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Lost Jobs, Lost Futures -- But There Are Alternatives

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2.4 million jobs lost in just 7 years because of China's "currency manipulation." That's the disturbing conclusion of Tuesday's report from the Economic Policy Institute in Washington which chronicles the impact of the growing trade deficit between the US and China.

The numbers are staggering and nowhere has been spared: California (370,000 jobs lost), Texas (193,700) , New York (140,500), Illinois (105,5000) and on, says the EPI study. Every industry has suffered, from manufacturing (down 1,616,300 jobs) to electronics (627,700) to professional services (139,000.)

Most troublesome is that those raw numbers can't begin to paint an accurate picture of the pain suffered by workers who have been laid off, by their families and their communities.

This is not the stuff of the American Dream.

Consider, however, what the years from 2001 to 2008 were like for Cleveland-based Lincoln Electric, an American multinational which since 1930, has remained the world's biggest manufacturer of arc welding technology. In 2001, Lincoln Electric's global sales totaled $979 million. By 2008, sales for this Fortune 1000 and Forbes 400 firm had grown to $2.5 billion from production facilities in 19 countries, including China.

Yet no permanent American employees of Lincoln Electric were laid off: the workforce in Cleveland expanded by 2.8 % to just over 3,000. In fact, no permanent American employee at Lincoln Electric has been laid off for economic reasons since at least 1948.

Lincoln Electric isn't immune to the ups-and-downs of the global economy, including "currency manipulation." Welding is essential to making everything from bridges to automobiles to pipelines to electricity-generating windmills. When those industries stumble, Lincoln Electric does too.

What's different is that for nearly a century, Lincoln Electric has embraced a unique incentive system which brings out the best in its employees by promising that as long as they work hard and smart, they will never be out of work. It's powerful encouragement, given what has happened to most American manufacturing workers over the past five decades.

The incentive system delivers even more with a profit-sharing bonus that has been paid every year since 1934 -- because the company has turned a profit every year since the Great Depression.

The bonus is always potentially big because employees receive 32 % of gross profits. In December 2009, a year when worldwide sales dropped 30%, the average employee received almost $17,000 -- that's on top of base earnings which have to be locally competitive to attract good workers. In 2008, it was $29,000.

It isn't a worker's paradise. Under the terms of the company's "guaranteed employment program," overtime is mandatory (subject to local labor laws) and in tough times like these, hours on the factory floor drop to a minimum of 32 per week. White-collar employees see salary cuts and they're also expected to put in longer hours to develop new products and new markets so that the others can get back to a full work-week. In other words, everyone shares in both the gain and the pain.

The end result is that the innovation by workers which employment security nurtures -- and the flexibility of workers which employment security earns -- helps Lincoln Electric respond to global challenges without the endless and costly cycle of laying employees off and then rehiring.

Mindlessly copying Lincoln Electric won't work. An incentive system such as this can't be plucked off the management bookshelves. It probably wouldn't work for most others, especially given that the grease which makes it run so smoothly is a hard-won level of trust which is sadly absent in many American workplaces.

But the current system isn't working, and corporate leaders can't blame it all on China. Most business schools teach MBA students that a no-layoff policy is a dangerous and unprofitable anachronism. Too many CEOs keep the layoff lever on their desk, ready to be pulled at the first sign of trouble. Wall Street then applauds them for making a "tough decision."

That needs to change. Individual companies can do little about threats like China's "currency manipulation." But individual CEOs can lead by seriously -- rather than just rhetorically -- making a commitment to regard layoffs as the last strategy before bankruptcy, not the first whenever trouble looms. Business schools must do more to educate their aspiring CEOs that the needs of employees can and should be on an equal plane with the needs of investors, not on a second tier. And governments at all levels - through existing training programs, help for start-ups, granting contracts for public services to private firms with the lowest layoff rates- can act to support those values.

Lincoln Electric's success with its incentive system proves that there are alternative forms of capitalism that can protect people as well as profits. We desperately need more of them in action.