restructuring by design: government's complicity in corporate restructuring

Restructuring by Design: Government's Complicity in Corporate RestructuringAuthor(s): Dell P. Champlin and Janet T. KnoedlerSource: Journal of Economic Issues, Vol. 33, No. 1 (Mar., 1999), pp. 41-57Published by: Association for Evolutionary EconomicsStable URL: http://www.jstor.org/stable/4227413 .

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J JOURNAL OF ECONOMIC ISSUES Vol. XXXIII No. 1 March 1999

Restructuring by Design: Government's Complicity in Corporate Restructuring

Dell P. Champlin and

Janet T. Knoedler

The view that corporate restructuring is not only inevitable, but necessary, has become commonplace in American policy and business circles. Only by imposing job losses and shedding unnecessary costs can American business hope to compete in the "new global economy" and regain the position of dominance it held during the "golden age" of American capitalism after World War II. This narrative of corporate restructuring as necessary and inevitable hinges on the notion that the job losses and other unfortunate consequences of restructuring are simply the result of impersonal market forces over which businesses and governments have no control. The new global economic environment requires "leaner and meaner" as well as larger and more powerful corporations. In the face of global markets dominated by mobile transnational titans, individual governments are viewed as relatively helpless to do little more than "ease the transition" to ensure that American corporations will be among the winners in the global market.

This manifesto of the "new global market" has been repeated so often that it has now become commonplace. But, is it an accurate explanation of the corporate restructuring of the past 20 or 30 years? What if the downsizing, stagnant wages, and loss of job security have not been necessary to ensure a new "golden age," but instead to engineer a redistribution of income to those with market power and influence? The global economic environment is determined by the actions of governments as well as business. The growth of ever-larger corporations through merger and acquisition requires a supportive legal and political atmosphere. In the

The authors are Associate Professor of Economics, Eastern Illinois University, and Associate Professor of Economics, Bucknell University, respectively.

41



42 Dell P. Champlin and Janet T. Knoedler

United States, this atmosphere has been more than supportive as evidenced by the past 30 years of lax antitrust policy. Moreover, federal and state governments have given billions of dollars in subsidies, grants, reduced taxes, and subsidized credit to large corporations, directly and indirectly supporting corporate restructuring. To the extent that corporate restructuring has been aided and abetted by government policy, it should call into question the conventional wisdom that corporate restructuring is the result of impersonal market forces.

In this paper, we explore the extent of government complicity in corporate restructuring. The first two sections examine the role of government in two areas: federal antitrust policy and government "economic development" programs. In the third section, we assess the extent to which government policy has biased the out- come in favor of business at the expense of others. We conclude by suggesting that the persistent belief in the inevitability of restructuring is at odds with the actual record of the past 30 years.

"Adjusting" to the Market I: Antitrust Policy

One area in which the federal government has given an extended green light to corporate restructuring is in antitrust. While the popular view is that Ronald Reagan ushered in the present era of minimal government intervention in our nation's business, the truth is that this process began much earlier. Even the short period of relative activism in the early 1960s under Robert Kennedy's Department of Justice was guided by the philosophy, as stated by Kennedy himself, that the goals of government antitrust policy and of business were the same: both sought "to maintain and nourish the strength of our nation's free economy" [quoted in Williamson 1995, 591. Under Lyndon Johnson, the tide turned toward an even more conciliatory antitrust policy with the appointment of Donald Turner as head of the Antitrust Division of the Department of Justice. In a speech shortly after his appointment, Turner argued that the government "should not attack a merger simply because the companies are large in the absolute sense" [quoted in Williamson 1995, 64]. Turner was concerned with preventing horizontal mergers that would increase concentration in specific markets, and thus he paid little attention to preventing conglomerate or vertical mergers. The result of such lenience was the third great merger wave in American history: nearly 4,000 mergers took place in 1967 and 1968 alone.1 During the 1960s, the Department of Justice challenged only 170 mergers out of thousands, while nearly 9,400 previously independent firms disappeared [Williamson 1995, 75].

