One of my friends has been made redundant. He is 55 years old. He used to be a very successful manager in a pharmaceutical company. He wrote about 100 letters of application and received nothing but negative replies. His discussions with various head hunters were initially promising, because his reports and references were extremely good. However, by now it is realistic to assume that he will not get another job. He is too old. If you are older than 50, you hardly stand a chance, unless you build your own small firm.
Why is that so? At the age of 55, you have approximately 10 years of gainful employment ahead of you. If you are 30, you will most likely want a career and therefore probably see the firm just as a starting point towards future success elsewhere. A “youngster” in a company is subjected to a rather time-consuming trainee program. The company invests heavily in him. But how often have I myself seen people eager to do a trainee program in one firm and then, now with even better qualification than before, apply for a job in another company?
One of the reasons for this rubbish seems to be the neglect of a model by the “Freiburger Schule”. The “Freiburger Schule” developed the program on which Ludwig Ehrhard’s social market economy was based. The actual “inventor” of social market economy was probably Alfred Müller-Armack, but it was Ludwig Erhard who applied it politically. The model shows the production factors of an enterprise.
The production factors:
Among the hard factors are:
Labour: the contribution towards the product value by the employee.
Capital: money invested and ready to be invested.
Property: has been replaced either by environmental use or, in the case of banks by investment capital. I guess a bank hardly consumes environment.
Among the soft factors are:
The company culture: the way people treat each other in a company. It was Johann Gottlieb von Herder who first defined the modern term “culture”. He meant it as the living (starting, developing and ending) concept of a social being. Company culture shows what is being nurtured in a special way in an enterprise; the importance of results, communicative competence, conflict solving, virtue, knowledge.
Mobility is physical and mental mobility. Physical mobility can be experienced both passively and actively. Employees can be moved to another department, but this should not happen against their wishes. Mental mobility expresses the ability to understand new concepts well, fast and reliably.
Knowledge gets its prominence from the fact that our current, post-modern society is an information society. What matters here is the percentage of the production factor “knowledge” in the total product value. And in my opinion, this is higher today than it used to be. The same is probably true for services. However, I am sure that neither an information society nor a service society can survive by itself. But what is knowledge? If you mention Machiavelli, then the answer will often be “the ends is more important than the means”, even though Machiavelli himself never wrote that sentence (at least I found it in none of the translations I could lay my hands on). I guess Francis Bacon with his “scientia est potential” is a similar case. Read in the correct context, it probably should have been more like “power of knowledge”. Taking into consideration that Bacon lived between late 1500 and early 1600, the etymological meaning of the term “power” was probably closer to his heart than it is today: Power is Know-how, ability and capacity to make a difference. We might therefore translate “scientia est potentia” as “knowledge is ability to act”. That would also take care of the aspect of having to solve problems in an enterprise.
This is how knowledge, although only a soft factor, becomes an important production factor. When we talk about knowledge, we do not mean the mere information, which can easily be gained through computers or the internet, but the knowledge processed for the actual managerial situation. It is paramount to activate that knowledge which is able to solve managerial problems. That is a factor often destroyed by enterprises these days. Through their own redundancy politics, many companies abandon an enormous part of their vital knowledge. Many employees who have spent most of their lives in a company take huge amounts of knowledge with them, never to be used again.
The preference of hard factors in more than a few enterprises might well accelerate their downfall. In the long run, only an allocation of all the six productive factors makes a company a success.
Another reason is that labour, according to the Cobb-Doglous formula, is replaced by capital and knowledge (i.e. the hard factors).
In a capitalist system, the cost of labour is kept at the lowest possible level, the same is true for the investment in the environment. Any enterprise that does not adhere to this is at a disadvantage.
The situation is now that all managers try to keep labour and environmental costs as low as possible in order to maximize capital. This is a world-wide phenomenon.
That means that capital is the resource which, in the long run, is the least costly.
In countries with low-cost labour, it is not economically prudent to substitute capital for labour. Moreover, if environment is also available at cheap rates, it will also be used.
The problem the western world faces seems to be that it is still economically competitive and thus should use the environment as a free commodity. At the same time, labour is replaced by capital as soon as it gets too expensive. That means you have to make the labour force as small as possible. Where this cannot be done, you export labour. This is exactly what happens, but everybody is surprised.
Regardless of it being outrageous, if some people say that in Germany the law against firing people is too strict, they are correct. The national economy suffers greatly under a law that forbids certain substitutions of expensive labour by capital. And the same law restricts the use of the environment, too. Consequently, companies leave for countries where it is allowed.
