System Crash

Early on Tuesday, March 30, 1993, Michael Cunningham, 41, was summoned to a manager's office in a lab connected with IBM's Poughkeepsie, New York, plant. The son of a retired IBM manager, Cunningham was steeped in the company's regimented culture and zealous attention to detail. He had started on the manufacturing line in 1977 and, through initiative and diligence, advanced to an administrative job as a manufacturing methods specialist on the hourly payroll. His annual pay of $35,000-plus provided a decent living for his wife and three children. A few years earlier, IBM had carried Cunningham through a six-month recuperation from a heart attack, for which he felt indebted to the company.

The manager handed Cunningham a short letter that said, "You have been designated as 'surplus employee' effective immediately." His supervisor took his IBM badge and led him from the building. Cunningham noticed strangers--security guards-- patrolling the hallways.

"I felt like a prisoner, like I was being watched," he says. "Sixteen years I was there, and they had people walking security." He never returned to his office.

By the end of that day, 7,700 employees in the Mid-Hudson Valley had been "surplused," as it came to be known. It was one of the largest mass dismissals in recent corporate history. In each case, the surplused worker was led from the premises. Some broke down and cried in the parking lot. Local officials had asked gun shops to close for the day, and police stood on alert. Despite IBM's apparent fears of reprisals, few incidents were reported. Over the next several days, many employees were allowed to return to collect personal belongings.

The expression "surplused IBM workers" has passed into everyday speech in Dutchess County, New York, as a sort of bitter commentary on the company that once meant everything to workers and their families. It appears in headlines, shop-window advertisements, and ironically in "help wanted" ads for menial jobs.

"That word was the most disgusting word I ever heard," Cunningham says. "It told me I was excess baggage, junk, garbage."

Of the 7,700 workers designated surplus, Mike Cunningham and about 3,000 others were fired outright. They received standard severance pay of two weeks for each year of service up to 26 weeks, health insurance coverage for one year, and a $2,500 retraining or education grant. The remaining surplusees, mainly workers who were old enough or had enough service to qualify for a pension within seven years, had a few weeks to decide whether to accept a retirement package. In the end, no one gambled on an unlikely IBM revival in the Hudson Valley.

Ten years ago, similar scenes were being played out in dozens of industrial towns across the Rust Belt, in the Monongahela and Upper Ohio Valleys, in Flint, Akron, and Youngstown. Scores of communities have never recovered. Today's jobless IBMers in Dutchess County face the same grim prospects--at least in the short term--as the mill workers of the 1980s in Allegheny County, Pennsylvania. Like the mill workers who were willing captives of the steel industry, the IBMers were happy prisoners in a "closed" system--IBM and its dominance of Dutchess County.

International Business Machines once was considered the model of American business, a blue chip investment, devoted to its workers, proud of its record of never laying off a single employee. Yet even this giant high-tech company was not immune to failure. Could the surplusing have been avoided? If even this citadel of lifetime employment was forced to fire thousands of employees, is there any hope for job security anymore? What does the high-tech future hold for employees who may be bounced from one "virtual corporation" to another? If they cannot have job security, can they at least have employment security?



The Exemplary Employer


When many people think of IBM, they think of Armonk, the site of its headquarters in Westchester County, just north of New York City. Its main computer manufacturing center, however, lies some 60 miles north of the city in Dutchess and Ulster counties, which border the Hudson River.

During World War II, IBM manufactured munitions at a small plant in the Town of Poughkeepsie in Dutchess County. (The Town of Poughkeepsie consists mainly of suburbs that defected from the older City of Poughkeepsie.) When founder Thomas J. Watson, Sr., died in 1956, his son, Thomas, Jr., plunged the company heavily into the burgeoning computer field. He expanded the Poughkeepsie plant and built a new one at Kingston in Ulster County to turn out mainframe computers. A third factory, at East Fishkill in Dutchess County, supplies computer chips to the mainframe plants.

