Manager’s Samizdat

“Labor flexibility” is a good thing, no?  You hire when your markets are on fire, and lay off when it pays off.  This is an age-old right of employers, especially in the US.  Of course, unions tried to temper it, but less than 9% of private-sector labor today is unionized – below 1932 levels – so union rules don’t govern layoffs in the vast majority of cases.

Firing someone for incompetence or unethical behavior is one thing – there’s community support for this.  Dumping people abruptly as a way to manage shorter-term costs may make sense in a narrow quarterly earnings terms, but is profoundly troubling, a kind of violence against their humanity, or at least, their dignity.

I did it myself once, and have been bothered by it ever since.  I had a firm in Sweden, with three employees, and I let them all go when a major business downturn (the 2001 IT crash/dot.com recession), combined with my desire to move back to the US, left no prospects for continued operation of my firm.  I was the sole proprietor, and the only person generating new business.  For the final 3-4 months of my employees’ tenure, I was working overtime to pay their salaries, but could not bill them out.  We parted tensely.  One never spoke to me again.  There must be a special case for small businesses like this.  The emotions are raw.  The ethics are problematic.  The economics are compelling.  The effects on a community and on families are limited in every such case – many small boats – and this may be about as close to the clement version of “creative destruction” as one can get (more Schumpeter’s than Marx’s).

In bigger organizations, layoffs are more systematic and pernicious.  What if someone has dedicated many years of hard, productive work to a company, building the economy of a household and a professional identity around it, and is then suddenly told, without warning, “you have twenty minutes to clear your desk, and you will then be escorted by security down to the lobby?”

For a masterful portrayal of this, check out the first few minutes of the movie Margin Call (2011).  The irony of Eric Dale’s layoff emerges around the fact that he’s apparently being let go in a precautionary move as the 2008 economy weakens, yet by himself has figured out that his investment bank is about to fall into a vastly deeper and more dangerous hole, depicting indeed the trap that Lehman Brothers fell into.  (Dale is subsequently enticed and then blackmailed back in because of what he knows. )  Dale’s grim shock and phlegmatic compliance as he’s ushered out of the building are mesmerizing.  It’s hard to feel sorry for him – his salary was and probably eventually again will be way more than what the average American earns – but the power of the large organization over the individual is awesome to behold.

Where the effects may be a lot more substantial – more devastating for individuals, families, and communities – are the cases of large employers, including manufacturers, that lay off employees en masse.  Economists explain that this is ultimately good for the economy, freeing up workers from unprofitable companies so they become available for new, more productive uses.  Laws like those in the EU that make it difficult and expensive to lay off workers are castigated as making Europe’s economy “sclerotic” and uncompetitive, chasing investment away to low-wage countries with weaker protection of employee rights (such as the US; check out IKEA’s labor conflict at Swedwood in Danville, Virginia).

I don’t actually believe that.  The EU is diverse, running the gamut from Greece to Germany, but I think a lot of production stays in the EU because of factors like a qualified workforce, national health care systems, proximity to markets, better control over production systems and supply chains, and government incentives.  However, economies do need to continually undergo renewal through ongoing reallocation of people, capital, knowledge, and more, and regulations that lock things up too tightly can be damaging to the producers.

An entirely different view of this recently came from Paul Millman, CEO of Chroma Technology, Inc., a high-tech optical filters manufacturer here in Vermont with over $20 million in sales, roughly 100 employees, and representation in Germany and China.  Since its founding two decades ago, Chroma has been employee-owned and worker-managed.  There’s no outside equity.  It’s a C corporation, and not an ESOP.  Employee turnover is extremely low.  Very few people have ever been involuntarily fired, and economic layoffs have never taken place.  Decisions involve in-depth democratic process.

Millman explained that, prior to Chroma’s founding, he had been fired more times than anyone he knew, often with no satisfactory explanation, and that, in Chroma, he has wanted to make it very difficult for people to be fired or laid off.  It’s simply inhumane.  Plus, the limited research into the competitiveness and longevity of genuinely employee-owned companies seems to indicate that they weather downturns well by voluntarily reducing bonuses, salaries, and other expenses, and bounce back when their markets improve, innovating along the way, with their organizations and internal relationships intact.  (Like a strong family!)  There’s ideology at work here, not government restrictions:  a commitment to employee ownership and empowerment, and a belief in the sanctity of human rights and dignity.

In an economy under the onslaught of low-wage global competition, growing resource scarcity, climate change, and other disruptive, unpredictable forces, employee ownership sounds like a much better way to meet needs and preserve our industrial base than, on one hand, the corporations that hire and lay people off as if they were slack that management can calculatingly take up or let off, or, on the other, government restrictions imposed with little understanding of individual companies’ needs.