Even though merger activity temporarily slowed in the 1970s, the permissive stance toward mergers continued. Richard Nixon's first appointee to head the Anti- trust Division of the Department of Justice, Richard McLaren, declared that he wished to stop the trend toward economic concentration [Peretz 1996, 233], but



Restructuring by Design: Government's Complicity 43

Nixon also appointed noted Chicago school economist George Stigler to head a task force on antitrust. Stigler immediately began bashing the federal antitrust agencies, concluding in the task force report that "little that the [Federal Trade Commission] undertakes in the antitrust area can be defended in terms of the objective of main- taining and strengthening a competitive economy." Stigler then proposed "substan- tial retrenchment" in federal antitrust activity [Backman 1970, 15]. McLaren was soon replaced with an antitrust chief more inclined to the views of Stigler and his Chicago comrades. In a similar manner, the Nixon court appointees began to carve out an antitrust doctrine that prioritized efficiency over competition and that used the narrow measure of concentration in specific markets as the appropriate criterion for assessing the impact on consumers as opposed to the more amorphous notion of corporate power [Peretz 1996, 233-234]. In short, during the 1970s the seeds were sown for a new antitrust vision that relied on the microeconomic concepts of efficiency and markets.

Following the Nixon-Ford years, Jimmy Carter, elected as a Democratic out- sider in large part for his promises to clean up Washington, ushered in the era of de- regulation. While he did permit the Federal Trade Commission (FTC) to engage in efforts to impose stronger controls on the funeral home industry, the used car industry, and advertising aimed at children, these efforts were nullified when Congress, urged on by lobbyists, charged the executive branch with sending excessively severe messages toward business. By the end of the Carter administration, Congress came very close to dismantling the FTC altogether [Baldwin 1987; Peretz 1996, 230, 271].

With the Reagan administration, the task of gutting antitrust was completed by installing a standard of "wealth-maximizing form of efficiency" [Peretz 1996, 265] as the guiding principle behind antitrust. The corporate takeover wave was ushered in under the theory of the market for corporate control, a theory that suggests that takeover targets are typically inefficient firms in need of housecleaning and restructuring. Thus, takeovers were recast as a market solution to improving efficiency, a view embraced by Reagan FTC chair James C. Miller III, who commented in 1985 that "it may be best to leave decisions concerning takeover tactics to the market" [Baldwin 1987, 389].2 The FTC under Miller challenged only 17 out of the 9,500 mergers that took place during Reagan's terms in office [Peretz 1996, 214]. Much the same view prevailed at the Department of Justice Antitrust Division, where only 28 out of nearly 10,000 mergers were challenged during the decade [Peretz 1996, 278; Shepherd 1991, 212-214]. Antitrust chief William Baxter declared at one point: "there is nothing written in the sky that says that the world would not be a perfectly happy place if there were only 100 companies" [Peretz 1996, 278]. Thus, under the Reagan antitrust authorities, even such blatantly horizontal mergers as Texaco-Getty and Chevron-Gulf were permitted [Peretz 1996, 280]. The antitrust agencies, always understaffed relative to their adversaries, were scaled back in size




considerably during the 1980s. The Department of Justice Antitrust Division had more than 400 attorneys on staff in 1980, but by 1990 their ranks had been reduced to 250; the FTC had nearly 600 attorneys and 90 economists on staff in 1980, but their ranks were slashed to, respectively, 300 and 70. The total budgets of both agencies took a hit equal to nearly 45 percent in inflation-adjusted terms [Shepherd 1991, 129].

Even in the 1990s, under new Democrat Bill Clinton, we have seen the antitrust agencies allow a new merger wave, prominently featuring industries such as health care, banking, and telecommunications/media-a process Walter Adams describes as "speculative capitalism" [Adams and Brock 1996, 18]. Antitrust chiefs Anne Bin- gaman and Robert Pitofsky have allowed such prominent mergers as Time-Warner- Turner, Disney-ABC, Westinghouse-CBS, Boeing-McDonnell Douglas, and Bell Atlantic-Nynex to go through, permitting near monopolies in commercial aircraft and Northeastern telecommunications markets. The "new aggressive" FTC in this Democratic era has proposed to take greater account of cost savings (or so-called "synergies") in evaluating mergers-even for those mergers that are substantially lessening competition and thus should be blocked according to antitrust laws and court precedents. The FTC has also promised to speed up its scrutiny of mergers and anti-competitive practices [Adams and Brock 1996, 20; Sherrill 1997, 19-20], placing a greater burden on their already understaffed agencies. In Congress, Re- publicans and Democrats combined to deregulate telecommunications and electrical utilities on the premise that competition inevitably will emerge to eradicate any smattering of monopoly that might creep into these markets. Given this bipartisan permissiveness, the Wall Street Journal enthused in late 1996 that "looser regulation is changing the competitive landscapes in telecommunication, utilities, and broad- cast, among other industries" [Sherrill 1997, 19].

