Reconsidering Downsizing

The widespread downsizing of American business during the last decade has made American industry more competitive. Downsizing identified and systematically eliminated excesses in corporate staffing, bureaucracy and expenditures. However, there were immediately discernible social costs for the displaced, for their dependents and for the tax-supported public and private organizations struggling to meet their needs. And now economists and business analysts are expressing doubts about the value and permanence of some of the assumed gains.

A May 12 article in The New York Times questioned whether the sweeping changes have really boosted the productivity required to foster a general prosperity. Two days later, The Wall Street Journal detailed several examples of corporate workforce-cutting which seemed to backfire. Eastman Kodak is restaffing some recently eliminated positions after discovering it had to pay contractors considerably more than it had paid its own laid-off workers. A cost-cutting consolidation of Nabisco division sales staffs produced short-term profit margin increases, but then a steep drop in operating earnings. Nynex has hired back hundreds of former employees after apparently slimming down excessively in anticipation of the new age of deregulated communications markets.

There's every reason to think that some of government's downsizing moves will also prove to be hasty and irrational. As Linda Morgan, head of the now-defunct Interstate Commerce Commission, said in a Government Executive roundtable earlier this year, "the process of closing agencies has been done backwards. Legislators have first abolished agencies, only later realizing they need to eliminate the regulations the agencies enforced and deal with the services the agencies provided."

Often, popular programs or divisions of eliminated organizations are transferred to other agencies, setting off a whole new set of administrative and adjustment costs not calculated in assumed savings. For example, if the Republicans eliminate the Commerce Department, be assured that the National Weather Service will not disappear. It will turn up, much disrupted and with its badly needed technology modernization plans significantly set back, in another organizational location. Who among the advocates of smaller and less intrusive government has factored those costs and service losses into the savings equation?

It must be remembered that government downsizing decisions are made by political officials in a national arena, driven largely by political imperatives. The Clinton Administration's "New Democrats" were eager to demonstrate that they could produce a smaller, more efficient government which, while still generous with services, might be economical enough to allow a reduction of the middle class tax burden. An early goal, framed into law by a Democratic Congress, was a workforce reduction of 272,900. To this day, the basis for that number has not been communicated to the managers who should be making it happen in the most rational way.

The Office of Personnel Management, lacking a significant constituency, proved to be one of the easiest agencies to trim. At the same time, the Administration's version of reinvention ushered in an unprecedented era of buyouts and reductions in force (governed by detailed personnel law) and promoted a variety of personnel management innovations. Was it sensible to place both OPM and the agency personnel offices among the earliest downsizing targets-long before completion of the personnel transition which required their expertise?

Be that as it may, the Clinton approach was soon only part of the story. The larger drama was found in the first Republican Congress in 40 years, which aimed to eliminate whole departments and programs and to find whatever additional cuts would add up to a seven-year drive to a balanced budget. The subsequent and still unresolved battles over omnibus budget plans-which involved continuing resolutions, government shutdowns and appropriations vetoes-have left many agencies simultaneously reinventing, downsizing by attrition or reduction-in-force, operating on reduced levels of appropriations and doing contingency planning for more severe possibilities. They are also paying for a new array of career transition services for a workforce now devoting much of its time to job searches.

The downsized employees of the private sector may have been innocent victims of their companies' struggle for survival. Their government counterparts are pawns in an ongoing political struggle. Surely the Republicans in Congress and the Democrats in the White House can see that the version of downsizing their fight has produced is leading to worse government.

With both sides in agreement on the goal of significant downsizing, it should be possible (and would be sensible) to agree on a common approach. The first task would be rational manpower analysis. To take a large example, Veterans Affairs Department hospital staffing should be set after difficult political, philosophical and management issues surrounding veterans health care are resolved, not before. The recent budget negotiations showed surprisingly large areas of agreement on future program cuts. Even if downsizing is initially limited to those areas, substantial orderly progress is possible. The more controversial decisions can be left for next year. That's what elections are for.