The New Social Contract: 10 Suggestions for Change

For the last ten years, teamwork has been the leading buzzword in American business. We have quality teams, production teams, and teams of every other stripe. The implication is that workers and managers are on a common side -- the team -- in competition with opposing teams in other firms, and even in other countries.Oddly enough, the second leading buzzword has been reengineering. At worst, reengineering is a euphemism for downsizing and layoffs; only a little better is its application as Frederick Taylor's industrial engineering principles to office and professional work. These buzzwords reflect two sets of changes. The first is the cyclic change in which humanistic management thinking -- like teamwork -- is replaced by scientific management, only to be replaced by another wave of humanism. The second is the shift away from an Old Compact, where employment was fairly stable for those who kept their noses clean, to a new environment where the required level of engagement is greater (teamwork), yet with less employment stability (downsizing). Following World War I, the French government built the Maginot Line, a chain of impregnable fortresses along the German border. As World War II began, the German army simply by-passed the Maginot Line by invading through the Netherlands and by deploying paratroopers behind the fortresses. Today, too many American workers seem to be facing the future by relying on their own Maginot Line of obsolete thinking about tomorrow.THE OLD EMPLOYMENT COMPACTThe current generation of workers has been trained to believe that someone, somewhere, has broken the pact: the tacit contract that employer and employee entered into together in previous decades. This so-called contract suggested that if the employee showed up at work, did his or her job adequately and did not make waves, the company would provide fair pay, benefits, and job security. This agreement, if it ever existed, has long been tossed aside by employers as untenable and unnecessary, despite the continuing emphasis in organizations on teamwork in general and self-managing work teams specifically. Over the past five years, a wave of articles has appeared in the popular press bemoaning the fate of today's workers and castigating employers for their cavalier attitude toward the very people who create the wealth that the owners enjoy.Business Week dedicated its Oct. 17, 1994, issue to the topic, using such inflammatory article titles as "Welcome to the Company that Isn't There" and "Business Rolls the Dice" to dramatize the rapidly and radically changing work environment.We learn three things from articles like these:(1) Technology is doing us in. "Low-skill employees will be marginalized in a labor market that rewards education and training," Keith Hammonds wrote in that issue. Technology and the incessant restructuring of our organizations combine to make it ever more difficult for people to earn a living.(2) Paternalism is out. It's every worker for him or herself. Fortune introduced that theme in June, 1994, and informed us of a new contract between worker and employer, even more tenuous than the old one. This one says that if the worker continuously adds value to the organization, he or she may remain employed. Of course, the problem of determining exactly what value is and how to add it becomes the worker's responsibility. This is known as "freedom."(3) It's not our fault. It's the global economy. "They" caused all these problems and "we" are suffering as a result. The frenzy of cost-cutting, workforce reductions, individual entrepreneurial activity, and workaholism as a protection for one's job is all the result of the cheaper labor markets overseas, the more effective Japanese production methods, appealing investment for quick returns in emerging markets, and the new international trade agreements.THE NEW COMPACTInstead of seeking ways to make the current workforce situation more palatable, task forces from several disparate sectors have evolved models for a new social contract for workers and employers. These task forces include economists and sociologists, union leaders and management professionals, politicians and academics -- an interdisciplinary creativity pool that is codifying the new economic rules into a more or less workable set of social guidelines.According to Murray Weidenbaum, director of the Center for the Study of American Business at Washington University, this new social contract includes elements of the original:* The employee is still responsible for performing to the best of his or her ability, for remaining loyal and committed to the objectives of the firm, and for being ethical and honest.* The employer is still responsible for providing fair pay and benefits, opportunities for growth, and recognition in a safe workplace. What has changed is the creation of a set of joint responsibilities and expectations, including some new perspectives on established conventions: The employee must now be willing to take training that will improve productivity, "participate" in the business (not merely work), and make positive suggestions to the employer for business improvement.* The employer can now tie job security, pay and benefits to the company's success and to the employee's ability to perform, while providing access to timely information to employees as an interim satisfier for workers' security needs.The movement is to "partnering" with employees rather than paternalism. This translates into a direct exchange of services for money, without additional responsibilities or benefits on either side. Employees are to be seen as resources rather than costs. Customer needs and desires are to be the focus of both employers and employees.ANGRY WORKERS IN A SOCIETY WITH NO MIDDLEOverlooking the needs of the people who work in their organizations is one fatal flaw, a trap into which harassed executives unwittingly stumble. In their eagerness to protect their corporate assets and to "exceed customer expectations," a mantra popular among proponents of Total Quality Management, they have thrown their greatest resource on the free market. Displaced middle managers are expanding the rolls of small businesses, and clerical workers have been forced to seek new employment as contingent workers, the 90's equivalent of tenant farmers. We are returning to an earlier age of self-employment, a new feudalism without the protection of the manor. The result is a fungible underclass and an increasingly dichotomized society.Workers are growing hostile, angrily defending the promise that a growing economy proferred and a shrinking economy withdrew. As job availability for the middle class diminishes in major metropolitan areas