Subscribe to The American Prospect

Despite the growing IBM presence, Dutchess County did not turn into a grimy Rust Belt area with stinking smokestacks. The western, industrial half of the county consists largely of semirural villages with housing tracts sequestered in rolling hills. It contains one ugly slice, a 12 mile stretch of U.S. Route 9 that runs from I-84 north to Poughkeepsie and is flanked by endless strip malls. But in the north are the Roosevelt and Vanderbilt estates in Hyde Park and charming Rhinebeck, with its arts and crafts industry. The eastern half of Dutchess has dairy and horse farms, wooded ridges, and lonely country roads.

This diversity, however, does not extend to its manufacturing base. At the employment peak in 1985, more than 31,000 people worked for IBM in this Mid-Hudson area. In Dutchess County, IBM accounted for more than 20 percent of all nonagricultural employees and 69 percent of the manufacturing work force. The East Fishkill factory employed 13,500 people, Poughkeepsie 10,000, and Kingston 8,000.

Over 30 years, the region deepened its dependence on IBM's jobs, property taxes, and paternalism. It seemed like a good bargain. Through the miracle of high-tech, IBM had come to symbolize the postindustrial, multinational corporation, dedicating its vaunted business strategy, technology, research capabilities, and vast sales network to seeking out and serving future growth markets. Because it made a difference in the world, IBM had its pick of the best and brightest.

For its part, IBM was an exemplary employer. It provided good wages, excellent benefits and usually adhered to the principle of "respect for the individual" fostered by founder Watson. In early Depression days, he kept unneeded workers on the payroll by stockpiling inventory in lean times, initiating IBM's famed "full-employment" policy.

The Mid-Hudson plants led the industry in developing large computing systems, including the enormously profitable System/360 line of mainframes used by almost all corporations for data processing. IBM's near-monopoly in this business, writes Paul Carroll in the recently published Big Blues: The Unmaking of IBM, "provided two-thirds of the company's profits, profits so big that they provided the whole basis for the IBM way of life--the lush bureaucracy, the impeccably trained sales force, the lifetime employment, the respect for the individual."

At the time few in Dutchess County questioned IBM's growing dominance of the region. On the contrary, most welcomed it. Former County Executive Lucille Pattison was fond of saying, "Sure, we have a one-horse town, but our horse is a thoroughbred." It was taken for granted not only that IBM was invincible but that its very presence turned the Mid-Hudson Valley into a high-tech hothouse in which upper-end businesses would sprout from seeded earth and provide a never-ending crop of jobs.

While IBM's Computing Systems Division in the Mid-Hudson was booming, the workers had a very nice living, indeed. They made good money for the region, well over $30,000 a year on average. They had short trips to work, well-maintained highways, good schools, and sound municipal governments. They could hunt and fish nearby, take in the offerings of a thriving cultural community, shop at the nearest crossroads strip mall or at the crowded discount stores on Route 9.

There was an IBM Country Club, an IBM Rec Area, IBM golf courses and tennis courts. Patrick Manning, the county legislator from East Fishkill and the son of a now-retired IBM manager, grew up in East Fishkill in the 1960s and 70s when IBM was a central presence in everybody's life. "I have some of my fondest memories of the IBM Christmas parties. They gave presents to kids, and there would be a circus and Santa would come. On Family Day, everything would be free, rides and food. Every year the company took members of the Quarter Century Club to the Catskills for a weekend. It was one big family."


IBM's property tax payments undergirded government services throughout the area, and residents seized the advantage. Many communities adopted New York state's "homestead option," which allows different tax rates for commercial and residential property. IBM did not seem to mind being taxed at a higher rate, and the additional revenues helped pay for well-equipped schools and high salaries.

With its proven good treatment of employees and its reputation as a world business leader, IBM seemed unlike the old industrial behemoths that exploited many Rust Belt regions. So sacred was the Watson name in the Town of Poughkeepsie that when Tom, Sr., died, all public schools closed for the day.

But the annual revenue growth of IBM's mainframe business dropped gradually from 15 percent in the 1970s to 7 percent in the late 1980s. When that engine sputtered, everything in Dutchess County began cooling down, including the greenhouse atmosphere. From 1985 to 1992, "Big Blue" eliminated about 10,000 jobs in the region (and 140,000 elsewhere) through buyout offers and early retirements. Still, it had not managed to stanch massive losses, which soared to $5 billion in 1992.

