During President-elect Bill Clinton`s recent two-day economic conference in Little Rock, Ark., 300 economists, business leaders and policymakers showered one another with explanations for the steady decline of American competitiveness, and their ideas for stopping or at least slowing it.
America, they said, is lagging or is beginning to lag behind nations such as Japan and Germany in critical industries, in productivity and in standard of living because:
– We have failed to create a national technology/industrial policy.
– We have failed to educate our work force for a post-industrial information age.
– We have failed to articulate a consistent trade policy.
– Management of American firms has failed to keep pace with technology, changing markets and how work gets done.
– American firms have failed to invest sufficiently in new plants and equipment, or in critical research and development.
– Americans save too little and are in debt too much.
For those people who have spent time on the front lines of the nation`s battle for competitiveness, the economic conference was a vindication of sorts.
They have been saying, often in a vacuum, since the early 1980s that America`s economic competitiveness-our ability to produce goods and services for world markets while enabling our citizens to earn a rising and sustainable standard of living-is eroding slowly but steadily. America, they say, is struggling not to stay ahead, but to avoid falling further and further behind. While the slide may have begun as far back as the early 1970s, at a time when little or no attention was paid to such things, it continued, and in some cases even accelerated, through the 1980s and into the `90s. The decline has occurred despite a recent gush of federal legislation designed to bolster American competitiveness and despite the fact that more and more members of industry, government and academia are paying attention.
America is more vulnerable than ever before, ”not on the Russian steppes or in the Persian Gulf, but in our factories, our classrooms and our halls of government,” said a recent report by the 55-member bipartisan Commission for Strengthening America.
The commission, which is co-chaired by Sens. Sam Nunn (D-Ga.) and Pete Domenici (R-N.M.) and is part of the Washington-based Center for Strategic and International Studies, added that because the weaknesses that afflict the nation have been two and three decades in the making, it will take years to correct them.
Ironically, while the United States has been successful since the end of World War II in its campaign to liberalize world trade, that very success has exposed just about every American industry to foreign competition.
”In critical ways, we are not yet ready to compete in that ultimate arena,” said the report. ”Global competition requires that our plants, scientific and technical effort, products and services meet world-class standards-or ultimately our own standard of living will decline.”
It is already happening.
According to the Washington-based Economic Policy Institute, for the first time in our history, the standard of living for our children will not match our own.
Between 1947 and 1967, median family income in America, expressed in 1991 dollars, increased by $12,706-to $30,474 from $17,768, according to the institute`s data. Between 1979 and 1989, it increased only $1,528, to $39,147 from $37,619, and between 1990 and 1991, it actually declined 2.2 percent.
In short, despite some recent increases in manufacturing productivity, improvement in the quality of American-made products and progress in regaining market share in key industries such as computer chips, telecommunications and electronics, America is still losing ground.
That was driven home recently when International Business Machines Corp., the bluest of American blue-chip companies, announced its second major shakeup in 12 months-one that will result in the loss of 25,000 jobs in 1993 on top of 40,000 lost in 1992. Billions of dollars will be lost, too, spent on the costs of reorganization.
Like many giant American corporations, IBM is coming to grips with a painful truth: To survive in today`s severe economic climate, you must be able to compete on the new global playing field.
That means running fast and scoring often.
To do that requires world-class organizations equipped to reduce cycle times and bring products to the market faster. That means extensive
”benchmarking”-the search for and application of best practices.
It also means a superior insight to markets through more sophisticated market and customer analysis.
It means playing the game with teams of empowered workers who are better educated and prepared for the demands the new global economy will place on them.
It means that traditional views of factories as massive collections of machines and smokestacks, in which the same products are made month after month and year after year, must change. Being competitive in the `90s means greater flexibility and more customization of products to fit the needs of particular customers.
Global giants like Motorola, American Telephone & Telegraph, Xerox-and smaller firms like U.S. Robotics in Skokie and Molex and Tellabs of Lisle-understand this. They spend millions of dollars each year to train and retrain workers so they can provide customers anywhere with defect-free products.
They segment customers by needs, rather than by nationality. They are rapidly disseminating and applying technologies, products and processes. They are flexible and adapt quickly. They have responded quickly to their customers. They understand that performance standards are becoming universal. If companies can`t play by these new international rules, they will ultimately lose, because there will be fewer and fewer local options. In other words, there is no place to hide. The global market is here, now, in our own back yard.
