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In Defense of Downsizing

Sometimes layoffs are the only choice.

Mar 15, 2010, Vol. 15, No. 25 • By ANDREW B. WILSON
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Corporate managers in this country are not obsessed with wanting to downsize their companies. To the contrary, all of the CEOs I know are obsessively looking for ways to secure the long-term growth of their companies​—while being mindful of the need to preserve short-term profitability at a level that will permit continuing investment in the future.

As most people will recall, the Great Recession that began in 2007 was not even remotely connected with “overzealous downsizing.” It began with the collapse of the housing market, which led to the financial meltdown and the end of the idea that housing prices, stock prices, and personal borrowing could go up, up, and up​—more or less forever.

What had been a relatively mild recession grew increasingly ugly in 2008 as millions of people realized that they would have to cut back hard on spending, given the grim realities of a sudden loss of personal wealth and suddenly reduced access to credit. Between June 2007 and November 2008, Americans (more than 93 percent of whom were still gainfully employed) saw more than a quarter of their collective net worth disappear through sharp declines in home prices and the value of their retirement accounts.

The factors that, so far at least, have prevented a cyclical recovery include a simple lack of demand and multiple economic uncertainties. Producers and consumers alike are worried about the threat of higher levels of taxation, and many are aghast at the spectacle of a government that seems blindly determined to press ahead with a new health care entitlement program that is massively expensive and demonstrably unpopular.

The big threat to today’s economy is not corporate downsizing, but government upsizing.

Andrew B. Wilson, a former BusinessWeek bureau chief in Dallas and London, is a business writer and consultant living in St. Louis.

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