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CAUT Bulletin Archives

May 1996

The Down Side of Downsizing

In the last few months there has been vigorous debate in the Canadian and American press about the merits and effects of corporate downsizing. Just as doubts begin to creep in among businessmen, some academic administrators have begun to burn with a zeal to emulate the most brutal of the cutters.

Even The Globe and Mail has discovered that downsizing has its costs. It noted that a survey by the American Management Association found that among 700 companies that had downsized, productivity rose in 34 per cent of the cases þ but it fell in 30 per cent. In 83 per cent of the cases employee morale declined.

It cited the downsizing of Petrocan where one long-serving and loyal employee noted: "...downsizings also hurt the company...because the people left behind lose the incentive to go the extra mile for their employer. A lot of people used to think that job security came from being a quality performer. When they see stuff like that happen, they start to realize that the quality of your performance doesn't matter."

A recent book by Frederick Reichfield, entitled The Loyalty Effect, had the same message. "No one," he writes, "ever thought about measuring defects in a plant until after the Second World War. Now you can't find a manufacturing facility without statistical process control." However, he argues, in their zeal for accounting numbers and statistical analysis, business has lost sight of the importance of employee loyalty.

"They've built intricate cost-accounting systems to measure productivity, but almost all of them apply to inanimate objects rather than to the human assets that ultimately drive a business." Unmotivated work forces, he suggests, will not go the extra mile to win over customers and gain a competitive edge.

The Guardian in the United Kingdom has focused attention recently on economists such as Robert Putnam at Princeton and Douglass North, a Nobel-prize winner at Washington University in St. Louis who argue that social capital is an essential ingredient in economic growth.

By this they mean rich traditions of civic action groups, trade unions, clubs and associations and that the need for quality and innovation requires an integrity of relationships between the workforce, suppliers and financiers. The sourness and lack of trust created by downsizing may have, they suggest, longer term effects that are more serious than the short-term financial gain.

It is clear that Pat Buchanan in the United States touched a nerve, even in the Republican Party, with his vigorous attacks on an uncaring and selfish corporate America. It will be interesting to see if anyone in Canada tries to tap the same vein and with what results. David Lewis, where are you?