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Abstract and Keywords

At any point in time, the structure of the corporation is the result of an evolutionary process that reflects strategic investment decisions to serve particular markets, engage in particular activities, and produce in particular locations. Restructuring occurs when the corporation is not willing or able to utilize the capabilities and assets that are the legacy of past decisions. Under adverse economic conditions that cut across industrial sectors or firms within a sector, large numbers of companies in the same nation or region may engage in restructuring at the same time. Such restructuring can have a negative impact on national or regional employment, especially when restructuring involves large-scale downsizing or the closing or locational shift of a labor-intensive facility. Thus, restructuring can have profound impacts on the quality and quantity of jobs available in the economy.

Keywords: evolutionary process, strategic investment decisions, restructuring, regional employment, labor-intensive facility

24.1 Introduction: The Business Corporation and Restructuring

Business corporations are central to economic activity nationally and globally. In 2002 there were thirteen corporations in the world with revenues in excess of $100 billion, six of them American, three Japanese, two German, one British, and one British-Dutch. Of the world's fifty biggest employers—ranging from Wal-Mart, with 1,300,000 employees to Peugeot with 198,600 employees—eighteen were American, nine French, seven German, six Chinese, four Japanese, two British, and one each Dutch, British-Dutch, Russian, and Swiss. In 2002 the 500 largest corporations by revenues employed an average of 92,985 people each (Fortune 2003).

At some point in history—although in many cases that history goes back more than a hundred years—even the largest of these business corporations did not exist. They grew large over time by developing the productive capabilities of their investments in physical and human capital and then realizing returns on these investments through the sale of goods and services. As they captured a larger extent of the market, they benefited from economies of scale and scope. In retrospect, that growth was not inevitable (even if, with careful research, it may be explicable), and one cannot assume that any particular corporation will be able to sustain its current levels of revenue and employment in the future. Industrial corporations that have grown large often undergo major restructuring.

At any point in time, the structure of the corporation is the result of an evolutionary process that reflects strategic investment decisions to serve particular markets, engage in particular activities, and produce in particular locations. Restructuring occurs when the corporation is not willing or able to utilize the capabilities and assets that are the legacy of past decisions. Within any company, the incomes, employment opportunities, and career paths of large numbers of people may be affected. Long-term employees may find that the corporation no longer requires their services. Whether and how they secure new employment will depend on labor market conditions and their own marketability. Other employees may find themselves compelled to work for different companies and/or in different locations. In most cases of restructuring, these changes in work will be beyond the control of most employees. The main exception is a management buyout where divisional managers, motivated by the possibility of exercising more control over the conditions of and returns from their employment, take the initiative in removing a division from the existing corporation.

Under adverse economic conditions that cut across industrial sectors or firms within a sector, large numbers of companies in the same nation or region may engage in restructuring at the same time. Such restructuring can have a negative impact on national or regional employment, especially when restructuring involves large-scale downsizing or the closing or locational shift of a labor-intensive facility. Thus, restructuring can have profound impacts on the quality and quantity of jobs available in the economy. It may render uncertain the livelihoods of large numbers of people within a region or nation for whom the industrial corporation provided stable employment. At the same time, however, corporate restructuring may be a necessary response to changing technological, market, and economic conditions if the firms that provide employment are to remain competitive. Through an analysis of corporate restructuring, we can gain insights into the larger questions of who gains and who loses in a rapidly changing global economy and how the regulation and governance of the corporation can promote stable and equitable economic growth.

24.1.1 Analyzing Corporate Restructuring

Corporate restructuring entails a significant reduction in the resources that a corporation allocates to product markets or process activities or geographical locations in which it had previously been engaged. Such a reduction may be part of a process of reallocating corporate resources to new growth areas, but corporate restructuring always entails a retrenchment of resource commitments to one or more specific markets, activities, or locations. For any corporation the starting point for restructuring is an existing organizational structure that employs a certain number of people in particular locations to serve markets by engaging in particular activities.

Restructuring can take six forms: buyout, divestiture, outsourcing, relocation, downsizing, and bankruptcy. A buyout occurs when managers within a particular unit in the corporation secure the financing required to turn the unit into a separate company. A divestiture occurs when the corporation sells a particular business unit to outsiders, in some cases by spinning off the unit and listing it on a stock exchange. An outsourcing occurs when the corporation enters into a supply or distribution relation with another company to engage in activities that the corporation previously performed. A relocation occurs when the corporation shifts an activity from one place to another with a substantial change in whom it employs. A downsizing occurs when the corporation permanently reduces its employment level without necessarily abandoning a product market, process activity, or geographic location. A bankruptcy occurs when a firm fails to meet or renegotiate its obligations to its creditors and may be preceded by any or all of the other forms of restructuring.

Corporate executives generally argue that the purpose of corporate restructuring is renovation, not redistribution. In downsizing they might argue that, notwithstanding its redistributive impact, the termination of the employment of some people is an essential prelude to rightsizing the company so that it can invest in innovations that will make the remaining labor force more competitive. However, decision-making power is unequally distributed among participants in the corporation. Even when renovation is a goal, those who have more power may use the process to improve or maintain their own welfare while foisting the costs of restructuring on others. An analysis of corporate restructuring should ask by whom and for whom the corporation is run, and how renovative outcomes might be achieved while mitigating the losses of those who are not given the opportunity of sharing in the gains of renovation.

The main focus of this chapter is corporate restructuring as it has occurred in the United States over the past two decades. The United States is not only the world's largest economy but also the one in which managerial prerogative in restructuring the industrial corporation has been least constrained, especially in terms of laying off existing employees and creating new firms. Nevertheless, in the post-World War II decades, up to the 1970s, most established US industrial corporations—ones that we would now label old economy—pursued investment strategies that have been called elsewhere retain and reinvest (Lazonick and O'Sullivan 2000a); they retained corporate revenues and reinvested in the growth of the corporation. During the 1980s and 1990s, however, many of these established corporations engaged in investment strategies that we have called downsize and distribute; they have downsized corporate labor forces and distributed corporate revenues. During the same decades, however, a new breed of corporation drove the growth of the US economy, based on a new retain and reinvest regime—to the point where by the late 1990s they formed the foundation of a new economy. As a prelude to discussions of the restructuring of the old economy corporation and the rise of the new economy corporation in the 1980s and 1990s, the following section summarizes the key features of the historical evolution of the US industrial corporation to the 1970s.

