Profit Predicts Action

When companies were required to file quarterly reports with the American Securities and Exchange Commission, it had a direct and lasting effect on the way those companies run their everyday business. Now, a company is judged every three months on its revenue, expenses, and profit, with immediate reflection in the value of its stock. This has caused many companies to focus almost exclusively on their short term profitability, often at the expense of their long term viability.

The rest of the system has been designed to fulfil this goal. For maximized profits, we are told we need to minimize the use of labour, capital and materials. Economics 101 this is. Unfortunately, most of what goes on as planning and strategy of corporations doesn’t graduate beyond this basic economic dogma.

Corporations are required by law to maximize shareholder value. fiduciary irresponsibilityFiduciary responsibility it’s called, but passing the buck would be just as appropriate. This convenient legal obligation absolves companies from considering anything to do with the way they treat their employees, the communities where they do business, the environment, or anything not measured as expenses.

Corporations aren’t picky about what they produce either. The utility of a product is measured solely by the amount of money that can be coerced from the public, through advertising and culturally induced buying frenziesculturally induced buying frenzies. Yet another hand lotion can be touted with just as much zeal as a breakthrough cure for disease. Since the goal is profit, effort and talent are expended in proportion to earning potential, not societal significance.

And who better to run this world of profit than those least interested in, or oblivious to the welfare of other people. We should expect that these people are only out to look after themselves. They are not above taking other people’s credit, are ruthless and pushy, and adamantly non-idealistic. They are convinced that they are in this position because they are better people, and thus deserve the disproportionately rich rewards they bestow upon themselves. These are the best types to strictly further the goals of the commercial organizations, which do not include any non monetary considerations.

Non monetary considerations include minimizing the impact on the environment, supporting the community and culture, and employing people. Trifling matters for others to consider.

Productivity in Practice

Our companies are designed to use the smallest number of people at the lowest wages to produce the largest number of goods at the fastest rate. This is called productivity
product activityproductivity. The reason to measure productivity is to increase it, that is, to reduce the number of people, increase the number of goods, and to speed up the whole process.

The big push to increase productivity came with the introduction of the assembly line. This was the result of the increasing specialization of labour that had been going on for a long time. Productivity would be maximized by giving individual workers the least varied task, and require no thinking. Because the workers weren’t thinking, an elaborate hierarchy of command mismanagementcommand management was constructed. Managers did no real work, they were there to keep the workers in line.

So people, in this corporate equation, represent a factor of production that needs to be minimized.

Why Restructure?

What does massive restructuring really imply? Doesn’t it mean that the corporate gurus and managers have failed, doesn’t drastic change mean that these companies have been badly run? In their defence we hear that the relentless forces of the global competitionglobal economy demand drastic measures. But this is their system, they are in charge and they had it structured this way. How can they be so unprepared for the results?

We are told that all it takes is a good dose of bad tasting medicine to cure the ills of a company. But the medicine is rarely taken in the ranks of those responsible for the problems.

But we’re falling into the trap again of thinking that corporate goals include employing people, treating them well and being loyal to them. Bzzzzz, wrong! This is not the goal, it’s a side effect, a necessary evil. Being rational corporate entities, some of them anyway, the goal is to preserve the corporation at the highest possible profit level, thus ensuring maximum shareholder value. Of course feathering a few managerial nests along the way is simply an incentive for proper behaviour.

The goal of today’s corporate restructuring is to maintain the viability of the corporation in the global marketplace. Trendy prescriptions include shifting production to lower wage, tax, and regulated jurisdictions, amalgamation of production allowed by new trade agreements, diversifying into more profitable areas, and conversely, retrenching from previously calamitous diversification.

Restructuring 101

Problems Big and Small

Contracting out, corporate partnership, and strategic alliances are all symptoms of the fact that large corporations don’t work well. Instead of mergers and acquisitions, companies are turning outward in an attempt to maintain agility and focus.

There is a tendency to hardening of the attitudeshardening of the attitudes in large corporations because of the perception that size confers status. Problems manifest themselves in typical ways. The establishment of fiefdoms which assert authority over ideas and production result in the Not-Invented-Here syndromenot invented here syndrome. Ideas from outside are automatically suspicious since the organization has already recognized inherent expertise through jurisdictional division.

Bureaucracy that maintains itself, and budget games with year end capital boondoggles are also common symptoms. Managers of these enterprises are constantly struggling to reign in the desire for bigger is better within the divisions. Sheer size also makes it difficult to share goals. A sense of frustration and helplessness is usually present.

U.S. telephone giant AT&T voluntarily split into three separate companies, in the hope that smaller units would mean greater focus and agility.

Large corporations have also been caught off balance as they find that their former competitors, mortal enemies in the battle for industry dominance, have become their suppliers, customers, and partners too. This new state of apparently conflicting roles is hard to shoehorn into the traditional competition model.

