A Window on the Future

January 1 st 1996

However important the recent changes in the labour legislation of Ontario have been (see WRF Comment, Autumn 1995), even the most enlightened labour practices are no longer central to the future competitiveness of Canadian businesses. Rather, labour relations are only one aspect of a larger challenge. Indeed, the challenge to compete profitably in a cut-throat world of globalizing industry and commerce no longer lies at the level of the enterprise. Instead, competition depends on the quality and performance of local industrial communities, communities that see themselves as competing with similar communities both in their own countries and elsewhere. Rosabeth Moss Kanter's World Class: Thriving Locally in the Global Economy (New York: Simon & Schuster, 1995) showed a timely recognition of this fact.

In such communities business enterprises compete with one another, but they also cooperate. They rely, as well, on the active cooperation of all of the other "estates"—governmental and civic actors, educational and training centres, the voluntary sector, and even cultural organizations, not to mention labour representatives. To the extent, however, that labour relations will continue to be relevant, the unfolding scenario will require a much higher degree of sophistication from all participants than has been the case so far. If the concerted efforts of an entire community become the focus of attention, the managers and the employees of any one enterprise will be less preoccupied with themselves as it becomes more important for all members of the enterprise to be informed about the needs and opportunities in the community as a whole.

The global environment

How did this situation, a relatively new situation, come about? One reason—a rather obvious one—is that freer trade and the spread of technical knowledge around the world have made production and business enterprises far more footloose. Another reason is the growing tendency for businesses to enter into alliances and contractual arrangements to permit producers in other places to supply required inputs at highly competitive prices. A book publisher may spread its typesetting, proof-reading, printing, and binding tasks over several countries. Many high technology firms have their software programs written in India. Rather than maintaining a typing pool in New York, some legal firms in that city have begun to use satellite linkages to dictate office correspondence to typing pools located in China. From there the results are transmitted back to and printed out at the desk of the originator.

Alternative suppliers of goods and services are no longer confined to the more familiar "newly industrialized countries" such as Korea, Thailand, Hongkong, Brazil, or Taiwan. High-class and expensive men's shirts on sale in Ottawa come from the tiny island of Mauritius in the middle of the Indian Ocean. The Chinese province of Guangdong is emerging as a powerful competitive threat to the older industrial countries, and a surprising variety of well-made Chinese manufactures are finding their way into North American markets at unbeatable prices, ranging from measuring tapes to brass padlocks to cooling fans to telephones to first-class electronic answering machines.

Similar concerns account for nervousness in Canada about the future role of Mexico in a North American Free Trade Area, especially after the devaluation of the peso. For their part, members of the United States Congress are even complaining about the low level of the Canadian dollar.

But an even more serious challenge to conventional labour relations has emerged as a result of the fact that international monetary flows have escaped the control of either national governments or international institutions. They can no longer dictate interest rate levels. A major reason is that investors will not supply capital to businesses if those businesses cannot offer a rate of return on productive capital (a net profit rate) that is at least equal to the returns yielded by other financial assets such as government bonds—and with an additional premium to compensate for the risk factor. Hence it may not have been surprising to learn that in March 1993, for example, foreign investors bought $9.5 billion of Canadian government bonds and $1.6 billion of short term money market instruments, but that less than $ 1 billion was invested in Canadian company stocks. (In the first quarter of 1993, Canadian institutions sold $22 billion of bonds to foreign "investors.")

In other words, the employers of Canadian workers are learning a lesson which is also being painfully acquired everywhere else in the industrial world: "Capital costs (reflected in the interest rate) may well become much more important for business decisions than labour costs." Stated differently: If an employer cannot produce a net profit rate which is at least equal to prevailing interest rates, plus a premium, that employer must either move his business to a place where all other costs, including labour costs, can be driven down to the requisite level, or go out of business.

The labour component

In the environment broadly sketched above, it will not even make sense any more for a company simply to follow the old strategy of combining skilled and unskilled labour in different parts of the world in order to minimize the labour cost component; "For, compared with capital costs labor costs play a minor role in corporate calculations."

The shrinking labour component of production is reflected by the extraordinary flood of news items reporting huge (apparently permanent) layoffs by corporations across the world. This has now been going on for close to a decade. During the first half of the decade of the 1980s, the Fortune 500 companies in North America had already shed 2.2 million workers. Between 1981 and 1986, one company (General Electric) reduced its work force by 100,000 people. So it is worth remembering that the current flood of lay-offs across the world is not new.

Over the decade preceding March 1993 (according to the Wall Street Journal), the 500 largest manufacturers in the United States had slashed nearly four million jobs. The process is simply accelerating. In fact, direct labour as a percentage of value-added in manufacturing has been dropping more or less in a straight line from the middle of the last century, when it exceeded 50 per cent; it was already down to 25 per cent by 1975.

