Restructuring may lift sagging U.S. productivity

SWEATING OUT THE CYCLE

December 22, 1991|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

NEW YORK -- In 1986, when the economy was still humming, AT&T broke with precedent and ended its policy of lifetime employment. Since then, it has shed about 1,000 positions every month in its core phone operations.

These days, similar long-term plans are becoming almost routine with General Motors last week unveiling a four-year program to cut 70,000 workers. Literally hundreds of other blue-chip companies have announced job reduction-related "restructurings.

For many companies, these restructurings may not go much further than a general purge. Stung by the recession, they intend to match reduced revenues with reduced costs. Some probably are making even less meaningful changes, using the mask of restructuring and a widely publicized recession to bury their mistakes.

"It's a sudden bailing out as the water reaches the gunwales," said Audrey Freeman, an economist with the Conference Board. "There's been some postponement from last year, all kinds of tax purposes, and a sense of beginning 1992 with a clean slate."

For others, though, the restructurings are more profound, addressing a problem that has affected U.S.

business for decades: a slow erosion in the growth of productivity.

According to figures recently compiled by the Organization for Economic Cooperation and Development, the United States had the lowest productivity growth of any major country during the 1980s: 0.8 percent a year vs. a 1.6 percent average for the 24 other OECD countries.

The comparison to Japan is particularly striking. Its productivity grew at an annual rate of 2.9 percent, a level similar to productivity gains in the U.S. during the heyday of the 1960s.

Any examination of productivity is compromised by a critical flaw: The number is notoriously fuzzy. Officially defined as labor output per hour, it works best when used to measure facets of the economy with a clear output, like manufacturing. It is a far poorer benchmark when used for services or government.

Still, the lackluster U.S. results help explain two disturbing long-term domestic trends: a declining economic growth rate and stagnant wages.

Confronted by changes in markets and technology, many staid companies are taking measures that should dramatically increase productivity.

AT&T, for instance, became a less maternal Ma Bell in 1986, shortly after it lost its monopoly on U.S. phone service. Since its Christmas 1986 announcement of job cuts, employment in core phone operations has declined from 320,000 to 258,000. Meanwhile, call volume has soared from a daily average of 85 million to 135 million.

"Our emphasis has been on more technological capacity and less people," said company spokesman Burke Stinson. "A person typing on a personal computer can probably do in an afternoon what it took a small battalion to do in the field before."

AT&T's reaction was passive compared to that of the rail industry, which for decades had watched trucks and planes eat into its market. Industry employment shrank 45 percent during the 1980s.

Revenues per ton mile -- the payment received for carrying a ton of goods one mile -- declined more than 7 percent during the decade, according to the Association of American Railroads. Widespread insolvencies did not occur, however, because expenses dropped even faster -- almost 17 percent per ton mile.

Consolidated Rail Corp., created out of the bankrupt wreckage of several of the country's largest lines, underwent the most dramatic change.

Since 1980, revenues have been relatively stable, but employment has dropped from 80,000 to 27,000. In the past five years, Conrail estimates ton-mileage per employee has risen nearly 60 percent.

The changes are not just occurring in companies forcibly changed by bankruptcy or antitrust rulings.

Carpenter Technology of Reading, Pa., a century-old manufacturer in the highly competitive steel industry, survived the 1980s by boosting revenues per worker by 27 percent. Once the economy revives, company Treasurer John Schuler says, that figure will soar.

Many of the companies that began cutting jobs years ago may be nearing a conclusion of the painful process, even as headlines detail the latest restructurings. AT&T says monthly reductions were halved this year and may continue to slow. H. William Brown, senior vice president of finance for Conrail, said staff cutbacks have finally reached a point of diminishing returns.

"I believe we have created a fundamentally lower cost structure that allows us to compete for business we couldn't compete for years ago," Mr. Brown said. "I would hope that the ton miles per employee will continue to improve because ton miles are going up rather than the number of employees is going down."

More efficient production of materials, transportation and communications all bode well for the U.S. economy in the long

run. Unfortunately, though, many other restruc

turings fail.

Consider General Motors Corp.

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