John Akers, the chief executive from 1986 to 1993, continually promised a turnaround but issued restructuring orders that materialized only on paper. In the Mid-Hudson plants, the feeling grew that IBM had lost its sense of direction under Akers. Jack Toulan, who lives in East Fishkill, chose early retirement in 1991 after a 28-year career. In his last job as an advance planner, he forecast the kinds of programming systems that customers would need in the future. "At the beginning, I looked ahead three to five years," Toulan says. "But I noticed over my last few years that the window was shrinking. We started looking at the bottom line. By the time I left, we were focused on what we needed to do to make money next quarter."

By the end of 1992, the Mid-Hudson area was flooded with rumors that a more drastic cutback was inevitable. Bottom-rung IBM workers noticed a not-so-subtle movement of bosses and favored employees out of the threatened mainframe and chip-manufacturing plants and into IBM's still-thriving business sectors in places like Austin, Texas.

Finally, the IBM board replaced Akers in early 1993 with outsider Louis V. Gerstner, Jr., chief executive of RJR Nabisco. This time, IBM gave up all pretense of maintaining a no-layoff policy, and the world changed for thousands of workers who thought they had lifetime employment. A tottering IBM in 1993 cut its work force by 50,000, including the 7,700 surplusees in the Mid-Hudson Valley region. As the year drew to a close, only about 13,800 IBM jobs remained in the valley, a staggering 55 percent drop from 1985. In a 15-month period ending in September 1993, Dutchess and Ulster lost 35,000 jobs, according to Ann Davis, director of the Marist College Bureau of Economic Research in Poughkeepsie. She attributes the decline mostly to IBM "downsizings" and the spillover effect. Dutchess County, an affluent, middle- to upper-middle-class area, with a median household income of $42,250, was especially hard hit. Its unemployment rate rose to a seasonally unadjusted 8.5 percent in October, compared with 6.3 percent nationally.



Good Policies Gone Awry


The company had lived high off its near-monopoly for decades. It ignored growing trends away from its bread-and-butter business, mainframe computer systems, and toward small workstations. Carroll, a Wall Street Journal reporter who covered IBM, lays much of the blame for IBM's downfall on a commercial mind-set that focused on building and selling mainframe computers to big corporate customers. In the early 1980s, IBM had great success with the desktop Personal Computer so popular that the acronym PC became the generic name for all desktop machines. But IBM's top-level management gave up the firm's huge lead in the PC market, allowing early PC partners like Microsoft Corp. to run away with critical parts of the new and growing business. As management expert Peter Drucker recently put it, IBM "slaughter[ed] tomorrow's opportunity on the altar of yesterday." In this respect it turned out to be no different from the old titans of the steel industry.

Nevertheless, the disaster at IBM was not caused entirely by the myopia of the mainframe enthusiasts in top-level management. Other things were going wrong.


One was the full-employment policy itself. Only a handful of American companies have made a serious effort to treat employees as assets worth protecting rather than as costly commodities. IBM tried harder and longer than most to keep that policy intact. Its experience, however, demonstrates a paradox inherent in employment security policies and no-layoff guarantees.

On the one hand, people secure in their jobs are much more likely than the layoff-prone to accept changes in workplace practices; even more, they initiate changes if they trust management and have a real voice in decisions. On the other hand, the promise of lifetime employment can act as a drag on the organization. "If you do your job," the policy said to employees, "there will always be a job for you." That seems to have been perverted by IBM's regimented, rule-making atmosphere into an ipso facto make-work policy: "If you think up a new procedure to check on the operation of other procedures, you will always have enough to do to keep your job."

Mike Cunningham recalls a customer who received a three-inch shoulder bolt without threads. It was one bad bolt in a lot of perhaps 100,000, but quality assurance people launched an investigation that took weeks. "They wanted to know who put it in the bag, who allowed it to go so far, how many defective parts we've shipped in 20 years. They made up charts and tested the sampling plans. How did it happen? The obvious answer was that one bad one got through, but someone was afraid to go up to management and say that. And despite all they did, the exposure of getting another shoulder bolt with no threads on it was as great as it was before."

