How did we get here?

And now that we’re here, shoulder-deep in an economic meltdown, what next? INSIGHT gathered a group of faculty to explore these questions, and to delve into the interrelationship of psychology and the economy. Joining in the dialogue were Dr. Ilianna Kwaske, Business Psychology Department chair, Chicago Campus; Dr. Michael Barr, assistant professor of Industrial and Organizational (I/O) Psychology, Online Campus; Dr. Al Edwards, lead I/O faculty for Southern California; and Dr. Debra Warner, lead Forensic Psychology faculty for Southern California.

INSIGHT: We’re going to begin by reading two quotes; the first is from former treasury secretary and current director of the White House National Economic Council, Larry Summers, who says, ‘The economic challenges are all about psychology.’ The second quote is from political writer and commentator, George Will. He writes: ‘What this country needs is economic psychotherapy.’ Our first question is simple, do you agree?

DR. KWASKE: I don’t think it’s all about psychology. There are a lot of variables at play… policies and decisions made by our government, decisions made by bankers, homeowners, executives, auto makers, investors, citizens. But anytime people are involved, there is psychology, and people drive the economy. I think that when we talk about the economy and psychology, consumer confidence absolutely plays a part.

DR. BARR: One of the factors that makes the situation worse is that the more you focus on the bad news, the more people feel insecure about their own futures. And we frame things in the media in the most disastrous ways. What we forget is that 92 to 94 percent of the people are still employed. So we are looking at the picture as ‘the glass is half empty’ and it makes people feel very insecure. When you don’t feel secure about your job, you put off purchases. And when you put off purchases, you’re hurting the economy. You’re not spending money and people are not having cash flow in their businesses, and small businesses close. So you have this snowball effect, causing the … I would call it hoarding behavior: ‘I am going to keep my money … I am not going to buy a movie ticket, because I have to buy milk, and I if I lose my job tomorrow, which my friend just did yesterday, then I’m going to need all of the money that I’ve got.’ So it really exacerbates the existing issues.

DR. WARNER: I just wrote down one word: fear. Unless that fear changes then nothing is going to change.

DR. EDWARDS: I absolutely agree and I think beyond fear, is what folks are looking at in terms of the market. I think a lot of that is tied directly to leadership in Washington, and I believe that those connections can’t be overlooked. I think that in terms of consumer psychology, much of it is tied to how they view leadership and do they believe that those in Washington now control and can handle these issues.

INSIGHT: How much of a groupthink factor do you think was at work here in relationship to the decision-making by lenders and investors—the ‘everybody is doing it, I guess it’s ok’ dynamic at work?

DR. EDWARDS: Oh absolutely, I believe group-think took place there. I mean, we can talk about group-think on the part of the consumer; we can also talk group-think on the part of the lenders.

DR. BARR: Right, you also have the business pressures that go on. We think of our friendly loan officer as somebody who’s going to help us get a home but the bank thinks that that friendly loan officer is their sales team. And these people were given ever increasing sales quotas and relaxed regulations to enable them to get out there and make these loans that were technically not illegal, but they certainly were not conservative judgments that we expect from banks. And because they would be successful, they would be promoted. There were people going, ‘I don’t think this is a good idea,’ but if you’re going to be part of the global economy, you really are forced to participate because if it’s happening, and if you don’t buy it, somebody else will and then you’ll be out of market. I remember for years hearing people go, ‘You know, the housing market bubble is going to burst,’ and then it didn’t, so when the sky really was falling everybody’s going, ‘Oh, we’ve heard that for years.’

DR. WARNER: Everybody wanted to live this ‘American Dream’ in this land of opportunity. Well, if you are making $200,000 a year, maybe you should not be buying a $500,000 house. Meanwhile, there were market forces saying, ‘You need to meet your quota, you need to get people houses, you need to get people spending money for the economy.’

INSIGHT: There has been a lot of finger-pointing over the last few months, especially about behavior in decision-making, behavior in investment bankers, in consumers, mortgage companies, the government, policy makers, and down the list. Is this blame game even fair?

DR. KWASKE: I don’t think so. I think it’s very tempting to go into the blame game and, the thing is, I think we’re all guilty. People were making money; living in these beautiful homes; driving these cars, etcetera. No one was going to complain when the times were good. It’s only now as we’re going down that they are starting to complain. To me, let’s look forward: This is where we are and what do we need to do.

