ILO ENTERPRISE FORUM 96

Enterprises and Jobs: Jobs in the Network Enterprise

Discussion paper by Dr. Manuel Castells, Professor of Sociology and of Planning, University of California at Berkeley

Flexibility versus employee commitment

Flexibility of the economy versus stability of the society

Employee training versus human capital development

References

The new business world: Networks and firms

Firms are experiencing substantial transformations related to the new technological and economic environment. In some cases, the emphasis is on the emergence of a new, flexible production system, made of cooperative networks of small and medium firms, as in the well-publicized cases of northern Italian districts, or of Hong Kong manufacturers until the 1980s. In other instances, subcontracting and outsourcing between large and small companies is the method of flexibility. Another option is for large corporations, particularly multinational corporations, to decentralize their units, increasing their autonomy to the limit of competing between themselves. Smaller and leaner is certainly beautiful management in the information age.

But the trend is not only towards the desegregation of business activities, but towards the cooperation between units. Thus, large companies rely on vast networks of suppliers, whose quality and responsibility are critical for the success of the larger company. In some cases, like in Japan or the Republic of Korea, suppliers are generally loyal to one company; but in other cases, like in the United States, or Western Europe, Taiwan, China or Hong Kong, suppliers have alternative connections to different clients. The complexity of the new business system does not stop there: large companies, and particularly multinational companies, constantly set up “strategic alliances” - that is, agreements with other companies, sometimes competitors, in specific processes or product lines. These strategic alliances are limited in space (they may be country-specific), time (they are valid for a certain period only), and purpose (they may be on technology, but not on markets, or vice versa). Since every major company uses this strategy, and they all constantly change their purpose, the actual behaviour of companies is organized around a network of variable geometry. Allies of today may be competitors of tomorrow, or allies in technology in the United States market may be fierce competitors in securing government contracts in Asia. Furthermore, the more multinational companies operate on a global scale, the more they diversify themselves in each country, setting up specific relationships to each institutional environment and actually becoming part of national economies, while still remaining multinational corporations. New information and transportation technologies are critical in making possible this complexity to work as a system.

What emerges from all these trends is a new business form: the network enterprise. By such I do not mean a network of enterprises, but the actual unit of business operation, made up of different companies or segments of companies, as well as of consultants and temporary workers attached to specific projects. The agents of the business project form, for each project, an enterprise that is defined by the task, by the performance, not by its legal boundaries: this organized system of agents, focused on one particular project at a given moment, is the actual operating unit of the new, flexible economy. New information/communication technologies provide the basis for companies to proceed with their flexible networking, either across the world, or across the street, going into the homes where millions of educated, active women are increasingly ready to become the new flexible labour force, bypassing the regulated male labour force of traditional workplaces.

The network enterprise truly revolutionizes labour relationships and increases competitiveness. But its social effects are potentially disruptive and its impact on productivity does present some negative aspects, unless it is combined with new labour policies and training practices, adapted to the transformation of work in the information economy. I will deal with both issues in the following sections.

Technology and jobs: Myths and reality

The promises of productivity, flexibility and creativity offered by the new techno-economic system should have generated a climate of reasonable optimism in economies throughout the world. And yet, the dominant feeling is one of malaise, with the important exception of a number of tigers, elephants and dragons, in the rapidly industrializing Asian economies. An important reason for such defensive reaction to structural transformation is the deep-seated myth that new technologies, overall, destroy more jobs than they create, thus plunging economies and societies in an era of mass unemployment that undermines the financial basis of the welfare state. Let us be clear on this matter.

As the 1994 OECD Job Study showed, along with a vast specialized literature on the matter, new technologies both eliminate old jobs and create new ones; what is more, by enhancing productivity and stimulating the growth of aggregate demand in the global economy, they may contribute to raise the level of employment, mainly by incorporating into the job market women who were previously inactive. In fact the employment problem in the world economy overall has not worsened in recent years, with the important exception of Western Europe. There is however a serious decline in the working conditions and wages of millions of workers, as well as in job stability and career predictability around the world.

Thus, while Japan and the United States have the most advanced technological production system, Japan keeps unemployment down to about 3.5 per cent, and in the United States over 8 million new jobs have been created between 1993 and 1996, of which 60 per cent are in professional and technical occupations, thus upgrading the overall occupational profile. However, the dynamism of American economy in job creation also presents negative trends: declining real wages and social benefits for most workers, loss of job security, and increasing income inequality.

