Social Deficits

In his book, The Culture of the New Capitalism, Richard Sennett states that large scale structural changes currently occurring in the corporations are resulting in increases in three social deficits: low institutional loyalty, diminished informal trust among workers, and weakening of institutional knowledge.

Sennett explains that in the modern corporate world the employee is viewed to be on his or her own. If you need health care don’t look to the corporation, instead you need to buy your own. Want a pension? Forget it, better start putting money in a 401K and an IRA. Don’t even think that you have job security for there is someone in India that your job could be sent to tomorrow.

But this lack of loyalty works both ways. As corporations abandon any loyalty to their employees then the workers begin to lack any sense of loyalty to their employers. Hence, when times get tough for the corporations management is shocked when employees refuse to take cuts in pay or benefits.

Trust is also passé in the new capitalism. Sennett points out that trust takes time to develop. But in the high-paced modern corporation employees struggle to keep up with demands of both the market and shareholders. Reorganization has become the norm, which prevents employees from forming informal bonds of trust.

Finally, the new capitalism creates conditions where institutional knowledge is lost. In the old bureaucratic capitalist businesses employees on the floor learned the system. In fact, the lower employees often better understood how to work the system than management. The rise of distance and the high turnover of employees this knowledge is now being lost. Corporations try to compensate for the lost with new technologies but it doesn’t solve the problem.

As it turns out these three social deficits are not unique to the new capitalism. It’s simply that these deficits are dramatically increasing in magnitude. So what is the source of these three deficits? Sennett references to Mark Roe, a legal scholar, who states that the source of the three social deficits is due to “separation of ownership from control.” Managers try to build loyalty, trust, and institutional knowledge within corporations but the shareholders, who have no day to day control of operations, have the ultimate power.

The problem of the three social deficits wouldn’t occur in an economic democracy because the workers of the cooperative enterprises would have both ownership and control over the operation. Workers could insure their needs are taken care of. The workers of the cooperative enterprise would naturally develop loyalty because the economic enterprise would be their own creation. Trust would develop naturally between the workers of the enterprise because cooperative enterprises by nature are stable allowing for long term relations to develop. Finally, this long-term stability would also translate into the retaining of institutional knowledge by the workers.