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Why the United States isn't winning the trade war with Japan.

Why the United States Isn't Winning the Trade War with Japan

Japan does not have raw materials. It does not have natural resources. It is forced to import large quantities of iron ore, coal, and most other inputs it uses in its manufacturing processes. Japan does not have as large an internal market as the U.S., nor is it as close to major markets in Europe and Latin America as is the United States. The cost of land is prohibitive and rent is several times higher than in the United States. Japan does not have the manufacturing experience and the industrial heritage that the United States has. In the last five years the Japanese yen has almost doubled in value compared to the U.S. dollar. In March 1990 one dollar was worth 142 yen while in March of 1985 it was worth 260 yen. This fact alone should have priced Japanese products out of the market. Why then do the Japanese continue to win the trade war, outcompeting U.S. companies in automobiles, memory chips, consumer electronics, steel, and a host of other products? A variety of factors combined to create this phenomenon.

Japanese workers are known for their lasting loyalty, strong discipline, and exceptional dedication to their employers. When asked where he works, a Japanese worker will typically answer: "I belong to Hitachi." Being hired by a large company and being granted lifetime employment bestows considerable prestige and is viewed by typical workers as a vote of confidence which they in turn are expected to justify on an ongoing basis. A worker's social status is determined by the company, its size, and its reputation. When people introduce themselves they state first the company's name, their last name and their position in the company. Brought up in a society that places a high value on conformity, obedience, and self-sacrifice, the workers' main goal is to please their employers, conform to the group, and live up to the expectations and the trust that are placed in them. The typical U.S. worker is no match for his Japanese counterpart. In recent seminars, when I asked U.S. managers what percentage of their workers who get paid for eight hours indeed work eight hours, the answers ranged from none to ten percent. When they are among close friends, Japanese managers in the United States often express disappointment with young U.S. workers and describe them as disrespectful, disobedient, and selfish.

On a recent trip to Japan I had an opportunity to witness the Japanese at work; and again came away impressed with their conscientiousness and dedication. In offices, department stores, or at the reception counter in the hotel, people were exerting themselves, working quickly and trying hard to please the customer. This attitude is fast disappearing in the United States as the country turns from a customer-oriented to an employee-oriented society. In July 1987 we hosted a group of executives and middle managers from the Far East. On a number of occasions they expressed surprise with the casual couldn't-care-less attitudes of many U.S. workers. One Asian manager wondered aloud how the United States could have become so affluent with such poor work habits.

Japanese management is different as well. It would not be difficult for even a mediocre manager to achieve impressive results given a highly motivated and productive group of Japanese subordinates. Japanese management, however is far from mediocre. Carefully selected from the best and most dedicated workers, Japanese managers are the cream of the crop and the locomotive that pulls the company ahead. Knowing that they will probably spend the rest of their working lives with the same company, Japanese managers realize that their own fortune is directly linked to the fortunes of the company. They think and act as if the company was their own business. Thus, for example, they regularly put in a day's work that stretches from 8 a.m. to 11 p.m. Coming home "early" (8:00 p.m.) is frowned upon and is unacceptable even to the manager's family, lest the neighbors think that he is lazy or that something is wrong in the office. In some Japanese companies, managers do not go home at all during the week, but spend the night in company-provided dorms. Many Japanese managers contribute their annual vacations to the company.

The loyalty and dedication of the typical Japanese worker are more pronounced and amplified in management, where these traits are sometimes pushed to self-sacrifice. This cultural characteristic is difficult for U.S. managers to understand and harder yet to adopt. During World War II the Japanese used Kamikaze pilots on suicide missions against U.S. ships. These pilots were provided with a one-way fuel supply so each missions was a mission of no return-even if the target had already been sunk by other units. The number of young Japanese volunteering was so large that the authorities selected only the sons of noble families and graduates of the best universities. If a similar program was to be instituted in the United States one can only wonder how many would volunteer. Some of the volunteers who were not selected, like the president of Kyocera, are now managing Japanese industries.

