From 1996: Downsizing Guru Realises It Doesn’t Work

Remember the downsizing craze of the 1980s and 1990s, when Thatcherite economists all demanded that big firms should slim down through mass lay-offs and sackings? Firms were overstaffed, and it was all flab that needed to be cut out to make them ‘lean and mean’ in the marketplace.

Looking back through my scrapbooks of newspaper clippings, I found this article by the Daily Mail’s industrial correspondent, David Norris, ‘Guru of the job cutters admits downsizing has its down side’ in that paper’s edition for Monday, May 13, 1996. The article runs

‘An international economic guru who advocated massive job-shedding to make big business lean and fit has admitted he got it all wrong.

American Stephen S. Roach coined the word ‘downsizing’ in the early Eighties to sum up his philosophy that ruthless workforce pruning was needed to boost profits and productivity.

It was seized on around the world – not least in Britain, where hundreds of thousands of full-time jobs have disappeared over the last ten years.

His astonishing turnaround is certain to provoke more outrage against ‘fat-cat’ bosses, who have often used huge payroll savings to justify big salary rises for themselves.

‘Downsizing’ became a boardroom buzzword, with directors proudly telling shareholders that they were able to  pay higher dividends through redundancy-related cost-savings. The slick  term was more acceptable than talking of throwing people out of work.

Middle England has been worst hit, with thousands of white-collar jobs axed. High street banks have between them got rid of 90,000 staff since 1989. Downsizing has created a climate of insecurity which many blame for the still sluggish economic recovery. And the Government has lost millions of pounds in tax from workers axed from previously labour-intensive industries.

It emerged yesterday that Mr Roach, chief economist at the investment bank Morgan Stanley on Wall Street, announced his conversion in a memo to his firm’s clients.

He confessed he had now concluded that relentless cost-cutting was bad for business. ‘If you compete by building, you have a future. If you compete by cutting, you don’t’,’ the contrite guru said.

‘For years I have extolled the virtues of America’s productivity-led recovery. While I think it’s safe to say that such a scenario has become the new mantra for U.S. businesses in the 1990s, I must confess that I’m now having second thoughts.”

And he warned of a worker backlash ‘not on the shopfloor, but in the polling booths’.

That forecast was echoed by TUC boss John Monks yesterday.

He said: ‘Downsizing has done more than any other single business strategy to create the deep insecurity felt in Britain.

‘I hope this will herald a re-think in Britain’s boardrooms. Long-term success comes from steady investment and skilled, motivated staff.”

Around 38 per cent of Britain’s workforce – nearly ten million people – are now not in full-time permanent jobs. They are either in part-time or temporary work, or self-employed.

The main full-time job creation thrust has come from small firms, employing 20 staff or fewer. They have taken on 2.5 million extra workers in ten years.

Big retail chains have also taken on more workers. Tesco recently announced it was recruiting 4,500 to pack bags and generally assist shoppers. Last month it revealed record profits.

Late payment is still a problem for 45 percent of small and medium businesses.

The average time taken to be paid has risen from 52.8 days in 1994 to 53.2 this year, according to a survey by the Confederation of British Industry and accountancy firm Coopers & Lybrand.’

Ha-Joon Chang describes in his book, 23 Things They Don’t Tell You About Capitalism, how downsizing has literally driven firms bankrupt. They cut back their staff and plant so much in order to boost management pay and shareholder dividends beyond the point where they were economically viable. He argues that the most durable firms tend to be those where the state also has a stake in the firm, and so in maintaining it, or where the workers are also strongly involved in its management. Chang’s not anti-capitalist, but he states that shareholders are fickle – the moment they think a firm is no longer as profitable as another company, or is in trouble, they’ll sell their shares and go elsewhere.

Despite this attack on downsizing’s credibility and the loss of government revenue it has created, job insecurity has increased massively to the point where it is normal. Blair and Gordon Brown are as responsible for this as the Tories, as they accepted the neoliberal, Thatcherite dogma that the labour market had to be fluid and flexible. Which means that firms should find it easy to lay off staff and their should always be a supply of cheap workers waiting to be taken on.

Thatcherism has been a disaster. This clipping from a quarter of a century ago shows one of its central doctrines was recognised as such by the man who invented it even them. But it’s kept the rich richer, and the poor poorer, and so despite articles like this, it’s still being pushed.

And the result is a Britain of despair and poverty where working families, never mind the unemployed and disabled, are dying of starvation or forced to use food banks.

 

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