24.2 The Evolution of the US Corporation: Historical Background

In the 1950s the United States dominated the world economy. Its level of per capita income was well ahead of fast-growing nations such as Germany and Japan (Maddison 1994: 22). The industrial corporation was central to US economic power, and within the United States a small number of corporations had attained immense control over the allocation of the economy's resources. In 1959 forty-four of the world's fifty largest corporations in terms of revenues were US-based, with the remaining six headquartered in Europe. Corporations represented 9.6 percent of US business enterprises, but 79.3 percent of business revenues. US corporations with assets of $100 million or more accounted for one-tenth of 1 percent of corporations, but 55.4 percent of corporate assets, 54.5 percent of before tax corporate profits, and 67.9 percent of corporate dividends (Kaysen 1996: 25; US Bureau of the Census 1976: Series V, 182–96).

24.2.1 Managerial Revolution

The central characteristic of the US corporation in the post-World War II decades was managerial organization. The corporations that dominated the US economy into the 1970s grew large by investing in the organizational capabilities of professional, technical, and administrative personnel, resulting in what Chandler (1977) called ‘the managerial revolution in American business’. By the 1920s, when major US industrial corporations consolidated their positions across a range of researchintensive and capital-intensive industries, the managerial revolution was complete (Chandler 1962, 1977; Lazonick 1986; Noble 1977). In ‘The Rise of Administrative Overhead in the Manufacturing Industries of the United States, 1899–1947’, Melman (1951) showed that the number of salaried employees in US manufacturing rose from 0.35 million in 1899 to 1.50 million in 1929 and then to 2.58 million in 1947, with the ratio of salaried employees to 100 wage earners rising from 7.7 in 1899 to 17.9 in 1929 and to 21.6 in 1947 (Melman 1951: 66). In 1929 industries with the highest ratios of salaried employees to wage earners included drugs and medicines (61.5), soap (42.3), flour (39.4), business machines (36.9), photoengraving (35.1), printing and publishing (33.4), structural steel (25.4), lithographing (24.7), and electrical machinery (24.6).

24.2.2 Transforming Technologies, Supervising Workers, Accessing Markets

What did all these salaried managers do? One critical role of the managerial organization was to transform technologies. During the first decades of the twentieth century, many high-technology companies such as General Electric, Eastman Kodak, AT&T, and Du Pont created in-house R&D labs. Between 1899 and 1946 US manufacturing companies put in place almost 2,200 laboratories for industrial research, of which 26 percent were in chemicals and 20 percent in machinery. These research labs employed 2,775 scientists and engineers in 1921, 6,320 in 1927, 10,927 in 1933, and 27,777 in 1940, so that even the Great Depression did not curb corporate investments for transforming technologies. Government funding of corporate R&D during World War II helped increase the number employed scientists and engineers to 45,941 by 1946, representing 0.40 research personnel for every 100 wage earners in that year (Mowery and Rosenberg 1989: 62–71).

A second critical role of managerial organization was to supervise the work of wage earners. In transforming technologies, a central focus of the US managerial corporation was to take skills off the shop floor by embedding craft capabilities in machine processes. These changes eliminated the craft-worker, but replaced him with the semi-skilled operative whose job it was to perform routine manual tasks on a repetitive basis as a complement to the high-speed capabilities of massproduction machines. Managers supervised these mass-production operatives to ensure that they maintained the pace of work. The ratio of supervisory personnel to production workers in US manufacturing increased by 15 percent between 1900 and 1910, and by another 35 percent in the following decade, after which this ratio stabilized (Lazonick 1990: ch. 7).

A third critical role of the managerial organization was to access product markets. Without access to markets to sell corporate products, the high fixed costs of developing technology and investing in production facilities would have resulted in high losses. In making investments in production capabilities, therefore, industrial corporations also had to make investments in distribution capabilities, including sales, offices, advertising, and even customized transportation facilities to ensure that they would be able to sell the goods they produced. As Chandler (1990) has shown, from the late nineteenth century, a three-pronged investment in production, distribution, and management was a necessary condition for the growth of the industrial enterprise.

In the first stage of growth, the industrial enterprise sought to build distribution capabilities for national markets, an effort facilitated in the last decades of the nineteenth century by the construction of transcontinental railroads and a national telecommunications system. From the 1920s this infrastructure was augmented by the development of the world's leading air transportation system, whose growth was closely linked to the rise of a national and international airmail service (Heppenheimer 1995). The organizational capabilities developed within the leading industrial corporations that enabled them to dominate national markets subsequently laid the foundations for multinational expansion.

24.2.3 The Trajectory of Development

There was a general slowdown in multinational expansion between the world wars, but, according to Jones (2002: 4607), ‘[b]etween 1945 and the mid-1960s the USA may have accounted for 85 percent of all new flows of [foreign] direct investment’. This global expansion was mainly in manufacturing facilities in other advanced economies that gave the multinational companies better access to foreign markets. By 1980, Britain, which served as a production location for goods sold throughout Western Europe, was the recipient of more foreign direct investment than all of Africa and Asia combined (Dunning 1993: 20; Jones 2002: 4607). In the 1980s and 1990s there was a tendency for multinational corporations to locate activities such as R&D and marketing in different parts of the world, so that intrafirm trade became a significant share of world trade. In 1989, for example, cross-border transactions in goods and services between US-based firms and their foreign affiliates or parent companies accounted for about 42 percent of US exports and 49 percent of imports (Dunning 1993: 386–7).

As they expanded, US industrial corporations diversified into new lines of business. Capabilities developed for one product market could be used as a basis for gaining entry to new product markets. Moreover, as companies were successful, they could use internally generated revenues to finance new investments, including R&D. Federal government and business spending on R&D doubled in real terms between 1953 and 1959, and doubled again between 1959 and 1982. R&D as a proportion of GNP increased from 1.40 percent in 1953 to 2.53 percent in 1959 to 2.61 percent in 1982, with a peak of 2.96 percent in 1964. In that year, the proportion of R&D spending from the federal government also peaked at 66.5 percent, gradually declining to 46.1 percent in 1982 (Mowery and Rosenberg 1989:126–7).

During the postwar decades, therefore, US industrial corporations had access to unprecedented amounts of new technology that they could exploit commercially. For transforming knowledge into revenue-generating products, they had access to an unparalleled communications infrastructure and had, over the previous decades, built up formidable organizational capabilities. The golden age of the 1950s and 1960s, moreover, provided industrial corporations with favorable demand conditions on both home and foreign markets (Marglin and Schor 1990).

24.2.4 The Rise of the Multidivisional Enterprise

In the early decades of the twentieth century, industrial corporations had discovered that success in one product market could provide them with privileged access to technological, organizational, and financial resources that could be used for entry into new product markets. By the 1920s a small number of leading industrial corporations had begun to cope with the problem of how to organize different business units within one coherent corporate organization. The result in the ensuing decades was the transition from a functional to a multidivisional organization of the enterprise (Chandler 1962).

