The Blindness of Corporate Cost Cutting - What Do You Think?

I keep hearing stories of employees in the same job for 10, 20, 30, 40 years being laid off. They thought they were safe - great at their work, well liked and vital to the team. At the top, some executive says cut $1,000,000 or more from your staff budget and suddenly none of the value that employee brings to the company matters. Fired, laid off, downsized, rightsized...

So what effect does that produce in the company? When long-term staff disappears, sometimes with little notice, it produces a seismic shift that shakes everything. Morale tanks and everyone gets afraid and/or angry. People start looking around for financial safety nets because there is no certainty. The continuity of projects and campaigns is damaged. Employees work more and more hours to pick up work that used to be covered by staff who are gone. Burn out increases and the work is done faster or less comprehensively by exhausted people. Quality diminishes and the corporate identity is damaged. Freelancers come in because the company does not have to pay health care for them. Good for me as a freelancer but... The advertising firm where I worked went from about 1500 people to about 500 and the effect on all of us was shocking. Trust is deteriorated and, when a company no longer seems to care about their employees, they begin to care less too.

And what effect does corporate cost cutting have on the economy? The economy is always either expanding or contracting. According to the National Bureau of Economic Research, since 1945, an average recession lasts 18-24 months and an average expansion lasts 5-6 years. Even more interesting, there is a lag time to their reporting because the Bureau makes their assessment publicly ONLY AFTER two quarters of GDP decrease (recession) or increase (expansion). There's an opportunity in that gap for prosperity. Companies are still not hiring, holding on to their reserves. Banks are still not loaning, causing businesses to purchase less inventory. Individuals and families are not spending because uncertainty in the job market means people are holding back money for emergencies, buying necessities instead of wants. Investors Business Daily has a category called the Consumer Confidence Index because people buy and sell stocks based on their trust in the company and product. The economy also grows on confidence and trust so when that's missing, we expand more slowly or not at all.

Obviously, this is simplistic and only barely touches on the why and how companies cut costs and their consequences. Of course, companies need to be fiscally responsible. What is striking for me is how disconnected upper management and accounting departments become from the staff executing the company's work. Cutting money costs without careful consideration does not take into account people costs, company costs and quality costs. The human suffering from all these layoffs and the high unemployment lives, in my opinion, primarily in the feeling of powerlessness, uncertainty and secrecy which makes it difficult for individuals to plan competently for their own financial security and prosperity.

OK, it's not fair but I'm throwing this out with no solutions really, only questions. What are your experiences, comments or questions about this topic? Do my observations jibe or differ with what you see?