In the old days, American and foreign companies operated in similar ways in similar environments.
For example, customers were relatively unsophisticated, with essentially national preferences. Demand was high for locally produced goods, which limited companies` desire to expand geographically. Manufacturing processes were limited in their flexibility; they concentrated on producing the same products over and over again, usually on an assembly line that turned out the bad with the good.
Management systems were highly centralized. There were long lead times and slow transfer times. There was a lack of global infrastructure such as reliable transportation, communication and banking. Economic development and success depended more on natural resources and geography.
What has happened in the interim has been described with any number of buzzwords, the most prevalent of which is ”paradigm shift.” A paradigm, the dictionary says, is a pattern, a model. So what we are seeing is a shift in patterns of business and models of management.
It`s a shift that didn`t begin in America, though most of the ideas for it were developed here by people like W. Edwards Deming, the management guru who altered the patterns of Japanese business thinking and industrial production with his ideas of Total Quality Management (TQM) and Statistical Process Control.
”The market is the world,” Deming said recently. ”The market for almost any product or service may be anywhere in the world. Likewise, supplies may come from almost anywhere. The people of the world no longer live in isolation. Information has no borders.”
Those who understand the globalization of markets understand this.
”You must consider the ability of U.S. industry to compete in a global marketplace in developing plans to restore the strength of the nation`s economy,” said George Fisher, Motorola president and chief executive officer. ”U.S. performance in critical areas such as investment in plant and equipment and civilian R&D (research and development) is dismal compared to many of our best industrial competitors,” said Fisher, who also serves as chairman of the private, non-profit, non-partisan Council on Competitiveness in Washington, D.C.
But while a large number of America`s competitive woes may be the result of tougher global competition, many of the nation`s problems, as pointed out in Little Rock, are homegrown.
”America is tactically strong, but strategically weak, and doesn`t know it,” said Jason Alexander, a retired oil industry executive who spends his time working independently on answers to the competitiveness conundrum. ”Our envelope-pushers at think tanks and universities dither around the edges with occasionally useful battle statistics, but no war plan. They don`t understand that the first tactic is strategy.”
For example, a look at the beleaguered U.S. auto industry reveals patterns of behavior and deficiencies that are mirrored across the American industrial and business landscape.
In varying degrees, many companies and many sectors of the economy face eroding market share; an aging, inadequately trained work force; problems with quality and continuous improvement; inadequate research and development expenditure; lack of capital; and slowing productivity.
For the auto industry, the hard facts are these:
In 1991, the Big Three U.S. automakers` share of the North American vehicle market declined to about 56 percent from 83 percent in 1978. In 1974, Japanese automakers had 7.4 percent share of the U.S. market, but by 1991 it was 36.5 percent. That translates to 5 million unsold American cars and 200,000 lost jobs.
At General Motors alone, those stark numbers have translated into billions of dollars in lost revenues and plans to trim more than 74,000 jobs and close 21 plants over the next two years.
Why? Part of the reason can be attributed to management (or mismanagement), poor quality, outmoded ideas of production and an inability to connect with the customer.
But a recent report from the congressionally mandated Competitiveness Policy Council maintains that part of the blame must be shouldered by the federal government and a bureaucracy that has failed to grasp the significance of the competitiveness problem.
Economists have estimated, for instance, that fully one-half of the slowdown in productivity growth of the U.S. economy since the 1960s can be attributed to underinvestment in infrastructure.
The wheels of commerce won`t turn on roads replete with potholes, bridges that collapse or tunnels that flood. Yet government statistics reveal some shocking truths:
According to the Federal Highway Administration, 41 percent of the nation`s 575,000 bridges are ”structurally deficient” or ”obsolete,” and about 64 percent of the nation`s highways need to be resurfaced.
Not one major airport has been built in the U.S. since 1974, despite a doubling of air traffic in the 1980s.
The council, which is divided equally among business, labor, government
(federal and state), and the public, was founded in mid-1991 as part of the 1988 Omnibus Trade and Competitiveness Act. It is charged by its founding legislation to recommend strategies for restoring America`s competitiveness.