U.S. managers come from a different background. Brought up in an egalitarian democratic and permissive environment that places the highest value on the individual, the U.S. manager grows up to think that he and his personal interests come first. His goals, then, are to maximize his own wealth and to increase his individual power and glory. While much has been written in the United States about the virtue of teamwork and group decisions, the fact remains that it is practiced much more in Japan than in the United States. Moreover the individualistic approach has been strengthened in the United States in recent generations. Young managers are taught to "watch out for number 1" to get on the "fast track," to negotiate fat benefit packages and "golden parachutes," and to move every 3 years in order to maximize rapid promotions. Loyalty to a company or to one's colleagues is considered outmoded and is rarely practiced. Even if managers plan to spend a longer period of time with the company, they often are not given a chance. Reorganizations, mergers, takeovers, relocation, and plant shutdowns have reduced the tenure of many managers to a mere handful of years. Knowing that he may not be around in a few years discourages the manager from long-range planning and encourages activities that will guarantee instant gratification and short-term benefits. So while the Japanese manager can devote his time to planning new products, improving manufacturing processes and developing new markets, his U.S. counterpart has to spend his time fighting takeovers, devising "poison pills," and worrying about his own future.

The productivity of U.S. managers is considerably lower than that of Japanese managers as well. Data published recently regarding primary design work points out that "it takes four Americans to do the work of three Japanese." When Matsushita took over Quasar, it reduced the number of white collar workers by 25 percent. Another study reveals that 20 percent of all white collar work today involves correcting mistakes." While less productive than their Japanese counterparts, U.S. managers have no hesitations in granting themselves incredibly large salaries and bonus packages, unheard of in Japan. Even in the midst of a recent recession, while asking workers to reduce their wages and give back some benefits, U.S. managers voted themselves hefty increases and generous bonuses running, at times, in the millions of dollars per executive. "No Recession at the Top" described the phenomena a leading business weekly. By contrast, in Honda, Nissan and NUMMI plants in the United States, executives do not even have their own parking spaces. Honda's top executives eat in the employee cafeteria. There are no special VIP dining rooms. Honda's president, Irimajiri, does not even have an office. He works in the same room with dozens of other workers.

In 1982, GM's plant in Fremont, California experienced low productivity, a high defect rate, and poor management-labor relations. Absenteeism was about 20 percent and there were about 5,000 outstanding grievances. GM closed the plant down. Toyota and GM, in a joint venture, reopened it after introducing considerable changes. After bringing in some of their own managers and their own systems, Toyota rehired most of the former workers, even their militant leaders. Today, the 2,500 employees produce the same number of cars produced previously by 5,000 workers. Absenteeism is down to two percent and there are only two grievances outstanding. Because Japanese managers make personal sacrifices, they've probably done more to win over even hard-bitten UAW members than formal corporate concessions would do. "When GM was here, we hated each other," says Tony De Jesus, president of the new UAW local at NUMMI. As president of the old GM local, he led a wildcat strike in 1978. "Now management's given us a voice and more responsibility and listens to us." Says a NUMMI executive: "The difference between now and under GM is like night and day."

While ready to make personal sacrifices, Japanese managers show at the same time great concern for their workers and their workers welfare, in good times as well as in bad. At ATR, for instance, business dropped to such an extent that employees feared a major layoff. Management, however, reassigned workers to different housekeeping chores, built up inventory and brought in work from Japan. Consequently, not a single worker was laid off, and employee morale and loyalty run strong. "Now," says a frustrated UAW organizer, "we can't persuade the ATR people of the need for a strong union. The company never lays people off."

The Japanese philosophy of cooperation and care has lessened the need for unions in Japan as well, and has made existing unions more cooperative and productivity-oriented. It is not uncommon for a Japanese shop steward to urge his fellow worker to increase productivity and improve quality; a far cry from his counterparts in the United States.

Another reason for the success of Japan in the competitive international trade arena is the quality of Japanese products. Japanese products have been selling successfully all over the world because of their attractive design and their uncompromising quality. Their dedication to quality and customer service almost amounts to a national obsession for perfection. Employees of Mitsubishi, Canon, and many other companies continuously inspect and examine products from every angle, asking themselves, "How can I make it better?" Honda workers on their way home from work straighten out windshield wipers on cars waiting to be loaded on ships.

While shopping for a piano a year ago, we were advised by retailers, music teachers, and piano technicians to select a Yamaha. We were further advised that there are two models, one assembled in the United States of Japanese parts while the other was made and assembled in Japan. There was a consensus that the model assembled in Japan was superior.

