‘The End of Loyalty’: Shock and Awe for Many American Workers

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Rick Wartzman discusses his new book: The End of Loyalty, The Rise and Fall of Good Jobs in America.

the-end-of-loyaltyThe previous generation of American workers had a different relationship with their employers than the workers today. Many skilled-labor employees stayed with one company for the long haul, earning solid wages, good benefits and a pension in exchange for loyalty and hard work. But those days are long gone, notes Rick Wartzman. The reduction in salaries, retirement, health care and other perks has prompted a breakdown in the relationship between employee and employer, a problem that Wartzman focuses on in his book, The End of Loyalty: The Rise and Fall of Good Jobs in America. Wartzman, a Pultizer Prize-winning former journalist who is a senior adviser at the Drucker Institute, joined Knowledge@Wharton to talk about the new state of the American worker on the Knowledge@Wharton show, which airs on SiriusXM channel 111.

An edited transcript of the conversation follows.

Knowledge@Wharton: Do you expect that this relationship between employee and employer is going to continue to have this divide?

Rick Wartzman: There are a lot of pressures that we’ve seen building over the last 30, 40 years, and I don’t see them abating anytime soon. Everything from the pressures of automation and technology, globalization and the decline of unions. We now have less than 7% of the private-sector workforce in America that is part of organized labor, which served as a great counterbalance to corporate power through the 1940s, 1950s and 1960s. That’s no longer there. Also, there’s this incredible pressure to maximize shareholder value, pressure from Wall Street that has explicitly put stockholders above all other stakeholders, including workers. I don’t see any of that changing anytime soon, unfortunately.

Knowledge@Wharton: When did this shift kick into gear?

Wartzman: You can see it really kick into gear in the early to mid-’70s. There were some big shocks to the U.S. economy that exposed a lot of fundamental weakness that had built up in previous decades. That left a lot of companies scrambling and their workers in a much worse-off place. A lot of the downsizing that followed those things never reversed. So, that was the big shock.

What surprised me in doing the research in my book — and my narrative arc goes from the end of World War II up until today — was how these pressures actually started building much earlier than I imagined. The social contract, as I describe it — job security, pay, health care benefits provided by companies, good pensions — those things were still sort of improving and on the upswing through the 1950s and 1960s. But by the late 1950s, the early seeds of the unraveling of the social contact were already being planted.

“Corporate culture is a kind of reflection of our national culture and societal norms.”

Knowledge@Wharton: Is it partly that as the generations have changed, so have the expectations?

Wartzman: I think very much. One of the other things that really jumped out at me in doing the research was how much cultural norms have shifted in America, and in turn how much corporate cultural norms have shifted. Corporate culture is a kind of reflection of our national culture and societal norms. You had a generation that came through the Great Depression and World War II and there was definitely much more of a “we” mindset, we’re all in this together. I think there’s much more of an individualistic, “I” mindset that began to set in by the 1970s, 1980s and prevails today. That’s certainly part of what’s going on here.

Knowledge@Wharton: What impact did the recent recession play on the narrative that you’re bringing forward in the book?

Wartzman: Again, it sort of exacerbated a lot of the anxiety that workers had. One of the phenomenon that we have seen is that for the last three recessions, you’ve had this so-called jobless recovery. What used to happen is that there would economic ups and downs, normal fluctuations in the business cycle. When businesses would lay people off, they would typically bring them back to their factory jobs when business recovered. In fact, it wasn’t until the mid 1980s that the Department of Labor began to even track what it called displaced workers.

Beginning in the 1980s you began to see massive downsizing that really picked up in the 1990s. And then each recession becomes something where employers are not looking to bring folks back after the economy recovers. They restructure in the interim and realize, we can do more with fewer hands. And those jobs often never come back.

Knowledge@Wharton: Then is the goal now of both business and government to try to avoid recession?

Wartzman: Maybe. I’m not an economist. I’d leave that to brighter minds at Wharton and elsewhere. What I can tell you as a historian is there have been times where people in Washington, particularly, think that they’ve licked the business cycle. They’ve figured out how to conquer recession and through the levers of fiscal and monetary policy make it so that recession won’t ever come again. And it always comes again, or at least it always has come again. I’m skeptical that we’ll ever be able to reverse that. History just suggests otherwise.

