In Defense Of The Downsizers.

April 23, 1997|By Faith Whittlesey

NEW YORK -- Few targets gets have drawn more consistent fire from the Clinton administration and the nation's news media than CEOs who downsize and restructure faltering corporations. Speaking to Baldridge Award recipients in December, the president suggested that good companies don't do what corporate restructures do.

Last year, then-Labor Secretary Robert Reich locked horns with corporate rescue specialist Albert Dunlap, currently CEO of Sunbeam Corp. and previously of Scott Paper. After taking over the troubled Sunbeam six months ago, Mr. Dunlap laid off a quarter of a bloated work force -- 3,000 of 12,000 workers -- drawing media disapproval from coast to coast. Mr. Reich has suggested that corporations that cut their labor forces suddenly should be denied certain tax breaks.

Coming off an election victory owed in large part to, as Mr. Clinton put it, "the most competitive economy in the world," the president and his team should be thanking corporate rescuers such as Albert Dunlap, not reviling them. If the U.S. economy is in fact the world's most competitive, it is in large part thanks to Mr. Dunlap and his kind.

Testimony to the importance of corporate restructuring in fostering economic growth came from an unexpected source recently. In an extraordinary series of interviews with the International Herald-Tribune that brought little notice in the United States, Europe's top central bankers noted that their own nations' labor law and practice lack the flexibility that allows corporate restructuring here. The continent, they said, is unprepared to compete in the dynamic global marketplace.

Bundesbank President Hans Tietmeyer blamed Europe's consistently anemic growth and chronically high unemployment on rigid labor policies, high taxes and disincentives to work that have made it all but impossible for European business leaders to adapt to a more competitive global economy, as American companies have. "Our labor relations are too rigid," he complained, adding that companies "need to be flexable." In other words, for economies to become competitive, they need to open the way for rescue specialists like Albert Dunlap to do their work. "Global investment flows to the most competitive location," Mr. Tietmeyer said. "We must be competitive."

The big difference

Wim Duisenberg, head of the Dutch central bank, called for deregulation of Europe's labor markets. "The big difference," he said, between the U.S. and Europe, "is that the mobility of labor is significantly higher in the United States than it is in Europe." He argued that European companies must be freer to adjust their labor forces in the manner of Albert Dunlap and other corporate restructurers to the demands of the marketplace. The potential payoff, he suggested, could be seen in the turnaround of "once decaying regions such as New England."

Bank of France Governor Jean-Claude Trichet also called for a "more flexible labor market." He included the usual disclaimer about preserving the "values of our French Revolution," but the message of Mr. Trichet and his colleagues was clear: To compete in the dynamic global economy, Europe must introduce American-style flexibility before it can hope for American-style growth.

It is not hard to see why Europe's leading central bankers are casting yearning glances at the very corporate rescue efforts that have received such disdainful notices in some quarters here. If American companies like Mr. Dunlap's Sunbeam are becoming more competitive, their European counterparts -- hamstrung by the kinds of policies the Clinton administration have reviewed so favorably -- have not.

The McKinsey Global Institute has found that German workers are only 90 percent as productive as American workers, and that the productivity of German capital is only about two-thirds of the U.S. level. The result is that Germany's per-capita GDP is 26 percent lower than America's.

And European unemployment is double the American rate. When Germany's unemployment rate hit 12.2 percent, one European newspaper ominously reported that such a level was last seen when Hitler took power. In France, unemployment stands at 12.7 percent and is rising, leading to the recent municipal election victories for nationalists like Jean-Marc Le Pen.

The 18 million Europeans out of work have little cause for optimism: Over the past 20 years, while 30 million new jobs have been created in America, Europe has produced a net gain of zero.

Meanwhile, back at home, the much-reviled Mr. Dunlap recently announced an employee stock-option plan to allow the remaining Sunbeam workers to share in the future export expansion and profitability of their leaner and more competitive company.

What of those he laid off?

In January, the American economy created 271,000 net new jobs and U.S. market participation was at an all time high of 67.2 percent. Meanwhile through 1996, incomes continued to rise, if not as quickly as many would like. While corporate restructuring is obviously painful for those affected in the short run, the country as a whole benefits in the long run.

A growing economy is the best security for workers in the evolving global economy. But, as Europe's central bankers know, even if President Clinton does not, we can't have "the world's most competitive economy" unless we have room for those who re-engineer troubled corporations, making our economy more competitive one company at a time.

Faith Whittlesey is a former U.S. ambassador to Switzerland and former director of the White House Office of Public Liaison.

Pub Date: 4/23/97

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