Tests on microchips revealed that U.S. chips failed six times more often than Japanese. Before returning from a sabbatical leave in Latin America, a traditional market for U.S. products, we sold off many of our household goods. Japanese-made articles sold quickly while U.S.-made goods were slow to move and had to be discounted. This reputation for quality holds true with machinery, assembled components, and industrial goods as well. In a comparison of the quality of Japanese and U.S. air conditioners, the failure rates of the worst producers (all Americans) were 500 to 1,000 times greater than those made by the best producers (all Japanese). The average U.S. manufacturer suffered 70 times as many assembly line defects and made 17 times as many service calls in the first year of service.

In public opinion surveys U.S. consumers were asked which product they would buy if all they knew was that one was made in Japan while the other was made in the United States. The majority said they would buy the Japanese product because of their reputation for higher quality. If Americans would not buy U.S. products, how could one expect the Japanese to buy them? Indeed, U.S. products are not doing well in Japan. While Japanese cars are selling in the millions in the United States, only a few thousand U.S. cars wee sold in Japan--and some were later turned because of poor quality. In an interview with Japanese motorists, most respondents replied that they would not want to own an U.S. car. Others said that they did once own one, but would not do so again.

In Europe, another traditional market for U.S. goods, the reputation of U.S. products is not much better. A recent editorial in a major German newspaper in Frankfurt said that even if the Germans stimulate their economy and increase consumption, it is unlikely that they would increase purchases from the United States because of shoddy quality. On August 29, 1986, an afternoon ABC news broadcast opened with: "The world does not want American products."

It may be noteworthy to mention that the Japanese reputation for exceptional quality is a relatively recent development. As recently as the 1960s "Made in Japan" was synonymous with cheap and inferior products. Moreover Japan was, until the 20th century, mainly a feudal agrarian economy. An Australian expert, commissioned by the Japanese government in 1915, described Japanese workers as "lazy and easygoing." On Japan's industry, he reported: "Japan commercially, I regret to say, does not hear the best reputation for executing business. Inferior goods, irregularity and indifferent shipments have caused no end of worry. My impression as to your cheap labour was soon disillusioned when I saw your people at work. No doubt they are lowly paid, but the return is equally so; to see your men at work made me feel that you are a very satisfied easygoing race who reckon time is no object. When I spoke to some managers they informed that it was impossible to change the habits of national heritage."

The rigor, duration and quality of Japanese education is another advantage Japanese companies have over their U.S. counterparts. Japanese industry has a better educated workforce, while U.S. companies have to cope with wide spread illiteracy. From an early age Japanese students spend more hours per day and more days per year attending school. A Japanese fourth-grader will be in school seven-and-a-half hours per day compared to six hours per day for a student in the United States. Many Japanese students attend private schools in the late afternoon and early evening and then spend a few hours on homework every day.

In the spring of 1984 I lived for eight days with a Japanese family. Every evening after dinner the family split into 2 groups, the father with the son (10) and the mother with the two daughters (8, 13), and they worked on school homework until around 10 p.m.

The school year in Japan lasts 240 days and is 60 days, or 33 percent, longer than the 180-day school year in the United States Extensive and highly demanding examinations require further study and preparation by Japanese students.

The focus of education and the final placement of the graduates is different too. In Japan, production engineers or manufacturing managers carry a lot of prestige. The dream of many Japanese students is to end up working in a Sony or Toyota factory. In the United States, many of the bright graduates from ivy-league universities dream of joining a law firm, a consulting group, or a Wall Street Brokerage house. In 1965 the ratio of scientists and engineers in the U.S. workforce was three times that of Japan. Now Japan produces six times as many engineers as the United States.

A generation ago, economist Simon Kuznets noted that, "The major capital stock of an industrially advanced nation is not its physical equipment; it is the body of knowledge amassed from tested findings of empirical science and the capacity and training of its population to use this knowledge effectively." So while some of the best brains in Japan are working on inventions and technology breakthroughs, some of the brightest men in the United States are engaged in lawsuits and takeover wars.