What have been the consequences of merger activity over the past three decades? One out of every five of the largest American manufacturing corporations has been swallowed by an even larger corporation [Sherman 1991, 299]. The ranks of com- petitors in important industrial and financial sectors-notably media/entertainment companies, publishing, defense, health care, and banking-have been thinned.3 De- spite the rhetoric about the U.S. economy becoming more competitive, aggregate concentration levels remain at very high levels-the largest 50 corporations continue to control nearly a quarter of production and to make more than 20 percent of all new capital expenditures (U.S. Department of Commerce 1997, MC92-S-2).4 Lax antitrust policy has indeed allowed for massive corporate restructuring, but not nec- essarily for a more competitive economy.




"Adjusting" to the Market Ik Public Policies to Promote Competitiveness

The government's lax attitude toward mergers and acquisitions has been fueled, in part, by the perceived imperatives of the "new global economy."5 During the "golden age" following World War II, U.S. corporations dominated world markets in many industries. The loss of this domination has been analyzed at length and has been attributed to technological change or to poor planning and management by American firms [Bluestone and Harrison 1988; Magaziner and Reich 1982]. The most influential and enduring explanation, however, has been increased international competition [Gordon 1996; Dertouzos, Lester, and Solow 1989]. Evidence of this increased competition is particularly pronounced in manufacturing, where formerly dominant U.S. industries now face competition from other industrialized nations as well as from newly industrializing countries.

Even more important than the magnitude of the increased competition from other countries is the perception that the nature of the competition has changed. Govern- ments of other countries, especially Japan, are viewed as intervening openly in the economy to such an extent that firms struggling within the American "free market" are placed at a disadvantage. This argument has fueled an expansion of programs at both the federal and state levels designed to "promote competitiveness" and adjustment to the "new global market." The federal government has long had programs providing direct grants, subsidies, tax abatements, special regulatory treatment, and other forms of assistance to business. While many of these programs have been in effect for many years and thus cannot fairly be blamed for the corporate restructuring of the past 20 years, the more recent programs instituted have been expressly designed to assist corporations in adjusting to the new global economy. The federal government particularly has targeted high-technology industries, heavy manufacturing industries, transportation industries, certain agricultural products, and energy firms with various programs designed to promote international trade and investment [Davis, Haltiwanger, and Schuh 1996]. Hand in hand with the broadening of the definition of "competitiveness" to include anything short of outright monopoly as evidenced by the evolution of antitrust policy, government assistance to corporations to promote greater "competitiveness" on the part of U.S. firms, here and abroad, has also broadened. Virtually any policy that absorbs costs for business is described as "pro-competitive. "

A recent example of this redefinition of "pro-competitive" to include cost reduction is the federal government's funding of restructuring in the defense industry. Mergers in the defense industry have grown from an estimated $300 million in 1991 to more than $20 billion in 1996 [Korb 1996]. Under a program labeled "payoffs for layoffs" by Vermont Representative Bernard Sanders, the Pentagon reimburses these corporations for reorganization costs [Muller 1997]. For example, Lockheed and Martin Marietta merged in 1995 with projected layoffs at 30,000 and billed the federal government more than $1 billion for reorganization costs [Silverstein 1996].