The problems were exacerbated by other policies that, even though they were well intentioned, worked at cross-purposes. In Cunningham's 230-worker department, management conducted seminars on teamwork at the same time that it ranked employees on performance. "From one side of their mouth they were saying let's have teamwork. From the other side they said you were going to be ranked," Cunningham says. "Am I going to share a good idea with this whole group when another member might take it to the top and get ranked higher than me?"

Cunningham continues: "They used this term `empowerment.' I called it `directed empowerment.' It was, `We'll tell you what to do and you're empowered to do it.' I had a hard time with that."

From all accounts, it was impossible to make quick decisions. All divisions and staffs that would be affected by a decision were asked to review the decision and concur or nonconcur.

But IBM's practice of measuring performance differently for each unit resulted in a deadlock over decision. "Many times," Toulan says, "we would fill a room with 20 or 30 people to talk about 30 problems. When everybody left, the 30 problems would still be on the table."

IBM also had an open-door policy under which employees could appeal complaints up to the chairman's office. The company tried hard to make the policy work, but lacking a neutral outsider to issue binding decisions in personnel disputes, management often leaned over backward to lend the perception of fairness. Toulan, who served as a manager for several years, says, "Managers were often regarded as the guilty party and had to prove their innocence. A lot of people who were there because of the full-employment policy weren't really doing work. But it was very hard to fire them."

Such stories diminish the myth of IBM as a forerunner of the postmodern corporation, with free-flowing work practices and highly motivated entrepreneurial workers. Full-employment policies are likely to work if they are combined with other practices that allow workers greater discretion on the job and that create flexible structures for judging employee performance. IBM may have followed such practices in some plants, but in the Mid-Hudson Valley, the corporate culture stressed narrow job definitions, strict rules, and close supervision.



'A Horrendous Smack in the Face'


The revelation that in the end IBM is no different from any other dominant employer has shattered the once-insular IBM culture. A Poughkeepsie educator who deals with former IBMers in adult education classes said, "Working for IBM made some of them think they are God's gift. There's an arrogance, and believe me I know, because my husband worked at IBM. Now, it's a horrendous smack in the face to realize they are a dime a dozen."

The Reverend Timothy Wu, pastor of the Mid-Hudson Chinese Church in Wappingers Falls, heads a 120-family congregation that consists almost entirely of Chinese immigrants from Taiwan and Hong Kong. Ninety percent of the family heads earned advanced degrees in the United States and went to work for IBM as engineers and programmers.

When the cuts first occurred, Wu's members were "panicked" because none had been exposed to the knockabout world outside IBM. "When IBM was good, IBM was like a god to them, and the system was closed. But now we see that life is more than just work, and more than just IBM. From a Christian perspective, it will be good for the whole community if we become more diversified and open to the world," Wu says.

"Nobody had any coping mechanisms in place," says the Reverend James Heron, pastor of Trinity Episcopal Church in the Village of Fishkill. Situated at "ground zero," about equidistant from the Poughkeepsie and East Fishkill plants, Heron's parish had lost 29 of 140 families in the congregation by mid-November. "As a parish priest with many IBM people," he says, "I had settled in with the feeling that that part of life [employment security] is taken care of. I dealt with all the other problems of life. It was the same with the county leaders. The whole county acted almost as if Daddy had abandoned them."

Jobless IBMers and their families were now experiencing problems that many thought existed only in ghettos: drunkenness, domestic violence, behavioral prob lems in schools, bouts of depression. The county Mental Hygiene Department reported a 10 percent increase in people asking for help even before the emotional holiday period.

