[Excerpt] Best known as a business and economic historian, William (Bill) Lazonick may often escape the view of academics in human resource studies, organizational behavior, and labor relations. This is a mistake. Lazonick\u27s new book, Sustainable Prosperity in the New Economy?, is a must-read for scholars and students in these fields. He has chosen to study an important problem in the real world, has marshaled detailed empirical evidence to support his argument, and has used this evidence to critique conventional theory in economics and management

Batt, Rosemary

Lee, Jae Eun

English

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[Review of the book Sustainable Prosperity in the New Economy? 
Business Organization and High-Tech Employment in the United 
States] 
Rosemary Batt 
Cornell University, rb41@cornell.edu 
Jae Eun Lee 
Cornell University 
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[Review of the book Sustainable Prosperity in the New Economy? Business 
Organization and High-Tech Employment in the United States] 
Abstract 
[Excerpt] Best known as a business and economic historian, William (Bill) Lazonick may often escape the 
view of academics in human resource studies, organizational behavior, and labor relations. This is a 
mistake. Lazonick's new book, Sustainable Prosperity in the New Economy?, is a must-read for scholars 
and students in these fields. He has chosen to study an important problem in the real world, has 
marshaled detailed empirical evidence to support his argument, and has used this evidence to critique 
conventional theory in economics and management. 
Keywords 
human resource studies, organizational behavior, labor relations, economics, prosperity 
Disciplines 
Human Resources Management | Labor Relations | Organizational Behavior and Theory 
Comments 
Suggested Citation 
Batt, R. & Lee, J. E. (2011). [Review of the book Sustainable prosperity in the new economy? Business 
organization and high-tech employment in the United States] [Electronic version]. Industrial and Labor 
Relations Review, 64(5), 1061-1063. 
Required Publisher Statement 
© Cornell University. Reprinted with permission. All rights reserved. 
This article is available at DigitalCommons@ILR: https://digitalcommons.ilr.cornell.edu/articles/946 
BOOK REVIEWS 1061 
might have worked well for the United States in 
the 1950s and early 1960s, but they either per- 
formed miserably or inflicted irreparable damage 
on the American economy as industrialized and 
industrializing nations challenged U.S. economic 
might. President Nixon's devaluation of the U.S. 
dollar in 1971, for instance, provided a short-term 
boost to the American economy, but ironically, it 
laid the groundwork for permanent trade deficits 
that would haunt the United States for the re- 
mainder of the century. President Carter's well- 
intentioned attempts to reform the tax code in 
1978 led, through a combination of incompe- 
tence and faltering faith in Keynesianism among 
congressional Democrats, to a massive windfall 
for Wall Street at the expense of middle-class tax- 
payers, who then joined the anti-tax revolts of the 
late 1970s and exacerbated the electoral misfor- 
tunes of the Democratic Party. 
This book should be required reading for any- 
one seeking to understand how the economic re- 
structuring of the 1970s led to our current age of 
inequality. It is a masterful study of the history of 
capitalism that is driven not by ideology but by a 
clearheaded interpretation of historical events 
and patterns. At the same time, Stein's assertive 
dismissal of social and cultural history in the 
book's preface may, unfortunately, alienate the 
very historians who most need to read this book. 
Her critique of the "backlash" thesis is to be com- 
mended, and Stein is quite right to ignore the 
bizarre cultural fads that are overemphasized in 
popular treatments of the decade. The book 
would have been stronger, however, if readers 
were given more sense of how people outside 
of Washington, D.C. - rank-and-file workers, 
business owners and managers, middle-class 
consumers - experienced and understood the 
economic world that was crumbling around them. 
Statistics on GDP and on trade deficits provide 
clear evidence of the crisis of American capital- 
ism that unfolded in the 1970s, but such numbers- 
driven analyses have the unfortunate result of 
privileging the viewpoints of the very people - 
economists and policymakers - whom Stein blasts 
for failing to understand what was really at stake 
in the period. The author's nuanced political his- 
tory is nonetheless clearly a significant contribu- 
tion to the field, and her sharp intervention i
contemporary debates over taxes, regulation, and 
trade is a welcome change from the ideological 
screeds that unfortunately constitute most of to- 
day's economic discussions in Washington, D.C. 