Knowledge@Wharton: In the book, you look at these issues surrounding the labor force and jobs through the eyes of four well-known legacy brands over the last 70 years: General Motors, General Electric, Kodak and Coca-Cola. Why those four?

Wartzman: I picked those four companies for a couple of reasons. One is my book starts in 1943, shortly after the founding of an organization called the Committee for Economic Development. The CED is still around today. It’s part of The Conference Board now. But it was a leading business voice, along with the National Association of Manufacturers and the U.S Chamber of Commerce, back in the 1940s. But it was a much more moderate voice in terms of its politics and ideological orientation than some of the other more hard-line business groups. At the end of World War II, the leaders of the CED set out a vision for what America should look like in the post-war economy and society.

“We have moved from a blue-collar society to a knowledge society, a knowledge economy.”

Those four companies were all instrumental in the founding of the CED. Just as a narrative device, it was a great place to begin with these titans of industry who led the companies back then. I have them begin the book and lay out their vision for what America should look like.

Knowledge@Wharton: Let’s start with Kodak. If you go back 40, 50 years, it was as powerful and strong a company as there was in the United States. Their attempt to transition to the digital economy failed. Is that the biggest element that really impacted Kodak?

Wartzman: It was, ultimately. Kodak is credited with inventing the digital camera but could never quite wean itself off film. I talked to a number of former executives there who said that the fat profit margin of film was like a narcotic. The money was just too much coming in from film while they had that business, until it was no more. Suddenly, they looked up and it was no more.

Historically, the interesting thing about Kodak is that it’s one of the companies that was never unionized. They practiced what was termed “welfare capitalism,” and their notion was to lavish great pay and great perks on their very large workforce at the time. This was done with a variety of impulses in mind. One was because there really was this ethic that I described earlier where employers wanted to give more to their employees. They felt a measure of loyalty to them and expected loyalty in return. There was also an attempt to keep unions at bay. Kodak wanted to do this by making it so that there was no need for a union. We pay our people great and give them great benefits. Who needs these organized labor folks around?

Knowledge@Wharton: Give us the story from the Coca-Cola perspective.

Wartzman: Coke is interesting. It is headquartered in Atlanta, Georgia. It’s essentially a giant advertising agency branding firm. In terms of workers, the real action occurs at the bottling plant level. There has been union activity over the years, mostly with the teamsters. The real pivot point in the book for Coca-Cola comes under the leadership of Roberto Goizueta, who ran the company from about 1980 to the late 1990s when he died. He was hailed as a great CEO and certainly did an incredible amount to lift the value of Coca-Cola’s share price. But I use him as a way to focus on this pivot, which again I see is really key in this whole story to how we have gone to put maximizing shareholder value above all else, including maximizing investment in our workforce.

Knowledge@Wharton: GM is one of the remaining legacy brands in this country, even though it went through the recession and then the ignition switch recall. Give us the perspective of GM in this.

Wartzman: GM in some ways was really the paradigm American company and the world leader as a corporation for a long time, certainly through the 20th century. It had incredible benefits. It had incredible pay, largely at the frontline level through the power of the United Auto Workers. I really use them to talk about the importance of unions, of organized labor in the rise of the social contact between employer and employee.

It’s important to note not only at companies like GM that were heavily unionized, but when the American workforce was 25%, 35% percent unionized in the private sector, there was a tremendous spillover effect. It wasn’t only unionized workers who benefited, but it was also workers at companies that weren’t organized and white-collar labor as well. They were all lifted up by the tremendous power and this collective voice and countervailing force to corporate power that unions had.

Knowledge@Wharton: It almost makes you wonder if the auto industry is going to be the last of the unionized industries in the United States.

“Each recession becomes something where employers are not looking to bring folks back after the economy recovers.”

Wartzman: Yes, absolutely. Although there have been big shifts, certainly at GM and elsewhere. They moved to a two-tier wage structure. Even unionized workers at GM found themselves in a position that they had never been in before, which was that even full-time auto workers were in some cases struggling to make ends meet. Those used to be tremendous jobs, and they still are relatively good jobs compared to many in the service sector, but they certainly aren’t the jobs that they once were.

