’t matter who the other person is; in fast-changing firms it can’t matter. Your skill lies in cooperating, whatever the circumstances….
As we have seen, in the workplace [these changes] produce social deficits of loyalty and informal trust, they erode the value of accumulated experience. To which we should now add the hollowing out of ability.
Of course this is not true of the new elite of senior managers, consultants, and software engineers who design, install, and maintain the technologies that are now used to manage workforces. Their skills are in heavy demand, and they are well paid. But Sennett is concerned about the people who work within the systems they devise.
Sennett does not pose the question whether companies run according to ES systems will be innovative, productive, fast-growing, and profitable. The McKinsey Global Institute’s authoritative study of US productivity growth between 1995 and 2000, the golden years of the digital revolution and the IT boom on Wall Street, found that US productivity gains were very narrowly focused within six of the economy’s sixty sectors. Gains were heavily concentrated in the Wal-Mart economy of wholesale, retail, and distribution, and also within the IT industries themselves. But service industries such as health care and banking experienced what McKinsey tactfully describes as “small productivity growth decelerations.”8
In their book The Social Life of Information John Seely Brown and Paul Duguid explore the limitations of ES in the service economy, and give a fascinating account of how the technologies of ES might be more effectively used there. At Xerox’s Palo Alto Research Center (PARC) Brown and a team of researchers developed a technology to support the technicians who repair and service Xerox machines. Like many other large US corporations Xerox tried in the early 1990s to transfer the work practices of the assembly line to the very different world of the service economy. Technicians were supplied with an automated system specifying the various ways in which a Xerox machine could break down, along with the remedy to be followed in each case. The problem was that the machines kept going wrong in ways that the automated system hadn’t anticipated; and often the machines developed several problems simultaneously. The technicians responded by throwing away the rule book and relying on their own knowledge. Brown and Duguid’s description of the technicians’ thought processes is similar to accounts of diagnostic reasoning given in medical textbooks. First examine the patient’s symptoms; then consider all the possible causes in order of probability; treat each of these until the right one is discovered and the correct remedy prescribed.
Brown and his team at PARC persuaded Xerox management that these ad hoc practices should be incorporated into a new system called Eureka. Any technician who had solved a difficult case would simply write up his findings and a committee of technicians would decide whether the material merited inclusion in the Eureka database. Since Xerox adopted it, Eureka has achieved spectacular results. In its first three years, it logged 30,000 case histories from employees, and is estimated to have saved Xerox $100 million.9 Eureka is a striking example of how the old workplace values described by Sennett can be preserved and even enhanced by the use of information technology. For the technicians, Xerox became a more desirable place to work because it recognized and rewarded their own creative contributions, while Xerox’s managers found that more employees were loyal and productive.
Very few corporations have an in-house think tank comparable to PARC, but the Xerox case, though rare, is not unique. At the Regenstrief Institute in Indianapolis, a center for medical research affiliated with the Indiana University School of Medicine, a team of doctors and technologists led by Dr. Clement McDonald have used information systems to improve dramatically not only the efficiency but also the quality of health care. Using a database that has been shaped by the people who use it—patients, primary care physicians, specialists in fields such as oncology and cardiology, hospital managers, and local health officials—the system can immediately provide a physician with a complete medical history of practically any resident of Indianapolis. It also contains a software program that tracks patients’ histories against current procedures, sending a warning when a physician prescribes a drug that is incompatible with the patient’s other medicines, or reminding the physician that a patient has already undergone a procedure which the physician has requested. Moreover, the Regenstrief system leaves the final decision about patient care to the physician—in contrast to the practice of many HMOs in which physicians can only reverse the decisions of case managers after a time-consuming wrangle.
A 2006 Rand Corporation report estimates that the Regenstrief system accounts for nearly half of the gains in quality of health care in the United States that can be attributed to the use of information technology.10 No HMO or public health authority in the US has matched the Regenstrief Institute’s achievement in integrating within a single database patient information drawn from the separate IT systems of five hospital chains, twenty primary care clinics run by county and state public health departments in Indiana, thirty public school clinics, and three thousand medical specialists. In all, some 900 million items of medical evidence for more than three million patients. By comparison, the UK’s National Health Service, a single unitary authority, has squandered $23 billion in a failed attempt to computerize its patient records.11
In her book Bait and Switch: The (Futile) Pursuit of the American Dream, Barbara Ehrenreich writes about employees who have been discarded by the corporate machine and are trying to regain what they have lost. Ehrenreich relies on her own experience by going to work among the people she writes about. For her well-known earlier book on low-wage work, Nickel and Dimed, she took jobs as a waitress, a house cleaner, and a shop floor “associate” at Wal-Mart. In Bait and Switch Ehrenreich describes how her quest for a white-collar job in corporate public relations gets absolutely nowhere and leads, in her own words, to “a life of unrelenting rejection.”
