The Ugly Face Organizations as Instruments of Domination O.: organizations are Killing us! Ramparts magazine noted many years ago that the Western world is slowly eating itself to death. Our food is often adulterated with thousands of different synthetic flavors, colors, thickeners, acidifiers, bleaches, preser- vatives, package contaminants, antibiotics, and poison pesticides. Food and tobacco companies spend billions of dollars each year promoting health-damaging products, thereby contributing to the high incidence of cancer and various forms of liver, kidney, heart, and lung disease. Although many argue that the scientific evidence is not conclusive enough to ban other than the most obvious hazards, many scientists believe that we are dealing with a human time bomb because the most damaging effects are likely to be long-term. Ingested toxins may well have an influence on mutations of the human gene pool, producing irre- versible damage in generations to come. 291292 SOME IMAGES OF ORGANIZATION Similar threats stem from environmental pollution. Every day, indus- trial organizations spew millions of tons of toxic waste into our waterways and the atmosphere or bury them in leaky containers underground. The economics of waste disposal is such that many organizations feel that they have no choice but to continue in these damaging practices so long as they remain legal. As a result, it is now estimated that as many as 2,000 toxins pollute the Great Lakes, and there are thousands of dangerous toxic-waste sites adding pollution to the groundwater. For example, over 160 such sites have been identified within three miles of the Niagara River, which feeds into Lake Ontario. The fish have cancer, and in areas of concentrated pollution such as the infamous Love Canal near the Niagara River, concern about pollution-related diseases has reached crisis pro- portions. As in the case of food and tobacco production, human health is adversely affected by corporate practices that place profits before human welfare. Working in many organizations can be dangerous, too. Each year hun- dreds of thousands of workers throughout the world die of work-related accidents and illnesses. Over 100,000 deaths occur in North America alone. Hundreds of thousands of workers suffer from occupational diseases of varying severity, such as heart disease, eye strain, back pain, stress, or lung ailments. Only the worst hazards are closely monitored or controlled, Others occur within the law and are frequently treated as inevitable aspects of the lines of business in which they occur. Accidents and occupational disease, like pollution, are often viewed in a way that places more emphasis on costs and the “bottom line” than on the health of employees. Throughout the Third World, large multinational corporations often ride roughshod over the interests of local people. As in the early years of the Industrial Revolution in Europe, people are legally and illegally dispossessed of their land and traditional ways of life. They are trans- formed into an urban poor who work for subsistence wages in sweat- shops and factories. In the view of many analysts, the multinationals virtually rob their host countries of resources and labor power. At the same time, they engage in modes of strategic management that increase the dependence of these countries on their continued presence. Industrial accidents, occupational disease, pollution, and general degradation of the people and the land continue to occur at a level that vividly reproduces the conditions of raw exploitation and human despair experienced in the worst industrial centers of England in the late eighteenth and nineteenth centuries. Again, the logic of economics and the imperative of making large profits tend to be the dominant concerns.THE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 293 In all these illustrations we are talking about what former British Prime Minister Edward Heath once described as the “ugly face” of orga- nizational life. Whether by design or by default, organizations often have a large negative impact on our world. Our purpose in this chapter is to gain insight into this aspect of organization by exploring how organiza- tions can be understood as instruments of domination. Although we are usually encouraged to think about organizations as rational enterprises pursuing goals that aspire to satisfy the interests of all, there is much evidence to suggest that this view is more an ideology than a reality. Organizations are often used as instruments of domination that further the selfish interests of elites at the expense of others, and there is an element of domination in all organizations. Organization as Domination Throughout history, organization has been associated with processes of social domination where individuals or groups find ways of imposing their will on others. This becomes clearly evident when we trace the lineage of the modern organization from its roots in ancient society, through the growth and development of military enterprise and empire, to its role in the modern world. Consider, for example, the incredible feat of organization, planning, and control required to build the Great Pyramid at Giza. It is estimated that its construction involved work by perhaps 10,000 persons over a period of twenty years. The pyramid is built from over 2.3 million blocks of stone, each weighing two and one-half tons. These had to be quarried, cut to size, and transported over many miles, usually by the Nile river, when it was in flood. When we admire this and other pyramids today it is the incredible ingenuity and skill of the early Egyptians that strikes us from both an aesthetic and an organizational standpoint. From another standpoint, however, the pyramid is a metaphor of exploitation, symbol- izing how the lives and hard labor of thousands of people were used to serve and glorify a privileged elite. In the view of some organization theorists this combination of achieve- ment and exploitation is a feature of organization throughout the ages. Whether we are talking about the building of the pyramids or the running of an army, a multinational corporation, or even a family business, we find asymmetrical power relations that result in the majority working in the interests of the few. Of course, important differences in practice can be observed, and over the ages much has changed. The conscription and294 SOME IMAGES OF ORGANIZATION slavery that provided much of the labor power required to build pyramids and empires have given way to use of paid employment where employees have the right to leave. Slave drivers have given way to man- agers, and employees now typically work in the interests of shareholders rather than of pharaohs, emperors, or absolute monarchs. However, in all cases, pursuit of the goals of the few through the work and labor of the many continues. Organization, in this view, is best understood as a process of domination. The varied organizations observed in history and the modern world are best understood as instruments that reflect varia- tions in the mode of domination employed. This aspect of organization has been made a special focus of study by radical organization theorists inspired by the insights of Karl Marx and two other very famous sociologists: Max Weber and Robert Michels. As was discussed in Chapter 2, Weber is famous among organization theorists for his work on the nature of bureaucracy. However, his main concern was to understand how different societies and epochs are char- acterized by different forms of social domination. He viewed bureaucracy as a special mode of social domination and was interested in the role of bureaucratic organizations in creating and sustaining structures of domination. For Weber, domination can occur in several ways. First and most obvi- ously, domination arises when one or more persons coerce others through the direct use of threat or force. However, domination also occurs in more subtle ways, as when a ruler imposes his or her will on others while being perceived as having a right to do so. This is the kind of domination that most interested Weber, and much of his effort was devoted to understanding the process through which forms of domination become legitimized as normal, socially acceptable power relations: patterns of formal authority in which rulers see themselves as having the right to rule, and those subject to this rule see it as their duty to obey. As a result of his historical studies, Weber identified three types of social domination that could become legitimate forms of authority or power. He called these the charismatic, the traditional, and the rational- legal (Exhibit 9.1). He believed that a ruler’s ability to use one or another of these kinds of authority depended on his or her ability to find support or legitimation in the ideologies or beliefs of those being ruled and to place this authority on a firm base by developing an appropriate admin- istrative apparatus linking the ruler and the ruled. Thus, Weber believed that each mode of domination was accompanied by a particular kind of legitimacy and by a specific form of administrative organization. However, he recognized that the three types of domination are rarely found in their pure form and that when they impinge on one another, theTHE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 295 Charismatic domination occurs when a leader rules by virtue of his or her personal qualities. Legitimacy of rule is grounded in the faith that the ruled vest in the leader (e.g., a prophet, hero, heroine, or demagogue). The admin- istrative apparatus under this mode of domination is very loose, unstruc- tured, and unstable, usually working through the activities of a few disciples or intermediaries. Traditional domination occurs when the power to rule is underwritten by a respect for tradition and the past. Legitimacy is vested in custom and in a feeling of the “rightness” of traditional ways of doing things. People thus often command power as a result of inherited status, as in systems of monarchy or family succession. The administrative apparatus under this mode of domination typically takes two forms—patriarchal or feudal. In the former, the officials or administrators are usually personal retainers— servants, relatives, or favorites—dependent on and remunerated by the ruler. In the latter, the officials retain a measure of independence. In return for giving their allegiance to the ruler they are usually allowed autonomy within a specified sphere of influence and are not directly dependent on the ruler for remuneration or subsistence. Under the mode of rational-legal domination, power is legitimized by laws, rules, regulations, and procedures. The ruler can thus attain legitimate power only by following the legal procedures that specify how the ruler is to be appointed. The power is also formally bounded by rules. The typical administrative apparatus is the bureaucracy, a rational-legal framework in which formal authority is concentrated at the top of the organizational hier- archy. In contrast with the feudal case, the means of administration do not belong to the bureaucrat; his or her position can be neither