In the new economy - awayDavid Hoppe
People like to say we live in a "new" economy. By this they usually mean that the ways in which we make money have changed. It's common, for example, to hear that whereas the economy was once driven by industries that made things you could hold in your hand - like machine parts, say, or steel - now the emphasis is on services and the products are usually paper. There's another way in which this economy may seem to be new - especially to retired workers who might once have belonged to unions. In this economy, just because you think you've made a deal doesn't necessarily mean you've got a deal.
There's another way in which this economy may seem to be new - especially to retired workers who might once have belonged to unions. In this economy, just because you think you've made a deal doesn't necessarily mean you've got a deal.
Take steelworkers, for instance. Right now there are hundreds of thousands of retired steelworkers in the United States who thought, when they left their jobs, that they could count on having health care benefits for the rest of their lives. That was the deal their union made for them with their employers. Trouble is, that was then. Since that time, the steel industry has seen some changes - none of them good from the standpoint of steelworkers. The result has been layoffs, mill closings and the bankruptcies of some of the biggest steel producers like LTV and Bethlehem.
In order to stay in business, these bankrupt companies have had to sell their assets to their competitors. LTV, for example, was sold to International Steel Group for $1.5 billion. When the sale took place, LTV was carrying the costs of seven retirees for every active employee. Not surprisingly, International Steel Group chose not to assume the costs of paying health benefits for retired workers when it acquired LTV. The health care that LTV retirees had worked for and counted on has gone away. Meanwhile, International Steel Group is turning a profit.
The same thing might soon be happening in other troubled industries. According to an article in the Wall Street Journal, U.S. Airways has been spending $12 million on health benefits for active employees and over $55 million on retirees. Ford Motor Co. spends $600 million on active employees - $1.9 billion on retirees and their families.
Obviously, these numbers are huge. That they have considerable impact on a company's bottom line is undeniable. It is figured that retiree costs added $20 to $40 to each ton of steel made last year. Given this fact, what's happening to retired steelworkers, though harsh, might seem inevitable - the cost, as it were, of staying in business.
But this situation raises another question concerning how we think about business itself. There may be no arguing with the numbers on the bottom line, but are those numbers all we need to know about a business?
Thinking of businesses merely as engines of profit or loss is like confusing a snapshot of a person with a living, breathing man or woman. Yes, businesses need to make money; many need to pay a return to shareholders. But businesses also create symbiotic bonds with people and places. This is especially true in a private enterprise system, where businesses arise opportunistically, as part of their communities, instead of being imposed, as is often the case in state-sponsored systems. Businesses, in other words, do not exist solely in the heads of the people who run them. Without a community, business has no base; without workers, it has no products. Without customers, those products are never sold.
In the global economy it is tempting to downplay the importance of these relationships. As increasing distances between management and production are exploited, transactions are depersonalized and bottom line thinking prevails. Agreements made with steelworkers who are now retired become paper liabilities to be cut, regardless of human cost.
The trouble is that human costs like those being experienced by steelworkers have to be absorbed somehow if the communities that give business its reason for being are to survive. If you doubt this, drive up to Gary, Ind., some time. Compare what you see there today with the recollections of those who lived and worked in Gary when it was the steel-making capital of the world. One can second-guess the wisdom behind the labor agreements that brought us to this pass, but there is no getting 'round the fact that deals were made - and now are being broken with impunity.
This is particularly galling when one considers the golden parachutes routinely awarded to top executives. Conseco's Gary Wendt, for instance, failed at the one thing he was charged to do: bring Conseco out of debt. For this he will be receiving $1.5 million a year, every year, from the day he turns 65.
It's stories like this one that make the new economy look positively medieval - like a feudal system in which chief executive lords and ladies hoard the goods without regard for talent or performance. In the meantime, the rest of us are just thankful for what shelter we're allowed. Feudalism probably seemed like forever in its day. It wasn't. By the same token, the new economy will be old news if its values aren't worth the paper they're printed on.