Downsizing: the bottom line.

• Author: Haseltine, Robert W.
• Position: Column

Xerox, GM, AT&T, IBM, Kodak, Fleet Financial Group, Apple. What do these names have in common? The answer is downsizing, a term relatively new to the business world. The word has a certain euphemistic ring to it. Corporations maintain that this is a concept that can be considered non-harmful to people and beneficial to the business employing it.

A few years ago, I wrote an "Economic Observer" column for which I took a certain amount of grief. There were letters to the editor; I was on a radio station in Seattle answering questions pertaining to it; and I received a number of phone calls regarding the theme of the column, which many people at the time did not want to consider and some thought foreign to American business. I called it the "Economics of Greed."

Slashing personnel to save salaries is gaining momentum. being implemented by company after company. It is packaged under a number of synonyms, but basically comes down to a statement such as: "We are laying off 5,000 employees as we downsize the company. This will increase our profits." Unions, trying to protect the jobs of workers they represent, find themselves running up against brick walls as they lose out in the company's rush to lay off people.

Why are corporations downsizing? By their own admission, it has to do with "profit." What can the company do with this profit? It can retain the earnings, use them to increase the capital base, and increase productivity. This way leads to greater profits. The trouble is that, in today's economic climate, with people losing jobs and having to cut back on their demand for goods and services, there is no sense in adding to capital because the market is not there for the existing products, let alone an additional amount.

The other direction is to increase the dividends paid to stockholders and keep them happy with a high level of earnings on their shares. This is a short road to destruction, and both the stockholders and those who run the companies have their heads stuck in the sand as they elect to follow this route.

Let's examine the effects on the economy of downsizing. Assume it occurs in middle management, where the average salary is $100,000 for the 5,000 people being released. This means the company is "saving" approximately $500,000,000 by releasing these employees. That is certainly a windfall gain to the dividends of the stockholders, who welcome this extra money so they can invest in more stocks.

They may buy more shares, but these...