DR. BARR: I’ve been thinking about people in their early ‘30s, they have never seen these kinds of times. I’ve seen them because I lived through the rampant inflation of the 70’s when I was just entering the job market. When cash is flowing, bad management doesn’t look so bad. But when cash stops flowing, the companies doing it wrong are the ones collapsing because they didn’t have the conservative and sound business practices. They were covering their bad leadership with cash flow, and it isn’t there now.

DR. WARNER: I think that the blame game is not fair; we all need to look at what part we’ve played in it—the government down to the consumer, down to the one-on-one interactions—and look at what we’ve done and what acts and behaviors we can change.

DR. EDWARDS: This might sound a little wacky, but I think, to the extent that the blame game has at least put a number of eyes on a lot of different variables, it’s a positive thing. From that standpoint, maybe there’s a little upside to the blame game, not a lot. At least when you talk about lack of regulation, lack of oversight, things of that nature—as we start to engage in that kind of very robust conversation, I think that’s healthy and some fingers have to be pointed to start vetting a lot of this.

INSIGHT: What are some companies doing wrong as they adjust to these times?

DR. KWASKE: In any sort of downsizing, there is the idea that the psychological contract is being violated. It’s violated for the people who are laid off because they put in however many years of work, they’ve given their end of the bargain, and the company is not holding up their side of the bargain. For the employees who are left, the ones who may have survivor guilt or may not be motivated, their psychological contract has also been violated because they see their peers who have been working very hard being laid off.

In any sort of downsizing, there is the idea that the psychological contract is being violated.

I know someone who worked for a large organization here in Chicago, and they just did a mass layoff. The way that they handled it was, to me, so inappropriate. They literally called names out over a loud speaker, paging people to a conference room to let them know that they were being laid off. When you heard your name, you knew that was it.

DR. WARNER: This is Norma Rae kind of stuff!

DR. KWASKE: The person survived the layoff, but says she’s not motivated to work. There was no rhyme or reason expressed for why they laid so many people off, and essentially, how hard you’ve worked and how many years you put in had nothing to do with whether or not you would remain at the company.

DR. BARR: What you said, Ilianna, is so important. There needs to be a system for downsizing. A lot of these organizations have done slashand-burn, and the people who are left are faced with doing two or three people’s jobs and just hanging on wondering if their job is going to be here tomorrow because there is no apparent system. I think one thing that’s going to change in business is that there is going to be this whole idea of transparency in processes and procedures, because if they don’t, they will have zero loyalty. Once the market gets better, people with no loyalty will be gone. And they’re going to find that those people that they did save will take all their institutional knowledge with them and it’s really going to cut into their ability to compete in the marketplace.

INSIGHT: Let’s say an organization’s representative marches into your office declaring, ‘we must layoff 500 people.’ What consultation would you give to this person?

DR. EDWARDS: I think the first would be, we certainly don’t want to start paging people in for this. I think there has to be an overabundance of communication. You cannot communicate too much in these situations. I think the lack of communication is what feeds the rumor mill and gets the anxiety up. You’ve got to let folks know what’s going on. Secondly, I think that you have to have a process in place so that those who do survive clearly understand that it’s a new day, it’s a new age, it’s a new organization. There has to be a level of appreciative inquiry where we talk about how we move forward and what kinds of opportunities we have to move forward toward.

DR. WARNER: One of the supportive things you can do is have a really good EAP (Employee Assistance Program) for people who have issues that they cannot share with their supervisor, cannot share with a co-worker, and where they can get referrals. When someone feels supported, they feel trained, they feel there is a structure; they feel that they are being taken care of. Their morale is up. They are less likely to leave, and turnover will be a lot lower.

DR. KWASKE: What you are saying, Debra, is that the organization is placing value on the employees that are left, and on the work that they do. In the end, once everything does turn around, those people are more likely to stay and maintain that loyalty to the company.

DR. BARR: If somebody came into my office and said we need to cut 500 jobs, I would say, ‘I need you to think about what your overall desired outcome is. Are you dumping cargo so you don’t sink the ship, or are you off-loading extraneous weight so that we keep the ship afloat?’ There needs to be a longerterm analysis of the impact. I also think that the end goal is great organizational efficiency, so we want to involve as many line managers as we can in the decision-making process so that we can say, ‘what processes have you got? What processes are loaded with cost? Are there other ways of doing things that we can review? Is there another way to reduce cost than letting off all these people?’

INSIGHT: Let’s move it down to the individual who marches into your office. What advice could you give this individual who still has a position to keep productivity up, to keep morale up, to do things in that position to keep things valuable and to preserve his job?

