Newspaper article THE JOURNAL RECORD

Economists Debate Restructuring Costs

Newspaper article THE JOURNAL RECORD

Economists Debate Restructuring Costs

Article excerpt

WASHINGTON _ Corporate America's new attitude that leaner is better is prompting profitable businesses to send tens of thousands of workers to the unemployment lines.

But whether this trend is good or bad for business in the long run is open to debate.

Economists say investors are demanding that once-immense conglomerates shed sideline businesses, become more focused and increase productivity. Some fear the eventual result may be a glut of workers.

"All corporations feel some pressure to do something, to become more efficient in production or delivery of service or whatever," said Campbell Harvey, an associate professor of finance at Duke University's Fuqua School of Business.

"From the corporation's standpoint, it's not the profit picture for the next year or this year that counts," he said. "What they're trying to do is maximize the value of the company for shareholders and bond holders, and they're trying to create the best possible competitive structure for the future."

Just last week, Xerox Corp., the giant copy machine maker, announced it was cutting 10,000 jobs, a tenth of its workforce, hoping to increase productivity. RJR Nabisco Inc. said it was eliminating 5,000 positions.

Similar announcements this year have come from such companies as Kodak and American Telephone Telegraph Co.

Economist Eileen Applebaum of the Economic Policy Institute, a labor-funded Washington think tank, said Wall Street is off the mark in insisting that companies trim their payrolls.

"We have a financial community that only sees to the end of its nose," she said. "If the purpose of the economy is to provide jobs and wages to that part of the population that wishes to work, then we have an interest in having companies that are expanding, that are raising profits by improving their competitiveness."

If the trend toward downsizing is not reversed, she said, "the level of employment we will be able to sustain in this economy will be too small relative to the size of the population. …

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