...And You Too, Corporate America

Corporate profits are up, and with any uptick in the economy, the stage could be set for substantially better earnings next year. In the third quarter of 1992, earnings of the 900 companies in the business week Corpmrate Scoreboard were up 31%.

For the first nine months of 1992, corporate profits were up 19%, compared with a drop of 17% in the first nine months of 1991. And this was not just the result of downsizing and lower interest rates and fuel costs: Scoreboard sales were up 5% for the first nine months.

This is an impressive showing, considering the tough business climate. And since European and Japanese earnings are a disaster scene, you could argue that U.S. managers on the whole are dealing with the sluggish global economy better than their counterparts overseas. It's true that it has been painful, with lots of jobs eliminated and businesses folded. But the bottom line is that all the restructuring is working and helping to boost U.S. productivity against its foreign rivals.

That's the good news. The bad news is that many American companies also need to restructure for growth, putting new product efforts and r&d into high gear. One important new study suggests that a dollar of private r&d spending is seven times more potent in increasing the productivity growth rate than a dollar invested in plant and equipment. The fact is that by moving aggressively to get lean and mean, U.S. companies have won a financial advantage over their overseas adversaries, and at a time when the dollar and labor rates are favorable. But they need to get on with exploiting that advantage--which will only be temporary, if aggressive restructuring to slash costs is not followed up with stronger investment in future technologies and products.

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