inherited nor sold. There is a strict separation between private and official income, fortune, and life generally. Exhibit 9.1 Weber’s Typology of Domination SOURCE: Mouzelis (1979: 16-18). result is often an uneasy tension. Weber was also much concerned by the trend toward increasing bureaucratization and rationalization. For him, the process of bureaucratization presented a very great threat to the free- dom of the human spirit and the values of liberal democracy, because those in control have a means of subordinating the interests and welfare of the masses. Hence his view that bureaucracy could alll too easily turn into an iron cage. He saw bureaucracy as a power instrument of the first order and believed that the bureaucratization of administration when completely carried through establishes a form of power relation that is296 SOME IMAGES OF ORGANIZATION “practically unshatterable.” The strength of bureaucratic organization is, of course, now being undermined by developments in information tech- nology that erode hierarchy and introduce new organizational power bases. But the process of rationalization and control to which Weber speaks is as strong as ever. Similar concerns to Weber’s have been voiced by the French sociologist Robert Michels, who saw in the politics of bureaucratic organization distinct oligarchic tendencies. In his famous “iron law of oligarchy” he developed the view that modern organizations typically end up under the control of narrow groups, even when this runs against the desires of the leaders as well as the led. In his study of supposedly democratic organi- zations, such as trade unions and political parties, he found that the democracy was often no more than window dressing. Despite the best intentions, these organizations seemed to develop tendencies that gave their leaders a near monopoly of power. As leaders rise to power they tend to become preoccupied with their own way of looking at things, and it seems that the most that can be hoped for is that they will attempt to keep the interests of their members in mind. But in Michels’s view, even democratically elected leaders with the best intentions have a tendency to become part of an elite furthering their own interests and to hang onto their power at all costs. Hence, he was very pessimistic with regard to the domineering character of modern organization, in a way that parallels the pessimism of Weber. The real value of these perspectives is that they show how even the most rational and democratic forms of organization can result in modes of domination where certain people acquire and sustain a commanding influence over others, often through subtle processes of socialization and belief. To take Weber’s ideas as an illustration, we can become dominated by such basic and hidden forces as those underpinning the quest for ratio- nality. Indeed, for Weber the process of rationalization is itself a mode of domination. As we become increasingly subject to administration through rules and engage in strict calculations relating means and ends and costs and benefits, we become increasingly dominated by the process itself. Impersonal principles and the quest for efficiency tend to become our new slave drivers. These ideas resonate with those of Karl Marx, especially those dis- cussed in Chapter 8. For Weber, the logic-driving modern society is found in the process of domination through rationalization. For Marx, it is found in the domination generated by the quest for surplus value and the accumulation of capital. In recent years, many “radical” theorists and researchers have become very interested in the links between these dif- ferent insights and in the way the process of rationalization is often usedTHE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 297 to serve the interests of capital accumulation. Collectively, their work brings the ideas of Marx and Weber right up to date, showing how orga- nization in the modern world is based on processes of domination and exploitation of many kinds. In the remainder of this chapter we will explore the ideas of these radical organization theorists, focusing on how the forces of domination embedded in the ways we organize often lead organizations to exploit their employees and the social and economic contexts in which they operate. How Organizations Use and Exploit Their Employees Arthur Miller’s well-known play Death of a Salesman explores the tragic life and death of Willy Loman. Willy had been a salesman with the Wagner company for thirty-four years, traveling through New England year after year as Wagner’s “New England man.” However, at the age of sixty Willy feels that he can no longer cope with the demands of life on the road. After a number of nervous breakdowns he reluctantly decides to ask for a posting in New York City so that he can work at his home base. His family has grown up, and his financial needs are modest. He thus feels confident that Wagner will be able to find a niche for him, even though his sales performance is nowhere near what it once was. However, on raising the subject with Howard Wagner, Willy is rudely disappointed. Howard has little time for Willy’s plight. Willy talks about his time with the firm, his close association with Howards father, and the promises that had been made. But it has no effect on Howard. Within a matter of minutes Willy finds himself suggesting that his wages could be reduced from sixty-five dollars per week to fifty and finally to forty since he needs only to earn enough to get by. Howard is uncomfortable with Willy’s pleading but insists that there’s no room for favors. After various attempts at escaping the situation by claiming that he has no more time and must move on to his next appointment, Howard finally ends the conversation by telling Willy that the company no longer needs him. Willy is shattered, He feels like “an empty orange peel.” The company has eaten thirty-four years of his life as if it were a piece of fruit and is now throwing the rest of him away. He ends up committing suicide. Miller's play stands as a metaphor for the way organizations often consume and exploit their employees, taking and using what they need while throwing the rest away. Of course, there are exceptions. But many298 SOME IMAGES OF ORGANIZATION workers and managers at all levels of organization find their health and personal lives being sacrificed on the altars created by modern organiza- tions. Willy’s story, though extreme in its end result, is not extreme in sub- stance. In the world today, individuals and even whole communities find themselves being thrown away like empty orange peels when the organi- zations they serve have no further use for them. Individuals find them- selves permanently unemployed even though they feel that they have many good years of useful work ahead of them. Communities find that they are unable to survive once the organizations on which they have depended for their economic livelihood decide to move their capital elsewhere. Increasingly, many managers find themselves ending lives of workaholic involvement with their employer as the victims of cutbacks or “early retirement plans.” Even if cushioned by a “golden handshake” and comfortable pension, the blow to one’s ego and self-confidence can be shattering. Somewhat ironically, those with the most privileged access to important information or with pivotal positions in their companies are often those who receive the hardest blow to their self-esteem. Many important executives, on being told that they are no longer needed, are also told that their termination is immediate. They will not be required to turn up at work ever again because, despite their glowing reputation, the organization fears that resentment may lead them to carry away docu- ments that could be used to help competitors or to damage the organiza- tion in some way. In these cases, insult is added to injury. In the opinion of many radical organization theorists, even though we have advanced a long way from the naked exploitation found in slavery and in the developing years of the industrial revolution, the same pattern continues today. They find particularly striking evidence of this in the way organizations structure job opportunities to produce and reproduce the class structure of modern societies; in the way organizations approach the problems of hazardous work situations, industrial accidents, and occupational disease; and in the way organizations perpetuate structures and practices that promote workaholism and associated forms of social and mental stress. ORGANIZATION, CLASS, AND CONTROL A strong case can be made for the idea that organization has always been class-based. The first types of formal orga- nization probably arose in hierarchical societies where one social group imposed itself on another, often through conquest. Such societies became further stratified as certain individuals placed themselves in the service of the ruling class as priests, scribes, bookkeepers, traders, and merchants.‘THE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 299 Because these people were not involved in producing the goods necessary to provide their livelihood, they formed an intermediate class of people between the ruling class and the peasants or slaves involved in the actual production of goods. We find the same system reproduced in modern organization in terms of the distinctions between owners, managers, and workers, Thousands of years intervene between the emergence of the first formal organizations and the corporations that we see around us today. These embrace many major social epochs in different parts of the world. We can pick up the story in the period of the Industrial Revolution in Great Britain around the 1760s and in the industrialization of the United States from the early 1800s. Although the two countries began the process of industrialization in very different circumstances, there are many com- mon links in the way growing industrialization develops and extends the tripartite class system handed down from earlier times. As is well known, the Industrial Revolution in Great Britain was set against the background of an agrarian society with a “domestic” or “cottage” system of production, supplemented by a small amount of mining and construction and a system of industrial workshops run by merchant-craftsmen organized in craft guilds. These workshops were typically stratified according to skill and status, in terms of masters, jour- neymen, and apprentices. The guilds controlled entry and working con- ditions and managed to secure a reasonable livelihood for their members, especially when compared with the poor farmers or landless poor who had lost their source of livelihood as a result of the enclosure of land during the sixteenth century. The Industrial Revolution changed this picture as capitalist producers sought to overcome the uncertainties of output and quality associated with domestic production; to serve the new markets created by expand- ing world trade and a growing population; and, most important of all, to take advantage of mechanical systems of production. The development of factory production transformed the structure of the work force and