The multidivisional structure vested control over the integration of specialized functions such as purchasing, production, and sales within divisions that operated as profit centers, with their focus on developing products for sale in particular markets or geographical areas. Besides controlling staff functions (legal, accounting, finance, human resource, industrial relations, research) at the corporate level, corporate headquarters maintained strategic control over major decisions for expansion in or withdrawal from lines of business and geographic locations. Chandler (1962: 11) depicted corporate headquarters as making entrepreneurial decisions and the divisions as making operational decisions, where ‘entrepreneurial decisions and actions refer to those which affect that allocation or reallocation of resources for the enterprise as a whole, and operating decisions and actions … refer to those which are carried out by using the resources already allocated’.

In his seminal book, Strategy and Structure, Chandler (1962:369) held up General Electric (GE) as a model of'future trends in the organization of the most technologically advanced type of American industrial enterprise'. He noted how in the 1950s the company implemented the multidivisional structure by breaking down its organization into twenty operating divisions that administered the work of functional departments, whose total numbers grew from 70 in 1950 to 105 in 1960 (Chandler 1962: 368). While Chandler (1962: 369) expressed concern that GE had perhaps created too many operating units to be administered effectively, he argued that the organizational changes in the company in the 1950s had ‘undoubtedly facilitated General Electric's recent diversification into nuclear power, jets, computers, industrial automation systems and other new fields as well as the expansion of the company's resources abroad’.

Based on the multidivisional structure, however, over the next two decades GE became an unwieldy conglomerate that failed to transform its considerable capabilities in electronics into competitive advantage in semiconductors, computers, and factory automation. Moreover in the 1950s it was GE that was foremost among US companies in creating the ideology that by learning general principles of how to manage the work of others (laid out in the company's five-volume manual, ‘Professional Management in General Electric') a well-trained manager could manage any type of business (O'Sullivan 2000: 118–21). In the 1960s this ideology became standard fare in US graduate business schools. It was used to justify the growth of the US corporation through diversification, often by means of mergers and acquisitions, even if many of the lines of business in these conglomerates had no technological or market relation to one another.

During the 1960s the conglomerate movement significantly reshaped the organization of the US industrial corporation. The mean number of lines of business of the top 200 US manufacturing corporations ranked by sales rose from 4.76 in 1950 to 10.89 in 1975. For the 148 corporations of the 200 largest in 1950 that still existed in 1975 the mean number of lines of business rose from 5.22 to 9.74. In the conglomerate movement of the 1960s, annual average mergers and acquisitions (M&A) announcements increased from 1,951 in 1963–7 to 3,736 in 1968–72, with a peak level of 5,306 in 1969 (Merrill Lynch Advisory Services 1994). Between 1950 and 1978 Beatrice Foods did 290 acquisitions, W. R. Grace 186, IT&T 163, Gulf and Western 155, Textron 115, Litton Industries 99, and LTV 58 (Ravenscraft and Scherer 1987: 30, 32, 38, 39). Scherer and Ross (1990:157) have shown that, of assets that large manufacturing and mining companies acquired when they bought other companies, 10.1 percent were in the pure conglomerate category in 1948–55, 17.7 percent in 1956–63, 34.8 percent in 1964–71, and 45.5 percent in 1972–9.

This corporate growth from the 1950s to the 1970s was also reflected in average employment of the largest corporations by revenues. The 50 largest US industrial corporations by revenues averaged 87,080 employees in 1957 (the first year for which we have Fortune 500 data), 117,393 in 1967, and 119,093 in 1977. In total, in 1957 these 50 companies employed 4.4 million people (equivalent to 6.4 percent of the US civilian labor force), in 1967 5.9 million (7.5 percent), and in 1977 6.0 million (5.8 percent) (it should be noted that these data refer to worldwide employment by the corporations so that these percentages somewhat overstate their importance to total US employment). Table 24.1 shows the changes in employment over this period for the twenty largest employers in 1957 and in 1977.

Table 24.1 Employment, 1957–1977, of the twenty largest US corporate employers in 1957 and 1977

Company Rank

1957

1957

1962

1967

1972

1977

Rank 1977

General Motors

1

588,160

604,278

728,198

759,543

797,000

1

General Electric

2

282,029

258,174

375,000

369,000

384,000

3

US Steel

3

271,037

194,044

197,643

176,486

165,845

8

Ford Motor

4

191,759

302,563

394,323

442,607

479,000

2

Bethlehem Steel

5

166,859

122,089

131,000

109,000

94,000

22

Standard Oil (NJ)/Exxona

6

160,000

150,000

150,000

141,000

127,000

14

Western Electric

7

144,055

151,174

169,700

205,665

162,000

9

Chrysler

8

136,187

77,194b

215,907

244,844

250,833

6

Westinghouse Electric

9

128,572

109,966

132,049

183,768

141,394

11

ITT

10

128,000

157,000

236,000

428,000

375,000

4

Goodyear Rubber and Tire

11

101,386

95,740

113,207

145,201

159,890

10

Boeing

12

94,998

104,100

142,700

58,600

66,900

42

Sperry Rand

13

93,130

103,545

101,603

85,574

85,684

28

General Dynamics

14

91,700

84,500

103,196

60,900

73,268

36

Du Pont (E.I.) de Nemours

15

90,088

93,159

111,931

111,052

131,317

13

Firestone Tire & Rubber

16

88,323

83,909

95,500

109,000

115,000

18

Douglas/McDonnell Douglasc

17

78,400

44,000

140,050

86,713

61,577

47

RCA

18

78,000

87,000

128,000

122,000

111,000

20

Socony Mobil Oil/Mobil Oil/Mobild

19

77,000

74,900

75,800

75,400

200,700

7

Swift/Esmarke

20

71,900

54,200

48,300

33,600

44,700

85

OTHER COMPANIES AMONG TOP 20 EMPLOYERS IN 1977

IBM

26

60,281

81,493

221,866

262,152

310,155

5

United Aircraft/United Technologiesf

24

61,688

63,461

78,743

63,849

138,587

12

Eastman Kodak

37

50,300

47,800

105,600

114,800

123,700

15

Gulf & Western Industriesg

N/A

N/A

N/A

46,000

65,000

116,600

16

North Amer. Aviation/Rockwell Int'l.h

30

54,660

97,728

115,326

80,045

115,162

17

Union Carbide

23

64,247

58,798

99,794

98,114

113,669

19

a Standard Oil of New Jersey (Esso) changed its name to Exxon from 1972.

b US employment only.

c Douglas Aircraft merged with McDonnell Aircraft in 1967 to form McDonnell Douglas.

d Socony Mobil Oil changed its name to Mobil Oil in 1966, and then to Mobil in 1976.

e Swift became the core company of Esmark in 1977.

f United Aircraft changed its name to United Technologies in 1975.

g Founded in 1956, Gulf & Western Industries had its origins as a Michigan autoparts distributor that in 1966 acquired Paramount Pictures and became a major conglomerate.

h North American Aviation merged with Rockwell-Standard in 1967 to create North American Rockwell, and then changed its name to Rockwell International in 1973.

