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Made in America: Regaining the Productive Edge.

By Bickael L. Dertouzos, Richard K. Lester & Robert M. Solon, Cambridge MA: The MIT Press, 1989, Pp. 344, $17.95.

THE PERCEIVED decline in American economic leadership has become a critical issue in the current business environment. Once powerful industries with significant product market shares are shrinking in the face of increased foreign competition. As we approach the end of the century, the U.S. standard of living continues to be threatened as more efficient overseas businesses make inroads into marketplaces once dominated by American corporations. The root causes for this decline are myriad and complex and cannot be traced to a simple set of issues.

Towards the end of 1986, the Massachusetts Institute of Technology commissioned a study to analyze this major national issue. Staffed by about thirty members of the MIT faculty, the Commission was charged with identifying what happened to U.S. industrial performance and what might be done to improve the situation. Issues concerning macroeconomics, technology, human resources, education and training and the relationships between industry, labor, and government were addressed. The patterns and trends documented in the study were gleaned from hundreds of interviews with CEOs and business and labor leaders and from site visits to companies around the world.

In addition, the study analyzed the manufacturing sector in detail. In the authors' view, manufacturing plays a pivotal role in determining the current and future health of the domestic economy. Contrary to the idea that it is beneficial for the U. S. economy to continue to evolve into a service oriented economy, the authors argue that a strong manufacturing sector is the engine that drives a vital domestic economy. They believe that the evolution to a primarily service-based economy seems implausible. Exporting services abroad while at the same time importing all of the manufactured goods required for domestic consumption is unrealistic. Additionally, as manufacturing jobs migrate overseas, their traditionally higher value-added wage component disappears from the domestic economy.

One of the central issues that the Commission addressed and that forms the core of the study is the decline in productivity growth. During the postwar period and on through the early 1970s, U. S. labor productivity (i.e., output per hour) had been increasing at an average rate of 3 percent per year. This increase has slowed to less than 1 percent per year. This reduction in productivity growth places downward pressures on the wage rate that, in turn, impacts the level of personal income and consumption and ultimately contributes to the erosion of the standard of living. This phenomenon has not only been restricted to the United States, but also to the other industrialized countries of the world. Productivity growth for the industrialized nations has declined overall since 1960. However, and this point is a key in looking at some of the factors contributing to the balance of trade problems, the U. S. trails virtually all of these countries in productivity growth. It is this relative weakness compared to other industrialized countries that receives the Commission focus.

As the study teams began to synthesize the massive amounts of data and observations, some discernible patterns of behavior came to the surface. For example, it became evident to the Commission that mass production is becoming an increasingly outdated strategy in a world of ever-changing consumer demand.

Identifying mass production as an outdated strategy may, at first, seem to be a surprising conclusion. Henry Ford's economic triumph at using mass production techniques played a key role in the industrial revolution. This manufacturing process transformed products once considered luxury items (e.g., the automobile) into commodities available to millions of people. This system of production worked well for many years in the world of few automobile manufactures and a domestic market that was one of the largest in the world. However, markets and consumer tastes change. Shortsightedness and the reliance on inflexible production techniques hindered the ability of U.S. companies to bring to market new and diverse products efficiently and quickly. The facility with which the Japanese automobile manufacturers brought to U.S. consumers smaller, more fuel-efficient cars during the energy crisis helped them gain a significant share of the U.S. auto market.

Education and training is another area where the authors looked for possible causes for the decline in the United States' productive strength. This area has lately been the focus of much public policy debate. The national consensus seems to be that this country has a serious problem in the education and development of our children. The study points this out directly: American elementary and secondary students generally rank close to the bottom in comparative international tests. In addition, we also tend to graduate far fewer technically trained individuals: 6 percent of U. S. college graduates are engineers compared with 20 percent in Japan and 37 percent in Germany.

These and many other findings led the Commission to conclude on a set of five imperatives or goals they believe must be adopted in order to restore the health and productive capacity of the U. S. economy. These imperatives call for: a renewed focus on manufacturing; increased employee responsibility, involvement, and job stability; cooperation among corporations and between labor and management; a more global view of the marketplace; stronger emphasis on basic education and technical literacy; policies that encourage and stimulate productive investment; and the development of long-term business strategies.

The broad issue of America s economic difficulties has far-reaching impacts on our society and how we organize ourselves to do business. The authors cite a number of examples of companies that have succeeded in bringing themselves out of the tailspin of declining productivity and shrinking market share to a position of economic strength. Clearly, reversing this phenomenon on a large scale requires continued cooperation among all economic agents, including industry, government, labor, and education, and a renewal of the entrepreneurial spark and ingenuity of American business.
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Author:Maniaci, Nicholas D.
Publication:Business Economics
Article Type:Book Review
Date:Oct 1, 1990
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