The Invisible Handcuffs of Capitalism: How Market Tyranny Stifles the Economy by Stunting Workers (32 page)

Two years later, Circuit City declared bankruptcy.

Although few companies are as clumsy as Circuit City, ultimately, when faced with often impossible demands, CEOs have few options, except to pass the responsibility on to their subordinates, who then must put pressure on still lower-level employees to meet the looming financial expectations.

One common practice is to create some method to rank the workers and even entire divisions according to a quota, then to eliminate those with a low rank. CEOs proudly announce to the investment community that they are energetically clearing out the deadwood from their corporations, generally unconcerned with the long-term consequences of their actions.

Management by numbers ignores both human costs and the destruction of human potential. Arbitrary quotas might be effective in imposing a superficial focus on corporate goals, but they create counterproductive stress. Even worse, they encourage people to develop strategies to maximize their own position rather than contribute to the business. They also stifle the fostering of creativity and innovation.
Work such as research and development, which does not produce immediate profits but is important for the future survival of the firm, becomes vulnerable.

Finally, managers under intense pressure cut corners to ensure that they make their quotas. They may neglect safety in an effort to avoid falling behind, or they may force people to work uncompensated overtime.

Management by numbers prevents communication between those who sit at the peak of the bureaucracy and those who bear the everyday responsibility, with the ultimate burden falling on the workers, who have virtually no opportunity for redress or to explain how to achieve corporate goals without creating as much hardship for them.

At the same time that giant corporations have attempted to flatten their management structures, they have been making their corporate structure ever more complex by a ravenous takeover and merger wave, not only merging with competitors, but combining across industries. As a result, the distance between top management and ordinary workers continues to become more tangled. Familiarity with work, workers, or working conditions becomes virtually impossible.

Yet, without the slightest hint of irony, the same corporate executives who devise unwieldy bureaucratic structures rail against government bureaucracy (with the exception of the Federal Reserve), calling on government to behave more like business. Perhaps they should look at Huber’s article.

Of course, the most serious costs of financial control are the financial crises that cripple the economy from time to time.

How Rigid Control Paralyzes Creativity

Even a casual consideration of the modern economy should be enough to eradicate any remnant of Smith’s quasi-humanistic vision of markets. Certainly, markets do not offer nearly as much opportunity as Smith would have us believe, especially for workers. Instead, the nature of markets is to demand unquestioning discipline amid the rhetorical celebration of freedom.

Framing the world in absolutes is not a good practice. Freedom is good, but untrammeled chaos is not. Nor is strict discipline a guarantee of success, but cooperation has the potential to produce far superior outcomes than hierarchical control. While too many cooks may spoil the broth, putting a bad cook in charge is not likely to produce an appetizing meal.

Strict hierarchies have a tendency to destroy individual initiative. A perhaps apocryphal story about a famous military episode illustrates the self-defeating nature of strict hierarchies. In 1707, four British warships were returning home after a successful campaign against the French at Gibraltar. A common sailor approached the admiral, Sir Cloudesley Shovell, to tell him that the ships were in danger. Despite the official navigators’ calculations, the sailor, who lived on the nearby Scilly Isles, knew that the ships were not in the open sea because he recognized the familiar smell of the land. For his trouble, the sailor was hanged for insubordination. Because of the navigators’ mistake and the admiral’s discipline, 6,000 men lost their lives.

Procrusteanism does not usually create such dramatic consequences. Most of the damage done by rigid hierarchies comes from the steady accumulation of a series of small errors over an extended period of time. Managers, oblivious to the negative consequences, might believe that their system is a model of efficiency, especially if workers behave obediently. Toyota offers an interesting counterexample.

Toyota treats its workers just as ruthlessly as any successful business.
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It has a reputation for driving employees hard and even, in a few cases, causing death by overwork. Nonetheless, Toyota still offered its workers a modicum of respect, perhaps a residual of Japan’s pre-market traditions. Reports told of cars covered with Post-it notes containing suggestions from workers, many of which proved valuable:

Toyota implements a million new ideas a year, and most of them come from ordinary workers…. Most of these ideas are small—making parts on a shelf easier to reach, say—and not all of them work. But cumulatively, every day, Toyota knows a little more, and does things a little better, than it did the day before.
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In the United States, an employer offering $50 rewards for workers’ suggestions is unusual enough to merit an article in the
Wall Street Journal
.
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Such token payments are less important than the implicit concession that workers are intelligent beings with much to offer. For a hardened Procrustean, that cost is generally too much to pay.

Motivated workers do much more than just suggest better options for managers. Their expertise can make a significant difference in the production process. For example, in coal-fired electrical plants, where fuel makes up a disproportionate share of the cost of production, a skilled operator can increase fuel efficiency by as much as 3 percent.
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A major study on productivity in U.S. industry compared the contributions of workers in the Italian textile industry with their counterparts in the United States:

In Italy we observed highly trained loom operators working together with fabric designers to exploit the technical possibilities of the loom and to dream up new products. In the United States we heard a prominent textile manufacturer boast that only the top manager in the plant knew how to set up new looms and that the operators, “guys down from the hills who are good at fixing cars,” did not need any special training to work on them.