such as New York City, shortfalls drain local economies of the skills that have traditionally supported manufacturing and service growth. The movement to a society without a middle becomes frighteningly real. Jobs, if not in abundance at least in existence, for both the least skilled (fast food workers, cleaners, etc.) and the most skilled (executives earning over $150,000, technical and professional personnel), have eluded the core of our population. The effect on the largest segment of our job market is devastating. Although unemployment is at its lowest in years, hovering at the "full employment" rate between 5 percent and 6 percent, the description of the out-of-work segment has changed. For the first time since the post-WW II boom, that symbolic bastion of economic stability, the middle class, is in big trouble.THE TRANSITION TO 21ST CENTURY CAPITALISMSignificantly, the reason for the anger and anxiety among workers in "the middle" stems from the same economic forces that led to the withering of the Old Compact between workers and management. The American economy is in the throes of change from a society based on industrial technology, organization, and values to one based on knowledge and information as driving forces.Whereas the capitalism of the mid-20th century was based on high-volume production, and even those with minimal skills could expect to do well, Robert Reich, Secretary of Labor, argues in his 1992 book, Work of Nations, that 21st century capitalism will be different: "Each nation's primary assets will be its citizens' skills and insights. Each nation's primary political task will be to cope with the centrifugal forces of the global economy which tear at the ties binding citizens together -- bestowing ever greater wealth on the most skilled and insightful, while consigning the less skilled to a declining standard of living."The key skills for worker success in the 21st century are problem identifying, problem solving, and strategic brokering, skills that categorize a new type of worker that Reich calls "symbolic analyst." Possessed by those in such fields as engineering, law, and management, symbolic analytic skills enable such American workers to compete and succeed in a global economy.Reich points out that a major stumbling block in contemporary America is vestigial thinking, as visions of the past influence current thinking. Believing, for example, that the emerging 21st century global-Web organization is the same core corporation of the 1950s, or even that the Old Compact -- what Reich calls the National Bargain -- is still in force. From the business press to college students, from business leaders to politicians, vestigial thinking limits the ability to offer innovative solutions.It is unrealistic to assume that the displaced worker will be retrained, rebrained or reexplained as the "new worker" in the information society. We can anticipate that the demands of the information society will be such that many of these workers can look forward to no place to go in the foreseeable future. Their skills are either not upgradeable or have become irrelevant to the workplace due to technological advances. According to Jeremy Rifkin in his 1994 book, The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era, "...[Peter] Drucker says quite bluntly that 'the disappearance of labor as a key factor of production' is going to emerge as the critical 'unfinished business of capitalist society.'"DOWNSIZED EXPECTATIONSNew forces have joined to move the economy in unfamiliar, counterintuitive directions. The response of the stock market to these forces provides a good example of this strange economic behavior. It used to be, if a big corporation like U.S. Steel laid off workers, the market response was decreased stock value. That was when the overwhelming majority of stockholders were individuals. Now, when most corporate stock is owned and traded by institutional investors, the response to a corporate downsizing is increased stock value, the very opposite of what individuals expect.The general feeling that results is one of powerlessness. In his 1990 Age of Diminished Expectations, Paul Krugman argued, "We live in an age of 'diminished expectations,' an era in which our economy has not delivered very much but in which there is little political demand that it do better." Highly skilled and highly paid workers like Reich's symbolic analysts have done well, but the economy has given the majority of workers flat or declining wages.Targeting productivity as the root of the current wage stagnation, Krugman wrote that in the 25 years following World War II, productivity in the United States doubled, but that it increased only 10 percent over the next 15 years, and wage growth follows productivity growth. Compounding the productivity issue is an income distribution that is getting less equal. Eight million of 124 million people employed in May, 1995, were holding two or more jobs simultaneously, 2.2 million more than did the same ten years ago. Why? For one thing, the average hourly wage and its purchasing power have been falling for 20 years. Krugman remains puzzled about why the bulk of American workers appear willing to accept such mediocre performance from the economy and from political leaders. At the same time, what Krugman has seen at the national level is reflected in the "downsized" expectations that workers show in dealing with their employers.RESULTS FOR THE WORKFORCEThe lack of commitment by employers to employees is more than matched by the concomitant lack of loyalty by the contingent workers to their some-time employers and by corporate survivors to their current employers. Disaffection by workers to their employers is rapidly reaching critical mass. A 1994 poll of 30,000 U.S. workers indicates that nearly half (47 percent) currently dislike or feel ambivalent toward the company they work for. People no longer identify themselves as working for a specific company, but instead describe themselves by their job title: art director, accountant, lab technician, telecommunications programmer.The good news in this story: people are beginning to take responsibility for their own careers and worklives. The bad news: taking responsibility rarely puts as much food on the table as workers have become accustomed to. While wages are stagnant for many in the American labor force, especially routine producers, workers are working just as hard, if not harder, just to stay afloat. Not only is the number of people working two jobs steadily increasing, but the average number of hours worked each week by American production workers has remained virtually the same over the last 15 years. For about 35 years following World War II, average hours worked showed a steady