The Tech - Online EditionMIT's oldest and largest
newspaper & the first
newspaper published
on the web
Boston Weather: 47.0°F | Fair

Clinton Must Face Reality -- Not Much a President Can Do to Halt Layoffs

By Steven Pearlstein
The Washington Post

WASHINGTON

Now that he has been elected president on a promise to turn around the U.S. economy, Bill Clinton is about to face a sobering reality: There is not much any president can do to halt the steady stream of layoffs flowing from corporate America.

In the last two weeks, for example, such blue-chip names as American Express Co., Borden Inc. and Bristol-Myers Squibb Co. announced they would collectively eliminate about 15,000 jobs over the next year, while General Motors Corp. directors considered plans to idle thousands more.

Those reductions are similar to ones announced over the past two months by airlines, computer makers, insurance companies, defense contractors, banks and major oil companies, and they are making it difficult for the economy to take its usual course toward recovery, according to economists.

Something more than the traditional workings of the business cycle is driving those big layoffs and job reductions, according to economists and company executives.

Normally, the economy pulls out of a downward spiral when the government lowers interest rates, companies use up their inventories, and consumers can no longer put off buying a new car or washing machine.

This time, the traditional cycle is coming on top of a fundamental change that is taking place in a number of key industries -- what economists call a structural change.

Driven by shifts in market competition, technology, consumer tastes and government policies, companies have decided that the only way they can survive and remain profitable is to cut their basic operating costs -- overhead, in the language of accountants -- in particular, the payroll.

"This is not the normal recession and recovery cycle," said Stephen Roach, senior economist with the investment house, Morgan Stanley Group Inc. "The economy is feeling the pain of structural change."

Structural change is more than a matter of simply firing people ("layoffs" is the polite word), or paying them to retire early ("offering incentive packages"). They are part of larger strategies that have required companies to consolidate operations in fewer facilities, drop unprofitable product lines, sell divisions, streamline administrative or manufacturing processes and trim out layers of management. Many companies are finding they can buy goods or services from small companies that they used to produce in house.

In most instances, companies are trying to do what they have always done, only more efficiently. American Express, which announced last month that it would trim 4,800 jobs from its flagship credit-card operations, anticipates it can get by with fewer people by using more-sophisticated computers to process its millions of financial transactions and increase the efficiency of its mammoth direct-mail operation.

In other cases, companies are simply doing without. American Airlines Inc. announced last month it would trim as many as 1,000 managers, a move that chief financial officer Mike Durham said was driven in part by a strategy to offer more low-fare, no-frills service along certain routes.

"The restructuring is unprecedented in its intensity and its scope," said Sam Ehrenhalt, regional commissioner of the U.S. Bureau of Labor Statistics in New York. "There is a general awareness that the way we had been doing business is obsolete."

Roach and a number of other economists who have studied the progress of this recession as it rolls through a succession of industries say the worst of the cuts are probably behind us. They cited recent statistics showing increases in corporate profits and the productivity of American businesses -- the output per worker -- after several years of steady decline. Among the nation's top corporate economists, the pre-election consensus was that the economy would grow 2.7 percent during Clinton's first year in office.