General Motors, that sluggish titan of the old economy, eliminated about 125,000 blue-collar positions in North America over the past decade—one-third of its continental workforce. Laid-off factory workers were advised to update their skills if they wanted to successfully rejoin the job market. I wonder how many of them, encouraged by gung-ho career counselors, signed up to learn computer programming skills, only to be fired in the dot-com meltdown?
Now it is announced that Nortel Networks is laying off 30,000 workers, one-third of its workforce. These displaced computer nerds and internet wizards are learning a hard lesson. They may work in the new economy, but their lay-off notices come in the same colour: pink.
Apparently it doesn't matter how smart you are, or how up-to-date
human capital. Whether you work in the new economy or the
old economy, you stand a good chance of being shown the exit when your
employer's bottom line starts to bleed. What new skills will the
career counselors suggest for the laid-off Nortel workers? I thought
they had the new skills.
To be sure, there are some important differences between the layoffs at Nortel and those at General Motors. The Nortel workers got canned a lot quicker. And since most were not union members, their severance packages were a lot stingier. So much being ahead of the knowledge curve.
But for the most part, the Nortel layoffs reinforce my long-standing
suspicion that the
new economy looks a lot like the
For example, both old-economy and new-economy firms can lose incredible amounts of money. Nortel is warning of an incredible $19.2 billion (U.S.) loss for its second quarter. That's one of the worst quarterly losses in corporate history (world corporate history, not Canadian corporate history). Coincidentally, only General Motors ever lost more in a single three-month period, with its $21 billion (U.S.) write-down in the first quarter of 1992.
Meanwhile, Nortel employees—like the GM workers before them—are finding out that when the going gets tough, the bosses look after themselves. Nortel CEO John Roth topped last week's Report on Business survey of Canadian executive compensation, taking home a cool $71 million in 2000. His company, meanwhile, placed dead last in RoB's list of the most profitable Canadian companies, posting a $3 billion loss. (That's a lot of red ink, but it's small change compared to the gargantuan loss Nortel will book this year.)
To be sure, much of Roth's compensation last year consisted of stock option gains, and any Nortel shares that Roth subsequently kept are now worth a fraction of their former value. Nevertheless, even as Nortel crashed and burned, Roth took home enough old-fashioned money—the kind printed by the Mint, not by Nortel's treasury—to keep him in good plonck for his golden years. Roth made $20 million in cash salary and bonuses over the past 3 years. Unlike his 30,000 laid-off workers, he's not losing sleep over how to pay the mortgage.
In their commitment to looking after their own, Nortel's executives are carrying on a long and honourable tradition pioneered years ago by old-economy companies. Indeed, perhaps the biggest difference is merely the extravagance with which new-economy executives are rewarded, even as workers lose their jobs and shareholders lose hundreds of billions of dollars. For instance, former GM CEO Robert Stempel took home a mere $3 million (U.S.) in cash salary and bonuses in the 3 years prior to his forced 1992 retirement. So despite the dot-com meltdown, perhaps microchips are still better than cars—for senior executives, anyway.
Meanwhile, compared to the bleak 1990s, GM now looks like a veritable hot prospect. Its shares are up 20 percent so far this year, a breath of old-economy fresh air for stock markets staggered by the high-tech meltdown. It was if once the company hot bottom in 1992, it had nowhere to go but up.
Perhaps this same principle can give hope to Nortel's
shareholders. The worst is surely behind them. And think of what could
happen on the way back up. Indeed, a newly-discovered mathematical
theorem—we might call it
Roth's Law—proves that
reported percentage changes look bigger when something is growing,
than when it is shrinking. Nortel shares have lost 90 percent of their
value, falling from $125 to $13. Suppose they now bounce back to
$26. (Some might call this the
dead cat bounce.) That's a
100 percent gain. Sure, you're still out by almost $100 a
share. But a gain of 100 percent, after a loss of only 90 percent,
might make you feel better.
And if you believe that, I've got some shares in an Indonesian gold mine that might interest you.