In the accounting practices of some companies, labour is actually disappearing as a separate cost category! Thus, three years ago the Philips company (headquartered in the Netherlands) reported that the typical labour content of a personal computer had sunk to about two per cent of the total cost: "Many companies could drive it lower but simply do not bother. It hardly matters in terms of overall cost." By 1988 automation had already driven average industrial labour production costs down to between 8 and 12 per cent.

Changes in production methods are moving so fast that work skills are degrading as fast as they can be upgraded—yet another reason for relying less on human labour. The "technological half life" of an electrical engineer is now down to five years; in the case of a computer scientist, only two and a half years. Little wonder the Financial Times reported that Hitachi, the Japanese electronic company, had been alarmed that the average age of its work force at a South Wales television factory had approached 40, and therefore invited all workers aged 35 or more to take voluntary retirement.

As a consequence, the labour market in the nonmanufacturing sectors has expanded manifold, but there too the shoe is about to drop. A 1988 report by the OECD (the club of advanced industrial countries, centred in Paris) took a look at the impact of technological innovation and the rising need for investment capital on so-called auxiliary activities. Such auxiliary operations constituted 50 per cent of the work force in the textile industry, 80 per cent in the clothing sector, and 75 per cent of the blue collar workers in food processing (where storing, packing, and dispatching are important labour-intensive operations). "This means," said the OECD, "that when the auxiliary operations will be mechanized with new technologies—and this may be the next technological step in these industries—the direct impact on the labour force is bound to be enormous."

Labour shedding in the service sector as a whole has gained momentum, not only in private industry but also in government work. In the United States alone, according to a current scenario, the jobs of 16.7 million back-office employees who process orders and track inventories are now at risk.

The jobs that remain are becoming less rewarding because a very large proportion of workers now work part-time, at lower pay, with far fewer benefits, and almost no security. At the beginning of 1993, BankAmerica predicted that soon only 19 per cent of the bank's employees would be working full-time, and nearly 6 out of 10 would work fewer than 20 hours a week and receive no benefits, helping to create a new class of the "working poor." In place of the medieval idea or ideal of a just wage for the head of a family, wives are forced to work but their (as well as their husbands') earnings are dropping so that the two together are hardly better off, especially if higher levels of taxes of all kinds (increasingly disguised as "user fees") are also taken into account. Only in the month of July each year (according to calculations by the Fraser Institute) do the average earnings of taxpayers become their "own." Soon even the dead will have to pay user fees for as long as they occupy their graves!

The lesson

The lesson is that no amount of excellent labour relations in the workplace can withstand the aggregate impact of these developments, and the social consequences of such massive changes—even in the absence of the future competition coming from countries like China and Mexico, not to mention India—cannot be predicted. In the words of economist Milton Friedman: "You've got a billion people in China who suddenly are available for use with capital. You have half a billion behind the former Iron Curtain." Upheavals of nature, environmental degradation, and the depletion of resources such as the Canadian fisheries will further complicate the picture.

If, to crown matters, national, provincial, and state governments are so deeply indebted that they lack the financial means to bail out the sufferers, local communities (especially cities) will either sink into a state of barbarous lawlessness—a pattern becoming distressingly familiar—or rise above themselves, so to speak, in a communal and cooperative effort to remain viable and (if they are lucky) competitive and therefore reasonably prosperous. Given such a scenario one would have expected, until quite recently, that people would automatically opt for a socialist solution, but socialism seems to have lost its patina—at least for the time being. What value systems would then be in demand, and what value systems could then be effective? Might they not have to be Christian?

The Christian command of "love for neighbour," of a sense of responsibility for oneself and others, and above all, the importance of truth and trust, may well come into its own. Here it is instructive to note that most of the available studies of successful community-level industrial experiments in different parts of the world stress the absolute necessity for a spirit of cooperation and mutual trust, even among competitors.

Most interesting is that these kinds of rules of conduct will not only be needed at the communal level. Evidence is emerging that they will also distinguish the successful enterprise, involving the quality of relations among owners and managers and workers and (lest we forget) among workers themselves—a point often overlooked.

The New Workplace

But important as labour relations will remain, we have already stated our belief that they will not be the main issue. On this score a certain amount of counter-intuitive thinking is required. For example, we know that for companies to survive, achieving the highest attainable quality at a given price is already taken for granted. Governments are still preaching the necessity for, and spending huge amounts of subsidy on, technological innovation, but in August 1993 Mr. Kazuo Kashio, the founder and President of Casio Computer, coolly announced: "Already, the era in which product development relies on technological innovation has passed. Before we plan the product, we develop the concept."

