Banking's 40,000 cutback question

Banking's 40,000 cutback question

With tens of thousands in the industry set to find their jobs on the chopping block, the question remains: What is to be done with the digitally disrupted?

Scholars are divided over who should be responsible for the more than 40,000 bank employees that are scheduled to be displaced over the next three years by the country's four largest banks.

Earlier last month, Siam Commercial Bank (SCB) announced it would reduce its workforce by 60% over the next three years, as it pares branches down from 1,153 to 400. Large financial institutions and telecom firms are following suit.

A few weeks later Krungthai Bank (KTB) announced its plan to cut staff by 30% in five years. Total Access Communication (DTAC) also said it wants to slash its workforce by 1,000 employees this year in an effort to cushion its bottom line.

The Bangkok Post published a study earlier this year finding a total of 43,000 employees will be discarded by the four largest banks in the country over the next three years, most of whom lack the credentials and training to move to other sectors in the financial industry.

Digital destruction

Nowadays, it seems that everyone is either disrupting someone else or being disrupted. In spite of these media reports, such labour force readjustments are nothing new. According to study published by Steven J. Davis and John Haltiwanger during the 1990s at the National Bureau of Academic Research, one in 10 jobs had a shelf life of less than a year, while the same proportion of new jobs had not existed during the previous year.

"This is something that has been repeated throughout history. For me some of these rote jobs at banks and other institutions are no better than working in the fields. I see our role as allowing them to engage in more meaningful tasks," said Daniel Dines, chief executive of UiPath, a robotic process automation vendor that specialises in providing the tools to mechanise functions in the financial and manufacturing sectors.

In a sense, the idea of describing capitalist systems as a series of technological "disruptions" that restructure the market by pushing the boundaries of productivity and reallocating workers to more efficient positions goes back to 20th century economist Joseph Schumpeter. In his 1942 book Capitalism, Socialism and Democracy, Shumpeter coined the term "creative destruction" to refer to the innovation through which new products are created.

In a Schumpeterian world, entrepreneurs are the heroes of history, a conception which has been validated throughout the 20th century, with scholars and the media having classified technological innovation as "human progress", in spite of two world wars, a great depression and an unfathomable loss of human life at the hands of modern weapons.

Managing the social backlash

Digitisation is not a different kind of creative disruption, but it has perhaps, ensured quicker and wider changes than its predecessors. As thousands of employees leave jobs they've held for decades, they find themselves entering a job market that has no need for their skills, giving newfound force to the "destructive" element of Schumpeter's formulation.

"SCB's announcement would have surely caused a riot in Europe. Unions would be demanding the head of the chief executive!" said Arnaud Bialecki, country president of Sodexo Thailand, one of the largest employers of security guards, cooks, secretaries and other support staff in the world.

Banks have nonetheless attempted to soften the public relations blow from their actions.

SCB has anxiously stressed that the company will not lay off employees, but simply stop hiring new ones. The bank also said that it prefers to improve the skills of its current employees and reshuffle them to new roles rather than hire outside talent.

Some, like Jon Williams, joint global leader of PwC, say more must be done to help those caught up in the transition.

"Organisations have a responsibility to their people and should nurture agility, adaptability and re-skilling, even if they cannot protect jobs which are made redundant by technology," he said.

Profits vs Ethics

Others are not so sure.

"I wonder if consulting firms, as providers of training services, have a vested interest in this issue," said Ian Maitland, professor of strategic management at the Carlson School of Management at the University of Minnesota.

Companies, he said, don't have a moral responsibility to train their employees, especially if the training is intended to equip them for jobs outside of the firm.

"Firms are not schools or vocational colleges. In a market economy, acquiring and maintaining skills is the responsibility of each of us. No job is forever, and technology may make certain skills obsolete, so the risk falls on the individual," he said.

For Mr Maitland, the only possible exception, which presumably does not apply to SCB, KTB, and DTAC, is if the obligation to train is stipulated in the employment contract, or the firm has made "implicit or express promises to employees that have induced employees to rely on those promises."

Firms that devote a lot of resources to training new employees with the skills to find new jobs are "unilaterally assuming costs that may place them at a competitive disadvantage," he said.

There are, nevertheless, many reasons why companies may choose to provide training, even if they are not required to.

"Naturally, firms want to be good employers and want to be known as good employers. It will not look good if their former employees form bread lines or depend on public assistance," said Prof Maitland.

Public companies should be held to similar standards of responsibility, he said, unless for example, "public employees are paid uncompetitive wages because of a spoken or unspoken understanding that they will enjoy guaranteed employment."

On the other side of the debate are scholars like Princeton philosopher Philip Pettit, who says that firms do have a moral responsibility to help employees succeed in the market insofar as the skills are relevant within the firm. The fact that a company has a connection to government is an extra reason in terms of fairness "why firms owe this training to the society that the government represents," he says.

In the middle of the road are legal professionals like Eric Orts, professor of legal studies at the Wharton School, and co-author of the recent book, The Moral Responsibility of Firms. Firms have a responsibility to conduct the downsizing in a decent manner, he said.

"This can often include, for example, sufficient notice, an opportunity to apply for another useful job in the same firm, a severance payment to cushion the transition to a new job, or the provision of retraining options to allow an employee to learn the skills to get a new job. One must balance this ethical obligation with the primary purpose of the firm, though, which is to compete effectively with other firms in the market," said Mr Orts.

But that responsibility does not fall solely on corporations. Governments must play a key role in preparing citizens for productive roles in society, and retraining programmes can be an important part of that, he said.

"One option: perhaps the banks can agree to partner with the government or a nonprofit entity to retrain employees for new productive roles, given the massive displacement that is being contemplated," said Mr Orts.

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