Mergers and layoffs in industry may not be streamlining but games
THE monthly statistics on the economy aren't telling us as much about what's really going on as are the individual news items about company mergers and employee layoffs. American industry is being restructured. The layoffs are not the normal kind that go with a cyclical decline. If enough of them happen at once, of course, they could of themselves make a decline. But the kind of evidence I'm talking about is the gradual loss of manufacturing jobs that has been occurring throughout this recovery. They are the kind of cutbacks that reflect management's view about long-term prospects for its business.Skip to next paragraph
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This loss of manufacturing momentum seems to be speeding up. Just in the past couple of weeks, these announcements have been made: General Motors will eliminate 30,000 jobs at several plants in the Midwest that it plans to close by 1990. Westinghouse is planning to make major cutbacks in its nuclear power business next year, because of the changed outlook for nuclear generation. Pratt & Whitney will cut its salaried work force by 6 to 8 percent next year (and half its work force is salaried).
Remember, the United States is not in a recession. These are events going on in companies at the heart of US manufacturing. If one combines announcements such as these with others that have been made all year, it's clear that American management as a whole is being forced to take a different look at the future.
The mergers and acquisitions game is a part of the same scenario, although not as easily explained. It's partly a story of companies looking for safe-haven mergers - that is, mergers that allow the weaker company to maintain control of itself.
It's partly a story of companies with large profits looking for a place to spend their money. Rockwell International, for instance, is looking for other defense companies, partly because it has cash from its B-1 bomber program.
Revlon is trying to buy Gillette to form the perfect ``his and her'' cosmetics company. GAF Corporation may try to buy Borg-Warner, of which it already owns almost 10 percent. But Borg-Warner may sell off part of its business to prevent being taken over. Goodyear may sell part of its business to Martin Marietta, also as a preventive move.
Union Carbide is selling its agricultural chemicals business to Rh^one-Poulenc in France. Meanwhile, within one week Wickes announced it was buying Collins & Aikman, a fabrics company, and Lear Siegler, an aerospace and electronics company. And the list goes on. One has to include First Interstate's attempted takeover of the giant Bank of America out in California, and BofA's attempt to sell its brokerage unit, Charles Schwab & Co., as one way of fending off that unfriendly takeover attempt.
Many mergers have been made possible by an accommodative monetary policy. Changes in the tax code for 1987 have also pushed merger activity into this year. But it is clear that the financial system is facilitating a restructuring of American industry rather than growth in American industry.
A few mergers do result in better, more efficient organizations. One is left with the strong impression, however, that most of the mergers occurring today belong in the same category as the job layoffs: They are a defensive restructuring of US industry. They may make industry marginally more productive by cutting excess layers of managers. But they are more a kind of corporate game-playing than a preparation for long-term global economic competition.