American Business - A Two Minute Warning

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9780029126806: American Business - A Two Minute Warning

In less than two decades -- about "two minutes" in world history time -- Japan will succeed the United States as the world's productivity leader, and in the twenty-first century this Pacific nation will become the world's economic leader. The United States will drop back to number two or three in the global economy, burdened with a large foreign debt, and faced with a relatively lower standard of living, following the path of decline of Great Britain and other former world leaders.

So predict C. Jackson Grayson, Jr., and Carla O'Dell, two of the world's leading authorities on productivity, unless American government, management, and labor can work together-and soon -- to revive American productivity growth and bolster the quality of American products and services. Showing how hundreds of companies including Xerox, Federal Express, Ford, IBM, and Motorola are successfully responding to the competitive challenge, the authors make a compelling case that American industry can benefit from the lessons of history, learn to adjust, and thus retain its world economic leadership.

Speaking directly to managers, Grayson and O'Dell offer a wealth of practical suggestions for American business in their specific ten-part "Agenda for Adjustment." Based on their experience with successful firms, the Agenda spells out workable recommendations for improvement -- from operating systems and organization structure, to employment stability and compensation systems.

American Business: A Two-Minute Warning also addresses the role of government in industrial revitalization. Grayson and O'Dell contend that much of what is recommended for government action tackles the wrong problems. Not only will such proposed responses fail, they argue, but they will make the situation worse. They then make specific suggestions for what government should -- and should not -- do.

The stakes are enormous. Few single issues will have a greater impact than productivity and quality on the everyday lives, aspirations, and futures of Americans and their children. Grayson and O'Dell's message' grow or decline. A two-minute warning. And there are no timeouts left.

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Excerpt. © Reprinted by permission. All rights reserved.:

Chapter 1

The Two-Minute Warning

In 1896, a book was published in England entitled Made in Germany. Its author, E. E. Williams, a journalist, delivered a strong warning to English citizens:

The industrial glory of England is departing, and England does not know it. There are spasmodic outcries against foreign competition, but the impression they leave is fleeting and vague...the nation at large is yet as little alive to the impending danger as to the evil already wrought.

Williams gave example after example of increasing foreign competition, especially from Germany. He urged British managers and union leaders to wake up, be more competitive, and "lock their stables while there is still something inside them."

England did not respond.

In 1901 -- six years later -- another alarm was sounded by the British author F. A. McKenzie in his book The American Invaders. McKenzie warned Britons of the strong competitive thrust coming from America, the erosion of British competitiveness, and the need for British managers to take action before it was too late:

The future still lies before England if England will but have it. And it is in the hope of arousing her to a slight sense of the real need of immediate action that this is written.

England still did not respond.

From its nineteenth-century position as number 1, the world's economic leader by far, Britain fell to where it is today: number 11 in GDP/capita, at the bottom of the league of developed nations with a standard of living about equal to that of East Germany.

A Warning

It is now 1988, almost a century later. Paraphrasing Williams and McKenzie, we are delivering a similar warning to American citizens:

The industrial glory of America is departing, and it is in the hope of arousing her to a sense of the real need for immediate action that this is written.

Ours is certainly not the first warning.

There have been newspaper and magazine articles on America's eroding competitiveness, speeches, reports, surveys, even a Presidential Commission on Competitiveness. Yet, the response to date is inadequate. "Americans are awake," said one Japanese, "but they are not yet out of bed."

We will show that (1) U.S. competitiveness has seriously eroded, (2) the international competitive challenges are far stronger than most people yet realize, (3) the U.S. response to date is inadequate to meet the challenges, and (4) not only can the United States lose its world economic leadership, but at the moment it is losing.

Note carefully that this is not an obituary or a prediction. We do not say that the United States has lost, nor do we say that the United States will lose. But we do say most strongly that whether we like it or not, the United States is losing. If trends of the last twenty years continue, the U.S. standard of living will shrink relative to other nations, and eventually it will lose its world economic leadership.

The single, most fundamental determinant of the U.S. economic future will be productivity. Productivity, more than any other factor, determines a nation's standard of living and is the best single indicator of its economic performance over the long run. In the end, it determines the rank of nations. History shows that the nation that is the productivity leader eventually becomes the dominant world leader -- economically, militarily, and politically.

The United States has been the world productivity leader for almost a hundred years. But in recent years U.S. productivity growth has been dismal, both relative to its earlier years, and even worse relative to international competitors.

Other nations are catching up. For the past thirteen years, 1973-86, Japan grew almost six times faster, France and Germany over four times faster, and even England three times faster than the United States. If those trends continue, five nations -- Canada, Germany, France, Norway, and Belgium -- will pass the United States in productivity level by the turn of the century, and Japan will pass the United States level in the year 2003 -- fifteen years from now.

Of these competitors, Japan is the most formidable. Japan is now the second largest economy in the Free World and is the world's largest creditor nation. It has seven of the ten largest banks in the world and manufactures half of the world's ships, two-fifths of its TVs, and over one-third of its semiconductors. For many nations, Japanese, not American, management has now become the model for the world. Japanese workers are well educated, technologically sophisticated, and very determined. Japan is building a formidable high-technology infrastructure, the quality of its products is world-renowned, and Japan's productivity gains in the postwar period have outstripped the rest of the world.

Some mistakenly assume that Japan's productivity growth is "finished" because of the higher-valued yen, increasing world protectionism, and rising competitiveness of the Asian NICs (newly industrializing countries). Japan does face those and other problems, which we discuss in Part VI, but it also has some fundamental strengths to draw on and historically has shown remarkable ability to adjust to adverse circumstances. The United States underestimated the Japanese in the past. It would be unwise to do so again.

If present trends continue, Japan will emerge in the first decade of the twenty-first century as the productivity leader of the world, and the United States will drop to a number 2, number 3, or a lower position in productivity rank.

For a long time, however, U.S. total GNP will still be larger than that of other nations, for the United States still has great wealth and a large population. It will also continue to exert world influence for many decades because of its size, military power, and past history. But in productivity level, GNP/capita, financial power, and overall dynamism, a continued lack of productivity growth will eventually take its toll, as it did in England. U.S. economic leadership and world influence will slowly weaken, and Japan will assume its place as the economic leader of the twenty-first century.

The twenty-first century begins in thirteen years.

Consequences

Some of the consequences of the U.S. productivity slowdown are already being felt by Americans.

Real compensation per hour at the end of 1986 was no higher than it had been in 1969. Median household incomes in real terms were 8 percent less at the end of 1986 than they were in 1973. Families that used to double their incomes in their lifetime now have no hope of that. A young man leaving home in the 1950s and 1960s could expect by age thirty to be making 33 percent more than his father did when he left home. No longer.

The prospect of a steady job, promotion, pay increases -- a rising standard of living -- is the heart of the American Dream. That prospect is fading, forcing Americans to confront dramatic changes in standard of living, expectations, values, and the future of their children.

To try to sustain their standard of living, American families are sending more people to work, and they are also going deeper and deeper into debt. As a result, the United States has moved in just four years from being the world's largest creditor nation to being the world's largest debtor nation, the largest ever recorded in the history of mankind. Americans are borrowing, not earning, their standard of living. They are living beyond their means, and they can't keep it up forever. To put it plainly, the jig is up. The nation must grow faster or live on less.

All this happened not because of foreign competition or supposedly "unfair" foreign trade barriers, but because of the U.S. productivity slowdown.

At the same time, however, strong internationa

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