The latest idea for saving big companies is the virtual corporationvirtual corporation. The theory goes that there doesn’t need to be a permanent group of people at all, they can all be hired on contract as needed. In this way expertise can be purchased when needed and surplus employees disappear without a fuss when contracts expire. There are serious questions about the availability of skilled people without the traditional corporate training grounds, the lack of a collegial atmosphere, and whether most people could cope with the uncertainty of contract employment.

Most big company strategies for reform hinge on the assumption that smaller organizations work better. But it’s the human interaction that’s the problem, and in this respect smaller companies just suffer from different maladies.

Small companies suffer from what I call entrepreneur's diseaseentrepreneur’s disease, or thinking that because you built the company you know everything. The owners, having built the business from the ground up feel that they are capable of running every aspect of the business as it grows. The problem comes when they refuse to relinquish control or defer to expertise. With the entrepreneurial drive also comes the bigger is better syndrome, and its predictable results of overexpansion.

All this right-sizing, downsizing, restructuring, de-layering, and drive for efficiency has lead to massive de-employment. What happens to all these formerly employed people?

The Jobless Recovery

I do find the casual use of the phrase the jobless recovery to be most ironic. To the unemployed it must seem like a cruel joke. Not only are they not likely to find jobs in the near future, but the continued cutbacks in government assistance due to the perceived debt problems make the prospects of day to day living 69¢ tuna and Kraft Dinnerquite bleak.

This was all quite a predictable result of the Free Trade Agreement with the U.S. The government of the day promised a comprehensive retraining and worker adjustment program to compensate for the inevitable fallout from the consolidation of American production after the tariff walls were eliminated. Apparently this was just another illusory election promise to calm the legitimate fears of those about to be displaced.

The result has been increased unemployment with large numbers of workers shifting from temporary unemployment insurance to longer term provincial welfare rolls. Combined with the reduced income and sales taxes, the welfare payments have depleted already sparse government coffers. This has put pressure on the willingness to fund the very education and training programs that are supposed to pull us out of this mess.

The Ontario Tories were brought back to power in 1995 in large part because they advocated workfare - where welfare recipients would have to work for their benefits (in what used to be derided by Tories as make-work schemes).

It is now dawning on people that the the jobless economyjobless recovery may actually be a harbinger of a jobless economy, where large numbers of people are permanently unemployed. Since the economy is not geared to produce employment, but rather wealth which is not well distributed, what looks like a sluggish recovery may actually be our future.

Economic Reactivity

So what are we recovering? Profits and economic activity that’s what. Jobs? Well, no, but you can’t expect us to do anything about that, it would only reverse the fragile recovery or push up the deficit. The economic conservatives proclaim that the recession is over (technically speaking of course - remember the GNP?) and has been for quite a while, that it wasn’t all that bad in comparisons that they have done, and that any economic stimulus now to provide jobs would only lead to that duo of bogey-men, the return of inflation and an increase in the debt.

We have also heard the consumer being blamed for the sluggish recovery from the recession. Production and exports are up. If only it's the consumers' faultconsumer spending would pick up like in the past, our economy would be humming along once again. On what planet do these economic analysts live? These consumers are of course the same people as our unemployed and those worried about becoming unemployed (just about everyone else but the analysts apparently). Consumer spending will pick up when the expectation of unemployment decreases, something that will not be brought about by the craze for shedding jobs that our global competition apparently demands.

So what has the jobless recovery done to our social policy and our ability to fund our social systems?

For the Sake Of?

Government Inc.

Many now advocate that our society and government should be run like corporations. They believe that the means of a corporation, the way things get done, automatically translate to the provision of public services. Wouldn’t it be simple if this were so. But as we have seen, the goal of corporations is profit, and trends like the current focus on customer service are subordinate to making money

So how do we fit the ways of a corporation, whose goal is profit, to our government, whose mandate is presumably societal well-being? Our governmental goal shouldn’t be the greatest monetary return.

The Harris government is intent on getting the fundamentals right (cut welfare, reduce spending and taxes, privatize, eliminate subsidy - generally reduce government) – and damn the opposition. It doesn’t occur to them that their version of the fundamentals may no longer be operative.

Governments are urged to stand back from regulating new economic sectors. Termed forbearanceforbearance, it means that our common interests normally articulated through government are better served by precluding any government action. At least this is the prescription given to us by business leaders.

The C.R.T.C. has taken up the forbearance call in its drive to impose competition. It may end up sacrificing Canadian culture at the alter of competition, with the new information technologies.

Governments are also busy shedding any operation that can conceivably be run by the private sector. It seems that governments should be run like corporations until they show the potential to make a profit, from which they might finance other social programs. As soon as profit enters the picture the government is supposed to jettison the enterprise, because as we know, all profit is reserved for the private sector. Governments are roundly criticized for imposing deadening taxes to finance their operations, but as soon as they come up with a voluntary financing mechanism they are supposed to abandon it.

Finance Minister Paul Martin says that anything in government that can be run privately should be.