inten- sified the growth of urban areas. Increasing numbers of people who had formerly been self-employed in workshops and cottage industry assumed new roles as part of an emerging wage-earning class. Labor increasingly became viewed as a commodity to be bought and sold. Because these changes eliminated earlier systems of production, for the new wage earn- ers the process was irreversible, making them dependent on the wage system. Similar developments occurred in the United States, even though the emergence of a class of wage earners was delayed by the availability of land. At the beginning of the nineteenth century, capitalist production for300 SOME IMAGES OF ORGANIZATION profit using wage labor was insignificant outside the major cities. Most of the population lived in rural areas, and over 80 percent of the labor force was employed in agriculture, over 20 percent being slaves and indentured laborers. About 80 percent of the nonslave workforce were property holders and professionals—farmers, merchants, craftsmen, smal] manu- facturers, doctors, lawyers, and others. Slavery remained important in agriculture for much of the century. There were almost 4.5 million slaves in 1860, and even after emancipation many continued in feudal servitude under sharecropping and other systems of farming. In manufacturing, systems of capitalist production had an increasing impact, replacing cottage industry and small business with a system of wage labor. Immigrants, Native Americans, women and children, and displaced artisans and agricultural workers swelled a labor force that, as in Great Britain, found it increasingly difficult to find alter- native sources of livelihood. Thus, as the figures in Exhibit 9.2 demon- strate, historically the growth of capitalist organization has been accompanied by a decline in the number of self-employed persons and an increase in the number of wage and salary earners. This trend has now started to move in a new direction as a result of the flattening and decen- tralization of large bureaucracies and the rise of small business. The growth of a capitalist system of production depends on the existence of a supply of wage labor, unless it is to rely on slaves or on some system of subcontracting. Slavery runs against important social norms and can be inefficient, and subcontracting, until the revolutions created in information technology, just-in-time management, and new forms of electronic control, was highly unpredictable from the capitalist’s standpoint. Early capitalism in North America combined elements of these different systems, but as the century progressed, a consistent trend toward the use of wage labor occurred—and with it the rise of the profession and activities of management as we know it today. In many respects, it is possible to say that the system of wage labor created modern management, since for the first time outside slavery, prof- its depended on efficiency in the use of labor time. Under systems of domestic manufacture and subcontracting, the profit of the merchant- capitalist who bought and sold the goods produced did not necessarily depend on how the goods were produced. The merchant paid an appro- priate price and lived off the profit margin. Great inconvenience arose when private producers failed to deliver the appropriate quantity or qual- ity on time, but the problems involved were outside the merchant's direct sphere of interest. With the appearance of the factory system, however, every second of wasted time or inefficient use of time represented a loss of profit. The‘THE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 301 % Wage and % Salaried Total Salaried % Self- Managers and Labor Year Employees (1) Employed (2) Administrators Force 1780 20.0 80.0 - 100.0 1800 174 82.6 i 100.0 1860 48.0 52.0 _ 100.0 1880 598 39.1 a 100.0 1890 60.7 38.1 12 100.0 1900 633 35.4 13 100.0 1910 69.2 29.0 18 100.0 1920 72.6 24.8 2.6 100.0 1930 748 22.3 29 100.0 1940 756 214 3.0 100.0 1950 74 16.5 44 100.0 1960 811 13.6 53 100.0 1970 83.5 104 6.1 100.0 1980 814 108 8.6 100.0 Figures relate to percentage distribution of the employed, excluding family workers. (1) Excluding salaried managers and administrators. (2) Business proprietors, professional practitioners, independent artisans, and farm owners. Figures for 1780-1860 are rough estimates, excluding slaves, who composed. between 20 and 30 percent of the total labor force; white indentured servants are included among wage and salary employees, Self-employment figures for 1880 exclude southern tenant farmers; their busi- nesses were directly managed by moneylenders and landowners. Figures for self-employed in 1970 and 1980 have been adjusted to include owners receiving salaries from their own corporations. Exhibit 9.2. The Changing Structure of the U.S. Labor Force SOURCE: Adapted from Edwards, Reich, and Weisskopf (1986: 124). employment of wage labor thus led the capitalist to place primary empha- sis on the efficiency of labor time and to seek increasing control over the process of production. The establishment of a wage system thus carried with it implications for the organization of the labor process and, as a corollary, institutionalized class divisions in the workplace, particularly between managers involved in the design and control of work and the workforce engaged in productive activity.302 SOME IMAGES OF ORGANIZATION There are thus close links between organization, class, and control. If we examine the history of work organization since the beginning of the Industrial Revolution, we find a common pattern in both Europe and North America. The development of a system of wage labor tends to be followed by increasingly strict and precise organization, close supervi- sion, and increasingly standardized jobs. Skilled and semiskilled workers are increasingly replaced by cheaper unskilled workers, leading to what is sometimes described as “degradation” or “deskilling” of work and “homogenization” of the labor market. The extent of the deskilling has been graphically illustrated in a British study that showed how, in some organizations, over 80 percent of manual workers exercised less skill in their jobs than they used in driving to work. The labor market has also become increasingly segmented into two categories, sometimes described as primary and secondary sectors. The primary labor market is a market for career-type jobs that are especially crucial or that call for a high degree of skill and detailed knowledge, often of a corporation-specific nature. This market has grown along with the proliferation of bureaucratic and technocratic enterprises whose members are enticed to work not only for money but for nonmonetary rewards such as job satisfaction, the promise of career advancement, and security of employment. Members of the primary labor market are usually deemed worthy of significant investment. They are regarded and treated as “corporate assets” or “human capital.” Such employees are expected to become committed and loyal. Corporations typically go to great lengths to foster and reward these traits and use extensive and rigorous selec- tion mechanisms to eliminate high-risk candidates. However, as develop- ments in information technology have created increasingly sophisticated subcontracting or “outsourcing” processes, increasing numbers of profes- sionals once tegarded as a core part of the “primary” labor market are finding themselves working on limited contracts where long-term commitments are neither desired nor possible. The secondary labor market is a market for lower-skilled and lower- paid workers in offices, factories, and open-air jobs who are more dis- pensable and more easily replaced. It calls for little capital investment in the form of training and education, and workers can be hired and fired along with the vagaries of the business cycle. This type of labor provides a “buffer” that allows the organization to expand output in good times and to contract in bad, leaving the organization's operating core and elite primary labor force relatively unaffected. Increasingly, “secondary labor” is employed on a subcontracting basis. The existence of the two categories of labor gives an organization a great deal more control over its internal and external environment than itTHE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 303 would otherwise have. The fact that primary workers are committed to the firm increases the predictability of its internal operations, whereas the existence of the secondary buffer facilitates its general ability to adapt. However, this means of control creates a differential system of status and privilege within the organization that parallels and sustains broader class divisions outside. It means that the vagaries of the business cycle have the harshest effects on the poorer sections of society who belong to the sec- ondary sector and on special groups such as women, ethnic minorities, the handicapped, and poorly educated youths, who form a large part of this labor market. For example, if we examine the occupational structures of many Western societies we find that, on average, minorities and socially disad- vantaged groups have a greater chance of having to perform dirty work for relatively low wages, with little security of employment and few fringe benefits. Secondary-sector jobs are usually left for those who can’t get any other. Employment patterns in this sector of the economy thus end up reflecting social attitudes and patterns of prejudice and discrimi- nation in society as a whole. Some European countries have institutionalized this pattern by allow- ing migrant or “guest” workers from other countries to enter the work- force on temporary visas to perform the jobs that no one else wants. It is estimated that as many as ten million migrant workers are employed in Europe, making up as much as 11 percent of the workforce in Germany and 27 percent in Switzerland. Historically, the ranks of the British working class have always been swelled by immigrants, most recently by immigrants from the West Indies, India, Pakistan, and other Asian, European, and Commonwealth countries. In the United States, it is esti- mated that anywhere between 2 and 12 percent of the labor force consists of undocumented workers from Mexico, the Caribbean, and elsewhere, and African American workers have formed a substantial part of the working class ever since the days of slavery. Since the 1920s they have become increasingly involved in manufacturing and service sector jobs and, despite affirmative action programs, still remain overrepresented in the secondary labor market. Institutionalized discrimination? Or an unintended consequence of industrial development? The debate continues. It is clear that even though the domination and exploitation of disadvantaged groups may not be a stated aim of the modern corporation, it is definitely a side effect. Despite many major advances in employment equity legislation, the implicit or explicit exploitation of employees persists. Modern organizations con- tinue to play an important part in creating and sustaining a relatively underprivileged working class that is now more appropriately described304 SOME IMAGES OF