Sources: Fortune 500 lists, Fortune, June 1958, July 1963, June 15, 1968, May 1973, May 8, 1978.

The sectors with the largest employers included automobiles, tires, steel, electrical machinery, electronics, aerospace, oil refining, and chemicals. Over this period, IBM increased its employment fivefold, rising from the 24th largest employer in 1957 to the 5th largest in 1977 as it transformed itself from a business machine company to the world's dominant computer company. On the list as well are two major conglomerates, ITT and Gulf & Western, companies that grew very large during the conglomerate movement of the 1960s.

24.3 The Restructuring of the US Corporation Since The 1970s

24.3.1 A Change of Allocation Regime

Into the 1970s corporate managers had been engaged in a retain-and-reinvest allocation regime: they retained substantial corporate revenues and reinvested in growth. From the early twentieth century, the retain-and-reinvest regime resulted in innovation that generated gains for shareholders, employees, suppliers, consumers, communities, and governments (Lazonick 1990, 1992; O'Sullivan 2000). Yet by the 1960s and 1970s the strategy of retain-and-reinvest was failing to generate innovation. In many companies it resulted in an overextension and overcentralization of the corporation that made it financially vulnerable, especially in an economic downturn.

The rise of innovative foreign competitors exacerbated this vulnerability, and typically forced some type of restructuring, particularly downsizing, on the part of US corporations that lost market share. The most formidable foreign challenge came from Japan. Building on the development of innovative capabilities in their home markets during the 1950s and 1960s, Japanese companies gained competitive advantage in the US markets for steel, memory chips, machine tools, electrical machinery, consumer electronics, and automobiles in the 1980s and 1990s. These were industries in which US companies entered the 1970s as world leaders. Initially, as Japanese exports to the United States increased in the last half of the 1970s, observers attributed the success of the Japanese to their lower wages and longer working hours. By the early 1980s, however, with real wages in Japan continuing to rise, it became clear that Japanese advantage was based on organizational learning that resulted from a more thoroughgoing organizational integration of participants in an enterprise's functional and hierarchical divisions of labor (Lazonick 1998). Indeed, during the 1980s, Japan exported management practice as well as material goods to other advanced economies, and from the second half of the 1980s, with the yen strengthening and Japan's trade surpluses generating political backlash, Japanese companies made a transition to foreign direct investment.

24.3.2 The Role of Finance in Restructuring

With the downturn in the US economy in the early 1970s, it became apparent that resource allocation in US corporations had become overcentralized. The problem was not size per se but rather that strategic decision makers, isolated at the top, had lost touch with the types of resource allocation required for innovative enterprise. In addition, by the end of the 1960s, the growth of conglomerates through M&A had been debt-financed. Quite apart from the negative effect of conglomeration on the innovative capabilities of the companies concerned, there was financial pressure on the corporations to shed some of the businesses they had taken on. The conglomerate movement of the 1960s turned into the deconglomeration movement of the 1970s (Merrill Lynch Advisory Services 2002).

By the mid-1980s many divestitures occurred in the aftermath of hostile takeovers. Corporate raiders looked for companies undervalued relative to the breakup value of their various divisions, used debt-finance to acquire the companies, and then sold divisions to pay the debt (Long and Ravenscraft 1993). The junk bond was widely favored as a debt instrument in hostile takeovers (Taggart 1988). Initially, junk bonds were previously issued investment-grade corporate securities, the ratings of which had been lowered. Since these bonds could be bought at a deep discount, they offered a high, if risky, yield. In the first half of the 1970s Michael Milken of the Wall Street firm, Drexel Burnham Lambert, made a market in junk bonds by convincing institutional investors to include these securities in their portfolios (Bruck 1989). Liquidity was thus bestowed on the junk-bond market, while, in a period in which escalating inflation was eroding real interest rates, institutional investors welcomed the higher risk-adjusted returns that these securities offered.

By the late 1970s it became possible to issue new junk bonds to finance leveraged buyouts (LBOs). Most of these were divisional buyouts in which the top managers of a division sought to recapture strategic control over resource allocation. Specialized Wall Street LBO firms, of which KKR was the most prominent, would finance the LBO to reap returns when the newly formed private firms could do an initial public offering (IPO) (Gaughan 1996: 293; Jensen 1989: 65).

The ideology that rationalized the hostile takeover movement was that the corporation should be run to maximize shareholder value (Lazonick 1992; Lazonick and O'Sullivan 2000a, b; O'Sullivan 2000). The main charge of the proponents of shareholder value was that many corporate managers were making poor allocative decisions. By exercising their influence through the market for corporate control, so the argument went, shareholders could alter the allocative decisions of managers, change the managers themselves, or disgorge the free cash flow of the corporation to shareholders so that they themselves could reallocate the economy's resources to their best alternative uses. In fact, it was top corporate managers who in the 1980s embraced shareholder value ideology because their own personal rewards were increasingly based on boosting their corporations’ stock prices and because it provided legitimacy to their restructuring activities.

24.3.3 Higher Financial Yields

For the most part, the hostile takeover movement of the 1980s affected corporations in stable-tech sectors of the economy (Hall 1994). These were sectors in which enterprise capital-intensity was high enough to create formidable barriers to new entrants, but where companies could generate substantial revenues without engaging in continuous innovation. Stable-tech industries included those that required large investments in advertising and distribution to attain and maintain brand-name recognition (for example, processed foods), in exploration and conservation to replenish the sources of raw materials (oil refining and timber products), or expensive purchased equipment (airlines) (Lazonick 1992: 470).

In such industries, established companies could reduce reinvestment over the medium term and still sell their products at competitive prices. In low-tech sectors, firms did not have such accumulated assets, whereas in high-tech sectors there was an imperative to replace old capabilities with new capabilities on a continuing basis. Moreover, given that the most critical assets in high-tech tend to be embodied in human beings, a financially driven hostile takeover would likely result in the firm's most valuable assets walking out the door.

In stable-tech industries, low share prices and large cash balances invited hostile takeovers. Managers in these industries took steps to lift their share prices by increasing the level of dividend payouts and engaging in large-scale stock repurchases. Stock options, which had since the 1950s become an important form of executive compensation, gave top managers of the major corporations a powerful personal stake in modes of resource allocation that boosted stock price (Hall and Leibman 1998; Lewellen 1968).

