Workers pay a heavy price for recovery: Restructuring after recession is costing tens of thousands of jobs

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The Independent Online
THE recession is over but the restructuring has only just begun. Last week, Cedric Brown, the chief executive of British Gas, announced what one analyst called 'the mother of all provisions', putting aside pounds 1.6bn to restructure the company and pay for an estimated 25,000 job losses, although industry experts believe the numbers will eventually be higher. Yet British Gas is simply the latest in a long queue of companies preparing to wield the axe.

On Tuesday, Unilever, the teabags-to-detergents group, said it was cutting 7,500 jobs worldwide - about 1,000 are expected to go in the UK. On Wednesday, British Aerospace outlined plans for its defence and civil aircraft divisions that will almost certainly entail job cuts beyond the 21,000 it has made over the past four years. Then on Thursday, Nestle confirmed it was undergoing a period of 'self examination', but would not say whether this presaged redundancies.

Despite all the signs that the recession is over, the hit list of job losses gets steadily longer. Since the new year alone more than 43,000 job cuts have been announced.

A number of structural changes help to explain the trend, among them the emergence of the Single Market. 'European industry has a lot of overcapacity relative to the American and Japanese, partly because of the division into national markets and the existence of several companies within each of those markets,' says Costas Markides, assistant professor of strategic management at the London Business School.

'In the US, for example, there are three major car-makers with a market of about 250 million people. There are double or triple that number of car-makers in Europe, although the market is about the same size.'

The European Commission is already trying to tackle the problem in the steel sector, although with little success so far. Its efforts to secure capacity cuts foundered earlier this month, in the face of hostility from privatised steel makers fed up at the subsidies being paid to state-owned rivals. However, similar problems dog the airline companies, car-makers and chemicals sector.

As a result, all three sectors are almost certain to see a shake-up in the next few years. British Steel may well be forced into further restructuring, while ICI and Fisons also face a rough time. So, for that matter, will the pharmaceutical sector - including Zeneca, the company spun off from ICI last summer - if the measures adopted to curb soaring healthcare costs in the US prove draconian.

A second factor in the rush to restructure is the growing tendency for companies to return to their knitting. 'Here in Europe you find a lot of companies that have diversified outside their core competencies. They are now selling or demerging those businesses to return to their core competencies,' says Mr Markides. He points to BAe's sale of Rover as an instance of restructuring to refocus.

Technological advances have also provided an impetus, as have the privatisations of the past 10 years. 'A number of organisations have accumulated a great deal of inefficiency. Some of them are nationalised industries (many of them now in the private sector), some are bureacratic service industries like the banks,' says Ray Richardson, industrial relations expert at the London School of Economics.

Among the privatised companies that have seen their headcount plunge in the process of restructuring are the regional electricity distributors and British Telecom. BT has shed 100,000 jobs in the past 10 years and plans to shed another 50,000-60,000 by 1998.

Most of the banks have also been actively downsizing. In fact, Barclays, National Westminster and TSB have already indicated that they will be slashing staff numbers again this year. Moreover, the building societies and insurance companies, which have not yet experienced the same level of bloodletting, are widely expected to follow suit.

'Any large national organisation like a bank by and large has a structure that reflects its traditional roots. It probably has an over-extended branch network and a history of doing things itself, rather than outsourcing to others,' says David Cook, partner in business consulting at PA Consulting Group.

Mr Cook believes the increasing importance of consumers will add to the pressure on the financial services industry. 'Customers have had a whiff of gunpowder and know their own power,' he says.

In these changed operating conditions, a fast response will be crucial. 'We're not going to see an army of people maintained at head office any longer, and at branch level, where direct contact with the customer takes place, technology and re-engineering will drive the contraction.'

But though the banking industry as a whole is vulnerable, the sectors and industries most at risk are those producing relatively low value-added products, says Bill Callaghan, secretary of the economics department at the Trades Union Congress. He adds that the added-value element of Britain's exports has been declining in recent years.

This development is particularly threatening in light of the fact that eastern Europe offers a source of much cheaper labour at present.

(Photograph omitted)