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Downsizing in the Past Sanford Jacoby To cite this article: Sanford Jacoby (1998) Downsizing in the Past, Challenge, 41:3, 100-112, DOI: 10.1080/05775132.1998.11472035 To link to this article: http://dx.doi.org/10.1080/05775132.1998.11472035
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Date: 29 April 2017, At: 10:58
Downsizing in the Past Sanford Jacoby
Corporations have long had a sense of responsibility toward their workers. History can teach us some lessons about today's business environments.
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ecent mass layoffs at Kodak, Pillsbury, and other companies refute the claim that the wave of corporate downsizings has crested. For decades, Kodak was a pioneer of enlightened employer paternalism, so the news is especially sobering and likely to fuel continued unease in the labor market. Despite the rising stock market and falling unemployment rate, Americans remain deeply anxious about the availability of "good" jobs: career-type positions that offer decent wages and benefits. Pundits regularly pronounce that global competition and information technology are making those kinds of jobs obsolete. Yet many Americans nurse a lingering belief that, if corporate employers were pushed just a little bit harder, they would treat workers better. That, at least, was the public sentiment at the time of last August's Teamsters' strike, which sought to check the proliferation of part-time jobs at UPS. The topic of employer responsibility became a major issue in the 1996 presidential campaign. Patrick J. Buchanan won the SANFORD JACOBY is a professor of management, history, and policy studies at UCLA. Portions of this article were adapted from Sanford M. Jacoby, Modem Manors: Welfare Capitalism Since the New Deal (Princeton: Princeton University Press, 1997). Copyright © 1997 by Princeton University Press. Reprinted by permission of Princeton University Press.
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Challenge, vol. 41, no. 3, May/June1998,pp.10G-112. ©1998 M.E. Sharpe, Inc. All rights reserved. ISSN 057Hi132/1998 $9.50 + 0.00.
Downsizing in the Past
Welfare Capitalism at S.c. Johnson & Son During the early 1900s, one of America's leading employers was S.C Johnson & Son of Racine, Wisconsin, makers of floor wax and other household products. Samuel C Johnson, who founded the company in 1886, gave his employees recreational facilities, a profit-sharing plan, paid vacations, group life insurance, and myriad other benefits. Samuel's son, Herbert, followed in his father's footsteps. During World War I he stabilized the company's erratic employment levels. He hired more fulltime workers and trained them to perform several jobs so that they could be rotated around the company. In 1922 he started what was to become a highly publicized private unemployment insurance plan. To American reformers concerned about the "labor question" of the early twentieth century, companies like S.C Johnson offered a distinctively American answer: The business corporation, rather than government or trade unions, would be the source of security and stability in modern society. This approach was dubbed "welfare capitalism." Today, S.C Johnson continues to win praise for its progressive employment policies. A leader in the corporate child-care movement, it has a day-care center and a summer camp for children. The manager in charge of the child-care program recently said, "This isn't a benefit-it's a good business decision because we want to attract the best." Although innovative, S.C Johnson has a strong sense of tradition. The current chairman, who is the great-grandson of the company's founder, said recently, "Our company's social involvement grew out of this early sense of local community involvement. My great-grandfather had a sense that there had to be a fair way to do things." The company provides profit sharing, child care, and other benefits because, says the chairman, they create "a family atmosphere within the company. We all sit on the same side of the table, so to speak, so we don't have a confrontational environment between the various groups of people who work here. As a result, we have very low employee turnover and no unions," just as in the 1920s.
New Hampshire primary on a platform of vilifying corporate America, aiming his rhetoric at top executives such as Robert E. Allen, the head of AT&T, who receive huge salaries while laying off thousands of workers. Later that year, the White House held a conference attended by the heads of the largest and most progressive companies in the United States. President Bill Clinton told the visiting CEOs, "The most fundamental responsibility of any business in a free-enterprise system is to make a
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profit.... But we must recognize that there are other responsibilities as well." The notion that corporations have responsibilities to their employees is hardly a new or radical idea. Its roots lie deep in the American past-dating back a century or more-when companies first began systematically to provide for the welfare of their employees. That system was known as "welfare work" or "welfare capitalism." Understanding the history of welfare capitalism is essential to fathoming what's happening in today's labormarket.
