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A Shifting Economy . . .

August 16, 1987

There has been much talk about the "deindustrialization of America," and for good reason. U.S. manufacturers seemed to be losing out to foreign competitors. Many companies moved manufacturing operations overseas where the quality of workmanship was high and the cost of labor low. The label "Made in America" lost its consumer appeal, and many Americans worried that the United States was fated to become a second-class economic power.

As Times writers Tom Redburn and James Flanigan noted in a recent report, however, there are signs that a dramatic turnaround--both in attitudes and in actual competitiveness--may be under way. Productivity in manufacturing, unlike the service sector, is on an upswing. In fact, it rose at a faster pace in the United States last year than in any major competing nation. Costs are being slashed. Investment is up. Several industries are beginning to regain lost markets both at home and abroad.

Aside from the benefits of a more realistic dollar-yen exchange rate, several factors are involved. One is the growing conclusion that without a healthy manufacturing sector even a service-dominated economy would lose its strength and vitality. Another is the investment in more efficient production equipment. Most important of all, however, has been the veritable revolution in management attitudes toward the production process.

Many companies, borrowing from the Japanese, are embracing the concept of "flexible manufacturing," under which a factory is equipped and organized for fast reaction to changing demands and opportunities in the marketplace. In well-managed companies this new approach is accompanied by much greater attention to inventory control, quality of production and worker suggestions for improvements.

Big companies like IBM and General Electric are in the forefront of this healthy trend, but many smaller manufacturing firms are joining the revolution, too.

Skeptics argue that much of the improved competitiveness has resulted from cost-based slashes in the work force--a process that can't continue forever. Critics also charge that the conversion to new ways of doing things is often only skin deep, that too many managers overestimate the importance to productivity of shiny new equipment and underestimate the importance of genuine consultation with workers. Most companies, too, are still inclined to use productivity gains to enhance short-term profits instead of seizing the opportunity to cut prices and increase their share of the market.

Even if the managers of U.S. manufacturing companies do everything right, however, American industry as a whole will have a tough time regaining its competitive edge unless some of the problems in society generally are successfully addressed.

First there is the unhappy fact that an up-to-date factory requires fewer workers--and the displaced employees frequently are unable to find equally well-paid jobs in the service sector.

Making things worse in an era in which job skills are increasingly crucial, there are millions of functional illiterates in the work force. Tests show that young Americans, compared with students in other advanced countries, are not learning much science. Too many of the nation's best scientists and engineers are working to develop better weapons instead of products that can be sold in the global marketplace.

It is highly encouraging, nonetheless, that sizable numbers of this country's most influential business people are demonstrating that American factories can compete with overseas producers. The country could use more of the can-do spirit among its political and educational leaders.

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