The New York times
January 5th 1996
If the us Federal government is to do less, then the private sector will have to do more. But AT&T's stunning announcement on the first business day of 1996, that it would lay off 40,000 employees, raises profound questions about the private sector's ability to take on more responsibility for Americans' economic well-being.
I do not mean to pick on AT&T. It is but one in a long list of companies that have delivered large numbers of pink slips in recent years, despite record profits. Wall Street's initially positive response to the news suggests that it may have done exactly the right thing by its shareholders. But this is precisely the issue. Do companies have obligations beyond the bottom line?
It has become politically fashionable to argue that movie studios and television networks, and their advertisers, should avoid lewdness or violence, even though these themes generate large audiences and fat profits. Well, what about a corporation's duty to its employees and its community? The sudden loss of a pay cheque is probably more damaging to family values than a titillating screen performance.
Corporate executives claim that they have no choice. Investors demand that companies become ever leaner and meaner. If employees' wages and benefits don't generate a sufficient return, the jobs have to go. And if an entire community loses its economic base because the company can do its work more efficiently elsewhere, so be it.
Chief executives once sang a different tune. In a 1951 address that was typical of the era, Frank Abrams, chairman of Standard Oil of New Jersey, proclaimed: "The job of management is to maintain an equitable and working balance among the claims of the various directly interested groups... stockholders, employees, customers and the public at large." That very year, Fortune magazine lectured executives on their duty to be "industrial statesmen."
What has changed? Competition has transformed US businesses from comfortable and stable rivals into bloodletting gladiators. Airlines, telephone companies, utilities-and Wall Street itself-have been deregulated. Global competitors threaten the very survival of US manufacturers.
Investors enjoy an ever wider array of choices of where to put their money, and greater ease in moving their money around. Electronic capitalism has replaced the gentlemanly investment system that had given "industrial statesmen" the discretion to balance the interests of shareholders against those of employees and communities.
Paradoxically, this has been accompanied by a growing scepticism about the capacity of government to protect the rest of society. Regardless of how the budget negotiations are settled, in the future, government will have a more modest role in safeguarding the economic security of Americans.
The ostensible purpose of eliminating the budget deficit is to give the private sector more capital to invest, thus widening opportunities and raising earnings for all. But there is no guarantee that corporations will use the extra resources in this way. Maximising shareholders' returns may require investing the extra dollars in production abroad, or in labour-saving equipment intended to cut jobs. How, then, to get the private sector to take more responsibility for employees and communities?
Exhortation will have, at best, a modest effect. The most eloquent moral appeal will be no match for the dispassionate edict of the market. If we want corporations to take more responsibility, we will have to provide the proper incentives. The corporate form of business carries special advantages: investors are not personally liable for debts, and so on. Perhaps the benefits of incorporation should be reserved for companies that demonstrate responsibility. Alternatively-and more realistically in these parched political times-perhaps corporate income taxes should be reduced for such companies. In this era of smaller government, such steps seem warranted.