The Rise of Welfare Capitalism American welfare capitalism began in the nineteenth century, when the population started moving in large numbers from rural to urban areas. This transformation forced people to seek new ways of dealing with the uncertainties of life. Urban-dwelling workers could not rely on homegrown food to get them through a spell of joblessness. The elderly, who were an important part of rural family life, found that industrial corporations were reluctant to employ them. Young unmarried women began to work outside the home, raising parental concern for their morals. Meanwhile, dangerous factories and crowded cities brought on occupational injuries and other health problems. One response to these problems was market individualism: Workers saved as best they could while taking fierce pride in the independence that came from having a well-rounded set of skills. Another strategy was to form mutual benefit associations to provide savings funds, health plans, and burial expenses. These associations sometimes grew into trade unions. An alternative to individualism and mutualism was government, which sought to minimize risk through protective legislation or to redistribute risk via social insurance programs. This was the logic 102 Challenge/May-June 1998
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of the European welfare state, which pooled risks by providing all citizens with unemployment, sickness, and old-age security. A fourth option was to have corporations reduce risk or protect their employees against it. This, essentially, was welfare capitalism. By the beginning of the twentieth century, welfare capitalism could be found throughout the industrialized world, including Japan. But it was especially popular in the United States. American employers favored welfare capitalism because they thought that it would inhibit the growth of unions and government. And they saw it as an efficient alternative to market individualism: Training would be cheaper and productivity higher if employees spent their work lives with a single firm instead of seeking
Welfare capitalism, an influential movement for the first three decades of this century, crumhled during the Great Depression. their fortunes on the open market. There also was a moral impulse behind welfare capitalism: Self-made business owners felt a sense of paternal obligation to their employees. In short, welfare capitalism was a good fit for a distinctive American environment comprising large firms, weak unions, and small government. Welfare capitalism was an influential movement for the first three decades of this century. It was embraced by employers as well as by intellectuals, social reformers, and political leaders, all of whom shared the belief that industrial unrest and other problems could best be alleviated by this distinctively American approach: private, not governmental; managerial, not laborist. To put its ideas into practice, employers cleaned up their factories, constructed elaborate recreational facilities, launched Challenge/May-June 1998 103
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"company" unions, and even built housing for their employees. Like S.C. Johnson, they turned casual positions into career jobs offering pensions and other benefits. By the 1920s, welfare capitalism reached millions of workers at thousands of firms. It was an impressive if imperfect system, whose notions of order, community, and paternal responsibility recalled the preindustrial household economy. The firms pursuing welfare capitalism were, in effect, modem manors. But the edifice crumbled during the Great Depression. Companies cut wages, instituted massive layoffs, and discontinued most of their welfare programs. Economist William Leiserson, who earlier had been dazzled by welfare capitalism, wrote pessimistically in 1933 that the depression had "undone fifteen years or so of good personnel work." Now workers searched for new alternatives to safeguard their security. They voted for the Democratic party, supported the New Deal, and enthusiastically joined unions. Welfare capitalism appeared to be dead and gone. Or was it? In fact, welfare capitalism did not die in the 1930s but instead went underground-out of the public eye and beyond academic scrutiny. There it began to reshape itself. Without doubt, welfare capitalism had to change if it was to survive what was becoming a hostile climate, in which company unions were unlawful, collective bargaining was public policy, and the new American welfare state promised to shield workers from the uncertainties of industrial life. In response to these challenges, welfare capitalism was gradually modernized by a group of firms that had been spared unionization and the ravages of the depression, exemplified by three companies-Kodak, Sears Roebuck, and Thompson Products. These three companies were exceptions to the "rise and fall" story of welfare capitalism: Each one made major contributions to welfare capitalism's modernization between the 1930s and 1960s, when labor and government activism were at a peak in the United States. 104