When the victims of “downsizing” and “reengineering” are pushed out of their jobs, they often turn to the “career coaches” of the “transition industry” who are supposed to restore their morale and send them back in good shape to the corporate suite. One of the high points of Bait and Switch is Ehrenreich’s account of her dealings with these coaches. They rely on personality tests to find out what kind of jobs she might be best suited for. In one such test, Ehrenreich’s answers to two hundred multiple-choice questions apparently revealed that she was Original, Effective, Good, and Loving, but also Melancholy, Envious, and Overly Sensitive. The test concluded that she probably didn’t write very well, and should attend intensive journalistic workshops to “polish her writing skills.” After a ten-month search the only work Ehrenreich could find was selling insurance or cosmetics on her own—jobs with no office, no salary, no benefits, and for which income primarily depends on elusive sales commissions.
Some critics have suggested that by pretending to be an ex-manager, Ehrenreich wasn’t able to draw on the sort of social and professional support systems upon which many fired white-collar workers rely to find employment—business friends and previous contacts with other companies, for example. But we shouldn’t exaggerate the strength of contacts available to middle-aged workers who have been fired and are not in the upper echelons of management. These are not people who have risen high enough in their organizations to have become well known in their industry, and they often do not have a network of people ready to help them.
Ehrenreich thought her talents as a successful journalist would make her a particularly desirable candidate for a job in public relations. But at no point did her “career coaches” try to assess her abilities by finding out how she would deal with an actual PR problem—for example, how to restore Enron’s image following its management scandal. Ehrenreich is puzzled why the transition industry and, by implication, corporate America itself is so little interested in the skills of its workforce.
One clear answer is that for a growing number of middle-echelon, white-collar professionals, work is increasingly subject to automation and standardization through the use of ES technology. As Richard Sennett has pointed out, this new kind of workforce is required both to perform tasks as prescribed by orders handed down from above; and to move at short notice from job to job and from place to place, with little say in the matter. The evidence of the personality tests themselves suggests that from an executive perspective, the most desirable employees may no longer necessarily be those with proven ability and judgment, but those who can be counted on to follow orders and be good “team players.”
Here the purpose of the tests administered by Ehrenreich’s career coaches becomes clear. They are useless as measures of ability and experience, but they may be reliable indicators of those who are “cheerful, enthusiastic, and obedient.” Most clients of the “transition industry” have just been fired, and to expect them to approach a job in this buoyant mood is like asking a twice-rejected spouse to approach a third marriage in the same spirit as the first. The dismal experiences of Barbara Ehrenreich and of many middle-aged job seekers suggest that corporations would rather find conformists among younger workers who haven’t been discarded by employers and aren’t skeptical about their work. Assessed by these criteria, an applicant such as Ehrenreich, regardless of her skills and experience, is likely to be branded as damaged goods.
For corporate managers the attraction of white-collar industrialization is that it adds to the productivity of workers without adding to their skills or their earning power. From a management perspective it is the best of all possible worlds, allowing companies such as Wal-Mart to improve their profit margins while keeping labor costs low. Too often it is intelligent and valuable employees who pay the price for these changes; they lead increasingly insecure and anxious professional lives that no longer provide a reliable flow of income and benefits.
What chances are there that the leading contenders for the Democratic presidential nomination in 2008 will face up to the predicament of many service industry workers and its links to the technology-driven concentration of power in the hands of top managers? Compared with Al Gore in 2000 and John Kerry in 2004, Hillary Clinton, Barack Obama, and John Edwards are already concentrating more heavily on the growing inequality of American society, the squeeze on middle- and lower-income Americans, and how to reverse these trends. But all three are having a hard time facing up to how the unfairness and inequality they all claim to deplore has been caused by the relentless growth of corporate power.
Yet without such a reckoning it will be virtually impossible to bring about the changes in labor law and workplace regulation needed to achieve a more equitable balance of power in the workplace. Of the three contenders Edwards has positioned himself as the left-leaning candidate. In a speech at Cooper Union in New York City on June 21 Edwards attacked “the big financial interests who are writing our economic policies…while their profits are setting records.” But Edwards is not entirely convincing as a champion of working Americans. In April a campaign report revealed that in 2006 he had earned a fee of $479,512 as a consultant to a New York hedge fund called Fortress Investment Group, part of an industry that has fiercely and successfully resisted government regulation. Questioned about the value of hedge funds at a candidate’s forum in South Carolina at the end of April, Edwards replied feebly that “I think those people in New York who work in financial markets understand—in some way at least—what can be done and play a significant role in trying to lift people who are struggling.”
