Can America get rid of the flab in its basic industries?
Too many excesses - of labor and management. That, says Martin Anderson of the Massachusetts Institute of Technology, is why the nation's traditional manufacturing industries - such as autos, steel, and rubber - are in trouble.Skip to next paragraph
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''Our production systems, evolving over resource-rich decades, carry too much extra cost, extra work, and waste,'' he says.
''We double- and triple-ship products (between various assembly plants and warehouses), where simple transport would suffice. We consume too much energy per worker and machine. We store too much inventory and damage too many parts in transit. We store billions of parts in expensive packing, when simple carriers would do.''
Moreover, the average wages and salaries of workers and management are far above what the industries can afford.
''Government taxes and regulation could disappear, and our autos would still not be as cheap to make as the Japanese,'' he calculates. ''Workers could cut their wages by 50 percent and our products would still not reach international cost levels. Managers could work for free and install the most productive tooling, and without the aid of government and labor our products would not match Japanese costs or consumers' tastes and pocketbooks.''
So is the situation hopeless?
No. In fact, Mr. Anderson sounds quite hopeful for these so-called ''smokestack industries.'' But the solution will have to be systemwide, dealing with all the excesses.
''This is not the fault of one side or the other, but the result of acquired learning over years in which economic and competitive conditions were very different from those faced today,'' Anderson writes in a paper prepared for a forthcoming regional conference of New England leaders. ''The rules of international economics have changed, and the system excesses have been 'exposed.' ''
As executive director of the Future of the Automobile Program at MIT, Mr. Anderson knows best the automobile industry. Here, the real price of cars and trucks - after removing the impact of inflation - began to escalate after 1965. By 1980, the average car price moved above $7,000 in 1980 dollars for the first time in at least 30 years. More and more consumers found the price of American-built cars beyond the size of their pocketbooks.
Manufacturers at first covered rising costs by reducing profit levels. By 1976 or '77 they were making money only on truck sales. In 1979 their costs accelerated even faster, and some makers began to lose money.
One reason for the cost push, Mr. Anderson explains, was the high wage and benefit improvements won by the auto workers. Workers' wages were not only indexed to the consumer price level, they also got a 3 percent wage hike on top of that. It was supposed to be labor's share in improved productivity, but Mr. Anderson finds that, because of statistical mistakes, the productivity figures were exaggerated. It took 135 to 137 hours of production workers within the auto companies to make each car in the early 1970s. By 1977-82, it took 140 to 150 hours to make the somewhat more complex vehicles.
In any case, auto wages rose to more than 50 percent above the average level in manufacturing. Management salaries and bonuses rose in the same pattern.
New safety and environmental regulations added to the production bill. And money borrowed for retooling or other purposes cost more as interest rates soared.
What's to be done?
''These sectors (basic industries) cannot recover unless wages rise at least a point below the inflation rate,'' says Mr. Anderson.
Already, he notes, the wage premiums of auto workers in the United Kingdom and West Germany have fallen substantially. The precipitous decline in real terms of U.K. workers' wages has now made their cars more competitive. German auto wages, which five years ago about matched those in the US, are now some $5 an hour less, because of both wage restraint and a shift in foreign exchange rates. Wage gains of Japanese auto workers have slowed from perhaps 20 percent a year in the early 1970s to 6 or 7 percent nowadays.
US auto workers also have given up some benefits, including 9 to 11 paid days off.
Besides reducing wages in real terms gradually, Mr. Anderson sees a need for making the system surrounding workers more efficient and less costly. Compared with their Japanese counterparts, he says, American companies hold more than $6 billion of ''excess'' inventory. Removing this excess would mean a $6 billion infusion of ''free'' capital to the auto companies. It would reduce production costs by $300 to $400 per unit through cuts in borrowing and storage costs, and perhaps save between 50,000 and 90,000 jobs that are currently threatened, he calculates.
An improved inventory system could also reduce scrap, waste, and production quality problems that might save several hundred dollars more per unit, and more than 50,000 additional jobs.
Mr. Anderson suggests further savings through reduction in overstaffing (not hourly labor) at the plant level, at regional offices, and at corporate headquarters; decentralization of ''creative problem solving''; removal of inappropriate work rules; and better quality-control and production techniques.
American management, he says, has to be retrained in the importance of manufacturing. ''For at least the last decade, the disciplines of finance, economics, and 'market research' have crowded out practical manufacturing understanding in the management ranks of many corporations.''