What's Ahead for Labor?

In the June issue of the ATLANTIC, John R. Bunting reviewed the changes taking place in the basic structure of our economy and described what businessmen must do to meet the challenges brought about by these changes. Now we turn to NEIL W. CHAMBERLAIN, professor of economics at Yale, for an assessment of what the labor unions must do to adapt to the current asset revolution.

neil W. Chamberlain

THE constancy of change in our society creates inevitable insecurity. There is less that one can hold on to, whether in the realm of personal beliefs or bodies of professional knowledge, or in the realm of corporate market position or individual job tenure. We must learn to deal with change if we wish to survive, or at least if we wish to survive well.

Strangely enough, although it is management which speaks most conservatively, it is management which has learned most effectively how to come to grips with change in its own sphere of activity, the world of business. To put it briefly, management no longer conceives of itself as running a furniture business or an automobile plant or a meat-packing establishment or a chemical works; it views itself as managing a bundle of assets which may take one form today and another tomorrow.

This change in outlook is partly a product of, and partly gave rise to, the systems of corporate planning and budgeting which are developments of the last few decades. The notion that management can set a target for itself, usually in the form of a rate of return on investment, and then plan and manipulate its operations in order to come as close as possible to that goal, is an idea of such recent vintage that it is still far from standard practice. But among the corporate leaders it is gospel, and the planning goes on with respect not only to the year’s current operations but to the firm’s fiveto ten-year future.

The budget — that homely device matching outgo against income — has been converted into a highly sophisticated instrument for ensuring that plans do not remain dreams because they lack resources for their accomplishment. The budget is the mold in which plans are cast. It is an elaboration of the planned composition and level of the inflows and outflows of funds on the strength of which the company’s goal can be achieved.

This planning-cum-budgeting requires a time horizon which extends into a virtually indefinite future. A business firm assembles and nurtures assets which grow over the years, and the uses of which vary from year to year and decade to decade in response to changing tastes, population shifts, market structures, production processes, and inventions. The use of almost any company’s assets is quite different now from what it was ten years ago and from what it will be ten years from now. A company may thus be viewed as a bundle of assets which are frozen in one form today and which it is management’s job to metamorphose into a continuingly different form as time goes by. If it fails in this task, the bundle of assets which it is managing lose their value.

In effect, what happens is that management freezes (that is, invests) funds in certain forms for specific purposes. These frozen funds are becoming liquid all the time as inventories are liquidated, as credit is repaid, as depreciation reserves accumulate, as earnings are retained. And management must make decisions all the time as to whether the assets which have become liquid shall be frozen into the same forms again or into new forms.

Sometimes the decision is relatively routine. If inventories become depleted of a product for which sales are brisk, it takes no soul-searching to decide whether to replenish them. But at other times the problem is more difficult. When an old piece of machinery has put in its time and has to be relegated to a standby role or scrapped, should the company buy another like it? The chances are that it could not do so if it wanted to, since technological improvements will have taken place. But even if it could, rival machinery producers or the company’s own engineers may have other ideas as to how the job of the old machine can be done better. What form shall the replacement take?

Complicate the problem further. Should the machine even be replaced? Perhaps technological change has so outdated the whole production process that it is preferable to scrap not just that piece of equipment but the whole process, substituting a more efficient one. To carry that off effectively, it might be wiser to build a whole new plant. But if the company is to build a new plant, it does not have to place it in the same location; it might be more efficient to move it closer to a shifting source of materials or a shifting outlet for sales.

The alternatives do not end there. If a firm is going to invest in a new plant and a new process, perhaps it should use these for a new product. How much longer will the product in question remain profitable before being outmoded by something else? Perhaps the company had better consider putting its resources into something with a longer potential life.

We could multiply the questions which management must answer as it determines over and over again the form in which assets now liquid (through the sale of goods and the return of once-invested capital, through loans, through new equity issues) shall be freshly frozen. The answers to these questions relate to different points in the firm’s future, The decision to invest in rebuilding inventories is one that affects operations in the next few weeks. Equipment replacement may be a matter of months. Process substitution may take a year or two. New-product development, at least as long or longer. The location of a new plant takes at least three years, more likely five to ten. And all these things are going on simultaneously. The decisions relating to projected actions at various points in a firm’s time stream must all find room in the company’s plans and must be incorporated into its budget — given concreteness by having resources allocated to their phased accomplishment.

Much more could be said about new approaches to management, but perhaps this is enough to convey the sense of what may be reasonably termed the “asset revolution.” Compare this relatively abstract view of a business firm as a bundle of assets whose form and function must be continuingly modified with the more romantic and increasingly obsolete view of a business firm as identified with some product, some brand name, some location, even some family.

