possibly the biggest-selling plane ever, outselling competitor Airbus.
An even more compelling example is IBM. For decades, Big Blue dominated the mainframe computer market and was enormously profitable. It was immensely powerful—the Microsoft or Google of its day. But in the 1980s the company faltered because of the rise of mini computers and PCs. By 1993, IBM had one foot in the corporate graveyard, having lost $16 billion in three years. A desperate board of directors brought in an outsider, Lou Gerstner, who had formerly turned around American Express credit card operations and RJR Nabisco. Among his moves, Gerstner laid off sixty thousand workers. He fundamentally changed the company. IBM became profitable and innovative. As the company’s fortunes improved, Gerstner was able to add new jobs. By the time he retired in 2002 he had hired sixty-five thousand people. Not only did Lou Gerstner save IBM, but the company had more employees at the end of his tenure than it had at the beginning.
Ethics columnist Randy Cohen acknowledges the necessity of layoffs in hard times. But he asserts that they shouldn’t be “a panicky response to an economic downturn.” 43 A company should try everything else first—cutting stockholder dividends and executive pay, for example.
Cohen admits that Caterpillar took some of these steps before its own layoffs. Robert Sutton, author and management professor at Stanford School of Engineering, believes Cohen’s criticisms are unrealistic.
Simply calling layoffs at Caterpillar a “panicky response” is sort of like criticizing people for a “panicky response” to [a] Tsunami. I am sure, in hindsight, that executives might have been better prepared, but I think Mr. Cohen does not show quite enough understanding of how hard it is to manage during times of harsh uncertainty. 44
Sutton admits that he once shared Cohen’s view—until he studied the Real World challenges faced by corporate management. He recalls:
When I first studied declining and dying organizations in Michigan in the early 1980s, I thought that layoffs were misanthropic and any company that did not spread the pain equally was immoral. But as I have seen the difficult and complex set of constraints that executives face in organizations of all kinds and sizes, I have learned to avoid pointing the morality finger at those leaders who do layoffs—there are too many times when it puts the remaining business at risk or when because of immovable constraints (such as union contracts, work rules, or the nature of the work) cost-cutting short of layoffs is not feasible…. Layoffs do massive damage to people, I am not defending them as humane acts, but there are too many times when they are the lesser evil. 45
REAL WORLD LESSON
Layoffs are moral. The alternative, not laying off people, would mean more companies going under. The result would be fewer jobs, longer downturns, and less prosperity—with longer-lasting pain and suffering
.
Q C AN FREE MARKETS BE MORAL WHEN PEOPLE ARE ALLOWED TO GET RICH BY SELLING PRODUCTS THAT ARE NOT GOOD FOR YOU—SUCH AS TOBACCO?
A F REE MARKETS ARE MORAL BECAUSE THEY ARE DEMOCRATIC, REFLECTING THE WISHES OF PEOPLE IN SOCIETY . T HAT DOES NOT MEAN THAT EVERYTHING THAT EVERYTHING PEOPLE WANT IS GOOD FOR THEM .
I t is a familiar conundrum: Cigarettes are known to increase the risk of cancer. Cigarette packets scream health warnings. Yet people persist insmoking. Cigarette makers generate billions of dollars in profits. Until the 2008 crash, their stocks continuously increased in value. And they performed better than the general market in the downturn. It is the free market at work. But is it right?
Free-market critics say no. And yet what would happen if smoking were banned completely? Most likely people would simply continue to smoke, as they have smoked for hundreds of years. And people would most likely still get rich from illegal cigarettes—by selling them on a
An even more compelling example is IBM. For decades, Big Blue dominated the mainframe computer market and was enormously profitable. It was immensely powerful—the Microsoft or Google of its day. But in the 1980s the company faltered because of the rise of mini computers and PCs. By 1993, IBM had one foot in the corporate graveyard, having lost $16 billion in three years. A desperate board of directors brought in an outsider, Lou Gerstner, who had formerly turned around American Express credit card operations and RJR Nabisco. Among his moves, Gerstner laid off sixty thousand workers. He fundamentally changed the company. IBM became profitable and innovative. As the company’s fortunes improved, Gerstner was able to add new jobs. By the time he retired in 2002 he had hired sixty-five thousand people. Not only did Lou Gerstner save IBM, but the company had more employees at the end of his tenure than it had at the beginning.
Ethics columnist Randy Cohen acknowledges the necessity of layoffs in hard times. But he asserts that they shouldn’t be “a panicky response to an economic downturn.” 43 A company should try everything else first—cutting stockholder dividends and executive pay, for example.
Cohen admits that Caterpillar took some of these steps before its own layoffs. Robert Sutton, author and management professor at Stanford School of Engineering, believes Cohen’s criticisms are unrealistic.
Simply calling layoffs at Caterpillar a “panicky response” is sort of like criticizing people for a “panicky response” to [a] Tsunami. I am sure, in hindsight, that executives might have been better prepared, but I think Mr. Cohen does not show quite enough understanding of how hard it is to manage during times of harsh uncertainty. 44
Sutton admits that he once shared Cohen’s view—until he studied the Real World challenges faced by corporate management. He recalls:
When I first studied declining and dying organizations in Michigan in the early 1980s, I thought that layoffs were misanthropic and any company that did not spread the pain equally was immoral. But as I have seen the difficult and complex set of constraints that executives face in organizations of all kinds and sizes, I have learned to avoid pointing the morality finger at those leaders who do layoffs—there are too many times when it puts the remaining business at risk or when because of immovable constraints (such as union contracts, work rules, or the nature of the work) cost-cutting short of layoffs is not feasible…. Layoffs do massive damage to people, I am not defending them as humane acts, but there are too many times when they are the lesser evil. 45
REAL WORLD LESSON
Layoffs are moral. The alternative, not laying off people, would mean more companies going under. The result would be fewer jobs, longer downturns, and less prosperity—with longer-lasting pain and suffering
.
Q C AN FREE MARKETS BE MORAL WHEN PEOPLE ARE ALLOWED TO GET RICH BY SELLING PRODUCTS THAT ARE NOT GOOD FOR YOU—SUCH AS TOBACCO?
A F REE MARKETS ARE MORAL BECAUSE THEY ARE DEMOCRATIC, REFLECTING THE WISHES OF PEOPLE IN SOCIETY . T HAT DOES NOT MEAN THAT EVERYTHING THAT EVERYTHING PEOPLE WANT IS GOOD FOR THEM .
I t is a familiar conundrum: Cigarettes are known to increase the risk of cancer. Cigarette packets scream health warnings. Yet people persist insmoking. Cigarette makers generate billions of dollars in profits. Until the 2008 crash, their stocks continuously increased in value. And they performed better than the general market in the downturn. It is the free market at work. But is it right?
Free-market critics say no. And yet what would happen if smoking were banned completely? Most likely people would simply continue to smoke, as they have smoked for hundreds of years. And people would most likely still get rich from illegal cigarettes—by selling them on a
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