As Table 24.2 shows, the returns to corporate securities increased substantially in the 1980s and 1990s, mainly because of increases in the price yields of stocks. To what extent were these higher yields the result of redistributive or renovative restructuring, or alternatively the growth of new innovative firms? Given the competitive challenges that US industry faced in the 1970s and 1980s, the augmented dividend yields in both the 1970s and 1980s suggest a redistributive effect,

Table 24.2 US corporate stock and bond yields, 1960–2002 (average annual % change)

1960–9

1970–9

1980–9

1990–9

2000–2

Real stock yielda

6.63

−1.66

11.67

15.01

−9.76

Price yield

5.80

1.35

12.91

15.54

−8.52

Dividend yield

3.19

4.08

4.32

2.47

1.89

Change in CPIb

2.36

7.09

5.55

3.01

2.60

Real bond yieldc

2.65

1.14

5.79

4.72

4.47

a Stock yields are for Standard and Poor's composite index of 500 US corporate stocks.

b Consumer Price Index.

c Bond yields are for Moody's Aaa-rated US corporate bonds.

Source: Updated from Lazonick and O'Sullivan (2000a), using US Congress (2003: tables B62, B73, B953).

especially when it is recognized that it has been the practice of new economy companies such as Del, Oracle, and Cisco not to pay dividends. At the same time, companies such as these that grew from new ventures to going concerns over these decades were having a renovative impact on the economy as a whole; their stock prices rose as they expanded employment and paid their employees more while supplying customers with higher quality products at lower prices. Such renovative impacts helped increase the aggregate price yields, notwithstanding overspeculation at certain times in the stocks of the companies concerned.

24.3.4 Increasing Income Inequality

The extent of corporate downsizing and worsening of the household distribution of income that occurred in the 1980s and the 1990s suggests that a significant portion of the increase in real stock yields represented redistribution from labor to capital. The era of corporate downsizing took hold in the recession of 1980–2 when hundreds of thousands of stable, well-paid blue-collar jobs were lost and never subsequently restored. The number of people employed in the US economy as a whole increased between 1979 and 1983 by 0.4 percent. But over the same period employment in mass-consumption durable-goods manufacturing, which supplied most of the economy's stable, well-paid blue-collar jobs, declined by 15.9 percent (US Congress 1992: 344). In 1978 union membership in the United States had reached a peak of 23.6 percent of the nonagricultural labor force, but, as a result of the downsizing of the early 1980s, had fallen by 1983 to 20.1 percent.

The subsequent boom years of the mid-1980s witnessed hundreds of plant closures. Between 1983 and 1987, 4.6 million workers lost their jobs, of which 40 percent had been employed in manufacturing. During the deal decade of the 1980s, job security decreased markedly for salaried managers and production workers. In the white-collar recession of the early 1990s tens of thousands of professional, administrative, and technical employees found their jobs had been eliminated, although blue-collar workers bore the brunt of the downturn.

In 1980 manufacturing employment was 22 percent of the labor force; by 1990 it had fallen to 17 percent and by 2001 to 14 percent. The rate of job loss was about 10 percent in the 1980s and 14 percent in the first half of the 1990s. Those with less education experienced a higher rate of loss, and the wages of displaced workers when re-employed were about 13 percent lower than in their previous jobs (Farber 1997; Schultze 1999). While the employment picture improved during the new economy boom of the late 1990s, job cutting remained a way of life for major US corporations. According to data on layoff announcements by companies in the United States collected by the recruitment firm, Challenger, Gray, and Christmas, announced job cuts averaged just under 550,000 per year for the period 1991–4, 450,000 per year in 1995–7, and 656,000 per year during the boom years 1998–2000. These figures were, however, far surpassed in the recent economic decline, with 1.96 million layoff announcements in 2001 and 1.47 million in 2002 (Challenger Employment Report, cited in news articles).

24.3.5 Restructuring the Old Economy Corporation

At the center of the restructuring that occurred in the 1980s and 1990s were the old economy corporations that over the previous decades had grown to be enormously large. Table 24.3, which picks up in 1977 where Table 24.1 left off, shows the trend toward reduced levels of employment, as well as the disappearance of companies as legal entities among US corporations that were the largest employers in 1977. In that year these twenty companies employed 4.5 million people, in 2002 only 1.9 million. The following paragraphs summarize how the restructuring of these twenty companies occurred over this quarter century, and the implications for their changed levels of employment.

In steel the trend toward reduced employment began in the 1970s and continued on a major scale in the 1980s and 1990s. US Steel remained a large corporation by transforming itself into an oil-refining company, and changing its name to USX, although recently it has restructured itself by spinning off its steel business under its original name; the company that was US Steel is now Marathon Oil, while the present-day US Steel is a new company. In the oil industry itself there was consolidation with the largest employer in 1977, Mobil, being absorbed by Exxon in 1999.

Table 24.3 Employment, 1977–2002, of the twenty largest US corporate employers in 1977

Company

Rank 1977

1977

1982

1987

1992

1997

2001

2002

General Motors

1

797,000

657,000

813,400

750,000

608,000

365,000

350,000

Ford Motor

2

479,000

379,229

350,320

325,333

363,892

352,748

350,321

General Electric

3

384,000

367,000

302,000

268,000

276,000

310,000

315,000

ITT

4

375,000

283,000

120,000

a

IBM

5

310,155

364,796

389,348

308,010

269,465

319,876

315,889

Chrysler

6

250,833

73,714

122,745

128,000

121,000

b

Mobil

7

200,700

188,000

120,600

63,700

42,700

c

US Steel/USX/Marathond

8

165,845

119,987

53,522

45,582

40,894

30,671e

28,166e

Western Electric/Lucentf

9

162,000

153,000

g

g

134,000

77,000

47,000

Goodyear Rubber and Tire

10

159,890

131,096

114,658

95,712

95302

96,430

92,000

Westinghouse/CBSh

11

141,394

145,251

112,478

109,050

51,444

i

United Technologies

12

138,587

184,000

190,000

178,000

180,100

152,000

155,000

Du Pont (E.I.) de Nemours

13

131,317

165,013

140,145

125,000

98,396

79,084

79,000

Exxon/Exxon Mobil

14

127,000

173,000

100,000

95,000

80,000

97,900

92,500

Eastman Kodak

15

123,700

136,500

124,400

132,600

97,500

75,100

70,000

Gulf & Western Industries

16

116,600

107,900

j

Rockwell Int'l/Automationk

17

115,162

100,271

116,148

78,895

45,000

23,100

22,000

Firestone Tire & Rubber

18

115,000

53,500

53,500

l

Union Carbide

19

113,669

103,229

43,119

15,075

11,813

m

RCA

20

111,000

n

a As a result of divestitures, ITT Corp. ceased to be on the Fortune 500 list. ITT last reported sales in 1996 and was acquired by Starwood Hotel & Resorts in 1998.

