business

If It Ain't Broke, Bill, Don't Fix It

Some observers believe U.S. companies are hopelessly ineffective when competing internationally, especially against Germany and Japan. This belief is even fallaciously extended to include the woes of IBM and Sears, Roebuck & Co.--companies that dominated their markets not too long ago.

The truth is IBM and Sears lost ground not to foreign companies but to major domestic competitors such as Apple, Microsoft, L.L. Bean, and Spiegel. They declined because they were slow to recognize major trends in their markets. Sears became a giant by pioneering catalog sales to rural families, and it never adjusted well to the upscale demands of more affluent urban households. In the '60s and '70s, IBM controlled the world market for large computers, but did not foresee the growing significance of PCs and workstations.

In any country, successful companies tend eventually to lose their creative energies. In much the same way that the old saw has it about families--"From shirtsleeves to shirtsleeves in three generations"--sooner or later, companies begin to decline. The fate of the Great Atlantic & Pacific Tea Co. is particularly instructive. A&P was such a dominant force in the grocery business in the '20s and '30s that an ill-advised and costly antitrust lawsuit was brought against it by the Justice Dept. However, A&P is today a minor player in its industry because it failed to adapt quickly or successfully to the growing penetration of its market by stores springing up in shopping centers.

CATCHING UP. Listening to the critics, one might think that German and Japanese companies are way ahead. And it's certainly true that many companies in Germany and Japan are very well run--otherwise they would not have been so successful. The Japanese have been superior to other countries in producing automobiles, consumer electronics, and certain other goods, whereas the Germans are whizzes at high-quality products, especially machinery.

Yet the German economy has grown more slowly than that of the U.S. since the late '70s, while the gap between the rates of growth in manufacturing productivity in the U.S. and Japan has been sharply reduced in recent years. Service industries are much more productive in the U.S. than elsewhere, and this sector now accounts for more than half of all jobs in advanced countries.

Indeed, it could be tempting to misread the temporary difficulties of the German and Japanese economies as portents that their companies can no longer compete effectively for world markets. But it isn't necessary to deprecate the prospects of companies elsewhere to recognize that U.S. business is not losing its edge. American companies remain world leaders in many products and services, including aerospace, chemicals, software, telecommunications, pharmaceuticals, and securities markets. In the international division of labor, each industrialized nation tends to specialize in those goods and services in which its companies are the most efficient. Although no country can dominate all manufactured goods and services any longer, the decline of U.S. business has been grossly exaggerated.

A decade ago, the Midwest was written off as an important manufacturing center. But the region recovered and has led the boom in U.S. manufacturing exports during the past decade. And while the U.S. allegedly has lost its leadership in high tech to Japan, the trade surplus in what the Commerce Dept. calls "leading-edge products" more than doubled, from $16 billion in 1986 to $36 billion in 1991.

MR. FIXIT? Other indictments of U.S. business include the charge that executive suites pay too much attention to short-term profits and not enough to long-term planning, that they pay top executives too much, that they fail to involve lower-level employees sufficiently in decision-making, and that they have started to neglect investment in research and development. But despite these assertions, U.S. companies must be doing something right because they are performing well enough in the competition for foreign markets.

As I see it, neither international competition nor bad management poses the biggest danger to U.S. companies. The overall record of U.S. business speaks for itself. Obviously, some U.S. companies have been badly run and need restructuring. Yet many are holding their own against the best from elsewhere, even though competition for world markets has intensified during the past couple of decades.

The real threat is from an entirely different direction. It is often argued that U.S. companies don't receive enough support from the federal government. But surely we do not need more misguided government efforts to regulate and assist business. Unfortunately, some members of the new Clinton Administration believe that the government can help U.S. business compete better in international markets by subsidizing promising technological developments, mandating greater on-the-job training of workers, imposing stricter environmental controls, and in other ways. On the contrary, I believe U.S. companies will continue to do just fine in world markets as long as they do not get too much interference from government.

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