PAINFUL ECONOMIC CHANGES LEFT U.S. STRONGER; FREE-MARKET SYSTEM MADE NATION AN UNRIVALED FINANCIAL POWERHOUSE.

Byline: Joseph J Jacobs Local View

RELAXING aboard ship transiting the Panama Canal, I read the International Herald Tribune while marveling at the massive and effective engineering work that has enormously benefited the world economy for nearly a century. But a headline caught my eye, ``Pressure on Schroeder for Sweeping Changes.''

Having just written a column describing the dramatic collapse of ``Japan Inc.,'' I wondered if that other great international competitor, Germany, may be heading down a similar road. Sure enough, the signs are there.

Germany made a spectacular recovery after having been virtually destroyed in World War II. In a perverse way it was actually aided by the almost complete destruction of its industry by Allied bombing. They were able to build a brand-new, modern and highly competitive industrial sector with the help of the Marshall Plan.

Let's not forget how generous we were to our defeated enemies after World War II. Though it resulted in helping create tough competitors, I believe the Marshall Plan was not only humanitarian but actually the best thing to do for our long-term interests.

During the years when Japan and Germany were beating us in the international marketplace, many complained of our aid to people who were now our competitors. But they underestimated the enormous resiliency of U.S. industry. Now we are clearly winning the economic war. We should be proud of ourselves.

Neither Japan nor Germany are socialist by any conventional definition, but they carry the socialist disease - a dedication to central planning and top-down control - the favorite methodology of the academic elite. The dominant shareholders in many German companies are banks, which leads to a bureaucratic management style. Furthermore, the strength of the unions has led to a crushing burden of social costs. Their fringe benefits approach 60 percent of labor cost, compared to about 30 percent or so for American workers.

Germany just had an election which brought in a left-wing government. As Germany's economy has slowed (the unemployment rate is 11 percent), disillusionment with the leftist government has already set in. The left-wing finance minister, Oskar Lafontaine, was forced to resign. But according to the article in the IHT, business leaders, the banks and the insurance companies have angrily confronted Chancellor Gerhard Schroeder. They maintained that excessive taxes and high labor costs were making them uncompetitive in world markets, and they angrily threatened to move out of the country.

Be assured that it was not an idle threat. Both the German and Japanese automakers have already built plants in this country - creating American jobs. They apparently found that the productivity of American labor was as good or better than their own. They have acknowledged that the United States is now the major competitor that they fear.

One day the liberals and the academic elite will wake up to the evidence of the resounding victory for the free-market systems.

Starting right after President Reagan reduced taxes and brought interest rates down dramatically, American industry reacted to the overseas competitors. Realizing that we no longer had a protected domestic market and that the communications revolution had made the world a single marketplace overnight, we responded.

We reacted as the free-market system predicted we should react. We had to reduce costs, improve quality and prove that our industry could be a world competitor. Either that or retreat in fear of Japan Inc. and others. Jack Welch of General Electric was the pied piper that led the race to improve productivity.

The restructuring caused much anguish and pain as we flattened management structures and personnel was reduced. No more 14 layers of management between the shop floor and the chairman's office, as exemplified by General Motors. Information traveled quickly, and decisions were made rapidly. True, there were large, painful layoffs. But to everyone's surprise, unemployment in this country went down, not up, and many more new jobs were created than lost.

How? The productivity gains resulted in lower prices, business increased, and the companies ultimately expanded, creating new jobs. Many people who were downsized out of jobs discovered the challenge of entrepreneurship and created new businesses, using their skills more efficiently than they had within the large company they had just left.

Come on, you liberals, stop complaining about all the things wrong with us, take pride in the risk takers of the business world who accepted the challenge and have created this marvelous economy, given the workers more money to spend and more opportunity. The courage to do the tough things has been the savior of our economy. That's why we are the leaders of the world.

Unlike Satchel Page, we should look over our shoulder because they may be gaining on us, but meanwhile we seem to be winning the race. Americans, please be proud of our free-market system and its noble response to competition!