ORGANIZATION as an “underclass” because many of the working class are no longer working and have poor prospects of ever doing so. In creating and rein- forcing the market system for labor, modern organizations continue to favor and reinforce a power structure that encourages people with certain attributes while disadvantaging others. The process reproduces patterns of favor and privilege that symbolize and reinforce underlying socioeco- nomic divisions. From this perspective, modern corporations play a crucial role in producing and sustaining the ills and inequities of modern society. Although the focus has been placed on studying the evolution of orga- nization under capitalism, it is important to recognize that a similar pattern is also evident in noncapitalist societies. As the Berlin Wall has tumbled in a political as well as a physical sense, it has become increas- ingly clear that state-run communist societies reveal similar features. China and the former USSR have always had a clear class structure, with Weber's vision of the iron cage of bureaucracy and Michels’s “iron law of oligarchy” much in evidence. Organization, whatever ideological cloak it wears, seems to give form to systemic patterns of exploitation and social domination. WORK HAZARDS, OCCUPATIONAL DISEASE, AND INDUSTRIAL ACCIDENTS In one of the most vivid and moving chapters of Das Kapital, Karl Marx gives detailed attention to how many employers of his day were working their employees to death in horrific conditions. Quoting from the reports of factory inspectors and magistrates, his account bristles with incredible detail. In the lace industry in Nottingham, “children of nine or ten years were dragged from their squalid beds at two, three, or four o’clock in the morning, and forced to work for subsis- tence wages until ten, eleven, or twelve at night, their frames dwindling, their faces whitening, and their humanity sinking into a stone-like torpor, utterly horrible to contemplate.” Mr. Broughton Charlton, the county magistrate whose words are quoted above, castigated the system as one of “unmitigated slavery, socially, physically, morally, and spiritually.” “We declaim against the Virginian and Carolinian cotton planters. Is their lash, and the barter of human flesh, more detestable than this slow sacri- fice of humanity which takes place in order that veils and collars may be fabricated for the benefit of capitalists?” In quoting reports on the pottery industry in Staffordshire, Marx pro- duces similar facts, relating, for example, the story of William Wood, nine years old, who had been working for over a year from 6 a.m. until 9 p.m., six days a week. Quoting from health reports on how potters were dyingTHE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 305 at an alarming rate from pulmonary diseases caused by dust, fumes, vapors, and so on, he notes the observations of three physicians who had reported how each successive generation of potters was more dwarfed and less robust than the previous one. For example, Dr. J. T. Arledge reported in 1863 how the potters as a class, both men and women, represent a “degenerated population ... stunted in growth, ill-shaped, and frequently ill-formed in the chest ... prematurely old, and... . short lived . . . [dogged by] disorders of the liver and kidneys, and by theuma- tism ... [and] especially prone to pneumonia, phthisis, bronchitis, and asthma.” Reports on match factories in the large cities documented how half the workers were children and young persons under eighteen and how tetanus, a disease long associated with match making, was rife. Reports on the wallpaper industry tell how young girls and children were obliged to work from 6 a.m. until at least 10 p.m., with no stoppage for meals. Working seventy or eighty hours a week, they were often fed at their machines. Reports on the baking industry document how bakers often worked from 11 p.m. until 7 p.m. the following evening, with just one or two short intervals of rest. They were among the most short-lived workers, rarely reaching the age of forty-two. Reports on the clothing industry document how girls and young women were being worked to death on sixteen-hour shifts and on shifts of up to thirty hours in peak seasons. They often worked without a break, being kept awake by occasional supplies of sherry, port, or coffee. On the railways, men often worked fourteen to twenty hours a day, forty or fifty hours of continuous work being common in peak travel periods. In the steel mills, boys nine to fifteen years old were reported working continu- ous twelve-hour shifts in high temperatures, often at night, and not see- ing daylight for months on end. It was Marx’s opinion that capital lived “vampire-like . .. sucking living labor” and that, in general, capital took no account of the health or length of life of the worker unless society forced it to do so. Many people conducting research on health and safety at work today believe that, although the working conditions in the majority of organiza- tions are much better than those described above, many basic problems remain. Many employers take account of work hazards only when legis- lation requires them to do so. Workers in the Third World still often suffer under conditions exactly like those described above, working in subcontracted sweatshops for global corporations, and child labor is rife. Even in developed Western countries, accidents and occupational disease continue to take an alarming toll on human life.306 SOME IMAGES OF ORGANIZATION For example, in the United States the Occupational Safety and Health Administration (OSHA) reports that every year work-related accidents and illnesses cost an estimated 56,000 American lives. On an average day, 17 people are killed in safety accidents, 16,000 are injured, and 137 die from occupational disease. Each year, 700,000 days are lost to injuries and illnesses related to musculoskeletal disorders because of overuse of particular parts of the body. It is estimated that safety alone costs the American economy over $100 billion a year. Data on occupational illness and diseases are more difficult to tie down than those on accidents because the links are often harder to doc- ument in an authoritative way. However, U.S. government estimates sug- gest that as many as 100,000 people a year die as a result of work-related illnesses, It is estimated that anywhere between 23 and 38 percent of cancer deaths may be work related. To put the figures in perspective, the number of people killed by occupational diseases and accidents each year exceeds the number of American lives lost in the duration of the Vietnam War. We're a long way from the Industrial Revolution in terms of general working conditions, but these figures speak for themselves. Despite the major advances in occupational health and safety legislation, the issue of costs versus safety looms large on the unofficial agenda in many corpo- rate decisions. Often, it is the issue of cost that wins. As one safety officer in an automobile factory described it, although the explicit policy is “safety first,” the reality is “safety when convenient.” Many industrial accidents occur because of problems unintentionally built into the struc- ture of the plant and buildings because of poor maintenance or because it is easier or more efficient to work without using safety equipment. Because it is either expensive or incovenient to remedy such problems, nothing tends to get done until someone gets hurt or until the organiza- tion is forced to introduce changes by government regulation. Similar problems arise in relation to the hazards underlying occupa- tional disease. Here, the problems are so pervasive that it is often difficult to know where to begin dealing with them. It is estimated that industry at present creates and uses over 63,000 chemicals, perhaps 25,000 of which would be classified as toxic. Many of these are new, and their long-term effects are unknown. The effects of their interaction are impossible to predict in a comprehensive manner because of the number of possible permutations. In the view of some safety experts, the approach commonly adopted is a kind of trial and error using people in the workplace as human guinea pigs until concrete risks are identified. It is often the most gruesome problems that are brought to our attention, such as the dangers presented to coal miners by black lung, the‘THE UGLY FACE; ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 307 hazards of brown lung for those exposed to cotton dust, the dangers of working with asbestos, or the risks of radiation from nuclear power plants and uranium mining. However, toxic substances of one type or another affect the majority of occupational groups. In a survey of production workers conducted by the Survey Research Center at the University of Michigan, 78 percent reported some exposure to work hazards. Occupa- tional groups such as carpenters, construction workers, laboratory techni- cians, agricultural workers, dry cleaners, firefighters, hospital staff, and even hairstylists increasingly work with chemical substances whose long- term effects are unknown. Even in the modern office building, poor ven- tilation or exposure to radiation from video display terminals can add to the risk of occupationally induced illness of one kind or another. While such risks can be seen as an inevitable side effect of industrial development, those directly involved with the promotion of health and safety at work suggest that employers are often reluctant to admit to hazards even when there is plenty of evidence or early warning signs. The classic case is found in the history of the asbestos industry, which, even now, accounts for approximately 50,000 deaths annually in the United States alone. The risks have been long known. As early as 1918, insurance companies in both the United States and Canada stopped sell- ing life policies to asbestos workers. Yet the industry continued to allow employees to operate without respirators, sometimes in dust so thick that it was impossible to see beyond a few yards. The industry also systemat- ically overlooked the tragic consequences. For example, in his book Death on the Job, Daniel Berman tells the story of asbestos worker Marco Vela. Vela began working in the Johns-Manville asbestos factory in Pittsburg, California, around 1935. In 1959, the com- pany started a policy of conducting medical examinations to detect lung disease. That year a physician paid by the company obtained a chest X ray on Vela and noted the existence of an occupation-related disease. The report contained no recommendation about changing the work environ- ment, and Vela was not informed he was developing asbestosis. In 1962, Vela was examined by another company-paid physician. A chest X ray again showed the presence of lung disease. The patient was told nothing. The same physician saw Vela again in 1965 and ordered another chest X ray. A diagnosis of work-related pneumoconiosis was made. Vela was told nothing. In 1968, Vela was given another routine physical. Although he had a cough and was short of breath and although his X ray showed a “ground glass appearance,” Vela was told by the