Stephen S Roach, the influential chief economist at Morgan Stanley, declared last week that relentless cost-cutting was bad for business. "If you compete by building, you have a future," he said. "If you compete by cutting, you don't."
Now, he says, "the pendulum will swing from capital back to labour". Companies will have to hire more workers, pay them better and treat them better.
Mr Roach, who was chief forecaster at the Federal Reserve before moving to Wall Street in 1979, has preached the exact opposite for more than a decade.
The theory of downsizing swept the world in the 1980s, providing business with an intellectual justification for ruthless cost-cutting which left millions out of work and millions more overworked.
Sacking staff enabled companies dramatically to improve their bottom lines without selling more products.
When Mr Roach announced his change of heart last Thursday in a memo to Morgan Stanley's clients, he did not spare himself. "For years," he wrote, "I have extolled the virtues of America's productivity-led recovery. While I think it's safe to say that such a scenario has become the new mantra for US businesses in the 1990s, I must confess that I'm now having second thoughts...
"These doubts have caused me to rethink many of the glorious consequences that I have long argued would be forthcoming in a truly productivity- led recovery."
"Slash-and-burn" restructuring, Mr Roach now saw, was "not a permanent solution. Tactics of open-ended downsizing and real wage compression are ultimately recipes for industrial extinction." Or, as he later put it more bluntly: "If all you do is cut, then you will eventually be left with nothing, with no market share."
Now he says there will be a worker backlash, not on the shop floor but in the polling booths.
Politicians will discover that the price of re-election is to force companies to change their behaviour towards their workers.
Reached by phone at his New York office last week, Mr Roach was contrite: "The myth has been there - and I'm guilty of having perpetrated the myth - of the virtue of boosting companies by remaking the corporate entity into a leaner, more flexible and competitive organisation. This was music to the ears of investors but at the end of the day, though some of the things that were done were good, it was wrong."
Did he feel humbled? "It's been a powerful learning experience for me because it takes me to the core of what I've been schooled in. And that is that at the end of the day you can create wealth only if you've got a corporate sector that has its act together and takes a long-term strategic point of view.
"The debate itself is a healthy one. It goes to the core of what it takes to compete and boost standards of living. Do we get there by growing? Or - which is what we've been doing - by hollowing out companies?"Reuse content