Cost-Cutting: Easing the Pain
Major companies--Sears, United Technologies, American Telephone & Telegraph and scores more--are showing hefty profit increases for the early part of 1992, despite a minimal rise in their sales or revenues in a still-tepid economy.
That’s a sign of strength, say analysts on Wall Street, a clear indication that the cost-cutting and restructuring programs U.S. companies began in the 1991 recession are working. Accordingly, stock prices remain at high levels despite day-to-day fluctuations.
But contrary voices are heard. The cost-cutting programs are winning profits at the expense of good wages and benefits for employees, say labor unions. So a year that began with a bitter strike at Caterpillar promises more labor strife in coming negotiations in the telephone and car industries.
The truth is, neither Wall Street nor labor is wholly right or wrong, but both are too narrowly focused. The trend of cost-cutting is much more than a response to the latest recession, and it is far more complicated than the simple replacement of labor.
What we are seeing is a technological shift in U.S. business that is historically comparable to “the transition from farms to factories or from manual to office work,” say analysts Andrew Kessler and Stephen Roach of Morgan Stanley. They paint a glowing picture of rising productivity as offices automate that could ultimately make better jobs for more people.
And they’re right. The introduction of new methods and machines, whether on farms or factories, has ended up benefiting U.S. society in the past--and will do so again. But we could make the process less painful and threatening for ordinary employees--and possibly gain even greater productivity--if we better understood just what is going on.
In the months and years ahead, we’re going to see accelerated change. Sears, for example, is moving to revive its money-losing catalogue sales business by using computers rather than clerks. And in the next two years, AT&T; is going to replace up to 6,000 phone operators with a voice-recognition computer that will understand when you say, “I’d like to make this call collect,” or “person-to-person,” or “bill this call to another number.”
The voice-reading computer will be cheaper than paying wages and benefits to operators. But it’s not a one-shot deal. “It’s part of the process of more service and lower cost that’s essential in business today, because customers want more for their money and they’re getting it,” says Roger Davis, vice president and controller of AT&T.;
Since 1984, Davis reckons, the price of long-distance calls has come down 40%, and AT&T; has saved a total of $18 billion in costs. Personnel reductions account for one-third of that total, with improvements in products and processes accounting for the rest.
The Communications Workers of America, the largest union at AT&T;, doesn’t dispute the need to improve technology. “If the switchboards of the 1950s hadn’t changed, the phone company would now have 3 million operators” instead of 18,000, says Gaye Williams Mack, a union spokeswoman. She acknowledges that workers who survive restructuring earn better pay and benefits.
But the union questions whether change must be accomplished so painfully--operators making $27,000 a year will be offered jobs paying less than $15,000, Mack says.
And there’s a larger issue in the background. Relations between the union and the company have become more heated as AT&T--with; the acquisition of NCR and Teradyne--has adopted strategies of the non-union computer business.
There’s an almost essential opposition between computers and unions, explains David Lewin, head of the Institute of Industrial Relations at UCLA. “The American union has always protected the job--by defining duties and work rules,” Lewin says. But the computer demands flexibility above all and undermines narrow job definitions.
Therefore, as computers make headway, we see the decline of unions--but also fear and confrontation that could impede the competitive progress we need.
“There is a better way to do things,” says Foster Smith, senior vice president of the National Alliance of Business. “If we encouraged training, we could introduce technology faster.”
The NAB, which was set up by President Lyndon B. Johnson and Henry Ford II in 1968 to create jobs for youngsters when ghetto neighborhoods were burning, has moved on to advocating European-style apprentice programs to make the U.S. work force competitive. “Our attitudes toward skilled labor are far behind our competitors,” Smith says. “We act as if everybody should go to college, when 70% of the jobs don’t require a college degree.
“Instead, we should set up technical schooling at a community college along with on-the-job training, so a kid gets broader knowledge along with skills on a single machine.”
It’s a good thought. Such a system could make American workers more capable and less threatened, and so more willing to welcome change. For change is coming--and, if we can make it less painful for American workers, why not do so?