b Acquired by Daimler-Benz in 1998.

c Acquired by Exxon in 1999, to become Exxon Mobil.

d After having acquired Marathon Oil in 1982 and Texas Oil & Gas in 1986, US Steel changed its name to USX. On December 31, 2001, USX spun off its steel business at United States Steel and renamed itself Marathon Oil.

e The employment figures are for Marathon Oil only. The newly spun-off United States Steel first appeared on the 2002 Fortune 500 list with 36,251 employees.

f In 1985 Western Electric became a division of AT&T (AT&T Technologies), which in 1996 was spun off, along with AT&T's Bell Labs to become Lucent Technologies.

g A division of AT&T.

h Westinghouse bought CBS in 1995, divested all of its non-entertainment divisions in 1996, and changed its name to CBS Corp. in 1997.

i Time Warner acquired CBS in 2000.

j Subsequent to the death of Gulf & Western founder, Charles Bluhdorn in 1983, the new CEO, Martin Davis, sold off many of the conglomerate's businesses. In 1989 Gulf & Western was renamed Paramount Communications, and in 1994 Paramount Communications was acquired by Viacom.

k Having spun off its avionics and communications unit as Rockwell Collins, Rockwell International changed its name to Rockwell Automation to reflect its new focus. Rockwell Collins had 17,500 employees in 2001 and 14,500 in 2002.

l The Japanese tire company, Bridgestone, acquired Firestone in 1988.

m Dow Chemical acquired Union Carbide in 2001.

n GE acquired RCA in 1986 and dissolved the company into its consumer electronics business, retaining only the RCA brand. In 1988 GE sold its consumer electronics business, along with the RCA brand to the French company, Thomson.

Sources: Fortune 500 lists, Fortune, May 2, 1983; April 25, 1988; April 19, 1993; April 27, 1998; April 15, 2002; April 14, 2003.

But the 2002 employment of Exxon Mobil was just 28 percent of the combined employment of Mobil and Exxon in 1977.

Automobile companies are still among the largest corporate employers but they are smaller than in the late 1970s. In 1998 Chrysler, the smallest of the big three automobile companies, was acquired by Daimler-Benz of Germany and ceased to be an American company. In other industries, Eastman Kodak (photography), Goodyear (tires), and Rockwell International (electronic equipment) cut back employment in the face of loss of market share, especially to Japanese competition. In consumer electronics, RCA succumbed to Japanese competition as its attempts at innovation in the late 1970s and early 1980s failed (Graham 1986), while a Japanese tire company, Bridgestone, gobbled up Firestone. Union Carbide was acquired by Dow Chemical in 2001, its financial condition having been overly weakened by litigation stemming from the 1984 Bhopal disaster in India when poisonous gas leaked from its pesticide plant and its role in supplying cancerous silicone to producers of breast implants.

ITT and Gulf & Western, the two largest companies to emerge from the conglomerate movement of the 1960s, shed assets and by the 1990s had been absorbed into other companies. Westinghouse, the electrical power company that like its counterpart GE, had become an unwieldy conglomerate by the late 1970s, also rid itself of assorted assets but unlike GE met its demise. Before the legal entity that had been Westinghouse vanished in 2000 (acquired by Time Warner), it had been run since 1997 under the name of a television company, CBS. In contrast, General Electric, which was dramatically restructured in the 1980s and 1990s under the rule of Neutron Jack Welch, became a successful financial services company supported by its traditional strengths in aircraft engines, medical equipment, and electric power. Through divestiture, outsourcing, and downsizing, and notwithstanding numerous acquisitions, GE cut its employment into the mid-1990s—its lowest level was 221,000 at the end of 1994—but by 2002 employed more people than it did fifteen years earlier.

With its domination of the mainframe computer industry combined with its expansion in the 1980s into personal computers (for which it set the standard), IBM increased its employment by 26 percent from 1977 to 1987. It slashed employment in the early 1990s, however, ending its tradition of lifetime employment in the process. Through subsequent restructuring that has focused on software rather than hardware, IBM has regenerated its ability to grow (Gerstner 2002).

United Technologies, a diversified corporation in aerospace products and building systems, that bought and sold businesses throughout the 1980s and 1990s, employed more than 150,000 people in 2002 despite job cuts at the end of the period. Du Pont expanded employment in the early 1980s, especially when it acquired the oil company Conoco in 1981, but in the 1990s contracted employment as it sought to focus on its core chemical operations, including the spinoff of Conoco in 1998. Du Pont, too, has cut back employment in the recent recession.

In 1985 Western Electric, which had been a wholly owned subsidiary of AT&T, became AT&T Technologies, an internal division of AT&T. In 1996 AT&T spun off AT&T Technologies into the independent company, Lucent Technologies, which incorporated within it Bell Labs. During the following years, Lucent sought to make the transition from the old to the new economy by acquiring data communications companies, many of which were revenue-less start-ups, and by extending stock options to high-tech personnel. From 1996 through 1999 Lucent's stock price skyrocketed, but in 2000–2002 plummeted even further. In the downturn, the company found itself on the brink of bankruptcy—a fate avoided by slashing its workforce from 126,000 at the end of 2000 to 47,000 just two years later (Carpenter, Lazonick, and O'Sullivan 2003). As part of its restructuring process in 2001 and 2002, Lucent began rationalizing its operations through outsourcing to contract manufacturers. This restructuring boded ill for unions. In 1996, 36.3 percent of Lucent's worldwide employees and 46.0 percent of its domestic employees were union members; in 2002 these numbers were 14.5 percent and 21.3 percent, respectively. In September 1999 Lucent employed 46,818 union employees, an increase of over 1,700 from three years earlier. In September 2002 Lucent only employed 6,800 union members, representing a loss of over 40,000 union jobs in three years.