In contrast, in the European Union - minus the United Kingdom - wages and social benefits for full-time employed workers fared better than in the United States, although private business hardly created any new jobs, on balance, between 1975 and 1994. The comparison in the evolution of employment in Western Europe, the United States, Japan and the Asian newly industrializing countries in the last 20 years shows the disparity of trends: Europe, with its very low employment growth is the exception, not the rule. Even manufacturing employment has increased substantially in recent years in the world at large: between 1971 and 1989, while the number of manufacturing workers declined substantially in OECD countries, the total number of manufacturing workers in the world increased by 72 per cent. Thus, two phenomena are at stake: a trend of productive decentralization and sectoral shift from manufacturing jobs to advanced business services, social services and consumer services in the OECD area, and a geographic shift from industrial growth from the OECD to newly industrializing areas in Asia and Latin America.

As for the concerns of Western European countries, their poor performance in job creation is basically due to two reasons: (a) a one-dimensional strategy of equalizing macroeconomic parameters in all European Union economies in order to achieve a single currency in a few years, leading to macroeconomic policies that discourage investment; and (b) an institutional environment that penalizes enterprises by putting an excessive burden on them in the financing of social security and welfare benefits, actually functioning as a tax on job creation. The priority given to the social benefits of a secure labour force over the creation of new jobs for youth and women blocks the entry in the labour market for the new generations of workers. Without deep institutional reforms of the labour market, European enterprises will either lose competitiveness or use new technologies to escape from the need to hire new workers - a misuse of such new technologies.

Networkers and flextimers

If the new techno-economic system does not induce mass unemployment, except when the rigidity of the institutional framework freezes the labour market, it does change fundamentally the content of work and the nature of labour relations. On the one hand, productivity depends on the capacity and motivation of the labour force to process signals and make decisions in an ever-changing productive environment. On the other hand, the flexibility required by the new business environment, and allowed by new information technologies, leads to the flexible work process, both inside and outside the firm.

The development of the network enterprise favours a diversity of contractual arrangements between capital and labour. To put it bluntly, the full­time career-seeking, long-time salaried employee is an endangered species. In most economies, the system is evolving towards a core labour force of valued employees, distinct from a very diverse pool of workers that become part-timers, temporary workers, self-employed, or high-turnover workers. In England, birthplace of the Industrial Revolution and pioneer in the mass salarization of the labour force, if we add together self-employed, part-time, and temporary workers (even accounting for some overlapping), we end up with 40 per cent of the labour force. A similar calculation for G7 countries yields between 25 and 40 per cent of the labour force in the early 1990s. And the proportion is growing. Part-time and self-employment are the fastest growing occupational categories in most advanced economies.

This trend does not concern only the low-skill categories - and it does not necessarily induce, as it is too often assumed, dualization of the social structure. High-value labour is discovering the interest of consultancy and self-employment, very often combined with a salaried job. Occasional work is not a sign of low skill, but of the interest for firms, and in some cases for workers, to bypass regulations, and increase flexibility of work and life. In the low-skill groups, the interest for casual cooperation comes from the firm, not wishing to be bound to a labour force that can be easily replaced or found when necessary. In the high-skill groups, it is on the contrary most often the interest of workers to negotiate different arrangements with different firms in the network in order to maximize their chances, building their own security system for the future. Thus, at both ends of the scale, we are witnessing a fundamental new trend in labour relations in the information age: the individualization of labour conditions and labour contracts, reversing the trend towards the socialization of labour that characterized the industrial society.

Challenges for the firm: Personnel management
in the age of flexibility

The process I have described seems impossible to check. There is no turning back to the large-scale, salaried system of full-time, long-term employment. Even Japan is characterized in fact by a very significant secondary labour market of part-time and temporary work that provides the necessary flexibility. Indeed, the Choki Koyo system (customary, life employment for the permanent labour force of large enterprises) may be called into question in the near future, except for an increasingly selective core labour force. The interdependence of countries in the global economy, and the demonstration effect of management procedures in the network enterprise, operate as mechanisms of diffusion of the new flexible system, and its associated pattern of individualized labour relations. Countries that isolate themselves from this predominant pattern in the global economy will do so at their risk.