According to John Deutsch, CIA director, the economic rationale for this program is that it will ultimately save the taxpayers money by promoting the "rational downsizing of the defense industry" [quoted in Korb 1996]. However, the General Ac- counting Office (GAO) examined eight defense mergers and concluded that actual savings are less than half of the level estimated by the companies when applying for subsidies [Silverstein 1996]. While it might be argued that declining defense expenditures have led to undue hardships for defense contractors, defense expenditures have declined only relative to the massive build-up of the early 1980s. The "post- Cold War" defense budget in 1996 was actually 4 percent higher in inflation-adjusted terms than it was in 1980 [Korb 1996; Council of Economic Advisors 1998]. Subsidies to the defense industry are also hardly warranted by market conditions, given the industry sold approximately $266 billion worth of arms overseas in 1996 [Korb 1996] and the soaring stock prices for defense firms such as Lockheed Martin and McDonnell Douglas [Korb 1996].7

The imperatives of the "new global economZ" have also influenced economic development policies at the state and local levels. The theory behind this kind of economic development is that governments can influence business investment decisions-i.e., attract new jobs to their state or community-by providing various "incentives," again at the taxpayers' expense. Economic development may include property tax abatement, low interest loans, tax-exempt bonds to finance business expansion, wage subsidies, enterprise zones, and the provision of free land and infrastructure to relocating corporations. In addition, state and local governments indirectly assist business by providing advisory, training, and coordination services or by engaging in "public-private" partnerships with business. During the 1970s, economic development often took the form of big projects in distressed downtown areas. These projects resulted in new downtown shopping malls like Quincy Market in Boston and Harborplace in Baltimore, numerous sports stadiums (complete with luxury sky boxes), and convention centers, marketed to taxpayers as economic development projects. These big developments were undertaken by quasi-public development corporations, sometimes funded by the federal government through community development grants, sometimes funded by local government spending on infrastructure such as new streets, sewers, and other capital improvements, and sometimes by private money.9

Economic development projects like these quite literally "restructure" downtown or even suburban or rural areas, bringing obvious benefits but less obvious costs. Certainly the avowed purpose of economic development projects is to increase employment as well as future tax revenues. But how well economic development ac- complishes either objective is subject to considerable controversy. In regard to job creation, incentive packages are given to corporations in exchange for job projec- tions before the fact, and not in exchange for the actual jobs created after the fact. Relatively little research has been done to determine the accuracy of these job pro-




jections; yet state and local governments have undertaken significant capital expenditures to entice corporations to relocate (all too often luring them away from a location in another state, causing job losses there) or to keep them from leaving their own regional economic base. In a few notorious cases, the corporations have none- theless later moved on to another location, leaving the local government with no new jobs to show for its efforts. A Housing and Urban Development study of state enterprise zones, a type of economic development program targeted at economically distressed areas, revealed a wide variation in the numbers of jobs created [Bartik 1994]. Other studies show more positive job growth, although it must be noted that it is difficult to determine how much of the change in employment would have oc- curred without the government subsidy.

Even in cases where the program resulted in net job growth, it is not clear whether the additional jobs represented a net benefit for the city. The fundamental problem is that economic development involves expenditures out of current revenues in return for potential increased receipts in the future. However, these anticipated revenue gains may not be realized either because of the increased costs associated with the new projects or because of the size and duration of the tax abatements to the corporations. For example, a 1989 study in Maryland found that each new office job in the county generated revenues of $410 per job, but increased highway expenditures by $347 per job [Bartik 1994]. When new expenditures for other required county services such as water, sewer, waste disposal, and police and fire protection were included, each new low-paying job was found to result in an actual reduction in tax revenues. Additional "incentives" provided to businesses to purchase these jobs only increased the loss in revenues. Thus, the common assumption that economic development expenditures will be paid for out of "incremental tax revenues" may not be justified. 10

Moreover, economic development programs reduce the tax revenues available for other governmental purposes. In discussing economic development in Cleveland, Norman Krumholz [1991, 174] zeroes in on the problem.

The beneficiaries of tax abatement have been the most profitable businesses in the city, including the most profitable bank in the state of Ohio in 1977: BP America . . . and developers who ranked among the 100 richest families in the United States. The absurdity of Cleveland, a city that defaulted on its fiscal obligations in 1978, and a public school system perpetually poised on the brink of fiscal disaster granting essential tax revenues to the richest corporations in the country seems lost on local officials.