24.4 Corporate Restructuring in the New Economy

During the winter of 1996, corporate restructuring was a major theme in the US news media. In late December 1995, AT&T had announced that as part of the process of breaking itself up into three separate companies (one of which was Lucent) it would be cutting 40,000 jobs. AT&T was a company that could trace its origins to the 1870s. It had created the world's most advanced telephone system, was the home of the famous Bell Labs, and employed 300,000 people. Now AT&T became emblematic of the failure of US old economy corporations to continue to provide employment opportunities. In the 1996 presidential election, Patrick Buchanan, a right-wing politician, caught the attention of the media by denouncing the highly paid executives of AT&T and other downsizing corporations as corporate hit men (Pearlstein 1996). Fuel was added to the fire by the revelation that, in the name of creating shareholder value, ‘Chainsaw’ Al Dunlap had in 20 months as CEO of Scott Paper, devastated the 115-year-old company to his immense personal gain. Brought in as CEO of Scott Paper in April 1994, within a couple of months Dunlap had terminated 11,000 people, representing 35 percent of the labor force including 71 percent of the staff at corporate headquarters, 50 percent of managers, and 20 percent of production workers. He moved the headquarters of the company from Philadelphia to Boca Raton, Florida, and, by the time that he had sold Scott Paper to its long-time rival, Kimberley Clark, Dunlap had reaped $100 million for himself. Pictured on the cover of Business Week as ‘The Shredder’ on January 15, 1996 (Byrne and Weber 1996), Dunlap was a dramatic example of downsize-and-distribute under the guise of creating shareholder value (Byrne 2002).

In March 1996 the New York Times ran a seven-part news series called, ‘The Downsizing of America', subsequently released as a paperback. By the spring of 1996, however, the furor over corporate downsizing had disappeared as Americans discovered the new economy. The roots of the new economy lay in the post-World War II boom when the US government and the research laboratories of old economy companies had combined to develop ICT technologies. The development of computer chips from the late 1950s provided the technological foundation for the microcomputer revolution from the late 1970s, which in turn provided the technological infrastructure for the Internet boom of the 1990s. Each wave of technological innovation created opportunities for the emergence of start-up companies central to the commercialization of the new technologies.

The new economy corporation differed from its predecessor in significant ways, some of which reflected the youth of these companies and others the result of strategic choices related to the employment of labor and the mobilization of finance. Being young, new economy companies sought to grow by developing capabilities for a particular product market. These companies were the antithesis of multidivisional structures and conglomerates spawned in the old economy, notwithstanding the fact that the personnel of the new economy firms had often acquired their knowledge in the old economy corporations.

In Silicon Valley many high-tech start-ups were backed by venture capitalists who insisted on highly focused business strategies and recruited experienced managers to ensure this focus. These young companies tended to employ a high proportion of university-educated personnel, and it became the norm to use stock options as a compensation tool to attract and retain them (Lazonick 2003). At the same time, these companies shunned investments in factories that employed bluecollar workers, preferring to outsource the manufacture of components and subassemblies to specialized contractors. As a result the new economy companies tended to be union-free (Sturgeon 2002).

New economy companies tended to do an initial public offering (IPO) more quickly after being founded than had been the case for old economy companies (Hobijn and Jovanovic 2000), in part to raise cash but also to give liquidity to the stock that their employees received when they exercised their stock options. They relied on internally generated revenues to fund their growth and tended to pay no dividends. With the markets for their products booming in the 1980s and 1990s, some of these companies grew rapidly as can be seen in Table 24.4. While these companies do not dominate the US economy, they have been central to a critical high growth sector. During the last two decades of the twentieth century, these companies manifested a new retain-and-reinvest regime that to some extent offset the tendency of old economy companies to downsize and distribute.

For a high-tech company the new economy model meant a focus on employing highly educated and skilled people in high value-added activities such as R&D, new product development, and marketing. Contract manufacturers such as Solectron, Celestica, Sanmina-SCI, Jabil Circuit, and Flextronics, to whom lower value-added activities were outsourced, were nonunion and adept at moving production from high-wage to low-wage areas of the world. In the past such relocations had been constrained in the case of high-end work by the need to be close to the customers’ home bases (typically in high-wage regions) and by the lack of skills in low-wage regions. In recent years developments in communications technology have overcome the need for the geographic proximity of users and producers while in the low-wage regions such as Southeast Asia and Eastern Europe, where contract manufacturers increasingly operate, there has been substantial augmentation of the skills and experience of local labor forces.

Ironically, during the new economy boom there was an accelerated flow of highly educated human capital from the low-wage regions to high-wage regions, with hundreds of thousands of foreign-born scientists and engineers entering the United States to work at high-tech firms on temporary (H-1B) visas. This influx of personnel was in addition to those scientists and engineers who worked in the United States as permanent residents, naturalized citizens, or exchange visitors. Many of these people had entered the United States through enrolment in graduate schools, where in many programs they constituted the majority of students (Johnson, Rapoport, and Regets 2000).

The globalization of labor markets was made possible by investments in skill formation in developing countries, with India and China being important examples (Guo 2000; Wad 2000). Over the past three decades there has been an increasing trend to globalization of R&D by major industrial corporations in the advanced economies (Archibugi and Michie 1995; Cantwell 1997; Michie, Oughton, and Pianta 2002), with a heavy emphasis on locating in other advanced economies. Often the choice of global location has depended on the specific advantages developed in industrial districts. During the 1990s, moreover, it became possible to locate certain R&D functions, particularly those related to software engineering in new product development, in developing nations (Best 2001; Mytelka 1999), with India emerging as a prime location over the past few years (Kripalani, Engardio, and Hamm 2003). In effect, industrial corporations now make use of, and contribute to, national skill-formation systems around the world by employing foreign labor that migrates to the home bases of these corporations and by foreign

Table 24.4 Employment, 1993–2002, new economy ICT companies with the largest revenues in 2002 (number of employees, except sales in $ billions)

Company (date of founding and 2002 Fortune ranking in parentheses)

2002 sales $b

1993

1996

1999

2000

2001

2002

Dell Computer (1984; 34)

35.4

5,950

10,350

36,500

40,000

34,600

39,100

Microsoft (1975; 47)

28.4

14,430

20,561

31,396

39,100

47,600

50,500

Intel (1968; 58)

26.8

29,500

48,500

70,200

86,100

83,400

78,700

Cisco Systems (1984; 95)

18.9

1,451

8,782

21,000

34,000

38,000

36,000

Sun Microsystems (1982; 155)

12.5

13,323

17,400

29,000

38,900

43,700

39,400

Solectron (1977; 158)

12.3

4,545

10,781

37,396

65,273

60,000

73,000

Oracle (1977; 190)

9.7

9,247

23,111

43,800

41,320

42,297

42,006

Sanmina-SCI (1980; 214)a

8.7

703

1,726

7,220

24,000

48,774

46,030

Nextel (1987; 216)

8.7

773

3,600

15,000

19,500

17,000

14,900

Scientific Applications Int'l (1969; 288)

6.1

14,872

22,600

39,078

41,500

40,400

38,700

Apple Computer (1976; 300)

5.7

14,938

10,896

9,736

8,568

9,603

10,211

EMC (1979; 308)

5.4

2,452

4,800

17,700

24,100

20,100

17,400

Applied Materials (1967; 327)