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In their attempts to build modem manors, these companies retained many elements of earlier welfare capitalism. Kodak, Sears, and Thompson provided generous benefit plans to their employees, though these plans were redesigned as supplements to social security and other public programs. Moreover, each company still asserted that it was a corporate community whose cohesion stood in opposition to the occupational and industrial solidarity of the labor movement. But employers now had to be more careful to make sure that their attempts to build an industrial community did not violate the new labor laws, such as the Wagner Act, which promoted collective bargaining. Mixed motives like those represented in modern welfare capitalism have never been well understood by scholars, trade unionists, or employers. Liberals focus on workplace conflict, while conservatives emphasize the harmony between labor and capital. But, in reality, workers and owners simultaneously have opposing and shared interests. While they disagree over issues like the split between profits and wages, they depend on each other for their livelihoods, a point that French sociologist Emile Durkheim made a century ago, when he observed that the division of labor creates a shared interest in the enterprise as an economic commmunity. American workers of the 1930s, 1940s, and 1950s shared skills and technical expertise with their employers. They also shared cultural aspirations. Even the lowliest manual laborer had middle-class yearnings: to own a home, be comfortable, and obtain respect in the community. A sizable portion of the American working class hoped that they would someday have their own businesses or that their children would. Workers believed that it was within their power to succeed, and, in fact, it was not unrealistic for them to expect some advancement in the careertype jobs offered by welfare capitalism. Of course, social class did constitute a cultural divide. But inside the workplace, class
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barriers could be bridged by common ethnicity, gender, and loyalty to the enterprise. During the 1930s and 1940s, many American workers joined unions. But it is also true that many workers did not believe in unions. At its peak after World War II, the labor movement represented less than a third of nonagricultural workers and its strength was concentrated in only a few regions and industries. Just three sectors-construction, manufacturing, and regulated transport and energy utilities-accounted for more than 80 percent of organized labor at its peak. Although much has been written about recent union losses in representation elections, this trend actually started during World War II. Even the automobile industry, a hotbed of unionism, was filled with anti-union individualists, many of them skilled workers who boasted of their superior experience, dedication, and loyalty. Then there were groups like African-American workers, who were skeptical of both unions and management but willing to give management the benefit of the doubt so long as it kept its promises, especially about employment security, a critical issue for workers who lived through the Great Depression. Indeed, one important reason that some large companies were able to remain nonunion is that they suffered less from the depression than other firms in their industries.
Modernizing the Manor, 1930-1970 Historians have written prolifically about welfare capitalism during the first three decades of this century, and there are many articles about today's progressive employers. But we know little about welfare capitalism during the crucial period from the 1930s to the 1960s. Explanations for this gap are not hard to find. Industrial relations experts were preoccupied during the 1940s and 1950s with forging a new labor relations system based on collec106
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tive bargaining. These experts thought that collective bargaining would protect individuals from the political power of business and from the psychological demands of bureaucratic work organizations. They saw unions as a way to preserve independence in the modem world. That is the same message they tried to bring to Japan during the postwar occupation. But because these experts gave the labor movement such an important historical function, they viewed nonunion companies as socially retrogade and undeserving of scrutiny. One result of this blind spot was the erroneous impression that organized labor had achieved greater stability and accept-
By the end of World War II, American managers had started to take aggressive steps to contain . . unIonIsm. ability than was actually the case. True, it was possible to find managers who gave lip service to the legitimacy of labor unions. John E. Rovensky, a prominent industrialist, said in 1952, "All sound-thinking businessmen today recognize the right of labor to collective bargaining. Unions are an absolute necessity. "l But Rovensky's words masked a division between management's public pronouncements and its private beliefs. In truth, most American managers intensely disliked unions. As two experts from MIT said in 1957, "If American management, upon retiring for the night, were assured that by the next morning the unions with which they dealt would have disappeared, more management people than not would experience the happiest sleep of their lives." 2 American managers were deeply shaken by the Great Depression and demoralized by the rise of mass unions and the New Deal. But by the end of World War II, American managers had