The report concluded:

By defining jobs narrowly and making each job relatively easy to learn, American industry pursued flexibility through interchangeability of workers with limited skills and experience rather than the cultivation of multiskilled workers. Employees could be hired and fired with the ups and downs of the business cycle without much loss of efficiency. The result was a progressively narrowing of worker responsibility and input and the tendency of management to treat workers as a cost to be controlled, not an asset to be developed.
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This description of practices in the United States is in line with Smith’s version of the division of labor: management more or less distributes
workers to their appointed task and within any particular job each worker is identical to the others. These workers are expected to follow orders and do nothing else.

The Obsession with Rigid Control

Procrusteanism protects itself by reinforcing class divisions that benefit capital at the expense of labor. The disrespect that management shows workers is replicated within the managerial hierarchy. The many layers of hierarchy further complicate the dissemination of information about potential opportunities.

Individual capitalists might profit by making their own hierarchies less rigid, yet management identifies so strongly with Procrusteanism that it becomes unable to recognize its own self-interest. The self-identification with power and authority makes any relaxation of Procrusteanism threatening.

The Toyota example suggests that taking workers seriously enough to listen to their suggestions might pay healthy dividends, even for a Procrustean firm. The problem is that Procrusteanism creates a system of social relationships that prevents management from seeing workers as anything more than living implements. From foreman on the shop floor to the highest levels of management, people take comfort in their own status relative to those below them.

Fear that cooperation might prove more efficient than hierarchy can make management tighten its traditional techniques of control. A dramatic example illustrates the obsessive lure of absolute managerial control. Shoshana Zuboff, a professor at the Harvard Business School, reported on her experience as a consultant for paper factories during the 1980s when computer controls were first being introduced in the industry. In one factory, which she called Tiger Creek Mill, everybody initially had access to the new computer system—even the workers on the production line. Workers could see the same information on costs and prices as management. At first, the workers used their newfound information to make profitable modifications in the production process.

Economic theory and business logic would have us expect that management would reward these workers for their contribution to the profitability of the corporation. Instead, management, horrified by the possibility that workers were going to make managerial control at least partially irrelevant, quickly cut off the workers’ access to the system.
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Such sharing of information should be a high priority in any organization in which information is supposed to be a central input. Besides, sharing can stimulate productivity in other ways. Stanford professor Jeffrey Pfeffer made the case that sharing information can improve the level of trust in the workplace:

Sharing information with another party signifies trust. That trust is likely to be reciprocated. Conversely, when a company keeps secrets from its employees it signals it does not trust its employees to keep secrets or to use the withheld information effectively. Those feelings of distrust and disdain are also likely to be reciprocated…. Decentralizing decision making also signals trust and a belief in employees’ competence, again engaging the norm of reciprocity.
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Sociologist Richard Sennett reported on his own experience, witnessing the importance of trust firsthand:

I witnessed the strength and weakness of informal trust in two industrial accidents separated by thirty years. In the first, in an old-style factory, a fire burst out, and the circuit of fire nozzles turned out to be broken. Line workers knew each other well enough to decide who could do what. The managers squawked out orders, but in the emergency nobody paid attention to them; damage to the plant was soon brought under control by a strong informal network. Thirty years later I happened to be in a Silicon Valley plant when the air-conditioning system began sucking in rather than expelling noxious gases, an unforeseen design disaster in this high-tech building. The work teams did not hold together. Many people dangerously stampeded for the exits, while others, more courageous, were at a loss as to how to organize themselves. In the aftermath, the managers, many of whom had responded well, realized that this plant of
thirty-two hundred people was, as one said, only “superficially organized on paper.”
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Unfortunately, as the Tiger Creek incident suggested, control seems to have more allure than profits. The exercise of power and control becomes a major source of enjoyment in itself, over and above providing a defense of existing privileges, just as it did in the automobile factory where Bill Watson worked.

Sennett recognized the importance of a deeper level of trust than management sharing information. The trust he encountered was not workers trusting management, but trusting each other—finding collective power.

Think back to Jacob Riis’s image of the stonemason hammering away until the extraneous rock is ready to fall off. Permitting too much trust and too much respect threatens the whole edifice of Procrusteanism. Many employers reason that it is better to forgo some immediate profits than risk the irruption of a whole new system of social relations.

A hint of the potential of collective power comes from the open-source movement, where thousands of programmers voluntarily contribute to the growing mass of software. Some people have the responsibility of coordinating these inputs but nobody really commands the programmers, who are all volunteers. Yet the open-source movement manages to produce software that is generally superior to the products of the mammoth Microsoft empire.

I have been unable to find how many people work on Microsoft’s Internet Explorer. To give some idea of Microsoft’s scale of operation, the company added 11,200 employees in 2008.
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The tiny Mozilla Foundation, with a mere 175 employees as of late 2008, coordinates a number of important software projects, including the web browser Firefox, which most experts regard as superior to Microsoft’s Internet Explorer.
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Microsoft has many more projects than Mozilla, but the manpower devoted to its browser must be many times more than Mozilla employs. Microsoft ends up following Mozilla’s lead in many important respects.

So, in the end, crude techniques of control might be able to force outward compliance, but ultimately they are unable to harness people’s full potential. Frederick Law Olmsted made the same point regarding slavery, but he never connected his insight to what was going on in the Northern states. The more general lesson is that nobody can make another person work effectively, even at the point of a bayonet—especially if that work requires any skill or discretion.

Floggings Will Continue until Morale Improves