Despite the widespread use of state and local subsidies to corporations, it is sur- prising how little is known regarding the net costs and benefits of these programs (see Table 1 for a partial list). Only three states-Louisiana, Michigan, and New York-actually maintain records of economic development expenditures [Bartik 1994]. While a few spectacular cases involving new industrial plants may make




Table 1. Examples of State and City Economic Development Expenditures

Value of Government Incentive Package Company

Alabama $250 million Mercedes Benz ($160,000 per job)

Detroit $370 million General Motors

Illinois $240 million Sears, Roebuck

Indianapolis $400 million United Airlines

Long Beach $80 million McDonnell Douglas

Los Angeles $85 million Dream Works SKG

Milwaukee $160 million Milwaukee Brewers

Minnesota $620 million Northwest Airlines

New Mexico $455 million Intel ($190,000 per job)

New York City $80 million AT&T

New York City $20 million AT&T

New York City $235 million Chase Manhattan Bank

New York City $85 million Drexel Burnham

New York City $98 million NBC

New York City and State $26 million Capital Cities/ABC

New York City and State $234 million Chase Manhattan Bank

New York City and State $50.5 million CS First Boston

New York City and State $9.3 million Equitable Life

New York City and State $100 million New York Mets (stadium)

New York City and State $1.1 billion Yankee Stadium

Seattle $325 million Seattle Mariners (stadium)

South Carolina $100 million BMW

Utah $200 million Micron Technology

Sources: Bartik [1994], Greenwald [1996], Holmes [1995], Keating [1997], Shields [1996], and Weinstein [1994].




headlines, new business investment is estimated to represent less than a quarter of economic development expenditures. A study of 47 enterprise zones in Illinois, Indi- ana, Kentucky, and Ohio revealed that a majority of expenditures went to firms already in the area [Wilder and Rubin 1996]. Cities routinely offer incentives to corporations that threaten to relocate corporate offices out of the area. For example, Tennessee induced Columbia Healthcare Corporation and Hospital Corporation of America to keep its newly merged corporate office in Nashville by repealing the hospital services tax and dropping a state antitrust investigation into the merger [Co- hen 1996]. New York City paid approximately $20 million to AT&T during the 1980s only to see the corporation move its New York offices to New Jersey anyway [Greenwald 1996].

In short, over the past two decades, federal and state governments have routinely acted to assist corporations to achieve success in the "new global economy." For the most part, this government assistance places few restrictions on its corporate recipients. This is particularly true at the state level, where states often find themselves in a bidding war to give more and more generous inducements to attract or keep businesses. Several states have recently proposed requiring corporations to reimburse governments for economic development expenditures if the corporation does not actually deliver the promised jobs within a specified period of time. However, states that do impose such restrictions simply may lose investment projects to states that do not. Moreover, efforts to place restrictions on these policies are often viewed as "anti-business" or "anti-competitive." In one startling example in North Carolina, economic development programs were unsuccessfully challenged in court on the basis that they represented an unfair redistribution of tax revenues [Shields 1996]. The state of North Carolina won on the argument that the state would be placed at a disadvantage in competing against other states for economic development. In other words, government assistance to corporations is not based on actual need-programs are not means tested-but is based solely on the persistent refrain that the "new economic environment" requires it.

Adjustment Pains: Stockholders, Executives, or Workers

Rather than argue that the government deliberately has been complicit with corporations in their efforts to loosen anti-merger policies and to gamer corporate welfare at the federal and state levels, we instead suggest that the record of the past 30 years suggests that governments at all levels have been remarkably accommodating to the expressed needs of corporations.1" What is perhaps most remarkable about the use of antitrust, economic development, and other so-called "competitiveness" policies during this period intended to aid corporations in adjusting to the market, is how little has been done during this same period to help workers cope with the same economic environment.




To what extent has an increasingly lax antitrust policy and the proliferation of government programs to promote competitiveness been in the public interest? The conventional wisdom is that corporate restructuring promotes better management practices, greater organizational efficiency, more productive work systems, and higher quality goods and services [Blair 1993; Barker 1992; Pierce 1991; Tomasko 1990; Waterman 1987]. More productive corporations also mean improved trade performance for the United States. That is, government policies that facilitate restructuring presumably benefit the public indirectly through increased economic growth and consumer choice. The evidence for this belief, however, is not convinc- ing. While it is true that corporate restructuring has led to, or at least been accompanied by, a financial bonanza for stockholders and managers, it does not follow that the public at large has enjoyed greater economic growth or consumer satisfac- tion. The high corporate profits of the 1990s, in contrast to previous periods, have not been associated with similar gains in output or wages. 12