By late fall, there were ominous foreshadowings of severe community budget problems. Facing a $6.5 million decrease in sales tax revenue, Dutchess County legislators voted to lay off about 20 county workers and raise property taxes. The Town of Poughkeepsie agreed to lower IBM's property assessment by $93 million, necessitating an increase in taxes on other commercial property. East Fishkill awaits IBM's next request for lowered property taxes. It could be in the neighborhood of $100 million. "We're looking at a potential 250 percent increase in town taxes at one shot," says county legislator Manning. "Many of our IBMers still don't fully grasp the nature of our problem." He worries about a severe taxpayer backlash unless the county's economic development people, who are trying to lure jobs to the region, score "a big win" within 18 months.



Jobs Available--2,000 Miles Away


Is there substance behind the supposed magic of the "high-tech" label that will attract those jobs to Dutchess County? Local development agencies in the Rust Belt have largely failed to attract significant new business, and Dutchess may face the same problems. It will have to rely on more than its high-tech image. To some degree, the myth of the "flexible" high-tech worker still dulls an understanding of what is needed for renewal in the Mid-Hudson and other high-tech centers. The skills imparted to production workers in IBM "clean rooms" can no more be transferred without substantial retraining than were those learned in sooty open hearth shops.

By noon one day last October, about 35 job seekers had registered at a government-funded employment center in Poughkeepsie. They were an affluent lot, mostly men wearing expensive windbreakers, sport coats, a few in suits and ties, carrying file folders, clipboards, even briefcases. Engineers, programmers, computer technicians, mid-level managers, manufacturing workers--all former employees of IBM.

Occupying the entire fourth floor of a state office building, the Career Center provides "transition services" for laid-off workers: banks of phones to check out job leads, desktop computers and fax machines to prepare and send resumes, a library with labor market information, sign-up sheets for counseling and training. The place exudes quiet civility: courteous clerks and counselors, no standing in lines. There is a sense that finding a new job is just a matter of getting the right advice, using the right equipment, making the right connections.

But reality took over when the former IBMers bunched up at a bulletin board to scan lists of available jobs. Car wash attendant, waitress, companion, bartender, bus driver, cleaner, animal keeper, retail sales. A few professional and technical positions were open 2,000 miles away in Albuquerque, Austin, and Dallas.

For the first six months after the layoffs began in late March, a large outplacement firm retained by IBM operated three counseling and training centers in the Mid-Hudson. Meanwhile, local and state agencies obtained a $6 million grant from the U.S. Department of Labor and contracted with another private firm when the IBM funding ran out. The second firm, Employment & Training Institute (ETI), now operates the Career Center in Poughkeepsie and deals solely with about 3,000 victims of layoffs at IBM.

As of mid-November, about 900 workers had enrolled at the ETI center. Nearly 350 were taking skills training courses at local institutions, but one problem with these programs is that the trainees must provide their own living expenses--and that often restricts retraining to short courses in low- to mid-level skills with little value in the labor market.

Another 20 IBMers were working in on-the-job-training programs in which ETI reimburses an employer for 50 percent of a trainee's wages for four months. ETI also develops job leads and by mid-November had placed 30 workers. The center's job-lead bulletin board displayed a better selection of jobs than in early October, but more than half the posted jobs still offered entry-level wages in service occupations.



High-Tech, Low-Skill Workers


What happened in the Mid-Hudson Valley forces people to question a widespread belief about companies like IBM, which operate in a rarefied atmosphere, employing "knowledge workers." When such a company has to disgorge its self-starting, entrepreneurial employees, the belief went, they can either open up their own computer consultancies or turn their computer-factory skills to the use of other high-tech companies.

This idea, however, makes assumptions about the management style and work organization in a computer factory that may not be true. People can be organized to carry out this kind of work without absorbing technical knowledge. "The amount of knowledge reflected in a given product is not a clear guide to the amount of knowledge needed by individual workers to produce it," says Joel Rogers of the University of Wisconsin-Madison, who studies the sociology of work. "You can have very unskilled people put together very complex products."

Much computer manufacturing is automated, and merely assembling parts produced by this machinery is low-skill labor. But employees who work in cellular units, managing themselves, monitoring and operating computerized networks of manufacturing units, need a much higher order of technical and social skills.