Shane Hamilton 
Department of History 
University of Georgia 
Sustainable Prosperity in the New Economy ? Busi- 
ness Organization and High-Tech Employment in 
the United States. By William Lazonick. Kala- 
mazoo, MI: W.E. Upjohn Institute for Em- 
ployment Research, 2009. 357 pp. ISBN 
978-0-88099-350-0, $25 (paper). 
Best known as a business and economic histo- 
rian, William (Bill) Lazonick may often escape 
the view of academics in human resource studies, 
organizational behavior, and labor relations. This 
is a mistake. Lazonick's new book, Sustainable Pros- 
perity in the New Economy ?, is a must-read for schol- 
ars and students in these fields. He has chosen to 
study an important problem in the real world, has 
marshaled etailed empirical evidence to support 
his argument, and has used this evidence to cri- 
tique conventional theory in economics and 
management. 
Lazonick focuses on labor and the prospects 
for sustainable productive nterprises that will 
support the U.S. economy. The central labor 
problem he addresses is the dramatic rise in job 
instability and inequality in recent decades - the 
highest since the last great depression. This 
change, he argues, is driven by a central business 
problem: a shift in corporate strategies away from 
investment inproductive innovations towards in- 
vestment in financial engineering. That is, Lazon- 
ick locates the problems of sustainable enterprise 
and employment squarely at the level of firms, or- 
ganizations, and the decisions that real people 
make - not at some abstract level of market liber- 
alization and globalization. 
Lazonick's important contribution to the lit- 
erature is to make the link between changes in 
capital strategies and operational and employ- 
ment strategies. His analysis is particularly timely 
as we observe the behavior of firms in the current 
post-recession period. U.S. corporate profits have 
reached historic highs, corporations are sitting 
on trillions in cash that they will not invest in pro- 
ductive activities, and unemployment - which 
inched downward in 2009 and 2010 with help of 
government stimulus packages - had risen again, 
to 9.1% by mid-2011. 
What accounts for this paradox? According to 
Lazonick, under the "old economy" business 
model, the success of investors, managers, and 
workers was linked together; but in the new econ- 
omy model, these actors' welfare is decoupled. 
Chapters Two and Three develop these argu- 
ments. The critical difference between the two 
models is in how capitalists make money. In the 
"old economy," also referred to as managerial 
capitalism, firms made money by using retained 
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1062 BOOK REVIEWS 
earnings, or profits, to invest in new technologies 
and to expand into new product and geographic 
markets. Shareholders were rewarded with steady 
dividend payouts. This investment logic had im- 
portant organizational and employment implica- 
tions. Firms built internal capability by develop- 
ing and patenting their own technologies, 
vertically integrating supply chains, and depend- 
ing importantly on firm-specific skills, guaranteed 
through HR practices that tied employees to the 
firm. These included organizational careers with 
progressive pay increases, defined-benefit pen- 
sion plans, medical insurance for active and re- 
tired employees, and often, union representation 
for workers. 
In the industrial relations literature, this 
model was described by Peter Doeringer and 
Michael Piore as an internal abor market, de- 
signed to induce long-term employment rela- 
tions. In the strategic HR management literature, 
this model is the basis for Jay Barney's resource- 
based theory of the firm. Successful firms develop 
a sustainable competitive advantage by drawing 
on valuable and rare resources and developing 
firm-specific human capital and organizational 
routines that are difficult toreplicate. In the orga- 
nizational performance literature, this model has 
been defined as the high involvement or high 
commitment approach to HR and employment 
relations:. Firms invest in the skills and training of 
the workforce, organize work to allow employees 
to use those skills effectively, and provide rewards 
and employment s ability that induce long-term 
commitment tothe firm. 