DR. KWASKE: My advice would be, stay as connected as they can to their own support network; to focus on what brings them joy in their work. Hopefully, their work brought them joy before the layoffs, so it would help them to focus on the positive of what’s occurring.

DR. BARR: I think the most important thing is that the survivor understands that what they are feeling comes from two major sources. First, you’re feeling kind of a grief. You have this loss, and the anger that goes with it. You can be depressed, you can feel stressed, and you need to take care of yourself when you are under stress. The other piece is your loss of your close friend who might have worked next to you for five years, and you feel guilty because you still have a job and they don’t. So that friendship, which was part of your support system, has now eroded. Understand that you did not cause this and that what you are feeling is anxiety, and a loss of control. So my question to that person would be, ‘What can you do to gain control over the factors of your life, and how can you reinvent yourself? How can you hook into something that you really like? Are there other opportunities for you? Are you walking to work scared, or with your eyes open? Are you maintaining your social network so that if there is an opportunity, can you take advantage of it? Is it time for you to think about going back to school or learning something different?’

DR. WARNER: I would also normalize what’s going on, because they can think that their feelings are abnormal for the situation. One of the things I would ask is, ‘what do you need to feel supported and successful?’ Now that may not happen within the environment, it might happen by going back to school and getting more tools; it might happen by being with their family; it might happen by reconnecting with people at work. But you need to look at where they are, meet them where they are, and find out what they need.

DR. EDWARDS: There is the whole concept of appreciative inquiry—to the extent that people can start to look at what gives life to them in terms of that job and that environment. How can they then start to dream about a new situation going forward? And in terms of how that new situation looks, have them—maybe with a coach—start to design it. Get them involved. That brings to them a certain level of empowerment so that they think that there is a destiny for them in that organization. And the organization doesn’t look the same as it once did, it won’t look the same ever again, but that there is still a place for them and that they do have some empowerment and control within that environment.

DR. KWASKE: The organization may not look the same in the end. The people that are going through this are not going to look the same in the end. And that’s OK. What comes out at the end—the new organization, the new person—might be a reinvention but it might also be something more positive.

INSIGHT: How can psychology professionals help with this in the future?

DR. BARR: One of the things that I’ve seen as a recent trend is the professionalization of the HR department. I think that’s a long-overdue trend and is going to be a major factor in redefining the role of HR from a strategic standpoint and an organizational effectiveness standpoint. I think HR is going to get past the ‘it’s the personnel department’ and into being a strategic player in terms of planning the appropriate strategies around human capital development, succession planning, decision making, policy making, and procedural fairness. So, the more companies that become exposed to a professionalized HR department, the better they will weather these kinds of issues around downsizing or reorganization, because basically if you’re not doing it from a longer-term strategy—a ‘what’s my outcome supposed to be’ thoughtfulness —you can do a lot of things that hurt you much worse than not doing anything.

DR. KWASKE: The key word that Michael mentioned is the idea of human capital, the idea is that it’s not just financial capital needed in an organization. Downsizing can be a good thing for a company —‘getting lean’ as they are saying now—operating with the minimum employees, but you can over-downsize. People who have an understanding of how to manage human capital so that in five years or ten years you still have that…

DR. BARR: You have a company.

DR. KWASKE: Yes, you have a company. Exactly.

DR. EDWARDS: I think back to 2005, an article that appeared in Fast Company entitled, ‘Why We Hate HR.’ It was a scathing article about basically how worthless HR professionals were to the organization. And I absolutely agree that if the HR professionals truly are going to have a seat at the table and be more strategic, we have to look more at skill acquisition in that area and development of the HR professional. Then on the human capital side, I think that organizations would be able to benefit from more planning in terms of succession management planning and ensuring that the competencies that are needed to sustain that organization are identified and developed, as the organization continues to move forward without senior leaders that can move into positions and continue to manage and lead the organization.

INSIGHT: Does anybody want to touch on the role a psychology professional can play in consulting executives?

DR. EDWARDS: The biggest trend that I see in leadership development is the issue of trust— building trust as a leadership skill. I think that over the past couple of years, organizations have understood that a lack of trust in an organization has serious financial consequences. It’s the biggest buzz-word in executive coaching that I have seen: What can I do to build trust?

DR. WARNER: I agree with the trust factor. You have to get people to trust you, you have to get people who continue to trust their organization, and you have to look at how that message is being sent out with your employees and throughout society.