(This essay is part five in the series HOW JOBS DESTROYED WORK)
During the 80s, attitudes toward the paternalistic model changed. The 1970s ended in recession, and during this period two of America’s largest companies- Chrysler and Lockheed-survived only because of government bailouts. The new decade began with inflation approaching 15%, and unemployment over 8.5%. Gold prices were soaring, a trend that is often associated with investor pessimism. Indeed, there was a general mood of unease regarding the the US’s economic prospects, as the stock market went into the worst slump since the 1930s.
Amidst all this financial trouble, people began looking at those large corporations with their many benefits packages and saw not businesses to be inspired by but rather dinosaurs to be blamed for worsening conditions. Increasingly, people saw the large corporations as bloated and inefficient, handicapped by too much bureaucracy and a workforce with an over-inflated sense of entitlement. It seemed as though America was increasingly unable to compete against more nimble competitors, most notably from Japan and West Germany. The nation was importing 25% of its steel and 53% of its numerically controlled machine tools by 1981.
What really helped the rise of the lean-and-mean model in the 80s and 90s was certain federal and state regulatory changes, coupled with innovations from Wall Street. The federal and state regulatory changes brought about an environment in which corporate mergers and takeovers could flourish. For example, there had been laws protecting local companies from out-of-state suitors, but these were declared unconstitutional by the Supreme Court. Also, President Reagan appointed an attorney who had previously defended large corporations against antitrust suits to be head of the Department of Justice’s antitrust division. This all but guaranteed there would no interference from the federal government with the growing acquisitions and mergers movement.
Meanwhile, Michael Milken, of investment house Drexel Burnham, created high-yield debt instruments known as ‘junk bonds’, which allowed for much riskier and aggressive corporate raids. These, along with the state and federal regulatory changes mentioned earlier, triggered an era of hostile takeovers, leveraged buyouts and corporate bustups.
It would be hard to exaggerate just how different this new business-world order was compared to the paternalistic model. Whereas before, employees were treated very well, the new breed of executive didn’t think they mattered at all, other than as commodities to be manipulated in order to improve one’s shares. For example, a former savings-and-loans banker remarked:
“When I put my hat on as an investor, all I care about is, ‘am I worth more today than I was yesterday?’. I don’t care about Coca-Cola’s employees, I care about its stock price”.
Echoing this attitude, ‘chainsaw’ Al Dunlap, former CEO of Scott Paper, commented:
“If you see an annual report with the term ‘stakeholders’, put it down and run, don’t walk away from the company. It means the company has its priorities upside down”.
As far as lean-and-mean was concerned, companies that had their priorities right side up were those where managers were preoccupied with equity rather than business. Real-world gains were deemed to be of far less importance compared to paper profits. For those at the executive level, this was an era in which their pay levels and bonuses went stratospheric, but for everybody else the only thing that significantly increased was the awfulness of conditions. Job security vanished, benefits were slashed, and working hours went from 40 or so hours per week to as high as 80 hours.
Now, the feeding frenzy of mergers and bustups during the 80s and 90s might sound to some like good old free-market competition that would ultimately result in greater economic prosperity, benefitting us all. If the largest corporations were indeed too weighed down with bureaucracy and their employees too complacent; if regulations were getting in the way of more streamlined competitors, surely it was a good thing if all that was swept away? Even if those mollycoddled employees had to man up and face the real world with all its dog-eat-dog competition, it would all be worth it if shareholder value kept rising and the wealth trickled down to the average man on the street.
The problem was, most of the corporate mergers that took place during the 80s through to the mid 1990s- between 65 and 75% in fact- were failures. For example, Quaker Oats paid $1.7 billion in 1994 for Snapple, but 3 years later it sold it for $300 million. Wordperfect was purchased by Novell in 1994 for $1.4 billion only to be sold for $200 million two years later. And it was not only poorly-performing companies that were devoured by hostile takeover bids. Perfectly viable businesses were destroyed for no reason other than the short-term gains to be had from busting them up. There were people like Saul Steinberg and Ivan Boesky, making their fortunes by launching hostile takeover bids, not because they thought they could steer the company toward greater prosperity, but rather because they wanted to be paid to go away. Investor-raiders like these terrorised executives into resorting to dubious self-defensive strategies, such as preserving their companies’ independence by buying their own stock at inflated prices, a strategy that put the long-term survival of the corporation in doubt.
All in all, the cost of failed corporate mergers during this period topped $100 billion. Jill Andresky Frazer, in her book ‘White Collar Sweatshop’ (published 2001) included the following, rather prophetic, quote from Jeffrey Garten, a former investment banker who served as under secretary of commerce for international trade in the Clinton administration:
“For all the talk of free markets, companies such as Citigroup may be too big to fail. Recall how Washington bailed out Lockeed and Chrysler. Megacompanies are almost beyond the law, too, because their deeper pockets allow them to stymie prosecutors in ways their smaller defendants cannot. Or, if they lose in court, they can pay large fines without too much damage to their operations”.
Citigroup was one of the companies that suffered massive losses during the global financial crisis of 2008, and had to be rescued with a massive stimulus package, courtesy of the taxpayer.
Coming up in part six, the corruption (or was it the near-inevitable evolution?) of free-market capitalism into crony capitalism.

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