The culture and social values are different as well. In Japan, hard work, frugality, saving, dedication, and loyalty to the peer group and the company are the norms. In the United States consumption, debt, instant gratification, pemissiveness, and self-indulgence are the prevailing values. "Charge it;" "enjoy now, pay later" are but some of the buzz words that depict current behavioral norms. Consequently, consumption grew in the United States 20 percent faster than in Japan and Europe in the last six years, while the savings rate in the United States is, at four percent, one of the lowest (Japan's is 20 percent). If we do not consider forced savings, such as pension plans, the situation is even worse--the U.S. savings rate is below zero. Large segments of the middle class spend 110 percent of their income, constantly borrowing to make up the difference. The overall picture for the economy as a whole is not much better. As a whole, consumers, business, and government spend about three percent more than domestic enterprises produce.

The shortfall is made up by heavy borrowing from abroad. In 1982 the United States was owed about 140 billion. The United States now owes about $250 billion. The United States has now become the world's largest debtor nation. Its debt is bigger than that of Brazil, Mexico, and Argentina combined. Moreover, the pace of this borrowing is alarming. While as recently as 1984 the United States was a net creditor, in 1985 it borrowed $100 billion and in 1986 an additional $150 billion. Experts estimate that in the next few years the United States will have to borrow an additional half a trillion dollars from abroad. To attract such large sums, the United States will have to pay high interest rates, which will curtail economic growth, cause recessions, and increase the budget deficit, which may then necessitate further borrowing. Servicing this debt will become another problem, as ever-increasing sums will have to be diverted out of the domestic economy and sent abroad for interest payments. Within a few years, interest payments on the debt will become the largest item in the budget. Unlike other budget items, interest payments cannot be changed.

The Japanese government is another factor that helped Japan become an industrial giant and a global economic power. Working hand in hand with industry, the government provides needed capital for R&D, encourages sunrise industries (like innovative high-tech companies) and is quite harsh and uncompromising with inefficient sunset industries. In the United States the situation is quite different. The government has adopted a confused and haphazard policy of helping losers and supporting inefficient and dying industries, like shoes and textiles, with a hodge-podge of trade barriers such as high tariffs, quotas, visas and other restrictive practices. These protective measures impose a considerable cost on the U.S. economy by subsidizing inefficient producers and by preventing a more rational allocation of resources and higher economic growth. These protected and subsidized industries, shielded from competition and other market forces, have little incentives to reorganize, modernize, and become more efficient. Instead, they become a perpetual burden on the economy, further impairing U.S. competitiveness in the international marketplace.

Various other U.S. government policies, past and present, combined to harm U.S. exports. Jimmy Carter's restrictions on the sale of U.S. grain to the U.S.S.R. resulted in a drop in the U.S. share of the market, probably permanently, to around 20 percent at present, down from a pre-embargo peak of 74 percent. Canada, Argentina, and Australia were only too happy to step in.

When President Nixon proposed export restrictions on soybeans, the Japanese responded by helping step up soybean production in Brazil, which is now the largest U.S. competitor in the soybean market.

Reagan's policy restricting equipment sales for the Russian gas pipeline resulted in lost exports and damaged the reputation of U.S. companies, which could cause their future sales to suffer.

The Foreign Corrupt Practices Act diverted business from U.S. companies to those of other countries less concerned with morality and more inclined to follow the practice, "When in Rome, do like the Romans." While the law's intentions were good, good intentions do not always lead to desirable ends. It proved, once more, how detached some well-meaning legislators can get from the competitive global marketplace. If all other players in the international marketplace follow a long-established set of rules, mutually beneficial to all parties, it is naive to expect that one player, important as he may be, can impose his new rules on the others. Many Third World countries resent this practice and view it as an extension of old colonial ex-territorial laws. American companies cannot change the rules of the game. They can either play by the rules or stay out of the game. If they stay out, their profits and U.S. exports are harmed. If they play by the rules, U.S. laws are violated.

This is an impossible situation for many U.S. companies who cannot afford to give up foreign markets but who, at the same time, do not want to break the law.

Anti-trust laws are another obstacle for U.S. companies trying to compete abroad. Overseas projects are, at times, very large and highly risky. They require cooperation, the pooling of resources and the spreading of risk among several corporations. This would be illegal under anti-trust laws. Even when applied domestically, these laws do not always make sense. For example, GM and Ford would not be allowed to join forces against Toyota, yet GM and Toyota were permitted to join forces against Ford.