5.1

4,739

11,403

12,755

19,220

17,365

16,077

EchoStar Communications (1980; 341)

4.8

500

1,200

6,048

11,000

11,000

15,000

Charter Communications (1992; 362)

4.5

N/A

2,000

11,909

13,505

17,900

18,600

Gateway (1985; 387)

4.2

2,832

9,700

21,000

24,600

14,000

11,400

Maxtor (1982; 421)

3.8

8,900

8,940

5,133

8,551

9,811

12,449

Jabil Circuit (1966; 441)

3.5

997

2,649

6,554

19,115

17,097

20,000

Affiliated Computer Services (1988; 488)

3.1

2,200

5,850

15,700

18,500

21,000

36,200

Qualcomm (1985; 489)

3.0

1,262

6,000

9,700

6,300

6,500

8,100

Average number of employeesb

6,731

11,542

22,341

29,158

30,007

31,189

Note: For inclusion on this list, a company had (a) to be an ICT company (as indicated below), (b) to be founded 1965 or later, (c) to not have been established by spin-off from an Old Economy company, and (d) to not have grown through acquisition of, or merger with, an Old Economy company. As categorized in the 2002 Fortune 500 list, the ICT industries include computer and data services (Affiliated Computer Services, Scientific Applications International), computer peripherals (EMC, Maxtor), computer software (Microsoft, Oracle), computers, office equipment (Dell Computer, Sun Microsystems, Apple Computer, Gateway), network and other communications equipment (Cisco Systems, Qualcomm), semiconductors and other electronic components (Intel, Solectron, Sanmina-SCI, Applied Materials, Jabil Circuit), and telecommunications (Nextel Communications, EchoStar Communications, Charter Communications). In 2001, Compaq Computer, with $33.6 billion in revenues and 70,950 employees, was high up on this list, but in 2002 was acquired by Hewlett-Packard.

N/A: data not available.

a Sanmina until 2001, when it merged with another contract manufacturer, SCI.

b In doing the calculation for 1993, it was assumed that Charter Communications had 1,000 employees in that year.

Sources: Fortune 500 list, Fortune, April 14, 2003; www.hoovers.com.

direct investment that creates employment opportunities for educated labor in the host countries.

24.5 Toward a Comparative Perspective on Corporate Restructuring

This chapter has provided an overview of the evolution of corporate restructuring in the United States. The starting point was the growth of the managerial corporation, a phenomenon that occurred in a number of major economies during the first half of the twentieth century (Chandler, Amatori, and Hikino 1997) but in which the United States particularly stood out. Initially the growth of the corporation came from its ability to innovate and to generate higher quality, lower cost products without lowering the wages of employees. By the second half of the twentieth century, however, many of the largest US industrial corporations had grown too big to remain innovative in their main markets. The overgrowth of the US industrial corporation, as manifested in the conglomerate movement of the 1960s, created a need to reintegrate strategic decision making with the organizational structures required to implement corporate strategy, a process that was partially achieved through divestitures and leveraged buyouts in the 1970s and 1980s. In addition, the Japanese challenge to US industry in these decades also placed pressure on US industrial corporations to relocate, downsize, and outsource. Much of this restructuring activity was necessary for US industrial corporations to put in place the types of organizations that could respond to the new realities of international competition. The prevalence of restructuring activity, combined with financial deregulation also created an opportunity for financial interests to take over corporations and then break them up for their own financial gain.

This financial engineering, with its emphasis on downsize and distribute, found justification in the ideology of maximizing shareholder value, and in fact resulted in much higher returns on corporate securities in the 1980s and 1990s than in the previous two decades. However, a new retain-and-reinvest regime was developing in the ICT sectors of the economy. The 1980s and 1990s saw the growth of high-tech ventures that outsourced routine manufacturing processes and employed a skill base of highly educated and highly mobile personnel. These new high-tech companies challenged traditional corporations, and in the new economy boom of the late 1990s old economy companies sought to restructure themselves on the new economy model.

In Western Europe and Japan, corporate growth and restructuring occurred in different ways, shaped by different political constellations of managerial, labor, and financial interests and, different systems of corporate governance (Dore et al. 1999; Lazonick and O'Sullivan 2002). In Germany codetermination at the level of the enterprise governs restructuring (O'Sullivan 2000), whereas in France the state has played the dominant role. In France, for example, a combination of the Mitterand program of nationalizations in 1982–83 and subsequent privatizations from 1986 secured the dominant positions of a number of capital-intensive, high-technology companies, including Compagnie Generale d'Electricite (CGE) in electrical equipment, Rhône-Poulenc in chemicals, Saint-Gobain-Pont a Mousson in glass, paper, and metals, and the combination of Sacilor and Usinor in steel (Schmidt 1996:116). As nationalized enterprises the state exercised strategic control and provided financial commitment to restructure to compete globally. As privatized enterprises were protected from external interference by a French cross-shareholding arrangement known as noyau dur, these restructured companies were able to grow through mergers and acquisitions. The French state was also often directly involved in downsizing these companies by using tax revenues to fund early retirement programs. French companies also restructured to focus their competitive capabilities on particular industrial sectors, as in the case of Alcatel which, evolving out of the CGE conglomerate, shed a number of businesses to focus on the telecommunications industry.

In Japan corporate enterprises evolved within industrial groups, with the result that individual enterprises did not grow as large or diversified as their US counterparts, even when they became major competitors in their particular markets. These corporations maintained a commitment to lifetime employment for their male production workers and managerial personnel. At the same time, they limited the size of the permanent, directly employed labor force by outsourcing components to tiers of suppliers. When a company ran into financial difficulty, firms involved in its network of business relations became involved in its restructuring, with emphasis being placed on maintaining the commitment to lifetime employment or reallocating displaced workers to new jobs.

With the collapse of the Japanese stock and land markets at the beginning of the 1990s, many Western observers thought that Japanese corporations would embark on a downsize-and-distribute regime to restore profitability, with lifetime employment disappearing in the process. Despite the pressures of the prolonged recession of the Japanese economy in the 1990s and into the 2000s, this type of restructuring of Japanese companies has not taken place. The major industrial corporations (as distinct from banks) entered the 1990s in solid financial condition, and most have remained highly competitive. There has been, moreover, considerable flexibility within the system of lifetime employment to adjust the size and cost of permanent labor to cope with the depressed economic environment (Lazonick 1999).

While distinctive national differences remain, there are powerful pressures on companies to adopt a global model of corporate organization. In the first decade of the twenty-first century, the US new economy model remains the one with the most influence on a global scale. It is one, however, that has been central to an economy fraught with instability and inequality. In-depth comparative research is needed to determine whether other models of corporate restructuring can deliver more stable and equitable economic growth.

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