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regained their self-confidence and started to take aggressive steps to contain unionism. The effort to secure passage of the TaftHartley Act, which placed new constraints on unions, was one example; another example was the actions of General Electric. Although GE was often cited as a union-friendly firm, in the 1950s it began to move its plants from the unionized North to the nonunion South. It also started to take a more combative approach toward its unions. Finally, it developed a variety of new programs for securing the loyalty and commitment of its employees. Some of these programs were old-fashioned welfare
Modern weHare capitalism's emphasis on commitment proved well suited to managing college-educated workers. benefits. Others were based in the behavioral sciences, such as attitude surveys and employee counseling. In designing these programs, GE looked for inspiration and ideas to those employers who had modernized welfare capitalism, companies like Du Pont, Eli Lilly, IBM, Kodak, Procter & Gamble, S.C. Johnson, Sears Roebuck, Standard Oil, and Thompson Products. Another thing GE learned from these companies was how to aggressively keep unions out of the new plants that GE opened in the South. In this way, modem welfare capitalism spread from a minority of employers who had avoided unionization in the 1930s to a much larger group of companies. By the 1960s and 1970s modem welfare capitalism began to spread more rapidly because of the shift away from mass production, the growing importance of educated workers, and the greater willingness of American employers to fight aggressively to keep unions out of new plants and offices. Modem welfare capitalism's emphasis on commitment proved well suited to 108 Challenge/May-June 1998
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managing college-educated workers, who were becoming the dominant group in the labor force. Modern welfare capitalism also meshed neatly with the participative principles that were replacing the scientific management approach to work organization. What management scholars identified in the 1980s as a "new" nonunion model of work organization was, in fact, not especially new. It was simply a variant of modern welfare capitalism.
The Situation Today Since the late 1980s, however, modern welfare capitalism has been experiencing its most critical test since the Great Depression. Massive layoffs have occurred throughout American industry. Nonunion companies that had never previously experienced a major layoff-firms like IBM, Kodak, and Searsnow began jettisoning thousands of employees. These layoffs were-and are-a shock to those employees who thought themselves immune from job loss. Middle-level managers found that the elimination of their jobs often was the chief goal of industrial "restructuring." It is important to put these changes in perspective, however. While absolute job security no longer exists, especially in blue-collar employment, not all jobs are in peril, nor is modem welfare capitalism a relic of the past. Despite laying off thousands of workers, large corporations continue to offer career employment. Successful companies still put enormous effort into transforming new recruits into company men and women, both in the way they think and the skills they possess. In fact, economists find that most middle-aged workers currently have jobs that will last for decades. Despite the fashion for restructuring, there is no strong evidence of a secular decline in job stability. What are the reasons behind this paradox of change amidst
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continuity? First, the U.S. labor force is huge and highly mobile; the unemployed either retire or get swallowed up in the market's constant churning. Second, the layoffs of the 1990s received enormous publicity because they represented a qualitative transformation: a shift away from high levels of security for previously protected white-collar groups like managers. But if one looks closely at companies like Kodak or IBM, one finds that modem welfare capitalism remains alive and well. Both companies still spend huge amounts on training, career planning, and fringe benefits. In 1995, IBM and Kodak were two of the twenty major corporations that pledged to invest millions of dollars to make child care and elder care more available for their workers. (The other companies included such paragons of modem welfare capitalism as Hewlett-Packard, Mobil, TRW, and Texas Instruments.) Furthermore, most of these companies remain nonunion strongholds