Suzanne Berger’s insightful and provocative essay raises fundamental questions about the impact of the past thirty years’ corporate restructuring on the manufacturing sector and the economy. A key theme of her essay is that increasing capital market pressure has led companies to focus relentlessly on core competencies that create the greatest immediate value for customers and investors. Consequently, firms that once were vertically integrated have cast off business units and activities to other companies. These changes “left big holes in the American industrial ecosystem,” leading to under-investment in semipublic goods such as R&D and workforce training.
My book, The Fissured Workplace, complements Berger’s findings. Like Berger, I examine how pressure from public and private capital markets led businesses to shed activities not viewed as core competencies. My research focuses on another troubling consequence: as more activities are discarded, the relationship between manufacturing workers and their employers has unwound. This has had negative effects, ranging from growing noncompliance with workplace laws to widening income inequality.
Relations between manufacturing workers and their employers have unwound.
I liken restructuring to fissuring in geology. The shedding of activities starts in a limited area: cuts in the corporate periphery and functions that were cost rather than profit centers, such as in-house publishing, information technology, human resources, and accounting. Over time, fissuring deepens as tasks judged peripheral to core operations—maintenance, security, custodial care—are cut. It then deepens further to include activities once viewed as intrinsic to the firm’s core competency, so that parts of the production process itself shift to companies that provide labor through a variety of mechanisms. As a result, Apple can be our economy’s most highly valued company while directly employing only 63,000 of the more than 750,000 global workers responsible for making its products, and an iconic company such as Hershey, whose headquarters were once referred to as “Chocolate Town, USA,” now directly employs just a small number of production workers for the final stages of reassembly. As in rock formations, in companies fissuring spreads, moving from manufacturing to sectors as diverse as hospitality, telecommunications, retail, and even law and journalism.
In fissuring the workplace, businesses change what was an organizational relationship—employment—into one mediated by markets. Since fissuring often begets more fissuring, multiple tiers of subsidiary businesses may emerge, each following the detailed standards and deadlines required to deliver the lead company’s products or services. By creating tiers of subsidiary businesses to carry out its activities, the lead business hives itself off from workers. Rather than setting wages for labor it hires directly, the lead business faces a schedule of prices for services it purchases. This has three impacts.
First, subsidiary companies providing services to lead businesses face pressure to reduce costs in order to win work. Since the contracted activity is often labor intensive, the pressure to reduce labor costs is severe. The result may be violations of federal and state minimum wage and overtime standards and other workplace laws.
Second, splintering work activities across companies, often with ambiguously defined responsibility for safety, leads to holes in coordination. This can trigger workplace injuries and fatalities, as documented in a variety of industries such as underground coal mining, petrochemicals, cell tower maintenance, and even retail.
The third implication links the fissured workplace to widening income inequality. Wages set by businesses for their own workforce reflect both economic concerns and fairness norms. If one company employs both a production line worker and the janitor working alongside, the janitor’s wages will tend to be pulled up. This means that integrated businesses share more of their value creation with their workforce through wages and benefits, even in nonunion settings. But if that janitor is someone else’s employee, this link is severed. In the fissured workplace, wage setting is undertaken in many different orbiting tiers surrounding the lead business. And that tends to lower how much of the value created by the lead business is shared with the people who do the work.
Berger writes, “There is no returning to the corporate structures of fifty years ago. The question is how to fix the holes in the U.S. industrial ecosystem.” I agree. Restructuring of the sort described in her essay and in The Fissured Workplace is here to stay. The challenge of public policy is to insure that the public goods that Berger writes about are produced and that the protections embodied in our workplace laws and the gains arising from manufacturing and other industries are shared by stakeholders—including by the workforce that enables the fissured workplace to produce goods and services.