A number of analysts also question the commonplace view that corporations restructure in order to improve productivity. A 1994 study by Martin Baily, Eric Bartelsman, and John Haltiwanger concluded that organizational restructuring in manufacturing plants was followed by an increase in productivity only 65 percent of the time [quoted in Oliner and Wascher 1995]. Moreover, as Stephen Oliner and William Wascher [1995] point out, the impact on productivity of restructuring is difficult to isolate. One can only measure the change in productivity before and after restructuring. A more appropriate measure would be the difference between actual productivity and what it would have been in the absence of restructuring. Wayne Cascio [1993] argues that the expected gains from restructuring frequently do not materialize, because management is unprepared for the negative consequences on employees and organizational structures. David Gordon [1996] goes even further and asserts that the belief that corporate restructuring has led to "leaner and meaner" organizational structures is a myth. The "bureaucratic burden" of management and supervisory employees, expressed as a percentage of the work force, has increased steadily throughout the post-World War II period from 12 percent in 1946 to 19 percent during the 1980s [Gordon 1996, 46-48]. Correspondingly, managerial compensation as a share of GDP has risen almost 8 percentage points from 16.2 percent in 1973 to 24.1 percent in 1993 [Gordon 1996, 82]. In contrast, the share of GDP going to new investment has fallen steadily since 1979 [Baker and Mishel 1995].

While the benefits to the overall economy of corporate restructuring are still subject to debate, it is clear that there are distinct winners and losers in the economic environment of the 1980s and 1990s. Executive compensation has seen a dra- matic rise since the early 1970s and now averages $7.8 million per year for chief executive officers (CEOs) in Fortune 500 companies [Kadlec 1997; Anonymous 1998, 5]. By contrast, the benefits from corporate restructuring and economic devel-




opment have yet to trickle down to most workers. While top pay for executives rose 50 percent from 1995 to 1996, the average gain for manufacturing workers was less than 3 percent. The ratio between executive compensation and average production worker wages rose to 209 to 1 in 1996, compared to a ratio of only 35 to 1 in 1974 [Crystal 1991; Light and Reingold 1997, 65-74]. The wages of men with four years of high school actually fell by 21 percent in real terms between 1979 and 1990 [Council of Economic Advisors 1994]. The real value of the minimum wage declined by more than a third during the 1980s [Mishel et al. 1997, 204]. According to Gordon, even after an increase in 1994, the "real value of the minimum wage was almost exactly equal in 1994 to its level at the beginning of the postwar boom in 1948, growing by exactly eight-tenths of one penny over that 45 year period" [1996, 213]. Even during the "boom years" since 1991, real hourly wages have been stagnant for the majority of workers including the bottom 80 percent of men and the bottom 70 percent of women [Baker and Mishel 1995].

Ironically, during this last 20 years, the primary targets of government assistance programs have been the winners-corporations and stockholders-rather than those who are most in need of assistance-workers and the jobless poor. Programs to assist the working and non-working poor have been under constant attack. In 1996, Congress passed and President Clinton signed the Welfare Reform and Budget Reconciliation Act. Federal regulations now require all recipients of Tempo- rary Assistance to Needy Families (the replacement for Aid to Families with De- pendent Children) to work within two years, and all assistance is cut off after 60 months [Burtless and Weaver 1997]. States are free to impose even stricter work requirements and time limits, and several have promised to do so. In short, at the same time that federal and state governments are providing billions of dollars in generous grants and subsidies to corporations with few restrictions or requirements of any kind, these same governments are devising more and more regulations to limit further assistance to the poor. 13