So too, in the field of labour relations, survival will take excellence for granted, while the real focus shifts to the much more crucial issue of superior managerial and organizational skills. In other words, labour relations will be subsumed, and in that sense, as we have hinted, virtually disappear from view in many workplaces. The worker of the future (not to mention his or her labour union) will have to understand the new demands on management and organization, and if they do not, their own livelihood will go down with that of their employers. At issue will not be the worker's rights, but his or her foresight and sense of responsibility; not status or contract but a dire need for trust; careful attention to detail and small things yes, but also an overall view of the company's affairs. Ironically, while we would still take for granted the importance of team work and group-related activities, more and more will the new demands for responsibility and trust devolve on individuals.

And so we find an interesting paradox developing. Managerial prerogatives will again take precedence over democracy in the workplace (if it ever existed) but at the same time (and despite the lack of democracy) the individual workers will develop and enjoy more personal dignity—the kind of dignity better known to Christians, because it will reflect not human rights but human responsibilities, not fear but trust (still a virtue even if it becomes essential!).

What are these new management and organizational strategies, and what evidence is there of the kind of shift we are trying to describe here?

In this regard yet another OECD study warrants our attention. Published in 1992, it addressed "New Directions in Work Organization: The Industrial Relations Response." For many years (the study notes) governments, labour unions, and others have called for "workplace humanization" and the creation of "quality of work-life" agencies and programs. Now, however, "the situation seems reversed: the dynamic role of the labour movement has considerably weakened, while employers have now assumed the role of dominant actor in industrial relations. . . . There is today little doubt that management has been the dominant force in transforming industrial relations practices in the United States. Under the pressures of structural change, employers there have abandoned the 'new deal' model." In France, for example, "management strategy [has become] the most important factor in shaping industrial relations" and there is not much doubt that the same pattern is beginning to show in most other industrialized countries.

Economics of trust

So far from the simple imperative of trust, there has even developed a so-called "economics of trust." This is how Mark Casson, the British author of Enterprise and Competitiveness (Oxford: Clarendon Press, 1990) explains the new imperative:

Trust is defined in terms of integrity. To trust someone is to believe that they will refrain from opportunistic behaviour (that is to say, they will not take advantage of a situation to promote their own interests at the expense of other people).

Casson then explains how, in a high-trust culture, organizations can economize on transaction costs by relying on implicit rather than formal contracts; how, in such organizations, trust stimulates interactions and promotes openness (as distinct from environments where people stand on their rights and typically become quite reticent if not anonymous); how, in trusting environments, costs are generally lower; and how, most important, the flexibility that companies now need is made possible by trustful relationships. For example, says Casson, "Since compliance with rules is easier to monitor than the quality of managerial judgement, distrust breeds increasing reliance on rules . . . and (this) reduces the scope for individual initiative in reallocating resources."

The same principles are emerging at the micro-economic level of the firm. As the OECD reports, the new technologies call for flexible, decentralized structures of work organization and managers are less able to understand, let alone control, the tasks performed by individual workers. Job responsibilities "are now frequently too complex and varied to be described in detail. Performance can no longer be enforced primarily by control; instead, voluntary cooperation and employee initiative are called for." In other words, workers have to be trusted more, and at the same time as they become more responsible, their own dignity is enhanced.

A further by-product of the new work environment is the fact that "management depends increasingly, when introducing new technologies, on the motivation of its employees"—again a highly personal quality not entirely unknown to those who advocate the Christian life, where motivation is of such vital importance.

So far from technology dictating everything, the OECD discerns another highly significant tendency in the workplace. Apparently, managers are increasingly willing to adapt the technology to the personal qualities of their valued workers:

There is a noticeable change of employers' attitudes in certain industries. . . . Workers are now perceived by management as having complex abilities and varying potential for development. Employers therefore modify production processes to take full advantage of that potential.


But everything is not rosy in the garden. The reality is that management is in the driver's seat and if the management and organizational practices are humane and enlightened, they occur where they are necessary for the enterprise to compete and prosper. In many work situations a different approach may be followed:

A model which champions a positive approach to labour management, emphasizing the motivation of a multi-skilled, mobile, better trained and cooperative worker as an essential component of a strategy to reduce costs and improve productivity and quality in a competitive environment, might be contrasted with equally convincing signs of a form of management based on stricter control over workers, the obligation to work harder on a smaller number of limited tasks, facilitated by the greater use of numerical flexibility procedures and atypical work.

Even in a single firm there may exist, side by side, adversarial and cooperative methods, each doing what is necessary for the firm to compete:

Conflict between centralized authority and decentralized decisionmaking is ever-present in work organizations, as is conflict between those who manage and those who are managed. Recent changes in labour-management relations and the organization of work, as important, even dramatic, as they may be, do not override this enduring fact of organizational life.

