Bloomberg recently reported an unexpected twist in the already convoluted trail of AI — the rebirth of the paternalist 19th-century company town, this time designed to lure scarce skilled workers to data centers. In fact, the company town never truly disappeared, morphing to “man camps” for roughnecks that dotted the shale oil production landscape in Canada and the U.S.

This time, though, the targeted workers are electricians and other specialized laborers of the digital era who can earn well into six figures — but who would get a cold welcome from local residents who at best have mixed feelings about the proliferation of the energy- and water-intensive data centers. The housing may not be luxurious — it’s designed to be broken down for transport when no longer needed. But, as with the environment provided by offshore drilling platforms, the simplicity and austerity are offset with creature comforts like all the ribeye and make-your-own-sundaes you can eat.

But this revival of an old idea is limited. While it represents a modest uptick in corporate blue-collar paternalism, it hardly suggests a trend in high tech. Indeed, it is not shocking these days to read about layoffs of thousands of workers by Meta, Microsoft, Amazon and their digital-platform ilk. The real surprise is that Alphabet’s Google, which has always been viewed as the workers’ paradise, is also shedding its benevolent image.

The Brain Workers’ Heaven

In 2015, Benjamin Naddaff-Hafrey extolled the special place Google occupies in the pantheon of work environments in the online magazine Aeon: 

Google boasts more than 2 million job applicants a year. … A 2015 CNNMoney survey of business students around the world showed Google as their most desired employer. Its campus is a cultural symbol of that desirability.

What a difference a decade makes. Google does not share layoff statistics. But there is no doubt its reputation as an ultra-selective young technologists’ Nirvana has been tarnished by its decision to jettison employees to slim down in the face of the AI competitive free-for-all. This stumble from grace is especially surprising because Google was always in a class of its own among the giants.

There are plausible reasons for layoffs in highly profitable technology corporations in which operating costs remain a tiny fraction of revenues: overstaffing during the Covid-19 pandemic, shareholders’ reflexive enthusiasm for cost-cutting and, most recently, the claimed need to slash and burn in other areas in order to pay the seven-figure salaries of new AI superstar hires.

Happy Cows 

The most telling reasons are evident only when we examine the history of business paternalism. Take the metaphor that happy cows give more milk. This was a slogan in dairy industry advertising for decades, and there is indeed evidence that pleasant conditions improve bovine productivity. At the turn of the 20th century the metaphor was gaining management supporters over what the economist Sumner Slichter called the conventional “drive system”: maximum production with minimal attention to worker welfare.

The new paternalist business leaders weren’t necessarily do-gooders. Rather, they understood that liberal policies could deter union organization. Superior wages and working conditions could, in this view, be a small price to pay for absence of union work rules and the threat of strikes. Indeed, thousands of American companies had so-called welfare policies with similar motives in mind. Some were obscure local firms. Others, like Filene’s Department Store in Boston, Stetson Hat in Philadelphia, and National Cash Register in Dayton, Ohio, became nationally famous.

The movement even influenced our language. When we inquire about the location of the restroom in a public building, we are usually not looking for a comfy sofa for a lie-down. But the phrase was coined when progressive companies recognized the need for health breaks.

One of the earliest was in Frank Lloyd Wright’s Larkin Building in Buffalo (sadly, since demolished), where battalions of clerks and typists managed the correspondence of Larkin’s mail-order soap business. As a PBS program on Wright notes, “Its central space is filled with an almost ecclesiastical light, and ringed with inscriptions extolling the value of labor.” The structure even had primitive but functional air conditioning system.

The New Deal, with its workplace regulations, Social Security and minimum wages, demanded what some enlightened employers were already delivering. But as the historian Sanford Jacoby wrote in Modern Manors, the formula of gaining worker effort and loyalty with seemingly gratuitous benefits was revived successfully after the Second World War. Silicon Valley, with its free lattes and bring-your-labrador-to-work policies, provided the high-water mark.

Yet Google’s change of stance is startling. What went wrong? History suggests the possible quiet concerns of the company’s managers.

Problems of Paternalism

The first threat does not apply in Google’s case but is still worth noting. Few industrial utopias survive economic crises. George Pullman’s model city south of Chicago, where his famous Pullman rail cars were manufactured, was a model of enlightened despotism for more than a decade after it opened its doors in 1880. But when Pullman was slammed by the Panic of 1893, it cut wages without cutting rents on company-provided housing. Unable to feed their families, workers began a strike that led to violence on a national scale and ultimately to the dissolution of the company town.;

Other initially successful paternalist programs went off the rails at the whim of the eccentric CEOs who had initiated them. John H. Patterson, for example, saw the 1893 depression as an opportunity for enlightened management. He built model factories for National Cash Register (known as NCR) in Dayton, and while he could be a tyrant to his sales force, he rewarded employees lavishly for results. But after suffering a personal health crisis, he made his British physical trainer a member of NCR’s board (as well as his corporate guru) and his industrial paradise yielded to health cultism. 

The New Insecurity

The biggest threat to corporate utopianism is neither business cycles nor founders’ moods. It is the loss of the market dominance that made utopia an affordable luxury in the first place. Consider two of Jacoby’s prime examples, Sears Roebuck and Kodak. It isn’t coincidental that that these companies are classic business-school case studies of firms that failed to adapt to technological change.

Google executives surely are thinking of these two fallen giants — and perhaps even more of another, Xerox, which lost information technology leadership. It is not clear that conventional employee relations would have given any of them the magic ingredient needed to hang onto market dominance. But you can see how their falls are being interpreted today.

Does this mean corporate utopianism, always suspect among the majority of executives and labor leaders alike, is finally dead? Not necessarily. The corporate utopia may be out of favor now, but the idea has been revived so regularly — as in those luxe data center man camps — that it is reasonable to expect another chapter or three. To many of today’s displaced professionals, whose skills need constant workplace development, that will be of little consolation.