Various state and federal tax laws tax savings and reward spending. This discourages savings and reduces the pool of capital available for business expansion and modernization. In 1985, the cost of capital was three times as high in the United States as in Japan.

Government support for R&D has been weakened, and R&D expenditures have been declining in the United States. On the other hand, R&D expenditures have been rising in Japan for the last 20 years. Looking at commercially relevant R&D expenditures, the difference is even more striking. In 1984 the United States spent 1.8 percent of its GNP on commercial R&D compared with Japan's 2.6 percent.

This continued support by their government, enabled Japanese companies to do research on products and processes considered too risky in the West. At times, Japanese companies continued their research on products and components long after they were dropped by U.S. companies. The most recent example is the Josephson Junction, a fast and highly conductive microswitch used in computers. Invented in 1960 by British scientist Brian Josephson (who won a Nobel Prize for this discovery), the invention was then picked up by large U.S. companies such as Sperry and IBM. The advantage of Josephson switches is that they are faster than silicon switches--millions of which are used in each computer--use less power, take up less space, and do not overheat like silicon switches. After considerable work, U.S. companies could not justify investing more resources in this component and dropped it. The Japanese, however, kept on experimenting, and earlier this year NEC and Hitachi came up with an improved Josephson Junction that is six times faster than existing switches. As one commentator put it: "The history of Josephson Junctions illustrates differing U.S. and Japanese approaches to applied research. Sustained by government cooperation, Japanese labs can enjoy the luxury of pursuing lines of research that even the biggest U.S. companies are forced to drop if there are no signs of returns on outlay."

U.S. companies rarely enjoy such backing from their government.

To the contrary, over extended periods of time U.S. corporations have been harassed by the government, threatened and sued for a host of allegations: being too big, having too large of a market share, not having the right racial or ethnic mix, not sharing technology with their competitors, and a variety of other allegations. Even some of the largest and most progressive companies, like IBM, AT&T, Levi Strauss and others had to spend years in court using scarce resources and tying up management. In many of these cases it was not clear how the economy or the public at large benefited, as nothing was added to the GNP from these legal battles. It was even less clear how individual citizens benefited from these fights. Taxpayers paid twice--as citizens, they shouldered the government's legal fees, and as consumers or stockholders they had to pick up the legal tab for the corporations as well. Small enterprises do not fare much better. Burdened by numerous regulatory demands, they spend an ever-increasing share of their resources trying to comply with voluminous forms and sometimes contradictory rules. A small manufacturer of food products near San Francisco was cited by OSHA for having a smooth floor, which was unsafe for employees. After installing a new floor in his plant, he was cited by the health department for not having a smooth floor which is easier to keep clean. The owner finally shut down his plant and laid off his workers.

It is doubtful whether U.S. industrial pioneers like Henry Ford or Thomas Edison could have made it had they lived now. Had Edison presented his light bulb invention today it is doubtful that it would have seen the light of day. A host of government agencies--all intent on protecting society, helping mankind, and improving the world--would probably have banded together to extinguish the new idea before it could inflict great harm.

Consumer activists would have pointed to the danger posed by exposed terminals. Environmentalists would have objected to central power stations that pollute the air and blight the environment. Nature buffs and conservationists would have objected to the esthetically unsightly overhead lines. Health advocates would have questioned the side effects of "artificial" light. Federal agencies like OSHA, EPA, FTC, the Consumer Product Safety Commission, the Federal Energy Regulatory Commission, and a variety of state bureaus would have kept Edison busy filling out forms, preparing environmental impact reports and attending endless hearings.

Relations between the Japanese government and the business community are less adversarial and more harmonious. Not only is the government not an obstacle to business, but quite often takes an active role in planning and financing activities that benefit the business community. Japan's success in gaining a considerable market share in the U.S. high-tech area provides an interesting example. The project was conceived, planned and executed in great detail by the Ministry of International Trade and Industry (MITI). It was then introduced in several phases.