Moreover, throughout the 1980s and 1990s, policymakers in Washington, D.C., have virtually abandoned labor market policies. The few new programs that have been enacted are based on the premise that corporate restructuring is not only inevitable, but ultimately beneficial. Thus, policy proposals that would protect workers by restricting the actions of corporations have been eschewed in favor of programs to mitigate the costs of restructuring or by the economic development programs dis- cussed above. Even programs ostensibly targeted at low-income workers are often simply another benefit program for business: for example, the Small Business Job Protection Act of 1996 established the "Work Opportunity Tax Credit." This is not a tax credit for workers, but a tax credit for employers of up to $2,100 for each worker hired [Runner 1997, 51]. The few proposals aimed directly at restricting the activities of corporations have faced strong political opposition. For example, the Worker Adjustment and Retraining Notification (WARN) Act, which requires cor-




porations to give advance notice to workers when permanently closing a plant, was passed in 1988 only after a long and bitter political battle [Addison and Blackburn 1994]. Meanwhile, the actual impact of WARN on corporate behavior has been minimal, and for the most part labor market policy proposals have not placed any limits on the actions of corporations in their restructuring efforts [Addison and Blackburn 1994]. The only other major legislation on behalf of workers, the Family and Medical Leave Act, which allows workers to take unpaid emergency leave to care for children and parents, was also strongly resisted by business interests before being signed by President Clinton in 1993 [DiSimone 1994].

The relatively modest labor market proposals of the Clinton administration for upgrading the employment service, increasing the number of apprenticeship programs, and providing tax breaks for education and training are all aimed at getting workers to adapt to the existing environment. Exactly how workers adapt to a new labor market offering increasingly insecure employment and little or no upward mo- bility is not clear. Even labor economists are hard pressed to recommend anything more than the old stand-by of "more job training." 4 Gordon [1996, 9] puts it suc- cinctly: "When the going gets tough, the tough get trained." The responsibility for acquiring this training is placed squarely on the shoulders of workers even as the cost of college and vocational training soars. Recognizing that skill requirements can change rather quickly, President Clinton has repeatedly urged workers to make education a lifelong process. While continuing education is a worthy goal, the costs to individuals of training, retraining, and retraining again can be staggering.

The notion that the responsibility for adjusting to corporate and economic restructuring lies with individual workers while corporations are in need of government assistance is an extraordinary but increasingly commonplace belief. This conclusion has been sold to the American public on the basis that workers will even- tually reap some of the gains that are currently going only to executives and stockholders. This argument is increasingly difficult to sustain in the face of persistent wage stagnation. As a consequence, some writers now argue that workers will achieve gains primarily through participation in the stock market [Cramer 1996]; in an apparent admission that many workers have limited prospects, they are now urged to become capitalists. It is true that employee stock option plans do provide some workers with the opportunity to gain through rising stock prices, even as they suffer losses in wages or job displacement; however, the fact remains that the vast majority of stock is owned by a relatively small proportion of the population. In 1989, the top 1 percent of the population in the United States controlled 48 percent of financial wealth 60-year high [Wolff 1995].15 The top 20 percent controlled 94 percent of all assets, leaving a mere 6 percent of financial wealth for the bottom 80 percent of the population.

How can we make sense of these "pro-business" policies as also being good for labor? We must first buy into the notion of the inevitability of market processes for




workers while at the same time ignoring the quite visible hand of government as it intervenes to help corporations. So long as corporate restructuring is depicted as the result of an inevitable and inexorable shift in international comparative advantage, American workers can be seen as competing against a vast multitude of low-wage workers in developing countries who earn a fraction of the U.S. minimum wage [Thurow 1996]. In contrast, highly skilled workers, or to use Robert Reich's fa- mous term, "symbolic analysts," are in relatively short supply and are located primarily in the industrialized countries [Reich 1991]. In short, one must accept that the downsizing, low wages, and job insecurity that have often accompanied corporate restructuring are indeed the result of market forces, technological change, and other impersonal factors.

Conclusion

Corporate restructuring over the past 30 years has not been entirely "inevitable." The vast number of mergers, acquisitions, and plant relocations; the generosity of direct subsidies and benefits to business; the paltriness of assistance to the working and non-working poor; and the distribution of the gains from profits and rising stock prices have not been inevitable, but have instead been the result of policy choices. While a cause-and-effect link between a specific government policy and the after- math of corporate restructuring may be impossible to establish, it seems clear that government has been, at the very least, complicit in bringing about some of the dis- tress caused by the job loss, wage stagnation, and anxiety that has accompanied the era of corporate restructuring.

Notes

1. Conglomerate mergers-the merging of firms in unrelated (more or less) lines of business-were featured prominently during this decade [Williamson 1995, 58-77, 101].