These theories now appear irrelevant to cor- 
porate actors who embrace the new economy 
business model, as outlined by Lazonick. In this 
model, spearheaded by Silicon Valley firms 
backed by Venture Capital, firms rely much more 
on buying and selling assets to gain or shed capa- 
bilities and innovate. They modularize produc- 
tion across subcontractors in a global supply 
chain and treat labor as interchangeable mod- 
ules. Because firm-specific skills are not viewed as 
central to making money, employment contracts 
are insecure, short erm, and non-union. Employ- 
ers don't need to pay for defined benefit pensions 
to induce long-term relations; moreover, employ- 
ees bear higher costs for insurance and absorb 
many of the market risks of doing business. 
New economy information and communica- 
tions technology (ICT) firms used this model in 
the 1980s and 1990s to invest heir etained earn- 
ings and foster innovation. They were successful. 
In the 2000s, however, they came under increas- 
ing pressure from Wall Street to deliver higher 
stock returns. They, along with U.S. corporations 
more generally, began using retained earnings to 
buy back their own stock, which enriches the 
earnings of shareholders as well as top manage- 
ment, whose pay is tied closely to the price of 
company stock. This shift from "retain and invest" 
to "distribute" earnings threatens to undermine 
innovation and sustainable enterprise. 
This is the book's critical argument. It is not 
just the shift from an "old" to "new" operations 
and employment model that matters, but the shift 
in how capital is deployed. Here, Lazonick argues 
that U.S. firms in general are increasingly driven 
by financial calculations to maximize shareholder 
value, decoupling investment strategies from pro- 
ductive strategies and undermining innovative 
capacity. Increasingly, investors and managers 
are no longer performing their job in the real 
economy - they are not building sustainable n- 
terprises. Instead of re-investing earnings in inno- 
vations to compete in a knowledge-based econ- 
omy, they are using capital to buy back stock, 
enrich themselves, and use the gains to buy and 
sell other businesses. 
What's the evidence for this narrative? Here, 
Lazonick builds on his two decades of research 
on the history of the American corporation and 
the market for corporate control. He then 
grounds his analysis in new research on the spe- 
cifics of the ICT industry, which has been at the 
forefront of creating the new economy business 
model. His methodology is instructive for stu- 
dents in HR, organization studies, and labor rela- 
tions. By adopting an industry lens, he grounds 
his evidence in the specifics of how the develop- 
ment of new technologies intersects with new 
product markets, business strategies, and new de- 
mands on labor markets. His command of indus- 
try breadth is complemented by in-depth case 
studies in Chapter Three. In it, he illustrates how 
the new economy model spread from Silicon 
Valley to old economy firms - successfully in the 
cases of IBM and HP, unsuccessfully at Lucent 
Technologies. In the current parlance of organi- 
zational behavior and HR, he adopts a multi-level 
analysis of the intersection between the changing 
regulatory environment, markets, organizations, 
and economic actors. 
Examining the transformation of employment 
relations more deeply in Chapter Four, Lazonick 
traces the shift in long-term employment and pen- 
sion systems in the top 20 new economy ICT com- 
panies, followed by detailed case studies of IBM 
and the traditionally unionized telecommunica- 
tions services firms. These stories of the disinte- 
gration of long-term labor relations are juxtaposed 
against the globalization of high-tech labor mar- 
kets in Chapter Five. Although organized labor 
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BOOK REVIEWS 1063 
has never been popular among college-educated 
professional and technical workers, or the ICT 
industry more generally, the need for employ- 
ment protection became evident o these workers 
as they began to compete with high-tech workers 
in Asia by the late 1990s. Linking the actions of 
public policy makers and corporate actors, Lazon- 
ick shows how the two worked together to pro- 
duce the transformation of global high-tech mar- 
kets. Asian government investments in 
infrastructure and primary, secondary, and ter- 
tiary education created the conditions for foreign 
investors to capitalize on skilled, cheap labor. U.S. 
corporations imported skilled labor to compete 
with U.S. workers via the politically contentious 
H-1B and L-l visa programs; and they provided 
the capital for ICT factories and Research and 
Development (R&D) labs in Asia, which in turn 
employed highly-trained ICT workers returning 
from U.S. Science and Engineering graduate pro- 
grams. At the same time, U.S. educational institu- 
tions were deteriorating. 