In phase one, MITI organized the various computer companies into three major groups: Fujitsu-Hitachi, Mitsubishi-Oki, and NEC-Toshiba. In phase two, these three giants were instructed to serve only the domestic market. Fierce competition developed, forcing the groups to become innovative and efficient. At this point, these conglomerates were ready to move on the U.S. market but were advised by MITI that there was another intermediate step, phase three. Here the companies were directed to the Australian and Southeast Asian markets to obtain more experience and to fine-tune their products and processes before the attack on the main target, the United States. After a few additional years of practice the signal was given for phase four, the attack on the U.S. market.

Productivity gains have been lower in the United States than in most industrial countries, and much lower than in Japan, for over a decade. One estimate claims that the United States is now nearly 45 percent worse off in the productivity war than it was in 1977, and that next year the difference will be 50 percent.

There are many reasons for this undesirable phenomenon, most of which have been mentioned earlier. The stronger motivation and dedication of the individual Japanese worker directly results in higher productivity. The higher savings rate in Japan makes ample and inexpensive capital available for industry to modernize and automate. The strong government support for R&D generates new products, components, and processes that cut costs and increase productivity. It costs U.S. auto producers $1,200 more to produce a car than their Japanese competitors. At Tokyo Steel, the average employee produces one third more than in the most productive U.S. steel company. Comparing whole industries yield even more dramatic results.

Comparing U.S. productivity with that of other industrial countries over an extended period, 1960-1983, provides similar conclusions: productivity in France grew three times faster than in the U.S.; in Germany 2-1/2 times, in Korea 4-1/2 times, while in Japan productivity grew by almost five times faster than in the U.S.

Many factors contributed to the poor performance of the United States in the international marketplace. The value of the dollar was only one of them. Lower productivity gains, inadequate savings rates, poor quality, lower educational standards, short-term self-centered management, cultural values and government policies all combined to impair U.S. competitiveness at home and abroad. Why then was so much hope placed on a lower dollar?

The answer is twofold: First, the devaluation of the dollar stemmed the tide of restrictive bills and lessened the pressure for protectionist measures. Second, devaluation was the point of least resistance and an easy way out-it is easier to devalue the dollar than to increase productivity, raise educational standards, or change cultural norms. It was a typical bureaucratic move; a quest for a quick fix, a fast cure, a shortcut riding on the delusion that one can legislate success. Unfortunately there are no short cuts to economic prosperity, and quick cures do not work in the competitive global market. Japan did not become an economic power through some monetary fiat issued by a group of five. Decades of hard work, frugality, saving, and investment are some of the forces that turned Japan into an industrial giant, just as they made the U.S. a global power earlier. Ironically, instead of returning to these values, the U.S. is pressuring Japan to abandon them and to transform itself from a production-oriented to a consumption-oriented society. Pointing the finger at our competitors is not wise nor productive. It is our house that we have to put in order, not theirs. Reversing the slide and pushing the U.S. economy uphill from the depths of the successive deficits is going to be a long and painful process and will require considerable cooperation and sacrifice. Since no single sector caused the massive trade deficit, no one sector can reverse it. It will take a concerted and prolonged effort by the private sector, government, labor, consumers, and workers to accomplish the task. Government can do its share by cutting its own deficit, by borrowing less and by introducing legislation that would promote R&D, encourage savings, and permit cooperation between U.S. enterprises in overseas ventures. Stronger cooperation will also be needed between the government and the business community. U.S. corporations can probably compete against individual Japanese companies, but they cannot compete against an alliance of Japanese conglomerates and the Japanese government. Even if the U.S. government was neutral, it would place U.S. business at a disadvantage. The government, however, is far from neutral. It is quite involved, but in a confused and haphazard way, squandering its limited resources by supporting losers and subsidizing dying industries that stand no chance in the competitive international market place. At the same time it withholds assistance or imposes unnecessary constraints on promising, sunrise industries. Government help should only be given to promising companies, for a limited time and on a quid pro quo basis. In return for assistance, these companies will have to cut costs, modernize, and become competitive within a given period of time. Recent history provides ample examples of successful government-supported programs such as NASA, agricultural export promotion, private housing and others.

Labor unions will have to contribute their share, starting with a fundamental change in attitude from their traditional adversarial/confrontational approach to a more cooperative mode. Unions and management are in the same boat and will have to pool their resources and work together as one crew. In the competitive global economy the real adversary is not U.S. management, but foreign competitors. They are the ones who take over markets and gain jobs. Unions will have to use their influence on their members and urge them to increase productivity and improve quality, otherwise our industry will continue to sink, bringing down both unions and management. Management, in turn, will have to become less self-centered and more employee-oriented. By their own conduct and concern for their workers and the company, managers can serve as an example for employees and provide inspiration and motivation.