2. Never mind that much of this takeover activity was not simply the smooth workings of the marketplace, but rather the result of greedy maneuverings of corporate raiders and junk bond traffickers [cf. Stewart 1991], with unprecedented levels of corporate debt being in- curred by corporations and huge legal and investment banking fees being garnered by the deal makers [Adams and Brock 1991, 97, 100].

3. See, for example, Mark Miller [1998, 11 ff.] for a provocative discussion of the thinning ranks of media companies.

4. Aggregate concentration is a measure of the share of some aggregate measure of economic activity, such as value added, value of shipments, employment, etc., accounted for by the largest corporations in an economy. It can serve as a rough measure of the social and political power as well as the raw economic power of large corporations. However, as an aggregate measure, it does not measure the extent of market power in particular markets and for that reason, this statistic is not often cited by mainstream economists. See F. M. Scherer [1990, 57 ff.] for a useful discussion. While the data published do not indicate a




trend of increasing aggregate concentration, some authors have argued that, in fact, the largest corporations are growing even larger [Adams 1970, 3; Sherman 1991, 299; Munkirs and Knoedler 1987, 8081.

5. In fact, Thurow and others have argued that in the new globally competitive economy, the United States needs to allow American corporations to merge if necessary to compete on a global scale [cf. First, Fox, and Pitofsky 1991].

6. In recent years, virtually any government program providing special treatment for business has been labeled "corporate welfare" by critics who charge that it represents simply a "handout" to corporations [Bandow 1996; Collins 1996; Huff and Johnson 1993]. The pre- cise amount of such federal assistance available to corporations each year is difficult to determine, since most programs are not part of the annual appropriations process. Indirect benefits to businesses, such as tax breaks or loan guarantees, do not show up as a direct government expenditure or transfer payment in the federal budget. Moreover, the opportunity costs to taxpayers of foregone tax revenues are not systematically tracked by government agencies. Even harder to pinpoint is the value of programs permitting the private use of public resources at little or no cost. In total, recent estimates of the cost of corporate welfare range from $170 to $200 billion each year [Collins 1996].

7. For example, stock prices jumped 48 percent at Lockheed Martin and 80 percent at McDonnell Douglas in one year [Korb 1996].

8. Economic development refers to actions taken by state and local governments to promote business investment.

9. For the most part, the private money was heavily subsidized with tax incentives and fi- nancing schemes [Krumholz 1991; Keating 1997].

10. In fact, Krumholz [1991] argues that rather than bringing economic prosperity to the residents of inner cities, these programs may make the situation worse. Renovation of downtown residential areas leads to gentrification, resulting in a reduction of low-cost housing and displacement of poor residents by upper-income professionals. In addition, tax abatement shifts the tax burden so that the expenditures undertaken by local governments are supported by residents and non-participating business firms.

11. A cynic might of course argue that the extent to which large corporate PACs fund national- and state-level political activities is an obvious indication of complicity. Such smok- ing guns are not easily ferreted out, however; most political scientists explain the privileged voices of corporations in the public policy marketplace solely in terms of the greater access that their higher level of campaign funds affords them.

12. It is striking that this period of high profitability has not been accompanied by high rates of growth and investment. The peaks of the 1960s were attained in a period when the economy was growing at a rate of more than 4.4 percent annually (the rate in 1966 was 6.4 percent); in the current business cycle, the growth rate has averaged just 1.9 percent [Baker and Mishel 1995; Mishel et al. 1996; Mishel et al. 1997, 70 ff.].

13. Welfare reform is predicted to have a depressing effect on low-wage labor markets. An increased supply of workers for low-wage jobs is likely to lead to downward pressure on wages [Blank 1995; Burtless 1995]. In addition, economic development programs for economically depressed areas commonly include wage subsidies [DiSimone 1996]. City and state government programs paying below market rates will also depress wages in the low or unskilled job market.

14. Mainstream economic literature is replete with the idea of a "skills mismatch" as the major labor market problem of the 1980s and 1990s [Gordon 1996]. In this view, the "losers" in the "new economic environment"-the working and non-working poor-are simply plagued by their lack of investment in proper skills.

15. Similar statistics are found in Henwood [19971 and Poterba and Samnick [1995].




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restructuring by design: government's complicity in corporate restructuring

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