and pride themselves on that fact. It is important to remember, however, that there is more to the U.S. economy than these giant Fortune 500 companies. Even at the height of the postwar economic boom, there remained areas of the labor market where unions did not reach and where employers were unconcerned with the niceties of employee commitment. In the 1950s and 1960s, it appeared that the number of such firms was shrinking because of pressure from union organizing, federal labor standards, and labor-market competition. Today, however, instead of shrinking, this job market is growing ever larger and wage inequality is steadily widening. Many American workers today hold temporary, part-time, or casual jobs. These contingent employees are disproportionately nonwhite and without high school diplomas; their pay is low and they lack pensions and health insurance. These are the people who rooted from the sidelines during the UPS strike. If these trends continue, modem welfare capitalism will tum back into the elite preserve that it was in the 1920s, when corpo110 Challenge/May-June 1998
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rate manors housed only salaried employees and a lucky minority of hourly workers. As in the 1920s, the workforce today increasingly is split between the "have-nots" and the "haves," who will spend most of their careers working in paternal companies like S.C. Johnson or Microsoft. True, the have-nots have more options than in the 1920s. The rate of new job creation is high, and there is also the welfare state's safety net to fall back on. But the safety net is tattered, while the quality of those new jobs is debatable. Indeed, it remains to be seen whether the progressive nonunion sector will be able to absorb large numbers of new labor market entrants. While hiring continues-even at companies like AT& T and Sears that recently laid off thousandsanxiety remains widespread. Welfare capitalists of the 1920s had a buoyant optimism that is noticeably missing in American industry today. Welfare capitalism is not about to disappear in the United States, but its future looks less bright now than at any time since its postwar modernization. This brings us back to the sense of insecurity among American workers and the national debate about corporate responsibility. Clearly, American employers are reluctant to shoulder as much risk as they once did. And some American workersyoung and highly educated-are returning to market individualism: taking care of themselves by having a diverse set of skills and purchasing their benefits on the open market. But these workers are an atypical elite. Most Americans still look to their employers as the first line of defense against risk. As that line is pushed back, they question the fairness of today's leaner, meaner arrangements. Moreover, for every Kodak there are dozens of employers unconcerned with any type of commitment to their employees: places where the pay is low, jobs temporary, and benefits shrinking or nonexistent. Layoffs at firms like Kodak give less scrupulous companies a pretext for restructuring the social contract even when their economic situation does not warrant it. Challenge/May-June 1998
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In short, employer paternalism is not dead but its contours
are changing and the majority of workers lack the power to strike a deal more to their liking. That is reflected in the current economy's conundrum of wage stagnation despite high productivity and low unemployment. In the 1930s, workers turned to unions and to government in search of a New Deal that would pressure employers to fulfill promises broken during the depression. While the probability of a union resurgence or of new governmental programs seems remote, the issue of employer responsibility will surely resurface in the next presidential campaign. Buchanan-style populist rhetoric is a strong possibility. The Democrats may dust off the Bingaman-Kennedy proposals to give tax and regulatory preferences to companies that train their workers, give them decent benefits, and try to avert layoffs. In effect, such legislation would penalize employers who fail to establish or maintain commitments to employees. It is not a new idea but, rather, has deep roots in American history, as reflected in the tax treatment of employee benefits and the integration of private pensions with social security. Ironically, it was a far-sighted Kodak executive named Marion Folsom who, in the 1930s, helped design these features of the Social Security Act. Above all, what we need today are business leaders who, like Folsom, combine a concern for the commonweal with the self-interests that limit us all.
Notes 1. Quoted in Herman E. Krooss, Executive Opinion: What Business Leaders Said and Thought on Economic Issues (Garden City, NY: Doubleday, 1970), p. 397.
2. Douglass V. Brown and Charles A. Myers, "The Changing Industrial Relations Philosophy of American Management," Proceedings of the Industrial Relations Research Association (Madison, WI, 1957), pp. 84-99.
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