company nurse that everything was fine and received no information to the contrary from the physician. Later that year he was hospitalized, and he never returned to work again.308 SOME IMAGES OF ORGANIZATION Documents in product liability suits against the asbestos industry in the United States suggest an organized cover-up of the ill effects. For example, a 1980 report on corporate crime by a subcommittee of the U.S. House of Representatives noted that a number of firms in the asbestos industry made out-of-court settlements to asbestos workers who had registered claims, many in the 1930s, well before they admitted to having, recognized the hazard presented by asbestos. The problems continue in the Third World, where international corporations engage in the same dangerous practices, free from the health regulations now imposed in the West. For example, the evidence on haz- ardous factories operated for Western corporations suggests that health and safety practice is often fifty years behind standard practice in their home countries. Besides the hazards in the factories, dangerous chemicals are often dumped in places where other humans, especially children at play, are subject to direct exposure. The history of the modern asbestos industry is every bit as bad as that of the lace and pottery industries in the mid-nineteenth century. Asbestos- related deaths among shipyard and insulation workers continue at high rates; it is estimated that 20 to 25 percent die from lung cancer, 10 to 18 percent from asbestosis, and 10 percent from gastrointestinal cancer. Additional asbestos-related deaths in industries as diverse as steel, automotive-parts manufacture, construction, and building maintenance continue at high levels. Although this case history is one of the more extreme and serious ones, it is by no means untypical. Just as the tobacco industry long denied links between smoking and lung cancer in the interests of profitability, toxic industries seem to resist acknowledging key problems and are reluctant to take action until forced to do so. Economics rules! Just as the early manufacturers of the nineteenth century often worked their employees to death because of losses associ- ated with idle machines, modern industrialists often seem compelled to keep their plants in operation despite statistics suggesting that all is not well. Although workers may prove careless and bad management and negligence often occur, many of the problems are systemic. If accidents are built into the structure of a plant or if the use of toxic chemicals is essential for continued productivity or for gaining a competitive edge, the welfare of the worker frequently takes second place. Despite an early start in Great Britain with the Factory Acts of 1833, legislation has often appeared too late to deal with critical problems and is often difficult to enforce, especially in relation to the threat presented by exposure to toxics. The effect of these is often difficult to prove in a con- clusive way. Many employees bringing compensation claims have found it hard to show employer liability. Of the half million people in the UnitedTHE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 309 States severely disabled as a result of occupational disease, fewer than 5 percent have received formal compensation. Since the passage of the 1970 Occupational Safety and Health Act in the United States and similar legislation elsewhere, the situation has improved. For example, OSHA intervention in the United States has been accompanied by a 50 percent reduction in the workplace fatality rate. Action in relation to specific problems such as brown lung disease in the cotton industry, lead poisoning in battery and smelting operations, accidents on building sites, and grain dust explosions, to name a few, has led to major improvements. But problems still abound. The fact that it is often cheaper to pay accident compensation than to eliminate accidents or diseases by making work safe, and that penalties on firms that continue to operate high-risk plants are not stiff enough to close them down, perpetuate the underlying problem. Also, issues of liability and the threat of “class action” suits from employees with a common grievance lead organizations to adopt a defen- sive posture. Many corporations, like the tobacco industry, marshall their resources to demonstrate that no risk exists. When accidents do occur, organizational prudence suggests that it is much better to let the injured worker sue for compensation than for the organization to acknowledge any responsibility. Legislation often requires the appointment of safety officers in high- risk organizations. But because they are paid by the corporation con- cerned, they often get caught in role conflicts around the economics versus safety issue. Many end up performing a role designed to make their employer look good in the eyes of government inspectors. As a result, the relations between safety officers and inspectors often become an elaborate organizational game, reminiscent of those played between time-and-motion staff and production workers in the setting of work standards, discussed in Chapter 6. As a safety officer in a manufacturing plant tells it, The tactics employed depend on the government inspector. There’s one who usually likes to issue a few minor directives. He's nearing retirement, does not want a fuss, and wants to avoid the paperwork that stems from issuing serious directives. . .. In this case the tactic is to create obvious minor infractions so that the inspector does not have to search for problems. .. . [Thus] items such as exit signs with burnt-out bulbs, or guard rails that are not high enough, are left unrepaired near inspection time. .. . In the case of another younger inspec- tor, renowned to be thorough, and wishing to make a name for himself as hav- ing promotion potential, everything must be up to scratch. Thus, in this case, a particular machine or process which is known to be in marginal condition is examined before the inspection so that modifications can be planned and310 SOME IMAGES OF ORGANIZATION budgeted. Then, when the inspection occurs, the inspector, indirectly, is encouraged to shut down the machine and thus satisfy his own requirements. The approach is successful in minimizing inconvenience and projecting a good image in that we get few instructions for improvement. Organizations work hard to look good in official records by reducing the number or severity of potential hazards identified through various kinds of window dressing. They may do this by influencing the way acci- dents or hazards are classified or by reducing the number of days lost to injury by encouraging injured employees to turn up for work in return for assignments to easy jobs. The attempt to control accidents through legis- lation often encourages this type of response, leaving underlying attitudes and hazards unchanged. Of course, while there are many employers who do not take health and safety seriously, there are also many who do. Similarly, there are many workers who take advantage of the rules, regulations, and com- pensation schemes. The Marxian idea that the majority of employers are unscrupulous “vampires” who willfully suck the blood of labor is no doubt an exaggeration, as is the widespread idea that the majority of workers are fakers and scroungers. While there are many cases at the extremes, the truth stands somewhere in between: In a place consistent with the general idea that in many situations “the bottom line” tends to come first and safety second. The radical critics of modern organization make a strong case in asserting that many organizations continue to advance their interests by exploiting and dominating the health and welfare of employees. WORKAHOLISM AND SOCIAL AND MENTAL STRESS Our discussion up to now has placed principal emphasis on work-related hazards of a physical kind, As such, many of the victims belong to the “secondary” labor market, a fact that again emphasizes the different impact of organizations on different sections of the working population. However, those in the “primary” labor market also become victims of certain hazards, especially those producing vari- ous kinds of stress. Although white-collar workers are, on average, less likely than blue-collar workers to be killed or seriously injured by acci- dents while working on the job or to be directly exposed to toxic hazards, they are often far more likely to suffer from work-related coronary dis- ease, ulcers, and mental breakdown.THE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 311 Coronary disease, often labeled the “management killer,” is being increasingly recognized as a problem affecting many people in stressful work situations. Not only white-collar workers but also blue-collar work- ers and women faced with the problem of managing a family as well as. holding down a part- or full-time job often suffer here. The problem is endemic to stressful situations of all kinds and seems to be the product of a complex network of factors. One’s working conditions, role, career aspi- rations, and quality of relations at work interact with one’s personality to influence personal stress levels and physical and mental well-being. The “Type A” personality, driven by the compulsion to control his or her work environment, ambitious, achievement oriented, competitive, impatient, and perfectionistic, is always a good candidate for coronary problems. Those who work with such a person run risks as well, for the Type A per- sonality often creates considerable tension for others in the workplace. The tension, frustration, and anger that often accompany a sense of power- lessness, such as that experienced by people in dead-end blue-collar and clerical jobs, also increases the risk of physical and mental breakdown. It is estimated that somewhere between 75 and 90 percent of visits to physicians in the United States are stress related, with an estimated cost to industry of between $200 billion and $300 billion per annum. Insurance industry surveys of American workers have found that over 40 percent of employees find their jobs very or extremely stressful. For women, stress is identified as the number-one problem, highlighted as a major concern by an average of 60 percent over all occupational groups. The figures are as high as 74 percent for women in their forties in professional and manage- rial roles and 67 percent for single mothers. Overwork, impossible sched- ules, high uncertainty, fear of job loss, economic problems, work-family conflicts, and other contextual factors are important factors across many occupational groups. High stress also correlates with increasing physical violence in the workplace. Data collected by the U.S. Department of Justice reveal that the number of work-related assaults is now in the region of one million per annum. Homicide ranks as the second leading cause of workplace death overall and ranks number one for women. Each month, five or six employers are killed in employer-directed homicides. Although much can be done to modify the levels of stress and tension experienced at work—for example, through appropriate design of jobs and the attempt to