(FORTUNE Magazine) – IN NEARLY 40 years, no person employed on a regular basis by IBM has lost as much as one hour of working time because of a layoff. When recessions come or there is a major product shift, some companies handle the work-force imbalances that result by letting people go. IBM hasn't done that, hopes never to have to . It's hardly a surprise that one of the main reasons people like to work for IBM is the company's all-out effort to maintain full employment."

Can it really be only 15 years ago that IBM included the above paragraph in a book it handed out to every employee? Amazing but true. As recently as the early 1980s, IBM felt so impregnable, so untouchable, so utterly immune to the economic forces that buffeted other, lesser corporations that it could actually promise its employees an "all-out effort to maintain full employment"--what an astounding statement!--as if it were some kind of quasi-governmental body.

Its employees, of course, bought into it completely. And why not? Didn't IBM dominate the mainframe computer industry? Hadn't it always taken care of its people, even those who were only minimally competent? Hadn't it proved during past recessions that it would rather take a hit to its bottom line than let employees go? If they wore the blue suit and went where the company sent them and did what the company asked of them--if they committed completely to IBM--then they were taken care of for life. That was the deal, and there was nothing implicit about it. It was right there in black and white.

And then, seemingly out of nowhere, along came Microsoft and Apple. Along came the rise of the personal computer and the decline of the mainframe. Along came the commoditization of hardware and the primacy of software. Which is to say, along came the one true constant of capitalism: change. And there was IBM, saddled with 405,000 loyal workers and a sacrosanct no-layoffs policy, watching in anger and bewilderment as its new, more nimble competitors ran rings around it. By the mid-1980s, when IBM finally abandoned its "full employment" stance and started downsizing, it wasn't just fighting to retain its position as king of the hill--that was long gone--it was fighting for its very life. Today it employs around 225,000 workers, and while no one expects it to regain its former lofty position, no one expects it to go out of business anytime soon, either. Is there any doubt that IBM's decision to downsize is directly related to its belated revival?

That's the thing you have to keep reminding yourself of about mass layoffs--a plague that's increasingly afflicting not only the U.S. but the entire industrialized world. They're awful to go through. They ruin morale, corrode loyalty, and cause tremendous pain to employees who, through no fault of their own, find themselves out of work. They are clearly at the heart of the tremendous anxiety so many Americans feel. But contrary to critics like presidential candidate Pat Buchanan and the New York Times--who tend to paint layoffs as nothing less than the abandonment of the American worker by greedy and heartless corporate executives--layoffs are rarely gratuitous. They're almost always a necessary--and usually belated--response to dramatic change. So it was at General Motors, which began downsizing after years of losing market share to Japanese automakers. So it is at Sears, which has shed 50,000 people during the 1990s, as more and more of its customers have migrated to new competitors like Wal-Mart. And so it is now at AT&T, the company that triggered the latest round of handwringing over downsizing with its announcement in January that it would lay off some 40,000 white-collar employees. Though he is hardly a hero in this saga--his own missteps having done a fair amount to put AT&T in the hole it now finds itself in--CEO Robert Allen is surely correct when he says that the company had to "make the necessary, even painful, changes today or forfeit the future."

Indeed, the telecom industry is as good an example as any of the kind of profound change the American economy is currently undergoing. There is globalization at work, as equipment that was once routinely made in the U.S. is now manufactured in places like Malaysia. The supremacy of the knowledge worker--the person who can figure out how to make a phone line work like a cable line, say--is apparent, as is the emergence of technology that can replace such formerly irreplaceable humans as phone operators. Then there's the need to eliminate bureaucracies that clog corporate arteries; the increased competition; and the cataclysmic effect of deregulation, which will clearly transform this thing we call telecommunications in ways we can't even imagine right now. In such an environment, big, slow-moving bureaucratic companies like AT&T aren't 800-pound gorillas. They're sitting ducks.

What's more, the Pat Buchanans of the world tend to forget that one company's misery is invariably accompanied by another company's triumphs. Back in the old Ma Bell days, for instance, when AT&T was the telecommunications industry, it employed a little more than 950,000 people. Today, AT&T employs roughly 300,000--and plans on reducing that number by two-thirds by 1998. Yet the industry still employs around 950,000. In other words, industrywide there has been virtually no job loss despite AT&T's downsizing. And it's a safe bet to predict that in the ensuing years, the total number of jobs will rise considerably--thanks to the same economic forces that are causing AT&T to lay off workers right now.

WHAT THE CRITICS of layoffs will say is that none of this offers much aid or comfort to the 55-year-old laid-off middle manager--the person, that is, with the least chance of finding new employment that comes close to matching his old job. They also complain that Wall Street--talk about greedy and heartless!--is egging on this process and profiting from it. And they're right on both counts. Of course the latter point is sheer irony, since heartless Wall Street is really Main Street now, and it is the American worker himself, with his mutual funds and pension money, who is profiting.

As for the first charge, the sad fact is that corporate America's inability--or unwillingness--to soften the blow for that 55-year-old out-of-work middle manager is its biggest failure. Nor have companies done a very good job of making the case they should be making, namely that despite the current pain, we'll all be better off once we've adjusted to this new era of global competition and technological change. Instead, Albert Dunlap, the former Scott Paper CEO and corporate America's unofficial spokesman on the issue, goes on Nightline and, to his eternal shame, labels as "socialism" Labor Secretary Robert Reich's proposal to give tax breaks to companies that avoid layoffs. Whether or not Reich's idea has merit, at least he's trying. The same cannot be said for Dunlap.

In the articles that follow, you'll find substantive reporting on the current spate of layoffs as well as practical advice on how best to handle the situation in your company. We point out the warning signs and investigate which industries are ripe for the next round of restructuring. We follow a handful of career AT&T employees who have lost their jobs. But throughout, we hope you'll be able to keep in mind that there is a larger picture here--that the very things that make capitalism seem so harsh and even unfair are also what make it so vital. It may not feel that way when you're in a downsizing company, but that is history's lesson.

A hundred years ago America went through an equally wrenching--and widely deplored--transformation as we moved from a rural economy to an urban one. We've been through the Depression, when the economy seemed moribund, and since then through a world war, when the economy was completely geared to war production. We've watched the rise of the giant corporation, a development (speaking of ironies) that was not considered particularly healthy at the time. Always, there have been winners and losers during such times of change, and the losers did not deserve their fate any more than today's unemployed middle manager does. Yet in the end, we've always managed to adapt to the economic forces around us. Yes, the old contract between company and employee is dead. Yes, corporate loyalty will probably cease to exist. But eventually some new ethos will replace those values and will be as widely accepted--and as taken for granted--as the old social contract.

I have a friend who works at a Silicon Valley company that is in deep trouble and is about to go through its second round of layoffs. In better times, it was one of those places that threw beer blasts every Friday, gave its workers paid sabbaticals, and had a no-layoffs policy. The company broke that policy about two years ago, and my friend remembers vividly how bad it was--and how bad it's been ever since. "It completely changed the culture of the company," he says. "We felt as if all the values we had believed in were thrown out the window. We felt like fools for being so loyal. Morale was just terrible; people would hover in little groups to trade gossip about who was going to get laid off. And gossip was all we could do because the company wouldn't tell us anything. That was the most infuriating part of all. I remember so many times I would just stare at my boss's office door, which was always closed in the weeks before the layoffs. I'd stare and I'd think: 'Tell us what's going on! Tell us who's going to lose their jobs!'"

He paused for a minute, and then he said, "And do you know something? We should have done it years before."