Human Resource Management
Among the economic issues at the start of the 21st century is the dissolution of the American middle class. The well paying manufacturing jobs are being shipped overseas or are just being lost due to the decline of our manufacturing base. While there are certainly many reasons for this change in our economic infrastructure, one of the reasons appears to be a change in our management culture.
Since the industrial revolution changed the world from an agricultural emphasis to one of manufacturing the treatment of the workers has not been consistent or fair. The early miserable working conditions have certainly been chronicled many times, with the long hours, low pay and the dangerous environment (both the workers with their machines and the communities with the accompanying pollution).
The end of 19th century brought the development of trade unions that sought a balance against such worker mistreatment through an organization of workers to bargain for better working conditions. By the middle of the 20th century this balance between labor and management helped bring about a healthy economy and a prosperous middle class. Though sweatshops and mistreatment of farm workers persisted, many American businessmen learned that treating their employees well would result in the highest levels of productivity at the same time as better morale for all. A common perception arose that a worker could get a good job that would sustain him/her for the 30-40 years until retirement.
By the end of the 20th century, common management practices had changed to where such loyalty was no longer deserved by the employees. In a vibrant economy, there are many factors in play among competitors. When competitors are left with similar products having similar quality the only remaining way to distinguish oneself in the market is price. Rather than finding ways to make a product better or cheaper, management found that it can be easier just to reduce the corporate burden of their employees. This burden consists of the number of employees, their wage scales and/or their benefit packages. Though the compensation packages of top executives continued to rise, that of their employees continued to fall.
The mistreatment of employees, just like raw materials that deserve no consideration or respect, is not worthy of loyalty to such management. Every employee expects fair compensation for his/her labor as he/she contributes to the success of the organization. As pointed out elsewhere in this web site (as well as many basic libertarian texts), this labor/compensation arrangement is at the heart of our human culture. Every person owns his/her labor and his/her property and neither can be taken without just compensation or this is considered a crime - no matter which country or which culture is considered. As the management breaks their part of this contract and this practice becomes widespread, the health of the culture declines even as the health of the economy fails.
I find it alarming that increasing profits has become the major criteria for any measure of a company's success. I recall many years ago when the monolith AT&T was considered a good investment because it offered consistent business performance with consistent dividends. AT&T did not offer continually rising dividends every quarter. Consistency had been considered worthwhile for an investment. The current evaluation for investment appears to be extremely short-term - which company will offer a return on an investment over the next few days or weeks? As a company's business matures and becomes more stable so its profits and returns are no longer multiplying each period it becomes less attractive when compared to growing companies that are in still in their more volatile stage.
This investment criteria with the short-term emphasis almost guarantees business decisions detrimental to the long-term success. As executives seek this short-term success, as seen by their shareholders and board members (or just themselves in a small business), their decisions involving the treatment of their employees are also shortsighted.
Enhancing the corporate bottom line should not always be more important than sharing the company's success with the employees. That slight reduction in profit while continuing to reward the employees could still lead to further efforts by the employees to contribute to the goals of the company. Once the employees are treated as expendable, just like inanimate raw materials used in the company's business, the prospect for continued loyalty to this company's management is tarnished and the tendency of an 'extra effort' by the employees to help the company 'pull through' any short term problems will be impacted. Even worse, when a reward continues to the executives (in a bonus, high salary, etc.) and/or shareholders (dividends) to the detriment of the employees, this reflects a condemnable attitude of greed and conceit.
Unfortunately, I do not see the trade unions as the mechanism to turn around this mismanagement of employees. Unions had been a counter force to company mismanagement many years ago but their absence from the private sector has removed their influence. In any case, a business must be able to pay whatever it can within its business plan. Small businesses often cannot pay the same wages as larger companies. Minimum wage laws just define the level of unemployment that will be tolerated since companies cannot use employees for jobs at less than that rate. Also, any business must be able to get rid of any bad or unproductive employees. I have witnessed a tendency of some unions to protect all the employees whether they are productive or not, a tendency that offsets whatever benefits a union might provide. This tendency is just as bad as that found in other organizations, such as of doctors or lawyers, that attempt to protect all their members from dismissal, even when found to be incompetent or unethical.
Anyone familiar with libertarian writings will be aware that government interventions against the natural economic forces must lead to maladjustments, that must eventually result in major economic problems which could be as bad as a recession or perhaps even a depression. There will always be natural tendencies due to supply and demand for rising/falling prices as well as for rising/falling wages. As the companies make the right or wrong business decisions for their products and services in their markets, their fortunes will rise and fall accordingly. A government cannot pass a practical law on humane business practices.
The solution to this problem must be cultural. Our management culture has apparently become accustomed to 'playing god' and the employees are just another column of numbers on a balance sheet. I have been employed by companies that as business conditions worsened would perform work reductions by percentage, where x% of employees in a group are reduced, no matter what their value is to the company. Such executive decisions are inefficient, because there was obviously no attempt to develop a better business plan to deal with the present problem and so there is a high probability that the consequences of such reductions on future quarters is to some extent unknown, and arbitrary since there is no or limited consideration as to which employees are actually better for the company long-term.
Once a company takes on arbitrary work reductions and employee benefit reductions, that company's management team must be at the end of their rope. These actions damage the employee/employer relationship and presage the departure of at least some members of this management team. They have lost their ability to manage around whatever business problem exists and they have turned to short-term solutions in the hopes of either salvaging their careers with the possibility of an eventual business turn around or preparing for their own departure (read: a golden parachute is in preparation).
It is somewhat amazing that at the moment of such proposed actions on the employees the company board of directors does not immediately take action as this is a sign of impending doom for their investment. Ralph Nader (Fighting Corporate Crime) has certainly been one to highlight that a number of white collar crime issues need to be addressed, in addition to the subject of this web page. The executive actions also imply that other various levels of company management (depending on the size of the company) have also consented to this disgrace because no discussion of alternatives are presented to those involved in the decision. Culturally, so many in management still seem willing to submit to the behaviors of their business leaders even as those decisions appear to be wrong or shortsighted.
That really seems to be the big issue here. Culturally, we still condone such inhumane behaviors by our business leaders. The values and behaviors that our culture will tolerate must change. If not, then our economy and our American way of life will continue to erode.
Of course those business leaders that have moved manufacturing jobs to other countries that will tolerate unsafe working conditions or even pollutants not legal here are also reprehensible but that somewhat related inhumane business executive behavior is not the main topic of this web page.
There is a related web page: Unions and Business in the 21st Century with my perspective on unions and business management in the 21st Century based my own early work experience in companies with and without unions.
created - Dec. 2005
last change - 12/10/2005
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