develop balanced relations between work and outside life—it seems that a certain amount of stress is endemic. Indeed, organi- zations thrive on and at times actively create stress as a means of promot- ing organizational effectiveness. Although in the view of many experts a certain amount of stress may be beneficial, undue stress has a costly312 SOME IMAGES OF ORGANIZATION long-term impact on organizations because of illness and lost working time and its negative impact on overall quality of life. The feeling in many quarters is that the problem is almost out of control. The hypercompeti- tion in the global economic environment with the constant drive toward continuous improvement and creative destruction is reflected in hyper- stress in the workplace. Few people feel completely secure in their roles. They have seen Arthur Miller’s “orange peel phenomenon’ all too often in relation to friends, family, or community. The flattening of organizations and associated resource reductions have removed a lot of the slack that used to provide a cushion through which people could moderate organizational pres- sures, Also, information technology has created an expectation of instan- taneous action, even on difficult problems. It has also led to increased surveillance. For example, through the use of sophisticated software and “on-line” information systems, salespeople, telephone operators, produc- tion teams, and service staff can be subject to constant control. Their productivity can be measured and updated every minute of the day. In some offices and manufacturing situations the latest online productivity statistics of individuals or groups may be displayed continuously as a constant reminder of how well or badly one is doing against expectations. Needless to say, work stress in such situations is at an all-time high. Even when people enjoy their jobs, work pressures in the modern corporation can carry the “enjoyment” too far. To get ahead or just keep their current position, many executives and aspiring newcomers feel that they must demonstrate complete identification with what their organiza- tion stands for and comply with organizational norms that demand rushed or missed meals and long hours of work six or seven days a week. The product, of course, is the workaholic. Work becomes an addiction and a crutch, leading to unbalanced personal development and creating many problems for family life. The workaholic tends to be always under pressure, to have little spare time for his or her spouse and children, and to be frequently absent from home. Very often, progress on the career ladder requires frequent change in jobs, often involving moves from one anonymous city to another. The negative impact on home life and the inci- dence of marital and family breakdown is of course enormous. In the case of dual-career families, the strains and tensions are often amplified many times. While the individuals involved ultimately make the choices that shape these events, they are in many cases driven by their desire to com- ply with the norms and values that have become standard practice in the corporate world.THE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 313 ORGANIZATIONAL POLITICS AND THE RADICALIZED ORGANIZATION The idea that organizations use and exploit their employees thus commands a great deal of support and accounts for important attitudes, beliefs, and practices in many organizations. In Chapter 6 we referred to the “radical frame of reference” built on the principle that organizations are class-based phenomena characterized by deep-rooted divisions between the interests of capital and labor (see Exhibit 6.6 and related discussion). The ideas discussed in this chapter help make the rationale of this perspective clearer, They help us under- stand why labor and management have often found themselves in such bitter conflict and why, with the downsizings in executive ranks, many managers now find themselves sharing the same uncertainty and skepti- cism with regard to their role in the modern corporation. From the point of view of a member of the “secondary” labor market who suffers periodic unemployment with the ups and downs of the business cycle, or who is engaged in a low-status job that values and uses few of his or her abilities, or who has suffered from a work-related accident or toxic hazard without compensation, it may make much more sense to understand organizations as battlegrounds than as united “teams” or friendly pluralist coalitions. How can one feel one belongs to a team if one is uncertain whether one will still be employed next week? How can one believe that one is part of a community of shared inter- ests when differences in status and privilege are obvious and rife? It seems quite reasonable in these circumstances to see oneself as part of an exploited and disadvantaged group of people, and to band together with one’s fellows to see what gains and benefits can be extracted from one’s employers. This is what has made unions thrive, making organi tions become divided worlds reflecting and entrenching class di found in the wider society. In extreme cases, these divisions have often become as sharp as those between warring factions, creating “radicalized organizations” such as those often found in mining and heavy manufacturing industries. Here, the difference between white- and blue-collar workers has always been very clear, being symbolized and reinforced every day in terms of the rights and privileges of the different groups. On average, white-collar workers have enjoyed cleaner and safer work conditions, more regular work hours, more fringe benefits, longer vaca- tions, and higher wages than their blue-collar colleagues. They have314 SOME IMAGES OF ORGANIZATION enjoyed corporate cultures that reflect their privilege and which, by implication, affirm the inferior status of their colleagues. Consider, for example, the British vehicle assembly firm where sepa- rate dining rooms were provided for shop-floor workers and white-collar staff, The rooms were next to each other but were worlds apart. In the “staff” dining room one could enjoy lunch and a glass of wine served by uniformed waitresses at an attractive table. In the “plant dining room” one had to line up for self-service food to be eaten at long bare tables with plastic knives and forks. Metal cutlery could be used—provided one paid a deposit! Needless to say, there was no feeling on the part of the workforce that they belonged to the same team as management, let alone that of the shareholders. They knew they were on opposite sides and behaved accordingly. A battleground atmosphere was the norm. Interestingly, with the fiscal cutbacks and job reductions of the 1990s, many white-collar workers have begun to adopt the same position. Even white-collar bureaucracies that used to be regarded as secure and privi- leged middle-class institutions have become radicalized through strikes, lockouts, and battles over job security. In the aftermath, relations often remain strained and hostile, with people acting with minimum trust on the premise that they are always in danger of being exploited in some way. In the 1970s and 1980s when open conflicts between management and labor were at their height, representatives of senior management tended to adopt a unitary or pluralist ideology, emphasizing the need for “team efforts” or a “stakeholder approach” to problem resolution, as a means of reframing the “us and them’ attitudes. But since the 1980s, the battle- ground has shifted, and new tactics and strategies have emerged. The shift to automated manufacturing and the decision on the part of many major companies to relocate operations in lower-wage, nonunion- ized Third World countries have undermined the power of Western trade unions. Faced with a lower demand for labor and the increasing struc- tural unemployment created by plant relocations, support for militant action among union membership has declined. Fear and uncertainty have replaced the sense of power, confidence, and strength that characterized earlier times. This has opened the way for management to more or less dictate the terms of labor-management negotiations and to obtain a rever- sal in basic conditions of employment that in the heyday of unionism would have been completely unthinkable. The trend has been so dramatic and extreme that in continental Europe it has become known as the “new brutalism.” The ruthless drive for effi- ciency and “bottom line” profits at the expense of human concerns and considerations is seen as more or less shifting capitalism back into theTHE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 315 nineteenth and early twentieth centuries. Management ideology is seen as serving the needs of capital accumulation above all else. News of the “latest layoffs” are frequently accompanied by news of “record profits,” highlighting the conflict of interest between labor and capital expressed by Marx and the radical frame of reference. Interestingly, the critique is no longer confined to left-wing radicals. It has become mainstream. For example, amid the corporate downsizings of the mid-1990s, Newsweek magazine ran a cover-page article on “Corporate Killers.” It featured the photographs of leading chief executives accompa- nied by details of their salaries, often many millions of dollars per annum, and the number of employees that had been “downsized” during the pre- vious few years: 74,000 at GM, 60,000 at IBM, 50,000 at Sears, and 40,000 at AT&T, to name just a few. The fact that such a conservative magazine would use such an extreme image to capture the reality of corporate life symbolizes the increasing concern and cynicism that people hold about the role and interests of the modern corporation. In Germany, where the system of codetermination has established joint labor-management committees at the most senior corporate levels, the above trend has been resisted. There has been a deliberate attempt to integrate the interests of labor and capital. Work sharing has often replaced layoffs, and there has been a deliberate attempt to maintain wage levels and social benefits. But with the development of globalized low-wage production systems, it is very difficult to preserve national poli- cies. The global economy doesn’t respect national boundaries insofar as the economics of production are concerned. While rules about “local con- tent” may require global corporations to produce locally if they are to sell in these markets, the tendency in many globalized industries is to shift to low-cost manufacturing centers, wherever they may be. The battle between labor and management is thus now being fought on a global stage and is intimately connected with the role of multinationals in the world economy. It is to this dimension of the radical critique of organiza- tions that we now turn. Multinationals and the World Economy The operation of the world economy is domi- nated by the activities of giant corporations, usually referred to as multi- nationals (MNCs) or transnationals (TNCs). They account for over 70% of world trade. In 2003, Fortune Magazine reported that the 53 largest cor- porations had annual sales ranging from $55 billion to $263 billion. The largest corporations, including names such as Exxon Mobile General316 SOME IMAGES OF ORGANIZATION Motors, Wal-Mart, BP, Royal Dutch/Shell, General Electric, Toyota, Total, ING Group, and Hitachi, have annual sales figures that exceed the gross national income (GNI) of many nations (see Exhibit 9.3). No wonder, therefore, that they have been described as sovereign states that have a major impact on international politics and the world economy. Multinational corporations with headquarters in the United States, Europe, and Japan, called the Triad, dominate the list of the largest com- panies. Up until the early 1970s, hegemony of United States’ multina- tional corporations was undisputed. From the 1970s to the mid-1990s Japanese companies became a dominant force. More recently, companies from China and other Asian countries have begun to appear among the multinational giants. The largest multinationals include oil, automobile, electronics, telecom, insurance, retail, and a variety of other business activities. Typically they operate in countries throughout the world. Most have diversified interests and are controlled by shareholders; some are fully or partly government owned. Of course, transnational corporations have been with us for a long time. The Venetian city-state in the fifteenth century was heavily involved in international finance, and large international trading companies such as the Dutch East India Company and the Hudson Bay Company devel- oped commercial operations on many continents as early as the seven- teenth century, However, it is in the late nineteenth and early twentieth centuries that we witness the growth and proliferation of multinationals along with developments in the capitalist world economy. Large, special- ized corporations were among the first to appear, amassing a great concentration of economic resources and near monopoly power with operations in many countries. Around the middle of the twentieth century a new development emerged along with antitrust legislation designed to curb the influence of such organizations, namely, the emer- gence of diversified conglomerates. Diversified conglomerate multina- tionals developed as firms attempted to control supplies of crucial raw materials, to develop a portfolio of different types of investment, to hedge the risks associated with location by operating in many places at once, to engage in defensive foreign investment that protected them from the vagaries of the business cycle or the policies of any single host govern- ment, and to open up new markets for products that were reaching a stage of maturity in older markets. Some of the conglomerates developed as large firms acquired interests in new areas of activity; others developed very rapidly through series of financial transactions that built giant conglomerates from humble begin- nings. The latter development occurred with amazing speed during the‘THE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 317 GNP of Revenues GNP or Revenues Rank Gillions $US) Rank illions $US) 1 United States 11,0125 52" Nippon Telephone & 982 2 Japan 43608 Telegraph, 3 Germany 2,085.4 53 Malaysia 96. 4 United Kingdom 1,680. Sa" ING Group 958 5 France 15216 55 CitiGroup 947 6 China 14167 56 Egypt 938 i Italy 1243.1 57 Singapore 90.2 8 Canada 7739 58 Venezuela 896 9 Spain 7004 59* International Business 89.1 10 Mexico 374 Machines 1 Korea (Republic) 5764 60 Philippines 877 2 India 5707 61* American 813 13 Brazil 4795 International Group 4 Australia 4364 6 Colombia 805 15 Netherlands 4255 63" Siemans 805 16 Russian 3748 64" Carrefour 797 Federation 65 Pakistan 718 7 Switzerland 2989 66" Hitachi 764 18 Belgium 267.2 67* Hewlett Packard 730 19 Wal-Mart Stores 263. 68 Czech Republic P28 20 Sweden 2588 69" Honda Motor* 72 2 we 2325 70" McKesson 695 22" Exxon Mobil 2228 71 Chile 687 2B Austria 2169 72" US Postal Service 685 24 Saudi Arabia 208. 73* Verizon 677 25* Royal Dutch/ 2017 7A® Assicurazioni 667 Shell Group Generali 26 Poland 201.6 75* Sony 663 2 Norway 1978 76" Maaisushita Bleciric 66.2 2B Turkey 1977 Industrial 29* General Motors 1953 77 Nissan Motor 687 30 Denmark 1808 78 Nestle 654 31 Hong Kong 1762 79" Home Depot 648 (China) 80 Hungary 643 32 Indonesia 1735 Sit Berkshire Hathaway 638 33° Ford Motor 1645 82" Nippon Life Insurance 638 34 Daimler 1566 83+ Royal Ahold 4 Chryster 84" Deutsche Telecom, 63.1 35" Toyota Motor 1534 85 New Zealand 622 36 Greece 1459 86 Algeria 615 37 Finland ui 87 Peugeot 613 38 Argentina 1401 88* Altria Group 607 39 ‘Thailand 1358 89" Metro 606 40" General Electric 1341 90" Aviva 597 41 Iran 1331 git Eni 593 2 South Africa 1259 92% Munich Re Group 59.0 43 Portugal 1232 93" Credit Suisse 589 4° Total 7184 94" State Grid (China) 583 45" Allianz 149 9 Peru 58.1 46 Chevron Texaco 1129 96" HSBC Holdings 576 oo bxa 119 97 BNP Parabas 572 48 Israel 1085 98" Vodaphone 568 9 Ireland 1078 99* Cardinal Health 568 50 Conoco Phillips 994 100" Fortis 566 51* Volkswagon 986 Exhibit 9.3 1994 Comparison of Country GNPs and Annual Sales of the Largest Multinationals “Multinational corporations SOURCE: World Bank Development Indicators Database and Global 500: World’s Largest Corporations. Fortune, July 2004318 SOME IMAGES OF ORGANIZATION 1960s as financiers took advantage of the stock exchange boom accom- panying the Vietnam War, acquiring or merging with company after com- pany. To take one very spectacular example, in just ten years Harold Geneen transformed ITT from a loosely knit group of international tele- phone companies into a centralized conglomerate with 331 subsidiaries and another 771 subsidiaries of subsidiaries, with operations in seventy countries. For eleven years, from 1959 to 1970, ITT climbed from fifty- second to ninth place on the Fortune list of top companies. As journalist Anthony Sampson reports in his analysis of the affairs of ITT, Geneen’s spectacular success was paralleled in many other corporations. Gulf and Western was quickly built up from a small firm making car fenders into a conglomerate of 92 companies in a range of industries as diverse as min- ing, sugar production, publishing, and show business. Litton Industries developed from a million-dollar electronics firm into a conglomerate of over 100 companies in less than ten years. The overall trend toward larger and more diversified organizations that dominated the 1960s is reflected in the figures on industrial concen- tration. In 1948, the two hundred biggest industrial corporations in the United States controlled 48 percent of the manufacturing assets, but by 1969 they controlled 58 percent. By the early 1980s the top one hundred manufacturing companies controlled 48 percent of total manufacturing, assets. This strong pattern of centralized control has been sustained through- out the century, but as Peter Drucker has noted, it has been accompanied by an increasingly broad-based pattern of ownership through the influences of pension funds and other channels of institutionalized investment. The trend has produced a form of “postcapitalist society” where the logic of accumulating capital still drives the system, but with rewards accruing to a new detached group of “owners.” THE MULTINATIONALS AS WORLD POWERS These developments have had major repercus- sions on power structures throughout the world. Many modern organi- zations are larger and more powerful than nation-states, but, unlike nation-states, they are often not accountable to anyone but themselves. For example, research has suggested that the activities of many multina- tionals are highly centralized, their foreign subsidiaries being tightly con- trolled through policies, rules, and regulations set by headquarters. The subsidiaries have to report on a regular basis, and their staff are often allowed very little influence on key decisions affecting the subsidiary. Chief executives in foreign countries often become branch managers,‘THE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 319 developing local initiatives but within the policies set at the center. Because it is headquarters that actually controls the executive's future in the corporation, central concerns will almost always override local ones. The resources of the multinationals are also usually managed in a way that creates dependency rather than local autonomy. Whenever we examine the multinationals, therefore, we are quickly brought face-to-face with their monolithic power and the fact that the twentieth century has witnessed a worldwide transformation where, as business historian Alfred Chandler has put it, the “visible hand” of man- agement has replaced the “invisible hand” that Adam Smith saw as guid- ing competitive market economies. The power is not just economic. It is cultural and political as well. Note, for example, the global marketing alliance struck between McDonald’s and Disney. In coming together in this way, the two companies have created a global force that will have a massive socializing impact on youths throughout the world. Of all organizations, the multinationals come closest to realizing Max Weber’s worst fears with regard to how bureaucratic organizations can become totalitarian regimes serving the interests of elites, where those in control are able to exercise power that is “practically unshatterable.” Even though ownership is now widely diversified, and in an idealistic sense reflects what Peter Drucker calls “pension fund socialism,” governance is still highly centralized. The “owners” are not really in a position to know what is happening, especially on a detailed level, because multinationals usually control a network of subsidiary companies. Power is firmly concentrated in the hands of senior management. Historically, the name of the multinational game has been to achieve global dominance through worldwide sourcing of raw materials at the lowest possible price, with a view to producing and selling goods and services in the most profitable markets. The old model was one where the multinational would operate from its home base, for example, the United States, and penetrate foreign markets at a distance. Now the tendency is to create a strong simultaneous presence in a number of key areas of the world. For example, renowned strategy expert Kenichi Ohmae has suggested that the late twentieth century has seen a shift toward what he calls “triad power”—a simultaneous penetration and presence in Japan, the European Community, and North America, Instead of selling “clone” products and services throughout the world, international companies now find ways of getting inside these three power bases with differentiated goods that tap regional markets to an optimum degree. This calls for new strategies and the use of joint ventures and international consortia through which differ- ent companies leverage each other’s strength. This creates strange bedfel- lows. Consider, for example, the alliance between companies like GM and320 SOME IMAGES OF ORGANIZATION ‘Toyota. Competitors such as these can leverage each other's distribution, production, and other strengths in mutually beneficial ways. If a US. based manufacturer can link with European and Japanese companies with strengths in distribution, considerable