1996: What does Buffett think of the trend of layoffs and outsourcing?

WARREN BUFFETT: OK, zone — what, 5, are we over there?

AUDIENCE MEMBER: Yes. Good afternoon, Mr. Buffett, Mr. Munger, board of directors.

Wanted to ask, in looking ahead, do you see the trends of extensive outsizing, the offshoring, the downsizing, the expendable workforce, the rightsizing, the diminished commitment to company loyalty, and the greater emphasis on the short term, quick buck, bottom line versus your commitment to the long-term investment affecting your pool of investment possibilities and your decision processes?

And do you possibly think of creating new companies on your own?

WARREN BUFFETT: Well, I think that the trends you talk about, and the attention devoted to them, could have some effect, just in terms of how the public and Congress may feel toward business.

Historically, you know, every industry, at all times, is interested in downsizing or becoming more efficient.

Now, if the industry is growing, you can achieve efficiency by doing more work, or turning out more output, with the same people.

But you know, if you go back 150 years and look at the percentage of people in farming, for example, farming has downsized from being a very appreciable percentage of the American workforce to a very small percentage. And essentially, that’s released people to do other things.

So, it’s in the interest of society to get as much output in anything as it can per unit of labor input. It’s very difficult on the individual involved.

And you know, it’s no fun — I guess it’s no fun being a horse when the tractor comes along, or a blacksmith, and when the car comes along. But the —

So, I don’t quarrel with the activities. I quarrel, sometimes, with how it’s done. And I do think there’s been a certain lack of, in certain cases, some empathy or sensitivity in terms of the way it’s being done.

You should try to make your businesses more efficient. We hope we’re not in businesses that will require us to lay off people over time, because we hope that physical output grows, and that we become more productive and can keep the same number of people to get greater output.

Dexter Shoe has done a great job of that over time. They’ve become more and more productive. But they’ve sold more shoes instead of selling the same number of shoes and letting people go. But sometimes, industry trends —

I mean, at World Book, we have fewer people than we had a year or two ago. And we didn’t — we don’t have any answer to that. Over time, we got out of the textile business. I wish we didn’t have to. But we did not know how to run a textile company in New England and compete effectively.

Like I say, I would — I love avoiding those businesses. And to the extent we can, we will.I mean, GEICO is going to add people over time. And I think Berkshire Hathaway’s going to add people over time.

But I can’t — but it is in the interest of society to do jobs more effectively. It’s also in the interest of society, it seems to me, to take care, in some way, of the people that are affected by that activity. And either — in some cases, it may be retraining.

But in other cases, you know, it doesn’t work so well if you’re 55 years old, and you’ve been working in a textile mill all your life, and all of a sudden the guy that runs the place can’t make any money out of selling your output. I mean, that’s not the fellow’s fault that’s been working at the textile mill for 30 years.

So, there’s a balance in that. I think that the attention that’s come about lately, I think there’s — to some degree, it was a media fad based on some particularly dramatic examples at a couple of companies.

I don’t think there is more displacement going on now, as a percentage of the labor force, annually, than there was 10 years ago, in terms of reconstituting what people do. But it’s gotten a lot of attention lately.

There could be a backlash on that, in terms of corporate tax rates or a number of things. And we might feel it in that direction.

We want, at Berkshire, to do everything as efficiently as we can. Part of that, in a big way, is not taking on a lot of people we don’t need.

A lot of the mistakes that are being corrected now are because people got very fat. And their businesses got very fat in the past and took on all kinds of people they don’t need. We see that in a lot of businesses that we’re exposed to.

And as long as they’re very prosperous, really, no one does very much about it. And then when the time comes, they all of a sudden find out they can get way more output.

The oil companies are a classic example. You know, the people, probably, actually needed to produce, refine, and market oil probably hasn’t changed that much. But if you look at the employment relative to barrels produced, refined, and marketed, it’s gone down dramatically over 20 years ago.

To me, it just means that they weren’t being run that well 20 years ago. And it never should’ve occurred in the first place.

We don’t want to take on more people than we need in any of our businesses, because we don’t want to lay people off, either.Charlie?

CHARLIE MUNGER: Well, if you put it in reverse, you’d say, name a business that has been ruined because it was over-downsized. I cannot think of a single one.

But if you asked me to name businesses that were half-ruined, or ruined, by bloat, I mean, I could just rattle off name after name after name.

It’s gotten fashionable to assume that downsizing is wrong. Well, it may have been wrong to let the business get so fat that it eventually had to downsize.

But if you’ve got way more people than are needed in the business, I see no social benefit in having people sit around half employed or unemployed.

WARREN BUFFETT: You’re very likely to compete against some guy, at some point, who doesn’t have more people around than needed in the business, too. But it doesn’t change. For the people involved, they’ve got real problems, and —

CHARLIE MUNGER: Warren, can you name one that has been ruined by over-downsizing? There must be one, but —

WARREN BUFFETT: Well, it’s like Eisenhower said about Nixon. Give me a week, and I’ll come up with something. (Laughter)