decline. While a production worker worked an average of 40.3 hours per week in 1947, by 1980 this number had decreased to 35.3 hours, a difference of five hours. If this rate of change had continued in the 1990s, we would expect that the average hours worked would now be about 33 per week. But since 1980, the average work week has only declined to 34.8 hours, according to the Bureau of Labor Statistics, a trivial half-hour improvement over fifteen years. The message workers have received -- "Work harder, not smarter" -- is a sad reversal of one of the tenets that drive productivity. How could the message have been so misunderstood?NEW DIRECTIONSThinking about ideas for action must start with an understanding of those forces that drive an economy. But economists differ on which of several forces dominate. Perhaps the truest picture is one that shows the interaction of markets, power, and technology as key economic drivers.Markets. If markets are to work as advertised, participants need to be equipped with complete and perfect information in order to make correct decisions. To put this in more concrete terms, those in real world markets -- workers or employers -- should not be subject to surprises. A basic step in getting markets to function correctly is to ensure that information about career opportunities, if not complete and perfect, is at least adequate to enable workers to make correct decisions. This means that high school guidance counselors, college placement offices, employment security offices, and corporate human resources and training departments provide timely and accurate information about what one can expect in the job market and what training and education is required to get there, as well as what people can expect once they have attained their goals. Entry to the middle class requires more than career counseling.Power. It is stunning to consider how people can believe in "the myth of the middle class" when America's income distribution is such that the top fifth gets half, while the remaining four fifths shares the other half. While "middle class" may refer to a set of cultural values, there is no middle in this skewed distribution of incomes. Traditionally, "capitalist" referred to one who possessed the means of production -- machines and wealth -- that characterized the industrial workplace. The "new bourgeoisie" are wealthy in what labor economists call "human capital" -- embodied skills and insights. The ability to employ these skills and insights in daily commerce marks a sea change in economic transactions.Technological change. Just as America's transition from an agricultural to an industrial economy did not mean the end of farming, the transition to a postindustrial economy will not mean the end of industry. But as contemporary farming bears slight resemblance to that of 100 years ago, 21st century industry will be radically different from today's version. An information sector will dominate the American economy, just as the industrial sector dominates the agricultural. With changes in technology will come changes in knowledge, skills, laws, values, and in institutions of all kinds, including markets and governments.10 WAYS TO IMPROVE THE SOCIAL CONTRACTImproving the New Social Contract requires change in four areas: expectations, the legal framework, union strategy, and individual initiative.1. Don't expect a magic bullet. Neither markets, Marx, nor new methods will be The Big Fix. And perhaps more importantly, don't trust politicians, commentators, or consultants who promise one.2. Don't expect the federal government to fund new programs until the budget mess caused by supply-side Reaganomics has been worked out. Also, state and local governments will be hard-pressed to take up the slack.3. Let professional employees form unions. Because professionals like engineers, computer programmers, and financial analysts are legally classified as management employees, they are currently exempt from the protections given other workers.4. Change the tax laws to reward investments in real productivity rather than paper gains through financial manipulation. The stock and bond markets are supposed to be there for businesses to raise money for new investments; businesses don't exist for the stock market.5. Exempt investment in human capital from income taxes, specifically all college tuition, whether it is for young adults or mature workers.6. America needs to value families as is done in other industrialized nations. For starters, mandate paid parental leave, with at least half pay, for the first year, followed by subsidies for child care. Provide full-time benefits -- like medical insurance and tuition reimbursement -- for employees who work 24 hours or more per week. Set a target date for the 35 hour work week -- say 2005 -- and work toward it.7. It is time for unions to try the new models of organization that leading edge businesses use. This includes networking and partnering with unions in similar, or even different, industries. If virtual companies can exist, why not virtual unions?8. Teamwork, cooperation, and partnering between unions and employers may have their place, but real partners obtain mutual benefit from the relationship. This means that unions must be more savvy in having gains for their end of the partnership made more explicit.9. Unions have to be in touch with the concerns of younger workers, women, and minorities, while incorporating forward-looking, information-age thinking in their strategies.10. Emphasize individual achievement. David McClelland's Achieving Society showed that historically and across countries, those societies that encouraged and rewarded achievement did much better economically than those that focused on meeting other needs like power and affiliation. While improvements in the New Social Contract can make the rules of the game fairer, individuals must take responsibility for fulfilling their own potential.In order to design an acceptable social contract, its architects must divest themselves of a 1950s version of America. The merchants of nostalgia, whether from the right or the left, are merely differing reactionary breeds trying to impose the society and economy of an unrecoverable past on a people who are on the threshold of the future. Such "vestigial thinking," as Reich called it, is a lag in understanding where one substitutes a model of the past for one of the present. Until we relinquish our vestigial thinking and discard the obsolete models of our past, we cannot begin intelligently and openly to create a future that is both fair and rewarding for all sectors of society.Gina Vega is assistant professor of management, Merrimeck College. James W. Lacey is manager, Lucent Technologies/Bell Labs.