Cuts Signaling Deeper Slump--Home, Abroad


General Motors set off big signal flares Wednesday when it announced a massive retrenchment that will reduce its work force by 74,000 employees in the United States and Canada over the next four years.

In the immediate future, economists and employment experts said, it signaled that the economic downturn could deepen and extend worldwide. “Companies in Germany and Japan and everywhere will see GM’s cutback and realize that they have to cut back themselves,” said Lester Korn, founder of Korn Ferry International, an executive placement firm.

“It signals a double-dip recession,” warned David Lewin, head of UCLA’s Institute of Industrial Relations. “So many companies realize they must go further in their cutbacks.”

A sense of profound change characterized many reactions to GM’s announcement, which said the company would close 21 plants and reduce office and managerial staff by 20,000.


“It marks the end of the era when the paycheck-based middle-class could count on stable, long-term employment and rising income with a major corporation,” said Dan Lacey, a Cleveland-based consultant who publishes “Workplace Trends,” a newsletter.

GM’s cutback came against a backdrop of announcements from scores of major corporations in recent weeks. IBM announced a restructuring last month that may include unprecedented layoffs; Xerox, TRW, Tenneco, McDonnell Douglas and state governments around the nation are reducing staff.

Most of those job cuts are permanent--jobs are being eliminated and employees terminated, not merely laid off pending an upturn in business. That’s one reason, analysts said, that interest-rate cuts have not revived the economy and cut-price sales have not spurred Christmas shopping.

Still to be faced are layoffs and cutbacks by all the smaller firms that depend on GM and IBM for business--suppliers and dealers, metals and plastics producers, advertising agencies and media firms.


“We’re in for a rough six months,” said Korn, who sees the economy recovering by next summer. Nonetheless, he notes a ray of hope: “The entrepreneurial spirit of America will produce a host of cottage industries that in time will make us more productive.”

Even though thousands of factory workers will lose their jobs, the GM cutback is seen as part of what is called the “white collar” recession because jobs are being eliminated in service industries and among office staff. The banking industry, for example, has lost 25,000 jobs in the last year, 300,000 jobs since 1984, with more cutbacks to come as banks merge.

Most analysts saw GM’s cutback as confirmation that the American standard of living is declining as the United States comes to terms with a changing world. But that didn’t mean Americans were slipping behind other countries--only coming back to their level.

Germany, for example, may retain lifetime employment in large corporations but it also supports large numbers of young jobless workers with a social welfare system financed by high income taxes on those who do work.


Japan rigorously stratifies its society and its work force. For example, Toyota employs fewer than 100,000 workers, compared to more than three times that number for GM. But that is because the workers who make essential parts for Toyota cars are employed by supplier firms that pay lower wages and benefits than the Toyota parent firm. GM, by contrast, must pay higher United Auto Workers scale to more than 300,000 production workers. That’s one reason the U.S. firm has to cut back.

What lies ahead for the U.S. economy is a Toyota-like pattern of smaller feeder companies. “When the economy turns up again, it will be peripheral firms doing increasing business,” Lewin said. That means big companies will use outside, contract suppliers for services such as accounting, security, travel, even research, rather than have corporate departments.

Experts also say there will be more contingent work, based on temporary contracts and agreements, continuing a trend that has been growing for a decade. By some estimates, one-third of the U.S. work force are now contingent workers--as opposed to permanent company staff, as was the general rule for decades after World War II.

That trend promises some unpleasant realities. “It will have to be faced that salaries can’t keep going up in this economy,” Korn said.


Smaller companies frequently pay less than larger firms, and almost always offer less job security and skimpier health and pension plans. The fact that corporate health plans are threatened is one reason demand for national health insurance is rising as a political issue, analysts said.

But the advantage of small companies, analysts said, is that they may help America’s productive edge.

GM, like virtually all of U.S. industry, has lagged in productivity gains--wringing more output per unit of labor or investment--for almost 20 years.

A decade ago when manufacturing was undergoing the restructuring that is now being visited on service industries, union leaders such as Lynn Williams, current head of the United Steelworkers, would point to the wages and benefits attained by his union in the 1960s and say plaintively: “We created the highest standard of living in the world. Why can’t that continue?”


The answer was that U.S. steelmakers were lagging behind others in the world in productivity; the high standard of living wasn’t being paid for. So U.S. manufacturing had to restructure.

Now similar questions have been asked about services. John F. Welch Jr., chairman of General Electric, was criticized in the mid-1980s for cutting back corporate staff and insisting on lean operations. Now everybody is doing it and Welch is lecturing to other corporate leaders, as he did in a recent speech. “Why do we have offices for regional sales managers,” Welch asked his listeners. “What do they do in those offices?” The answer, he said, was that they “give reports back to somebody who has to give a report back to somebody else.”

“We have all built these things to be neat,” said Welch scornfully. But “neatness and orderliness” were not what a company should be after. Productivity is.

Many experts Wednesday saw GM’s cutback as tolling the final bell on a time of complacency in U.S. business. From here on the world’s largest automobile maker would find renewal, as it did in the last decade, in Europe, where GM successfully restructured its lagging operations.


And by extension, analysts suggested also, that the U.S. economy would emerge improved once it had worked off the excesses of the 1980s, when corporations, consumers and the government itself expanded on too much borrowed money.

The timing on that emergence from recession was put “at about next June” by several experts. Meanwhile, it will be a less festive holiday period for many at GM and for employees throughout U.S. business who could read the signals in GM’s announcement.