”Our national leadership has yet to acknowledge the scope or seriousness of the challenge,” the council report said. ”The United States has yet to develop a coherent, comprehensive, long-run competitiveness strategy. Our leadership must inspire all Americans to recognize the economic challenge and respond accordingly, mobilizing widespread participation throughout the nation over a sustained period of time.”
The council then concluded that there are six priority issues that need to be addressed at the government level if we are to successfully arrest our decline. They are:
(1) America`s low level of savings and investment and its debilitating budget deficit, which drains more than half our private savings and drives up interest rates.
(2) The need for massive education reform. This includes periodic if not constant retraining of adults who must shift jobs or upgrade skills as a result of continuing changes in the marketplace and technology.
(3) The cost of health care and its enormous drag on the economy and the federal budget, as well as the marked disparity between health-care costs in America and in other nations.
(4) Corporate governance and financial markets. The primary responsibility for improving American competitiveness lies primarily with American industry and its workers. After all, the council says, a nation`s competitiveness ultimately rests on the quality, performance and cost of goods and services produced within its borders.
(5) Technology. More precisely, this refers to manufacturing processes, where technological innovation is translated into commercial success-the
”development” portion of ”research and development.” By definition, technology must include not only R&D, but design, production, marketing and customer service. Federal technology policy has traditionally focused on scientific breakthrough rather than emphasizing commercial follow-through.
(6) Trade policy. This includes such problems as the overvalued dollar, which makes our manufactured goods more expensive overseas, and foreign barriers to access of U.S. products.
As was pointed out in Little Rock, in order to solve those problems, America`s businesses, its schools, its governments and its work force will need strategic vision, organizational effectiveness and the
institutionalization of change.
We might begin solving America`s low rate of savings (about 3.6 percent of gross domestic product) by altering the structure of U.S. tax policy. For example, said the Strengthening of America Commission report, we could substitute consumption-based taxes for our current income-based taxes. Under such a system, a taxpayer would take annual income, add gifts and bequests as well as net borrowings, and subtract all savings.
The remainder would equal consumption, and the resulting amount (minus exemptions) would be taxed. Such a plan would result in a substantial rise in the savings rate and a sharp fall in the cost of capital. We might make our current system of research and development tax credits permanent.
We might also exempt all interest and dividend earnings from taxation-which is what Japan did until 1988. In America, income that is saved is taxed twice: once when it is earned, and once again when it generates additional income. The U.S. is the only Group of 7 country that taxes income twice. It is also the only nation that taxes capital gains when assets are sold, even if their value only keeps up with inflation.
We might begin to solve our education woes by instituting incentive programs in which teachers and administrators are rewarded for improved student performance with bonuses or higher salaries.
Structured work-study apprenticeship programs, drawing on German and other European experiences, could improve the job prospects for high school graduates and the quality of the work force.
With regard to technology, new mechanisms are needed for government and industry to work together in a pattern similar to, but not necessarily identical to, the Japanese model. American corporations can invent, and they can sell, but compared with European and Japanese competitors, they take much longer to translate new innovations into products, to get those products to market and to gain and keep market share.
In the arena of corporate governance, corporate managers and stockholders must be convinced of the advantages offered by long-term performance over short-term gain. This can be accomplished by lessening the impact of short-term signals sent by the trading practices of institutional investors, by dampening rapid stock turnover patterns and by harmonizing management`s goals of creating shareholder value, corporate wealth and advancing the interests of workers, suppliers and communities.
Health-care costs might be brought better under control by giving individuals assistance in buying insurance with vouchers, tax credits or through a new universal access system similar to the kind that exist in other industrialized nations.
And with respect to trade policy, an agreement that would maintain the exchange rate of the dollar at a competitive level would help keep American products priced competitively in foreign markets.
America`s competitiveness problem will not be solved by withdrawing from the global economy, say those, such as the Commission for Strengthening America and the various Councils on Competitiveness, who have spent years on the front lines of the battle.
”The Soviet Union sought for decades to undermine the strength, the vitality and the will of the United States,” said the commission report.
”What communism failed to wreak upon us, however, we may bring upon ourselves if we do not address with a sense of national urgency the weaknesses in our institutions and public policies.”
