The Job Ahead for U.S. Business

By George M. Taber

America's trade problem is both complex and simple. Politicians, business executives and economists discuss such arcane tactics as dumping or trademark protection, but the basic questions are far less bewildering. Will America adopt a defensive or an offensive strategy in the world economy? Will the U.S. build up seemingly strong walls to protect its domestic industries against an onslaught of goods from abroad? Or will it strive to continue as a leading economic power at the forefront of technology by pushing into new markets at home and overseas?

In many ways, the defensive strategy is appealing. It certainly would be easier. American executives and workers could relax, secure in the knowledge that thanks to protective tariffs and restrictive import rules they had to worry much less about foreign competition or losing their markets. That strategy, though, ignores the fact that competition is the driving force of Western economies. Joseph Schumpeter, the Austrian-born philosopher of capitalism, described how businesses compete and change in a process of "creative destruction." In Capitalism, Socialism and Democracy (1942), he wrote that firms "incessantly revolutionized the economic structure from within, incessantly destroying the old one, incessantly creating a new one."

Some look to the Federal Government to make companies competitive. Arguing that Japan's success is based on close business-government cooperation, they call for an industrial policy that would have committees select future growth industries and push exports. But that approach is unlikely to work in the U.S., which lacks the history and ethos of public-private cooperation. A U.S. industrial policy would likely end up in bureaucratic overregulation or logrolling favoritism, with Government aid going to the industries with the most political clout rather than to those that most need development. The Federal Government, of course, has a role to play in solving the trade problem. The most important thing Washington could do is to reduce the current $200 billion budget deficit. Perhaps half of this year's projected $150 billion trade deficit will be caused by the strong dollar, which is the result of the budget deficit. Some legislation should also be re-examined to make sure that it does not hinder trade. Example: antitrust rules that overrestrict cooperation among U.S. firms. Finally, the Government should take a tough stance when countries violate trade rules. In the past, the U.S. has turned a Nelson's eye to many trade violations because the deficit was small and tolerable. Even though those restrictions are not the major cause of U.S. trade troubles, this country can no longer be nonchalant.

While Government action is important, the basic solution to the trade deficit is for American firms to become more productive--and better salesmen abroad. U.S. firms must turn out high- quality products that earn their markets. Says John Young, president of Hewlett-Packard: "Government can't legislate success; the responsibility for being competitive falls squarely within the private sector." The major tasks ahead for American firms:

Export Promotion. Most U.S. companies have traditionally been content to sell only in the domestic market and have rarely looked abroad for new business. Astonishingly, about 85% of all U.S. exports are produced by just 250 firms. American companies must learn more about foreign markets and how to sell there. Concedes Malcolm Stamper, vice chairman of Boeing: "Even if the Japanese completely removed restraints on U.S. imports, there would still be a trade deficit because we haven't done all our homework."

Research and Development. Expenditures for nondefense R. and D. in the U.S. have been far behind those of our major competitors, and American firms have often been slow to turn new technology into commercial products. For example, the American firm Ampex in 1956 introduced video tape recorders for use in the television industry. But Japanese firms recognized the potential for home VCRs, and today they virtually control a worldwide $10 billion market. The Japanese reputation for manufacturing high-quality products is built in large part on American technology. Reported the President's Commission on Industrial Competitiveness early this year: "Robotics, automation and statistical quality control were all first developed in the United States, but in recent years they have been more effectively applied elsewhere."

New Markets. A rapidly changing world economy demands that companies adapt to new business conditions. Rather than lobbying to protect dying industries, U.S. firms should be more aggressively looking for fresh opportunities. Some Japanese firms have been particularly successful at this. In the early 1960s the Seiko Group, a leading watch company, realized that high growth there was ending. Using technology developed for watchmaking, the company turned to other fields. Today Seiko prospers by selling a line of computers and printers under the Epson brand in addition to its watches.

Employee Training. U.S. companies should be constantly educating workers so they can keep up with advances in their current fields or learn new ones. Since 1962 the burden of retraining workers whose jobs have disappeared because of imports has largely fallen on Washington. The Federal Government has spent nearly $10 billion on programs that amounted to little more than extended unemployment benefits. Retraining workers could be more effectively done by companies, and tax incentives would encourage firms to invest more in their employees.

Even if American corporations become more aggressive and outward looking, certain industries will shrink and perhaps die as the world economy changes. Particularly vulnerable will be American companies manufacturing such products as basic steel, textiles and chemicals. Those require unsophisticated technology, and countries where labor costs are low can make them more cheaply. It now seems clear that the American economy overall will be stronger if corporations concentrate on products that maximize America's strength in high technology.

No one challenges Schumpeter's argument that change is the essence of modern economic life. Horsepower gave way to steam power, and vacuum tubes were replaced by transistors. Industries decline, while others grow. No nation today can isolate itself from those changes if it hopes to remain economically competitive. The Maginot Line did not protect France in 1940, and no economic Maginot Line will protect the U.S., now or in the future.