Why mergers are brutal

I had dinner tonight with my old pal Harry (hi Harry), who has a macabre career… basically, outsourcing jobs.

He explained what’s happening when two companies merge and some particular function gets taken apart and shipped elsewhere.  I’ve seen such things from the ground, and it’s not pretty.  I think the employees’ expectation is something like this: Company A has function X, and it works pretty well.  B has function X’ and it works OK too.  Why not either keep both X and X’, or at least pick one of the two, keeping as much of the personnel as possible?  After all, there’s a huge investment in these people; they have an enormous stock of knowledge we ought to retain, and just getting rid of people will cause enormous strain and distrust.

The view from 30,000 feet: the new company doesn’t want X or X’.  It wants a standardized, dumbed-down X” that can be done by high school graduates in a small town.  Such an organization easily scales up as the company grows, and can also be easily moved to seek lower wages.  The key point: the skill mix, chief/Indian ratio, and wages of the original X and X’ teams are all wrong.  It’s essentially the process of turning skilled craft work into unskilled assembly line labor, and the original workers would be miserable being transmuted into X”.

It occurred to me that the vaunted mobility of American workers is indirect.  Company A is going to lose department X and all its workers; some other location is going to get a bunch of new jobs in X”.   This won’t involve anyone moving from X to X”; the laid-off workers will find new jobs near their homes; the new ones are found from local resources.  The new location may become a slightly more desirable place to live and some other people will start to move there.

If this is how capitalism works, why don’t capitalist countries continually get poorer?  Historically, the answer is that this is only half of the process.  The other is that, as enterprises grow, entirely new kinds of jobs open up, at a higher skill level.  We no longer need cottage industry weavers and farmers; instead we need paper pushers, marketers, cinematographers, bridal consultants, statisticians, real estate lawyers, software engineers, yoga instructors, outsourcing experts, and a host of other more sophisticated jobs.

Is the whole process still balanced?  Damned if I know.  In the ’90s it was; as fast as jobs were outsourced, new ones were created domestically.  In the ’00s it looked unbalanced— American business just seemed to stop creating jobs.

If you’re looking at careers or something, the take-home lesson is this: find a job that’s not easily moved to Shanghai.  Some jobs are too local to move: lawn care, nursing, plumbing.  Others are still American specialties and safe— for now.