Generally speaking though, the greater localization of responsibility which is now appearing on the horizon, both communally and in the enterprise, is part of what George Gilder calls "the eclipse of geopolitics" and a greater reliance on the "microcosm" in both economics and technology. Gilder maintains that the more locally things are done, the greater will be our freedom in what he calls "a microeconomics of liberty." Thus he thinks that "the economics of scarcity and fear will surrender to the economics of hope and faith." In such an environment, Gilder thinks, organized labour will be losing its grip. With so much automation, "workers are no longer groups; their work is increasingly personal rather than collective."

The Christian challenge

I see nothing but opportunity here for Christian witness. When Paul McCracken, a noted financial economist, bemoaned the outlook for industrial policy in the United States and criticized the naive humanism of New Order spokesmen like Robert Reich of Harvard, he regretted the degree to which

our milieu does not seem to have encouraged the same sense of loyalty and involvement on the part of employees that we see in some other societies. This is all the more remarkable since one might have assumed that these characteristics would be particularly evident in a Judeo-Christian society. Whatever the moral and ethical issues here, it is clear that a major source of ideas about how to do things better—working men and women—has thus been inadequately tapped.

The Christian way of life comes into its own especially with respect to the importance of the right motives. A few years ago the economist Harvey Leibenstein wrote about the role of a mysterious form of efficiency in organizations which he could not identify and therefore called "X-efficiency." Surely it is not news to Christians to learn from Leibenstein that "employees as a group can gain if individuals will look beyond their immediate self-interests to pursue the broader welfare of the organization as a whole" and that "large gains in productivity are available if the right motivational methods can be found."

Unfortunately, like so many non-Christian but otherwise excellent prescriptive books (for example, Allan Bloom's Closing of the American Mind), here too a good diagnosis peters out at the end when workable solutions are sought, so that (complains a reviewer) there is little "specificity about the alternative means of motivating employees." The enduring economic problem, we learn, "is to find the most efficient means of motivating" people.

Theorists and practitioners alike have been moving heaven and earth to find ways of motivating workers because the new work environment calls for a high degree of personal responsibility and innovative thinking and acting. These are qualities that cannot be cultivated through the classical crudities (by either offering high financial rewards to, or inducing abject fear in, workers). The problem is that the path of calculated and calculating enlightenment, sweet reason, and humanistic egalitarianism lead to dead-ends as well. Virtue cannot be artificial.

The real thing

Here is a crucial insight. Harry Antonides (in his Industrial Democracy: Illusion and Promise: Toronto: CLAC, 1980) discharged the extremely difficult task of debunking the new wave of humanistic and ever so persuasive "democratic" and "quality of working life" fads which took over the industrial world in the years after 1968—literally a case of not all that glitters is gold. Most people are also familiar with the virtuous managerial practices extolled by Peters and Waterman's In Search of Excellence (New York: Harper & Row, 1982) but perhaps not aware that the majority of those excellent companies failed to stay the course. Calculated (and therefore essentially false) moral norms and ostensibly virtuous conduct do not work.

In January 1991 the Massachusetts Institute of Technology reported that the latest managerial fashion, called "employee involvement" or EI, did not work either: "We found that EI not only fails to help efficiency, but actually appears to hurt it." If ever a research finding could be termed heretical in a humanistic society, this was it. These situations are not unlike the experience of the Chinese people under Mao Tse-tung, when Mao went to extreme lengths in wielding collective "virtue" as a conscious political instrument—an experiment that also found a great deal of resonance in the minds and hearts of the Canadian political leadership of the 1970s—giving rise, among other things, to a calculated but quite ineffective domestic and international politics of "sharing and caring."

Christians, more than most people, know the importance of first principles and prime movers, and they would therefore appreciate another extremely insightful analysis of the success of many Japanese work practices. Canadians have tried to introduce similar practices in their workplaces but have often been disappointed in, for example, quality circles or the ringi principle (by which decision-making starts in the middle or lower managerial ranks). Apparently we have misunderstood the order of things, because many of those organizational devices are in reality not a cause but a symptom of excellence. They are the result of an antecedent spirit of cooperative productivity in the workplace—in other words, of a highly motivated set of constructive attitudes that have been internalized in both the people and the organization.

The message of hope is that sheer economic necessity and competition, coupled with technological developments, are forcing both believers and unbelievers to entrust workers with a considerable degree of responsibility, thereby promoting a sense of self-worth. This development is not so much a matter of enlightened labour relations as it represents sophisticated managerial and organizational practice. Though it still reflects managerial prerogative more than industrial democracy, the end-result may in fact be better than most people might have had reason to expect. The essentially Christian character of such arrangements in the workplace will surely be recognized.

On the other hand, tough competition—coupled with the immense amount of labour-shedding we are, and will be, witnessing—also means that in many situations the workplace threatens to become harsher. Even then the old-style confrontational solutions will not work. The need for a Christian witness will remain.


Dirk de Vos