The New Capitalism and Organizational Rationality: The Adoption of Downsizing Programs, 1979-1994

Since a new capitalism dominates economic life in America, we need to explain the development of the new economys features. Although such work has begun, a core feature of the economy, downsizing has been understudied, even though this phenomenon has eliminated some ten million U.S. jobs and generally has had negative human and organizational effects. In particular, little effort has been made to explore why firms downsite in the first place. Therefore, in this article I examine the causes of the adoption of downsizing programs among Fortune 100 firms from 1979 to 1994. I show that downsizings are affected by variables measuring crises and decisive events (associated with the new capitalism) — shareholder values, foreign consolidations, market share, productivity, employee compensation, deregulation, and business peaks; by institutional forces — the adoption effect and industry culture; and by firm traits — ownership status and firm size. I also distinguish between economically oriented and socially oriented organizational action in addressing the rationality of downsizers. A new capitalism has emerged in the U.S. since roughly 1980. This economy has distinctive institutional features — stiff international competition, state deregulation of industry, institutional ownership of firms, and rapid technological change — and corollary organizational features — smaller size, structural simplicity, and flexibility achieved through downsizings and restructurings. Although scholarly studies of the new capitalism are under way (Davis, Diekmann Tinsley 1994; Prechel 1994; Useem 1993), we know little about one of the systems key features: downsizing. In fact, Cameron (1994:183) calls this the most pervasive yet understudied activity in the corporate world, adding that systematic empirical studies of its multiple causes and consequences are paltry. Since downsizings have eliminated some ten million