Knowledge@Wharton: Should General Motors take the most strong view of what happened to Kodak in terms of the shift to the digital world? There seems to be opportunity for the auto industry to be more automated through robotics and such

Wartzman: Absolutely. GM, like most major companies, has certainly done a lot to automate over the years. Its workforce has shrunk considerably. It once had 700,000 employees. It was a giant, giant company. It is a small fraction of that today in terms of its employment, and that’s for a variety of reasons including all the financial troubles it had. But certainly automation is a big piece of that, and that was already happening well before its bankruptcy.

Where I think you are seeing a shift at GM, if you talk to executives there now they would describe themselves as a mobility company. Ford does this, too. They just had a shakeup there in this regard. But GM would say, “We’re a mobility company,” and they’re certainly looking to autonomous vehicles, for example, as a big part of their future. I believe they owned a chunk of Lyft now, so they’re trying to move with the times.

I looked at all four of these companies, took a deep dive over this long, 75-year historical arc, and you had two of them — Coca-Cola and General Electric — that have done quite well over a long period of time. And you had two that out-and-out struggled with Kodak and GM, although GM has come back some. It doesn’t matter whether they were the huge successes over this time in GE and Coke, or the ones that really hit hard times and hit bankruptcy in terms of Kodak and GM, the story for their workforce is pretty much the same. It doesn’t matter whether they were riding high or riding low.

Knowledge@Wharton: GE went from a company that had such a big retail element in terms of lighting to looking at energy and other opportunities. That’s as big a shift as any of these companies have made.

Wartzman: One of the things I greatly admire about GE is its ability to reinvent itself over a long period of time. It seems like every leader, every CEO has been able to do a really excellent job of this. Some have pushed on it harder than others in terms of disrupting themselves, but certainly Jeff Immelt [who just announced plans to retire] is doing a lot in terms of becoming much more of a digital company centered around the internet of things. He’s clearly an admirer of what’s going on in Silicon Valley and has based a bunch of operations there to draw on digital technology and be part of that world. You have to admire them for that.

What GE represents in the book is another shift, and that is they have more workers abroad now than they do in the U.S. I’m not condemning these companies for any of this. It makes sense why GE is serving so many people abroad. That’s where its customers are. It isn’t going there, in most cases, just to chase cheap labor. It’s going there because that’s where its markets are. I totally get that. I’m not saying we shouldn’t automate or advance technology. That’s how we move forward as a society, how we increase productivity, which is a key to raising living standards over time for everybody. I’m not saying that they’re the wrong direction to move in, but there is a cost that comes with it, and we’ve certainly seen that in terms of the rising anxiety and anger of a lot of working folks.

Knowledge@Wharton: One of the men before Jeff Immelt was CEO Jack Welch. What role did he play in this process?

Wartzman: He was a huge figure in this kind of national narrative. I got to spend some time with Jack Welch, which was quite a treat. He was the one who really shook up a hidebound, bureaucratic General Electric and made it much more nimble. There were some great things that came with that. He really empowered workers, including those down on the front lines, to offer up their ideas, and he made GE much more a meritocracy. He also shed a lot of bodies in the process. By one count, as many as 170,000 jobs were lost under his time as GE’s leader, and that earned him the moniker Neutron Jack because supposedly just the buildings were left standing after he was done.

Knowledge@Wharton: In general, when you think about the relationship between employee and employer? Are employees more savvy about watching out for the pitfalls than they were 30 or 40 years ago?

Wartzman: I think there’s a deep split on that question. One of the other things that you’ve seen in the big trends over this 70-year arc is that we have moved very steadily from a blue-collar world. Even though only about 30% of the U.S. workforce had factory or blue-collar jobs back in the 1950s, that was still kind of the ethos in America, if you will. We were oriented in that direction. It was a big part of the culture. The magic of those jobs for folks was that you could get one of those jobs and have a path to the middle class with relatively little education and few skills. That doesn’t work anymore.

We have moved from a blue-collar society to a knowledge society, a knowledge economy. So we have this incredible divide. If you go to school, if you get a degree, chances are you’re going to be OK. There are a lot of questions now about whether a college degree pays off, and a lot of young people are carrying a lot of debt. Those are real issues. But by and large, all the evidence shows that if you’re college educated you’re going to do fine in this knowledge economy.

But you have to remember that more than half of adults in America don’t have any post-secondary degree, not a college degree, not a community college degree, not a technical certificate of any kind. The real question is what happens to them? What do they do in this knowledge economy? I don’t see that they have many choices. I don’t think they can say, “Well, my factory’s about to close, I’m going to move over here.” Move over where?

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