The Cobb-Douglas formula is important because in a capitalist society, we wish to achieve the optimum value for Y. Living in a capitalist society; we try to replace labour by capital as far as possible. Wherever machines can do the work of humans, it happens. That means that the factor labour can be neglected. Global capitalism can economize on labour to an ever-growing extent – especially in sectors where new areas of profitable production are opened up. Labour and the organizations representing it get less and less important and influential. Thus, inequality gets a new meaning: There is a class distinction between those who have work and those who do not. Unemployment is no longer an individual (often only temporary) problem, but a structural element of society. Moreover – as aforementioned – the type of unemployed people will change. While during the first (machines driven by humans) and second (machines driven by energy) industrialisation unskilled labour had their places, they will no longer be needed in the third (information-based) industrialisation
The unemployment problem in the western hemisphere is caused by us applying Cobb-Douglas formula to the letter and substituting machines for labour.
Now the question is not only about replacing labour by capital, but also which kind of labour to replace. This is exactly where managers focus totally on costs, rather than on internal value. Since an older employee is usually more expensive than a young one, the old one is made redundant. If the company would take the value exploitation into consideration, it would soon be obvious that the older employee mostly has a far higher internal value than the young one. But unfortunately, the alleged efficiency is more important. An employee is allegedly efficient if he is the first in the office every morning, seldom calls in sick, is very creative and has the reputation of getting things done. This efficiency says nothing about value exploitation.
The de-humanisation of humanity
Underlying this sentiment is a deep de-humanisation of humanity. The concept of humanity is reduced to a mere function The more useful someone is in his or her function, the more important he or she is. That is the rule. I am sure there are exceptions to the rule that you are no longer needed among the labour force if you are older than 57. If you have reached that age, your reputation is automatically that you are senile and slow-witted. Alzheimer’s disease can already be spotted. It is quite amazing that this concept of humanity is widely held and yet most of those who hold it are not even aware of its inadequacy. Mind you, I am not denying that there might be situations when it is ethically responsible to make older employees redundant. But then the ethical responsibility has to manifest itself in a responsible weighing of priorities. Which is exactly what is often missing.
The idealization of youthfulness is part of our inhuman treatment of the elderly. It is stupid to hire two trainees who will make the typical beginners’ mistakes and spend several hundred thousand Euros on their training while at the same time sending an older employee into early retirement that again costs us a hundred thousand Euros. There used to be a time when politicians advised early retirement in order to make jobs available for the young generation! After some time, this got too expensive for the state. To this day, the unions want a legal manifestation of the part-time model for the elderly. Occasionally, this has been made part of labour contracts. Fortunately, some legislation has intervened. It would have been logical to put all the burden for such a procedure on the shoulders of the employers.
What is interesting is that the theory of early retirement has a tendency not to apply to the managerial elite. The reasoning is that directors, etc. should work past their 65th birthday, because “a longer use of their experience, higher continuity on the managerial level and keeping their know-how” is beneficial to the company. What a pity that, apparently, this does not seem to be true for the industrial “labourer” or employee in a medium position.
To be sure, it is imprudent to assume that there is automatically a correlation between old age and experience. The process of ageing is a chance to gather more experience. However, the interpretation process that should be coupled with gathering experience is not necessarily a question of age. It is more a question of intellect, an individual’s willingness to process information and learn. These days, we have the unfortunate situation that soft factors (creative knowledge, mental and physical mobility and company culture) are set to zero. The only possible exception is the physical mobility, in that we want an employee to be a potential world-wide player.
We have created a cult of youthfulness that does not make sense. It is neither economically nor anthropologically justifiable. For an enterprise, the economical side is what counts. Making an employee who is in his fifties redundant does not make sense economically. The code of conduct shown to older employees by the companies sees to it that the tendency towards using younger people increases, rather than decrease. The reason for this senseless behaviour is the dogma: ‚As a matter of principle, young people are fitter than old’. This may be true for purely physical labour, but automatically applying it to mental fitness is rubbish. At first sight, it even seems plausible to say: “If someone can run a hundred metres faster than someone else, then he must be better qualified to do other jobs, as well”, but for a company it is quite stupid to say this.
The exploitation of value is what counts
What is important in an enterprise is not the employee’s age, but the extent to which he exploits the value. The question is who, due to his or her experience, attitude towards clients, products, special interests inside and outside the enterprise, can achieve this. Taking this into consideration, the elderly do not do badly. However, it is always the elderly who are first made redundant, which costs the enterprises excellent know-how.
There is a pyramid of value exploitation. Its peak, due to the then starting lack of mental flexibility and resistance against innovation, is around the age of 50. The value of a 50-year-old roughly equals that of a 30-year-old. A 60-year-old can be compared to a 25-year-old. Thus, making older employees redundant does not make sense. By doing that, an enterprise disregards the inter-personal relationships of an older employee. Since they have taken decades to grow, these relationships are economically quite important. If you abandon them, you have to invest enormously in order to have young employees re-establish them adequately.
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