It is not clear to what degree IBM follows the newer model in its Mid-Hudson Valley plants. An occupational breakdown of the surplused workers can give an indication. IBM has not released this data, but Ann Davis, the Marist College economist, provides some evidence. Of 6,300 workers laid off at the Poughkeepsie and East Fishkill plants, about 57 percent were classified as professional-technical and could fall into a high-skill, high-tech category. An additional 25 percent, however, about 1,500 workers, held production and minor administrative jobs with lower level skills that could not be fairly described as high-tech.

But, say the fans of high-tech work, even bottom-level workers in a computer factory are more computer-literate than most other workers. Not necessarily so in IBM's case, ironically. Many workers at the world's premier computer manufacturer knew nothing about computers except which key to punch to receive e-mail. When scores of surplused IBMers registered for adult education courses at local schools, they signed up for PC training--and they needed it.

"Ninety-five percent of these people didn't know what all the keys on a keyboard are for," says Mike Cunningham's wife, Christina, who teaches computer courses part-time at Marist and two community colleges. "They had no idea how a computer worked. They didn't understand how information is stored, or what the diskettes are for and how to put them in and take them out." At IBM, many employees worked on desktop terminals linked to a mainframe and knew nothing about PCs. The same is true in many large corporations, but IBM is the computer company. The computer-illiterate included engineers, managers, secretaries, receptionists, as well as manufacturing-line workers.

Still, the idea of starting a computer business remains in vogue. A training firm retained by IBM held workshops on "entrepreneurialism." People, of course, should not be belittled for following a dream, but the demand for "computer consultants" does not expand with the number of people surplused by IBM. Jack Toulan has run a small programming business since retiring from IBM in 1991 but says he found a market for his services by pure luck. He knows many IBM retirees who started consultancies and gave up for lack of business.



Piecemeal Plans for Revival


Local officials, however, continue to cling to the hope that all these unemployed computer workers will attract other high-tech businesses to the area. In Dutchess County, private business has pledged a total of nearly $1 million to help finance a three-legged effort directed by the county's Economic Development Corp. The goal is to fill 4.5 million square feet of unused "industrial" space, including 2.4 million owned or leased by IBM.

One part of Dutchess County's "external marketing" strategy is to find occupants for some 30 general purpose buildings scattered around the county. A second part of the strategy, still in the planning stages, entails the building of a major industrial and business park alongside I-84 in southern Dutchess. A third step, already under way, centers on helping IBM lease vacant sections of its East Fishkill complex to other high-tech firms.

Dutchess County is hardly the first economically depressed region to try to sell itself as a "high-tech mecca," a term used by its promoters. Its most immediate raiding targets--industrial areas of Westchester County, the Bronx, Queens, Nassau/Suffolk, and Long Island--are also competing for high-tech industry. And Dutchess is only one of seven counties that make up a large industrial region in New York, New Jersey, and Connecticut with a total of 150 million square feet of empty factory area.

Yet, as the Dutchess strategists candidly point out, upwards of 50,000 or more "highly skilled technical workers" in the Northeast either have been or will be laid off by such well-known firms as Digital Equipment, Grumman, Eastman Kodak, Wang, Pratt & Whitney, and others. IBM's surplusees become part of that army of the unemployed, and the Mid-Hudson region now enters the cutthroat, tax-inducement competition for jobs.

Dutchess, however, does have some advantages, including the IBM physical assets, because industries tend to cluster around high-tech research. It is near New York City with two commuter rail lines and an excellent highway system, and lower housing prices already are luring people from the metropolitan area, as families from Westchester and the Bronx move north for better schools.

Ann Davis points to another potentially important resource, the 500 to 1,000 small, high-tech manufacturing companies in the valley. These firms, Davis says, could provide a strong incubating base for future growth if pulled together into a regional master plan. Three nearby colleges--Columbia, Syracuse, and Rensselaer Polytechnic--could provide technical research through computer links.

Although some organizations in the Mid-Hudson Valley are working to consolidate these resources, regional development is just getting started. There is no national effort to boost regional development and job growth in depressed regions. So Dutchess and Ulster counties are trying to lure jobs and businesses immediately from other areas. The Mid-Hudson Valley now joins many other regions in the Rust Belt and even California in trying to outbid each other in wooing corporations, much as southern states are doing in the hunt for German manufacturing plants. One state's gain will continue to be another's loss.

