A people-based economy

CORPORATIONS come in two varieties. Some are collections of people. Others are collections of assets. Corporations that are collections of people depend on the abilities and motivations of everyone involved in them. Success requires that executives, middle managers, and employees become a dedicated team with shared goals. They must bring out the best in one another. Innovation and change occur continuously, as everyone shares responsibility for improving the whole -- elaborating on what has come before, responding to new opportunities, reacting quickly to new problems. The value of this kind of enterprise increases over time as the team gains common experience and commitment.

Corporations that are collections of assets depend on the skills of a few individuals at the top for improving the asset mix. Here success requires the artful redeployment of cash, inventories, equipment, factories, licenses, unused tax credits, patents, trademarks, and accounts receivable.

Innovation and change occur in leaps, as promising assets are purchased and underperformers are sold. The value of the enterprise increases over time as the combinations of risk and return improve.

Which variety is preferable? It depends. Corporations that distinguish themselves by the quantity and price of what they provide their customers are apt to be collections of assets, because scale and financial resources make all the difference.

Corporations that distinguish themselves by the quality of what they provide, on the other hand, have to be collections of people, because worker attitudes and commitments make all the difference there.

A vibrant economy needs both varieties -- collections of people and collections of assets. But America is losing its collections of people. Why? Because the value of people's motivation and teamwork is invisible, contingent, and fragile.

It doesn't show up on the books; it may not be reflected in this quarter's earnings. Thus investment analysts, corporate raiders, and other paper entrepreneurs are apt to treat collections of people as if they were collections of assets.

Unlike a collection of assets, a collection of people can't be readily bought and sold, together or piecemeal. Teams grow demoralized under new owners they don't know, after sales in which they have no say.

Dedication wanes when companies go deep into debt to ward off unfriendly suitors.

People become insecure and unhappy when colleagues are suddenly laid off, and when bosses are quickly replaced. Common commitments disappear when everyone senses that everyone else is now out for himself, and when shared visions are replaced by bottom line.

The lesson, as we are witnessing in industries ranging from airlines to broadcasting, is that when collections of people are treated as if they are collections of assets, they become collections of assets.

Robert B. Reich teaches political economy and management at Harvard's Kennedy School of Government. His ``Tales of a New America'' will be published in the spring.

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