Individual workers supported by their unions and cared for by management will have the responsibility to increase productivity, improve quality, and demonstrate more loyalty to the company. Educational standards will have to be raised and more demands and challenges placed on the students. Few students exert themselves today in grade school or high school, and often not even in college. In a complex technological society where research, know-how, and information are so important, the United States cannot afford to lag behind its competitors in educational achievements. Because of high wages the U.S. cannot compete in manufactured goods. The low educational levels will render the United States uncompetitive in hightech areas as well. Here, too, a cooperative effort on the part of parents, teachers, students, and local government will be needed to upgrade educational standards and raise achievement levels. Consumers will have to do their share by consuming less and saving more. This would become more feasible, and even attractive, by tax laws which would reward savings and tax consumption. Since consumer goods from shoes to automobiles are imported, cutting consumption will, by itself, reduce the trade deficit. Increased savings will provide the necessary capital to modernize U.S. industry, make it more internationally competitive, and increase exports.

Two hundred years ago, Benjamin Franklin wrote: "Use it up, wear it out, make it do or do without." Never was this advice more appropriate than now. While the damage from a protracted trade deficit is severe, it is not always immediate and its causes are not obvious to the public at large. Hence, there is no political pressure nor constituent push to take corrective measures. On the contrary, because of widespread misconceptions, the pressure is often in the wrong direction. When a company is unable to modernize its plant because of inadequate tax incentives and high capital cost, and consequently ends up closing the plant, the blame is often placed on the company. Constituents then pressure their representatives to pass restrictive legislation prohibiting or postponing plant shut-downs. This perpetuates old and unproductive plants.

The lead for corrective action has, therefore, to come from the top. Otherwise, a decade-old process that is eroding the U.S. economy and pushing the industrial base downhill will continue. As Amitai Etzioni puts it in his book "The Rebuilding of America Before the Twenty-First Century," "The United States has become a new kind of country: not developed, not developing, but underdeveloping, a modern economy in reverse gear."

Lowering the value of the dollar will not cure the structural and deep rooted problems of U.S. industry. It can, at best, yield a marginal and superficial improvement. To reverse the downhill slide, and to push the U.S. industrial base back uphill would require a sustained and comprehensive effort on the part of the political, financial and economic leadership of the country. Without a total commitment and a concerted effort this formidable task cannot be accomplished, and the U.S. could continue to slide and end up being a second or third-rate power just as Egypt, Greece, Portugal, and Spain ended up-after leading the world for generations.

Further Reading

Thurow, L., "Revitalizing American Industry: Managing in a Competitive World Economy," California Management Review, Fall 1984.

Adam Platt, "Training the Paper Shufflers to Push the Right Buttons," Insight, August 18, 1986, p. 12.

Aaron Bernstein, et. al., "The Difference Japanese Management Makes," Business Week, July 14, 1986, p. 49.

Allgemeine Zeltung, August 1986.

Simon Kuznets, "Toward a Theory of Economic Growth," New York: W.W. Norton, 1986, pp. 34-35.

G.H. Hatsopoulos, "Productivity Lag Is Real Trade Barrier," The Wall Street Journal, May, 14, 1986.

Stephen Kreider Yoder, "Japan Banks Cooled Computer Circuit," The Wall Street Journal, October 22, 1986, p. 34.

Ezra Vogel, Comeback, New York: Simon and Schuster, 1985.

Dr. Aviel is a professor of international business at California State University, Hayward. He had also taught at the University of California, Berkeley, San Francisco State University and a number of universities in Latin America, the Middle East and the Orient. He served as the associate dean at Golden Gate University, San Francisco, and ESSAN (a graduate school of business established by Stanford University) in Peru. Prior to entering academe, Dr. Aviel spent ten years in private industry holding managerial and executive positions in several multinational corporations. He is currently a member of the board of directors of domestic and foreign enterprises, and is the author of two books, ten articles and a large number of technical papers.
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Author:Aviel, David
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Date:Mar 1, 1990
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