However, those who welcome the coming of the new era of flexibility and individualization often overlook some major problems that could undermine economic productivity and social stability. Here are the dilemmas:

Flexibility versus employee commitment

This is probably the most formidable challenge to ensure productivity growth in the new management system. On the one hand, flexible employment practices reduce the intensity and stability of long-term partnership between the enterprise and its workers; on the other hand, best management practice and productive work in the enterprise depend by and large on the commitment by workers to the goals of the enterprise. Commitment is essential not only for the motivation of workers to engage in formal training, and to enhance their creative capacities, but also because of the importance of what Nonaka calls “tacit knowledge” in generating and diffusing productive practices in the firm. This “tacit knowledge” develops over time, out of the experience of the worker in the firm. Yet, how might temporary workers acquire such knowledge, and why should they accept to contribute it to the firm, thus undermining their own personal, professional capital, if the contractual relationship is uncertain, and temporary? Thus, while flexibility enhances competitiveness, it may undermine productivity, which is, ultimately, the solid basis for progress both for enterprises and for the economy as a whole.

Flexibility of the economy versus stability of the society

The golden years of economic growth in the world (1950-75) may be attributed to social stability and a steady improvement in living and working conditions at the time, as a result of the social contract reached between management and labour in the main capitalist countries. Social stability made possible long-term investment and long-term consumer lending, because of the predictability of economic growth and of the functioning of institutions. With the breaking down of a system of stable rules, and the growing individualization of labour relationships, it is the whole system of social security and collective bargaining procedures that is being called into question. Global networks bypass local societies that tend to resist, and become defensive. The notion of a collective interest is seriously weakened. At the level of the enterprise the split between the interests of capital and those of the staff results in emphasis being laid on financial deals and budget management - to the detriment of the enterprise as a meaningful unit and to the benefit of finance capital that tends to maximize its profits out of the productive sphere. Thus, the breaking down of the social contract and the weakening of social partnership will not lead to a renewal of class struggle (given the process of labour individualization), but may lead to a dissolution of the enterprise, affecting negatively both managers and workers.

Employee training versus human capital development

In the new information economy, firms need to train workers to their specific needs. But technology, management and markets change at an extraordinarily fast pace, so that skills have to be redefined constantly. Thus, the best training system is not the one that provides currently needed skills, but the one that enables workers to reprogramme and retrain themselves over a lifetime. Indeed, it is usually thought that in the new economy, the average worker will change profession (not just job) four times in his/her working lifetime. Therefore, the enterprise can handily train the most valuable workforce by itself: it has to rely on the educational institutions of society as a whole. While vocational training performed well in the former, industrial economy, colleges and universities have assumed a much more important role in the new, information economy. This raises two major issues: on the one hand, the unsolved problem of university reform has to be tackled with the full cooperation of the business world; on the other hand, because skills will become increasingly generic as opposed to firm specific, workers will not be locked into single career paths dependent on one enterprise. Therefore, overall, the pattern of human capital development increases flexibility, and undermines the control of the firm, while the pattern of employee training binds the worker to the company, but makes him/her less adaptable to the changing needs of the enterprise. Autonomous professionals versus dependent executants seems to be the new polarity emerging in the labour force. The enterprise will have to participate in the educational system at large and find a system of incentives to attract the high-skilled labour force, able to programme itself.

Only by facing these dilemmas, and designing appropriate strategies to tackle them, will enterprises and workers progress together in the new global economy of the information age.

References

M. Castells: The Information Age: Economy, Society, and Culture. Volume I: The Rise of the Network Society (Oxford; Blackwell, 1996).

K. Imai: Joho netto waku shakai no tenbo (The information network society) (Tokyo, Chikuma Shobo, 1990).

W. Sengenberger and D. Campbell (eds.): Is the single-firm vanishing? Enterprise networks, labour, and labour institutions (Geneva, ILO, International Institute of Labour Studies, 1992).

C. Freeman and L. Soete: Work for all or mass unemployment (London, Frances Penter, 1994).

M. Carnoy and M. Castells: Sustainable Flexibility. Work, community and family in the information age (Berkeley, University of California, Center for Western European Studies).