So governments are to be left with what has proven to be unprofitable for the private sector. Like education and training.

Education Versus Training

Witness the debate surrounding our system of education and training. It is centred around the need to produce workers who will be employed so as not to drain the finite public resources available for income support.

But trained for what? We assume that we know what to train the people to do and that there will be jobs for these retrained workers. But this is just wishful thinking. Jobs don’t magically appear because there is a source of skilled labour. If anything, people will be more upset when they have been trained and still can’t find a good job. They will have bought into the dream that acquiring knowledge and skills brings prosperity. This may have seemed like an inevitable consequence in the past, but as we have seen, the past has recently been a bad predictor for the present.

People are the least flexible component of production. Their education takes years, and if done improperly is painful to correct later on. The demand for specialization only accentuates the risks. People are also inclined to be rooted in place and people. This would seem to favour the flexibility of education over the specifics of training.

But education is often seen as elitist and harshly attacked as such. This presumes that the masses are really rather dumb, instead of just undereducated. Also that we shouldn’t be striving for educational attainment. Again, this is the attitude that ensures resignation and complacency when it comes to questioning the way we run our society.

The debate surrounding the reform of education rages around back to basics and standardized testing. The controversies over child centred learning versus back to basics and whole language versus phonics are about the mechanics of education rather than the goals. Debate about the number, size, and power of school boards is more politically than educationally oriented – here saving money is paramount. What the goal of education is, is only obliquely touched upon. Are we supposed to produce people that are good citizens or good workers. This is fundamental, yet we rarely speak directly to this point.

Teaching people to question has rarely been a goal. By focusing on training – learning to do
learning to learnlearning to do, rather than on education – learning to learn, we are assuming we can predict the path of the economy. Haven’t we realized that this is a hopeless task? An emphasis on the ability to acquire and apply knowledge would seem like a better way to equip our people with the skills to prosper in our new, and as ever unpredictable economy.

Unemployment Assurance

Unemployment insurance was designed as a means to tide people over temporary joblessness. But unemployment is no longer just a temporary setback that we can insure ourselves against. It is now a long term condition that we are told the government cannot afford to compensate us for.

The current trend in reform of unemployment insurance and welfare is to push people through training programs that will give them jobs. But what are the prospects for such a program when all indications are that there will be high levels of unemployment for many years to come?

The unemployment insurance system has also been skewed over many years into a general income assistance and regional compensation program and thus has been overwhelmed financially and has lost credibility. Special provisions for economically depressed areas providing rich benefits for minimal work, training programs funded out of the insurance scheme, maternity and now even paternity provisions have been grafted onto the original insurance idea.

Again, the driving factor in tinkering with unemployment insurance is to save the government money. Governments are thus cutting benefits and carefully putting a veneer of compassionveneer of compassion in place of the real thing. And there are always food banks, shelters, and private charity.

Healthy, Economically

The loudest debate regarding social restructuring concerns the attempts to cut back on health care spending. As usual, the focus is saving government money, rather than on how to best promote health in the country. There is quite a bit of turf defending going on as well. And proposals regarding prevention are nowhere to be seen.

User fees are all about generating revenue and deterring costs, by making the patients think twice about using the health care system. Yet it is the doctors not the patients who are firmly in control of the system. Patients don’t check themselves into hospital, don’t order tests, prescribe drugs, or perform operations. The doctors decide all this, but have somehow made the public think that it is the patients who run the show and who must be controlled.

Proposals for a two-tiered health care system (publicly financed basic care, private payment for the rest) are little concerned with patient care, but rather the quest for either extra income or V.I.P. service. Introducing competition for profit into the health system defeats the purpose of universal health insurance, by giving an incentive to avoid sick people.

By focusing on cutting services to save money, the whole restructuring may backfire in reduced public health and its direct effect on the economy.

Targeting Universality

What the debate regarding universal versus targeted social programs is really about is the premise for social cooperation. Are we basically altruistic or self-serving?

Although a desire to ease the stigma attached to social programs may be an argument in favour of universality, the proponents of universal schemes desperately argue that middle and upper income taxpayers will quickly lose their willingness to fund programs that don’t benefit themselves. Thus the basic motivation is seen as altruism or
self-interestself benefit. The targeted camp believes that we shouldn’t waste our limited public resources on giving benefits to those who clearly don’t need it. These people are, perhaps unwittingly, counting on the altruism of their fellow taxpayers for continued support.

The heated debate about two-tiered medicine is animated by a belief that the lower public tier would become eroded by the withdrawal of support from the beneficiaries of the upper tier (both doctors and patients).

The universality debate goes right to the heart of society. Before we can hope to come up with appropriate reform we must decide how much support we are willing to give one another and the conditions to attach. We have to decide if we view social programs as an economic or social benefit, that is, whether we provide them primarily to keep the economy going – government compensating for market failure, or to keep the social fabric strong – government as a collective support for the people.