How does this analysis of the ICT industry re- 
late to Lazonick's initial question about sustain- 
able prosperity? He notes in Chapter Six, for ex- 
ample, that globalization in and of itself need not 
threaten the ability of U.S. corporations to com- 
pete. But the United States is not making the kind 
of investments needed to create sustainable co- 
nomic development. Changes in U.S. tax codes 
and financial deregulation have supported capi- 
tal strategies that focus on shareholder wealth ac- 
cumulation. Increasingly, these strategies rely less 
on investments in innovation in productive enter- 
prises, and more on stock market speculation and 
repurchases of corporations' own stock. Lazonick 
has spearheaded research on this last point in 
particular; and in this chapter, the empirical evi- 
dence on overall trends and specific ompany ex- 
amples is overwhelming. To illustrate, for the pe- 
riod 2000-2007, 19 of the top 50 Standard and 
Poor (S&P) 500 Corporations distributed more 
cash to shareholders through stock buybacks than 
they generated in net after-tax income. Moreover, 
the leading ICT corporations - such as Microsoft, 
Cisco, Intel, Oracle, Texas Instruments, IBM, HP, 
and Dell - had stock repurchase payouts that 
exceeded their investments inR&D in the 2000s 
(p. 233). These actions, Lazonick argues, are key 
to understanding the massive redistribution f
wealth in the United States in recent decades. 
Returning to the lessons for organizational be- 
havior, HR, and industrial relations, Lazonick's 
last chapter is instructive. Here, he links his re- 
search on U.S. corporations and the ICT industry 
to a series of policy proposals designed to address 
the problem of sustainable prosperity. Lazonick 
does not glorify the old order or advocate its re- 
turn. He notes instead the need for greater fed- 
eral investment ineducation and reform of labor 
and employment laws, and in particular calls for 
new policies to regulate corporate governance 
and the stock market to eliminate speculation 
and manipulation. 
Unfortunately, the Dodd-Frank Bill, passed 
after the publication of Lazonick's book, does lit- 
tle to address the power of financial capital and 
the kind of stock price manipulation that he 
painstakingly documents. Even if this piece of leg- 
islation had risen to the demands of its occasion, 
it would have only marked the beginning of the 
reregulation process, a first step toward meeting 
the breadth and depth of the new economy chal- 
lenge that Lazonick documents so thoroughly. As 
his study makes clear, creating a new sustainable 
economy will take the kind of sustained political 
activism and political will that was necessary to 
build the old economy model in the first place. 
Rosemary Batt and lae Eun Lee 
Industrial nd Labor Relations School 
Cornell University 
Globalization, Employment, and 
Labor Standards 
Solidarity Transformed: Labor Responses to 
Globalization and Crisis in Latin America. By 
Mark S. Anner. Ithaca: Cornell University 
Press, 2011. 213 pp. ISBN 978-0-801-47673-0, 
$17.46 (paper). 
The combination of intensified global com- 
petitive pressure, the withdrawal of the state from 
economic and regulatory roles, and new models 
of workplace restructuring have eroded tradi- 
tional forms of union power, such as centralized 
collective bargaining, strikes, and support from 
traditionally abor-friendly political parties. As a 
result, labor unions have been forced to search 
for new survival strategies. How have they re- 
sponded to this new and almost wholly unfriendly 
landscape? In Solidarity Transformed , Mark Anner 
examines this question by comparing union strat- 
egies in the apparel industry in El Salvador and 
Honduras and in the auto industry in Brazil and 
Argentina. 
Although global market competition and work 
restructuring have affected all unions, they have 
not all responded to these challenges in the same 
way. What explains the variation in labor's re- 
sponses to similar global pressures? Why have 
some unions pursued international solidarity 
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