BUT it is that romantic and increasingly obsolete outlook, in their own sphere of activity, which still characterizes the labor unions. The assets which they are managing are the skills of their members. The function of the unions is to preserve the value of those assets, and to secure for their members a favorable rate of return on them. But the approach which they adopt is old-world and out-of-date. They look on the skills of their members not as something whose value can be retained only by constant adaptation and transformation, but as representing a more or less fixed set of characteristics whose value can best be assured by trying to preserve work opportunities making use of those characteristics. They still look to work rules, which require so many workers or certain types of workers for given functions, or rules based on “past practices,” or rules preserving job “rights” through such devices as seniority, as the principal means for shoring up the worth of their members’ skills. When these fail, they turn to shorter hours as an instrument for spreading the available work.

This old, familiar craft-oriented approach denies change rather than adapts to it. It regards the assets of union members in the same way that an old family firm might have regarded its business assets — frozen in a particular form, designed to do a particular job, seeking markets as long as there are markets, and fatalistically failing if and when markets dry up.

The asset revolution has not yet touched the unions. When it does, as it must in time if they are to survive, they will be driven to adopt the same asset orientation that management has learned to live with and profit from. The lifetime careers of their members will be recognized as something for which short-run and long-run plans must be made. They will anticipate the obsolescence of skills — before obsolescence has destroyed the value of existing assets — by planning for a continuing metamorphosis of old skills into new. This can be done only by explicit attention to career development through programs designed to upgrade the general abilities and specific qualifications of their members. They will recognize that their members’ welfare is not secured by attempting to hold on to present rights, growing out of past service, but by projecting a present position into some competence to be realized in the future.

The present improvisations which are intended to preserve the value of skills by hanging on to diminishing work opportunities will be recognized for the Canutelike efforts which they are. The desperate search for ways of retaining market outlets for job abilities which are less and less wanted and needed will give way to a more rewarding examination of ways in which on-the-job training can be coupled with off-the-job educational opportunities to give their members qualifications which are continuously in demand.

This type of career planning costs money and means that unions must sell their membership on the desirability of substituting for the now relatively meaningless money demands on managements the much more significant demand for the financing of training programs, over the nature of which the unions would negotiate and, if need be, strike. The drive for shorter hours would suddenly acquire new meaning when coupled with study and training for future advancement. Shorter hours employed in this fashion would not be just a costly way of spreading work but a self-financing means of increasing productivity.

How far the unions are from such a way of thinking is neatly demonstrated by the “revolutionary” concession of a three-month vacation which the Steelworkers won in last year’s negotiations. In accordance with time-honored custom, the vacation bonus went to the employees with the longest service. The upper half of the labor force, in terms of seniority, were to enjoy the three months of leisure every five years. The new fringe benefit was trumpeted as creating additional work opportunities for younger men who would take their places.

If the Steelworkers had been thinking in terms of asset management, however, they would have sought released time for skill upgrading rather than for vacation. Recognizing that older employees who have lost the habits of study would be less likely than younger workers to benefit from a training program, they would have given the opportunity to those who would gain most from such exposure, regardless of seniority. They would have recognized that the additional work they were cadging for younger employees had little or no relevance to their long-run earning opportunities, and no significance in terms of providing security through an improvement of their “asset structure.”

To be sure, political realities may force a union to modify a position which it would prefer to adopt. Union leadership cannot force a point of view on a reluctant membership. Senior employees, for example, may be in a position to exact some advantage for themselves without respect to the organization’s preferred program. Nevertheless, good management would call for a clear distinction between what is desirable and what is expedient or necessary. Unless such a distinction can be made, there is no possibility of bending the latter in the direction of the former, or even of knowing in what direction the leadership should seek to lead.

AT THE present time unions have no evident sense of direction. They are looking for ways to meet the growing sense of job insecurity on the part of their memberships, but are experiencing an increasing sense of frustration at the lack of success of the relatively minor measures they have been able to provide. The exaggerated boasting over the importance of some contract term which they have won from management is betrayed by their shrill criticism of government and the intellectuals for failing to come up with programs which will provide genuine and long-run job security.

Admittedly, they cannot meet that problem alone. Admittedly, the government has a role to play which it has so far played rather badly. Admittedly, the intellectuals have been less inventive than society, including the unions, might reasonably expect. But the unions cannot put the entire burden on others. They are themselves woefully behind the times, running their affairs with approximately the same skill as a family concern might have been managed two or three generations ago.