In his book The Audacity of Hope Obama seems to be more forthright about holding corporate America to account. He writes of how US companies have “held the line on wage increases, and replaced defined-benefit and retirement plans with 401(k)s and Health Savings accounts that shift more cost and risks onto workers.” But then, with a certain Clintonian slipperiness, he lets corporate America off the hook by citing those conveniently impersonal and value-free forces “globalization” and “technological change” as cause and justification for ruthless corporate behavior. For example, at a recent meeting with union leaders he expressed support for labor reform at Wal-Mart, but also praised the company’s use of technology in its distribution system as something ‘”Wal-Mart does very well and we should learn from.” Businesses must act as they do, he explains in his book, to “stay competitive and keep investors happy in the global marketplace.”
After months of near silence on issues of economic equity, Hillary Clinton is now presenting herself as the friend of the American worker. In a speech in Manchester, New Hampshire, on May 29 she outlined her “modern progressive vision” for America. She deplored the increasing concentration of wealth in the hands of the richest Americans, as well as the widening gap between the growth of workers’ productivity and the growth of their real wages. She drew parallels with “the turn of the twentieth century” when the American economy was “dominated by large corporate monopolies.” But like Obama, Clinton couldn’t quite bring herself to hold corporate America to account for helping to create these conditions.
An apparent problem for Clinton is that for reasons of loyalty to her husband, and contrary to the evidence, she is obliged to say that the American social and economic malaise arose only after 2000, and that before then everything was fine: “we started the decade with rising incomes [and] declining inequality.” She blames the ensuing deterioration on the “economic policy dynamics” of the Bush Administration and its failure to manage globalization effectively. While the fiscal and regulatory policies of the Bush administration have blatantly favored the interests of large corporations, it is a travesty to portray business itself as simply the passive and grateful recipient of administration largesse. Absent from Clinton’s “progressive vision” is a sense of business as an active and aggressive accumulator of power and wealth for top executives at the expense of lower-level employees.
Will Clinton, Obama, and Edwards hold corporate America to account, or will they simply ask the US taxpayer to pick up the tab for the abuses and excesses of our new Gilded Age?
—July 11, 2007
August 16, 2007
US Department of Labor, Bureau of Labor Statistics, Average Hourly Earnings, 1982 Dollars, Production and Nonsupervisory Workers, 1995–2006; Major Sector Productivity and Costs Index: Output, All Persons, 1995–2006. Both tables available at www.bls.gov/data/. ↩
See for example www.mckinsey.com/knowledge/mgi/productivity. Para 2, chapter summaries: “Retail Sector”; p. 11 (registration required); also Interview with Jill Cashen of UFCW Research Department, July 5, 2007. ↩
AMR Research, The Enterprise Application Report, 1999–2000, p. 11. ↩
See “Preauthorization Ends at UnitedHealthcare,” Health-System Pharmacy News, February 1, 2000, available at www.ashp.org. ↩
Interview with Dr. Kenneth Ludmerer, May 31, 2007. ↩
Dr. David Himmelstein et al., “Quality of Care in Investor-Owned vs. Not For Profit HMOs,” Journal of the American Medical Association Vol. 282, No. 2 (July 14, 1999), pp. 159–163. ↩
See the analysis of the call center industry in my book, The New Ruthless Economy: Work and Power in the Digital Age (Oxford University Press, 2005), pp. 80–116. ↩
Cited in William W. Lewis, The Power of Productivity: Wealth, Poverty, and the Threat to Global Stability (University of Chicago Press, 2004), p. 86. Government statistics also show that labor productivity in the banking industry grew at an annual average rate of only 1.3 percent between 2000 and 2005 (www.bls.gov/data/). ↩
John Seely Brown and Paul Duguid, “Balancing Act: How to Capture Knowledge Without Killing It,” Harvard Business Review, May–June 2000. ↩
Paul Shekelle, Ph.D., M.D., et al., “Costs and Benefits of Health Information Technology,” Southern California Evidence-Based Practice Center, Santa Monica, 2006. ↩
For an excellent account of IT mismanagement in the UK National Health Service, see the special report in Private Eye (London), March 2, 2007. ↩