Compared with what they have been through in the last decade, most American corporations regarded the stock market's collapse as a mild tremor.
It did not bankrupt them, nor even threaten to. Indeed many companies rushed to buy their own stock in a show of confidence. No company took lightly the possibility that the crash may presage a recession, but major U.S. corporations are in such fit shape--so lean and mean, in the phrase they use--that they are confident of weathering all but the most severe economic downturn.
Theirs is the confidence of survivors. For U.S. corporations, more than the companies of any other nation, have been challenged in recent years to withstand fierce competition from foreign companies--most of the time with an artificially strong dollar putting extra weight in their saddle bags.
A Blowing Gale
At the same time, presenting perhaps a greater challenge, U.S. companies have been subject to a blowing gale in the financial markets--to corporate raiders threatening takeovers and jumpy shareholders forcing corporations into mergers or massive restructuring of their assets and managements.
For the Record
Los Angeles Times Tuesday December 22, 1987 Home Edition Part 1 Page 2 Column 6 National Desk 1 inches; 33 words Type of Material: Correction
In a 1986 cost reduction program, IBM offered enhanced early retirement benefits to its employees and 15,000 accepted the offer. It was incorrectly reported in Friday editions that IBM had forced employees to take early retirement.
Some of the nation's biggest and most important companies--U.S. Steel, Gulf Oil, Texaco, RCA, Boeing and Goodyear Tire--have been takeover targets. And those that haven't disappeared in mergers have sought shelter under state laws or a forced restructuring that usually has meant selling divisions or paying a premium to buy back stock from their own shareholders.
Restructuring has become universal. Companies that once stood for lifetime employment--Eastman Kodak, IBM, DuPont--have forced employees into early retirement. Once staid General Electric has become a whirling dervish, selling 200 businesses in the last six years and acquiring 300 others.
Two Big Questions
Two big questions: Why did the financial gales shake American business just when the challenge from foreign competition was greatest?
And have games the markets play, of takeover and restructure, leveraged buyout and repurchase, helped or hurt American competitiveness? First, both the financial and foreign pressures built up during a past that was deceptively prosperous. American companies rode high 20 years ago, expanding broadly into every kind of business; 1968 saw 6,000 mergers, almost twice the 1986 total. Managements behaved generously toward employees, too; wages rose more rapidly in the '60s than at any time since.
But most companies failed to anticipate the challenge from foreign competition. Most also failed to rapidly turn out new products, to keep up with changes in technology, or even to make a sufficient return on investment for their owner-shareholders. So when competition from Japan burst upon them at the end of the 1960s, many U.S. companies seemed simply to fade.
Change was inevitable. Foreign competition made great inroads in U.S. markets in the 1970s. And inflation made both investment returns and wage gains illusory.
So change came in the 1980s, as foreign competition, coupled with the demands of stock and bond investors, created a great winnowing fan, separating the weak from the strong, forcing companies to pare fat and focus their competitive efforts--and forcing U.S. workers to work harder for less money.
"It's the way we run the country," says Richard Bott, investment banker at First Boston Corp., who notes that Japan does the same thing, but differently. "The steel industry in Japan is going through the same shrinkage and reorganization we went through five years ago," he says. "But there, the Ministry of International Trade and Industry and the Ministry of Finance govern the process, while here market forces are making industry competitive on a worldwide basis. It seems messier, but it gets results."
Messy is an understatement. No one denies that the market forces Bott refers to have been accompanied by crimes and abuses: prominent investment figures profiting illegally from advance information about mergers, stock manipulation affecting the jobs and lives of employees, company managers protecting themselves with golden parachutes while leaving their employees stranded.
The allusion to Japan's steel industry is especially ironic because steelworkers at discontinued mills in Japan were given temporary jobs in other divisions of diversified companies, while the pattern throughout U.S. industry was that employees earning paychecks one day were consigned to unemployment insurance the next. Retraining was inadequate, where it was available at all. Whole regions grew gaunt while others waxed fat.
Yet the results, despite the hardships, are undeniable.
In manufacturing, where the greatest changes in employment and industrial practices have occurred, productivity (output per person or unit of investment) has increased 4% a year in this decade.