gains can accrue to all. ‘As Kurt Mirow and Harry Maurer have shown in their book Webs of Power, multinationals have long engaged in this kind of collaboration through the medium of international cartels, even though these are illegal in many countries. They have also reduced competition by entering into home-market protection agreements that establish exclusive territories that competitors will avoid, or where competitors will content themselves with existing market shares, leaving the dominant firm with no competition except from small domestic firms outside the cartel, “Hunting ground” agreements have often defined the degree of competition that is to be allowed in foreign markets, with preference usually being given to patterns of traditional market dominance. Agreements in relation to the exchange and transfer of technology and patent rights have reduced competition in this sphere as well. With the new patterns of international alliances, all this has developed to a new level of sophistication. The practices add to the already immense power of the multinationals in an important way, not least because they help to prevent mutually destructive battles between the giants, by controlling the ground and terms on which they will fight. The efforts of multinationals to control their environments also extend into the realm of politics itself. As is well known, big corporations often use their immense lobbying power to shape the political agenda and to create political outcomes favorable to themselves. In this, perhaps more than any other single activity, the political significance of multinationals as world powers comes to the fore, as they are often in a position to exert major influ- ence on host governments, especially when a nation is critically dependent on their presence or on some aspect of their operations. While the issues on which a multinational wishes to exert its influence are usually economic, the corporation often becomes directly and sometimes illegally involved in the political process. For example, when the economic aims and objectives of a multinational are in conflict with the line of development favored by a host government, it is very easy for the multinational to become embroiled in activities designed to shape the economic and social policies of the govern- ment. As a result, it may be drawn into the political arena and become explic- itly political and ideological in its activities, although usually acting behind the scenes. The classic and infamous case is ITT’s involvement in the affairs of Chile, where it plotted in 1970 to stop the election of Marxist president Salvador Allende. Conspiring with the CIA, ITT sought to create economic chaos within Chile and thus to encourage a military coup, with the company offering to contribute “up to seven figures” to the White House to stop Allende coming to power.THE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 321 The multinationals are a major political force in the world economy and, for the most part, a political force without political accountability. The Chilean episode, although extreme in its characteristics, highlights a much more general set of problems relating to the contradictions that arise when strong authoritarian powers like the multinationals are allowed to exist in democratic states, for they are in a position to make complete non- sense of the democratic process, obliging governments to be more respon- sive to corporate interests than to those of the people who elected them. We can see now why advocates of the radical frame of reference point to the existence of the multinationals as yet further evidence of the gen- eral antagonism of interests between people and corporations. The sheer power of the multinationals, and the associated cartels, alliances, and interlocking patterns of ownership and control that bind them together, combine to create a world economy dominated by organizations where the power of the corporate official often dwarfs that of the elected politi- cian and that of the public at large. MULTINATIONALS: A RECORD OF EXPLOITATION? Advocates of the multinationals often see them as positive forces in economic development, creating jobs and bringing cap- ital, technology, and expertise to communities or countries that might have difficulty developing these resources on their own account. Their critics, though, tend to see them as authoritarian juggernauts that are ultimately out to exploit their hosts for all they can get. The argument identifies the horns of a major dilemma in that the policies that serve the interests of a multinational firm may not be in the best interests of the community or nation in which the firm is located. Hence, given the immense power of the multinational firm, its hosts often find themselves having to rely on a benevolent social responsibility on the part of the multinational. The record of the multinationals in this regard, however, leaves a great deal to be desired. The highly centralized systems of decision making frequently mean that centralized corporate interests relating to the prof- itability, growth, or strategic development of the multinational as a whole take first place in decision making, with localized community or national interests taking second. Thus, when strategic considerations lead the execu- tive staff of a multinational to divest its holdings in a particular industry, to close down a particular plant, or to restructure its operations internationally, the consequences can be devastating for the communities and countries involved. Consider, for example, how the shift in search of cheaper, non- unionized labor has led many firms to leave relatively high-priced cities in Canada and the northern United States for locations in the southern states,322 SOME IMAGES OF ORGANIZATION Mexico, Brazil, or Asia. The effect has been to create large areas of regional and urban decline. The effects are particularly marked in small communities where the decision of the multinational to close down operations of a major plant can remove the economic lifeblood of the community. Regional exodus also creates massive structural unemployment, increasing welfare rolls and intensifying the fiscal problems faced by governments. The bitter irony is often that many of these decisions are made not because a particular plant or set of operations is unprofitable, but because the corporation believes that it is possible to eam greater profit elsewhere. Similar developments are found in the decaying industrial and mining centers of Europe, where the closure of coal mines and steel mills leads to the economic and social decline of whole regions. As in the case of Willy Loman in Arthur Miller’s play, these communities often feel that they have been used and sucked dry and are now being thrown away because they are no longer needed. The feelings of resentment and exploitation are particularly severe when the plants or mines being closed are profitable but not profitable enough from a corporate standpoint. ‘That corporate and community interests are not always synonymous is a truism common to all organizations, not just the multinationals. But the scale of operations among the latter is so enormous that it makes the con- sequences of their decisions especially great. We have illustrated the point by focusing on how changes in corporate strategy, even if only to increase rates of profit, can set the basis for widespread socioeconomic change. In a similar way, the decisions of multinationals to move their liquid capital from one country to another to take advantage of interest rate differentials can have a major effect on the international balance of payments of the countries concerned. Or a decision to pursue a particular line of corporate development can have a major effect on national and regional economic planning, distorting the pattern of relations that the host region or nation wishes to encourage. For these and many other reasons, communities and nations often find themselves wishing to attract multinationals while also fearing the conse- quences because they know that the underlying sets of interests may be in fundamental conflict. Some nations, such as Canada, where foreign own- ership in many sectors of industry runs at levels well over 50 percent, have formally recognized that such conflicts exist and have tried, without success, to codify the conditions under which the multinationals will be allowed to operate within their domains (Exhibit 9.4). However, there is a dilemma in that the more a host government attempts to control the practices of the multinationals, the less attractive their investment in that country becomes. Hence, multinational and nation-state often end up ina relation of dominance and dependency, or as rival power blocs, each attempting to shape the conditions under which the other is to operate.THE UGLY FACE: ORGANIZATIONS AS INSTRUMENTS OF DOMINATION 323 Up to now, it seems that the multinationals have been winning the battle. Increasingly, nations are having to recognize that they cannot really man- age or control what goes on within their own boundaries. The impact of multinationals on Western countries may be damaging, but their impact on the Third World has undoubtedly been much worse. Critics see them as modern plunderers, exploiting natural and other resources for their own ends. Of course, the multinationals do not see themselves in this way. They see their activities as helping develop the underdeveloped world amid the difficulties created by unfavorable publicity about the wrongdoings of a socially irresponsible minority, by propaganda against big business leveled by critics on the “left,” and sometimes by hostile and ungrateful foreign governments who fail to honor contracts. Although multinationals, recognize that their activities In 1974, the Canadian government established the Foreign Investment Review Agency (FIRA) and adopted guidelines for good corporate behavior. They serve to highlight areas in which conflicts of interest between government and multina- tionals may arise. Canada’s Twelve Good Corporate Behavior Principles (as They Related to Alleged Objectionable U.S. Subsidiary Policies) Guiding Principle Alleged Objectionable Practice 1, Full realization of the company’s growth and operating potential in Canada. 1. US-based corporate planners institute expansion and cutback plans without regard for Canada’s plans and aspirations. 2. Make Canadian subsidiary a 2. The Canadian subsidiary is primarily self-contained, vertically an assembler of imported parts or integrated entity with total distributor of goods produced. responsibility for at least one elsewhere so operations can be easily productive function. shut down or transferred. 3. Maximum development of 3. Filling export orders to third-country export markets from Canada. markets from the USS. stock ears credits for U.S. balance of payments rather than Canada’s. 4, Extend processing of Canada’s | 4. Have as few as possible materials- raw materials through processing stages in Canada to maximum number of stages. minimize political leverage. Exhibit 9.4 Potential Conflicts of Interests Between Multinationals and Nation-States (Continued)