Not until they catch up with the idea that change not only creates problems but also offers opportunities. which can be realized only by proper management of assets, will they and their members be able to face the future with some assurance. The skill of their members is not only something which can lose its value, but it is also something whose value can be increased, with proper management, The rate of return on the assets of their members — the qualifications which they bring to their jobs — can be improved by upgrading the quality of those assets more than by trying to extract a few additional pennies an hour for unchanged assets which technological change is rapidly obsolcscing.

It takes programs and planning to move in that direction. It takes a radical reorientation in the thinking of leadership and membership alike. Undeniably it is easier to proceed along familiar patterns, shutting one’s eyes to the inevitable outcome or placing the blame on others. But until genuine career planning for the future substitutes for makeshift efforts to hang on to present job opportunities, the unions will continue resolutely to face the past. Their time stream will continue to flow in the wrong direction.

It would be uncharitable and unhelpful to criticize labor for its failure to manage its members’ assets with more insight and purpose without at the same time recognizing that in certain ways labor has a more difficult job than the managers of business assets. The new breed of corporation executive being spawned by our business schools has been taught to regard administration as its profession —■ administration in itself, not the administration of a steelworks or the administration of a power plant or the administration of a shoe factory, but the administration of anything. It is easy for a McNamara to make the transition from the Ford Motor Company to the Department of Defense because the Harvard Business School has taught him that this is simply part of a career line.

There is really no parallel career concept in the case of the average worker. When his job as tooland-die maker or foundryman or miner disintegrates before a technological onslaught, it is hard for him to cease to regard himself as a diemaker and to learn to think of himself as, say, a computer programmer. There is no continuing career line, but rather a career break.

Some present jobs, it is true, may lead naturally into evolving future opportunities. For example, younger electricians have occasionally learned electronics and gone on to better jobs, sometimes with the assistance of their union, in one of the few instances of genuine asset management on the part of a union leadership. But by and large, old jobs do not metamorphose so neatly into new professions. New functions must be learned to replace those that are being outworn. Basic skills may be transferable or upgradable but do not offer the substance of a career line. There is an emotional wrench in abandoning what has come to be one’s occupational way of life.

This tie to an occupation, the identification of one’s self with a bundle of job characteristics, is part of the fabric of the economic society which is passing, and it will unquestionably complicate the asset management of a union official. Part of his problem is to induce in his members’ minds the notion that in their lifetime they may have to develop new career lines, and sometimes change career courses, but that this possibility holds out promise and fulfillment as well as challenge and risk.

The new approach to a person’s career must in time supplant the increasingly romantic notion that a person is a garage mechanic or a postman or a newspaper reporter. It will not be easy to fix the idea that occupationally a person never is, in any continuing sense, but is always becoming. Until that career concept is generally accepted, the union official who attempts to perform like an asset manager can expect bitterness and frustration. Nevertheless, he will have two influences working on his side. First, the pressure of circumstance, the prevalence of the fact of broken careers, will temper workers to the need to plan for such eventuality. And second, in time our school systems will incorporate the ethos of our changing economic society into classroom instruction. Workers will then mature conditioned to accept change as part of a career pattern, just as managers have been conditioned by the business schools to that expectation.

Unions face a more difficult problem than business managers do in another respect. It is easier to shift plants than people. Plants do not form communities, but people do, and they become attached to them, so that movement is referred to as “uprooting.” This is perhaps a more tractable matter, however. Here the problem is basically government’s, not the unions’. A full-employment economy which offers good jobs to all comers will reduce the fear of movement. It will be easier to pull stakes because mistakes can be corrected by pulling stakes again. And area redevelopment programs, of the sort with which we have lately begun to experiment, can be expected to assist in situations where whole communities fall under the shadow of a declining industry.

Let us recognize, then, that our unions have a difficult job on their hands even when they have stopped playing Rip Van Winkle. But let them recognize that aid and comfort will be more readily forthcoming when they cease to rest their long-run policy on premises such as railroads need firemen on diesel engines, or preassembling parts constitutes a violation of some social commitment to continued hand assembly.

If the unions are to survive as active agents rather than as a resistance movement, it is up to them to take the initiative in the effective management of the assets of their members. In doing so, they may appropriately put pressure on government to come forward with facilitating measures, but it is the essence of their function to supply the direction and the leadership.

Management, too, has a stake in whether the unions decide to join the asset revolution. If the labor movement proves unable to adapt to the needs which the processes of change force on our industrial society, and widespread insecurity is the companion of progress, we can be sure that pressures on government for more radical solutions will not be wanting. Perhaps it is time that advanced managements — advanced at least in this respect, since they, too, have their own areas of backwardness — lend technical assistance to the underdeveloped union organizations. Joint exploration of the potentials and limitations of private planning for career advancement may be doubly rewarding. The future not only of unions but of private enterprise may be at stake.