Whatever Dutchess County's job-luring potential is, the results will be realized too late to help people in the short term. As 1993 came to an end, Mike Cunningham faced unpleasant prospects.

He landed a job at a Veterans Administration hospital last summer after four months of looking. Working as a biomedical technician, Cunningham earned about $13 an hour, some $4 lower than his IBM pay rate. But he enjoyed helping disabled patients with prosthetics more than anything he had done at IBM. He had more discretion on the job, more freedom to follow his instincts. He was prepared to make this a new career. In September, however, cuts in the VA's staff nationwide forced Cunningham back into unemployment. Shortly after starting another job search in October, he suffered severe chest pains and had to undergo open heart surgery. He is recovering, but he will not be able to actively look for work for three or four months.



Broken Social Contract


In Big Blues, Paul Carroll notes that IBM's reduction in force by the end of 1992 had cost 140,000 jobs and disrupted the lives of 400,000 people, including family members. The number has risen since then. That such carnage could occur at a company only recently held up as the paradigm of high technology is a warning that the "invisible hand" can write epitaphs anywhere. It makes no distinction between Rust Belt and high-tech industries, private and government sectors, blue chip corporations and barely solvent entrepreneurs, or blue-collar and white-collar workers.

In Dutchess County, a sense of outrage lies not far below the surface of an outwardly calm but deeply hurt community. The wife of a former high-level IBM manager expresses it this way: "The company broke a social contract with these people. It said, `Don't think, just do what we tell you, suppress your individuality and play our game, and you will always have a job.' Then it screwed them. I understand the economics of why they did that, but if you make a social contract, you can't violate it."

The term "social contract" has as many meanings as there are people who use it. But, clearly, Americans feel that something like the Poughkeepsie woman's version of a social contract exists, or should exist, between people and employers, and ultimately between people and the state (which is closer to Rousseau's original concept) as represented in the economic system. The employer and the economy provide security in return for commitment. But what constitutes economic security is changing with economic conditions.

The IBM story gives the lie to several fashionable views about high technology, competitiveness, and employment. For IBM epitomizes all the features that were supposed to give Americans a degree of job security in the new high-tech economy. If employment at IBM is not secure, no employment is secure.

As the IBM saga so vividly shows, IBM's benign paternalism was built on the sands of temporary monopoly. Today shifts in technology are accelerating. Market leadership based on the sort of monopoly that IBM once had in mainframes will become both rarer and shorter lived. And with that shift, an entire source of job security is in jeopardy. It's not much of a trick to be a benign employer when your market is locked up and profitability is assured. It's all but impossible to guarantee job security in one company when next year's market is up for grabs.

There are only two sorts of insurance against the kind of bloodletting IBM brought to Dutchess County. Either companies have to become better managed so that no company suffers the kind of competitive free-fall IBM experienced. Or society has to devise mechanisms to separate employment security from job security.

One check on management short-sightedness is the sort of employee empowerment that IBM advertised but did not always practice. Employees in some high-tech companies may have a louder voice than in traditional industries, but this rarely extends to corporate strategic planning. As long as the corporation is less than perfectly accountable either to shareholders or to employees, then managements will invariably make mistakes, occasionally fatal ones.

If employment security in one company is impossible, it must be guaranteed by society. The breakup of the New Deal system with its large, stable companies means that few Americans can count on a lifetime of employment in a single firm. Whatever replaces the New Deal system must find a way to provide reasonable employment security--a lifetime of employment in perhaps many firms, offering retraining and reskilling, yet anchored by a macroeconomic context of full employment.

The passage of national health insurance, as President Clinton recently said, will be part of a new concept of linking change to security, so that "if you don't have job security, you at least have employment security." The question is whether he will push as hard for the other necessary prerequisites of employment security: massive training and retraining programs, portable pensions, a reformed labor law that guarantees in practice the freedom of association for workers that was promised by law 60 years ago, and--most of all--a cornucopia of well-paid, skilled jobs.

You may also like