Mass Layoffs by Profitable Firms a 'Horrible Act,' Diller Says

This week has brought another round of big layoffs from companies in diverse industries, including Sony, Rio Tinto, and our parent, Yahoo.

The mass layoffs are obviously a response to a steep economic slowdown but are causing a rethinking of the very role of capitalism in society: Do businesses serve the greater good, or merely the bottom line?

At the Reuters Media Summit last week, Barry Diller, CEO of IAC/Interactive, slammed other media executives for their "preemptive" layoffs:

"The idea of a company that's earning money, not losing money, that's not, let's say, 'industrially endangered,' to have just cutbacks so they can earn another $12 million or $20 million or $40 million in a year where no one's counting is really a horrible act when you think about it on every level," said Diller, who's been known to lay off workers from time to time. "First of all, it's certainly not necessary. It's doing it at the worst time. It's throwing people out to a larger, what is inevitably a larger, unemployment heap for frankly no good reason."

In some ways, it's hard to blame these CEOs: American capitalism circa 2008 is set up so that short-term performance not only gets the greatest reward, it's the only thing that matters. Until Wall Street, investors and CEOs stop the myopic focus on quarterly results, America's economy is going to continue to suffer from the perils of short-term thinking (and have periodic booms when profits are good.)

It's possible, even likely, the ongoing crisis will prompt a reassessment of our obsession with short-term profits. It already has many Americans questioning their faith in the current system, as Michelle Rabinowitz, a recently fired MTV producer, explained to the New York Times:

"A lot of young people had to find jobs after 9/11, so we know about tough times, but at least we know what that was about," she said. "I go outside and the sky is not falling, but my job is not there, the value of the apartment that I bought is not there, my 401(k) is not there. It's weird, it's like somebody made a bad decision somewhere — the Federal Reserve, a media company, an executive, who knows? Everything sort of looks the same, but everything has changed."

The good news is America is overdue for a serious rethink of capitalism's role in society. The bad news is these kind of dramatic societal shifts typically don't occur smoothly. The recent takeover by a Chicago factory by fired workers may just be the first of many such incidences; few are likely to be resolved so peacefully.