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When all your best employees are going broke

This piece started out as a solicited submission to Harvard Business Review for their "List of Breakthrough Ideas." After careful review, it was decided that the senior executives that are the target audience of this publication would find my breakthrough idea "counterintuitive," and I was asked to look for evidence of my breakthrough idea's effectiveness. So, if you are a senior executive and would like to try a novel approach to running your business, please give this a try, and let me know how you make out.

The combination of skyrocketing food and energy costs, rising medical costs, falling real estate values and stagnant wages is putting increasing numbers of workers in financial distress. A distressed workforce can hardly be a productive workforce, and companies must do whatever it takes to make it physically possible for their employees to function. What can companies do to remedy this situation? The obvious step of increasing wages not only puts additional pressure on the bottom line, but can also fuel wage inflation. Also, It may also not be the most effective approach.

A better approach is to treat the company and its employees as an economic unit: a single household, with a common set of costs. These costs can be cut very effectively by trading off slightly higher company costs against significantly lower employee costs. Each additional dollar paid out in wages is taxed as income, trimming it by about a third. It is then spent in the retail chain, generating profits for retailers and service providers, trimming it by another half or more. This same dollar can be stretched much further if the company uses it to buy products wholesale and makes them available to its employees either free of charge or for a nominal fee.

Many families are struggling with rising food costs. To help them, the company commissary can provide not just breakfast and lunch, but take-home dinners for the entire family. Periodically, it can provide other take-home items such as frozen chickens purchased in bulk, fresh organic vegetables from local CSA (Community-Supported Agriculture) farms, or a basket of popular foodstuffs purchased wholesale and assembled in-house.

Many employees are finding that their daily commute is eating ever deeper into their budgets because of the increasing price of fuel. In many cases, their ability to relocate closer to work is complicated by the stagnant real estate market and the higher price of housing closer to population centers. Telecommuting can help, but is only feasible for certain types of work. Here, the company can help by providing dormitories close by, which would allow employees to commute every other day, or even just once a week. For the younger, single employees, this may allow them to avoid spending money on housing altogether.

There are numerous other ways that a company can use its vastly greater negotiating power to effect significant savings for its employees while incurring a comparatively small additional cost. Examples run from directly providing family medical care through a company clinic to providing vacation packages at cost by renting out an entire vacation resort at a lower, negotiated group rate.

But perhaps the greatest opportunities for cost reduction lie in areas where employees' own efforts can replace services or products they would otherwise be forced to purchase, be it taking care of their elderly relatives instead of putting them in assisted living, or spending time with their children instead of paying for day care, or growing their own food in a community garden instead of shopping at a supermarket. Here, the company has to be willing to accommodate shorter working hours, trading off the slightly lower efficiency of having more part-time employees against the resulting vastly greater efficiency of the company community when it is viewed as a single household.

There is no need to couch such initiatives in purely negative terms of cost containment. Here is how Eric Schmidt, CEO of Google, sees it: "The goal is to strip away everything that gets in our employees' way. We provide a standard package of fringe benefits, but on top of that are first-class dining facilities, gyms, laundry rooms, massage rooms, haircuts, car washes, dry cleaning, commuting buses - just about anything a hardworking employee engineer might want."

If you feel that such special treatment may be required for the pampered software artists at prosperous Google, but not for your own employees, then take a look at the long list of benefits enjoyed by the enlisted men and women of the US Air Force, which includes 30 days a year of paid vacation and unlimited free air travel. This is a fine example of making the best use of what you have to make a difference for your employees: if what you have is plenty of jets, then why not let your employees travel as much as they want?

Although the results of such efforts may at first be difficult to quantify, should they succeed, the resulting competitive advantage is likely to become obvious. Let your hard-nosed competitors try to run their businesses with distressed, disgruntled, overworked employees, while you reap the benefits of loyalty, solidarity and ésprit de corps. In due course, this should make your competitors attractive as acquisition targets. One ready objection that this proposal normally encounters runs along the lines of “If everybody did this, the economy would collapse.” If it were implemented across the board, this would cut retailers and the government out of their share of your earnings, reduce both corporate profits and government expenditures, shrink the overall size of the economy, making it unable to sustain a large and growing national debt, and hasten economic collapse and national bankruptcy.

But it is clearly a mistake to consider it likely that this proposal would be implemented by more than a handful of companies. Overwhelming numbers of corporate executives would regard it as professional suicide, because financial markets punish companies that put the interests of their employees ahead of those of their investors. And it seems equally outlandish to think that the actions of a few mavericks could significantly hasten economic collapse and national bankruptcy. In short, the macroeconomic effects of this proposal are not interesting. It is far more interesting to consider the notion that it is possible to safeguard a company and its employees against a continuously worsening economic environment, even onto complete economic and political collapse. The steps proposed in this article can be regarded as baby steps in that direction. The remaining steps are varied and far more difficult, and are beyond the scope of this article.

Editorial Notes: It's interesting that the "Harvard Business Review" found Orlov's idea too strange to include in their list of breakthrough ideas. This is perhaps a comment on their lack of historical background, since Dmitry's idea has been tested and found successful in many countries undergoing bad times. In his recent book, Reinventing Collapse, Dmitry described how businesses and industries kept employees and their families going in the face of economic and political collapse in the former Soviet Union. During the Depression in the U.S. and other countries, one family member with a good job could keep an entire extended family going. The memory of the financial insecurity of the 30s was one of the reasons that many corporations after World War II offered employees pensions and other perks. In exchange, employers expected loyalty and commitment. For 15 years I worked for Hewlett Packard, which had one of the best employee programs around. I can testify that the approach works. As Dmitry says, it can lead to "loyalty, solidarity and ésprit de corps." For a variety of reasons, corporations generally no longer treat employees this way. Dmitry may be ahead of the curve right now with his proposals, but if hard times come again, he will be proved prescient. In other news from ClubOrlov... Dmitry's classic Closing the 'Collapse Gap' is now available in French: L'Union soviétique était mieux préparée à l'effondrement que les États-Unis. Radio interview at KBOO -BA

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