A Day in the Life of the New American Economy
On February 11, 1986, in the short space of fourteen pages, the Wall Street Journal reported four stories that captured the depth of the commotion building in the U.S. economy.
On the one hand, economists are almost unanimously predicting buoyant years in 1986 and 1987. If true, the past three and a half years will be the longest post-War recovery. Moreover, the stock market continues to soar. On the other hand, however, structural economic turmoil boils beneath the surface at a menacing rate.
On page two that day, the Journal reported Eastern Airlines' decision to retain the services of a renowned Boston bankruptcy attorney. This marks the extreme shakiness of another household-name company and illustrates the continuing shakeout in the aftermath of deregulation. Eastern joins TWA and Pan Am on the endangered species list in this industry.
There is evidence of commotion in other deregulated industries. The once-invincible BankAmerica is tottering, as is Continental Illinois. Meanwhile, newer and smaller companies are grabbing the positive headlines. In the space of three months, Don Burr of People Express and Bill McGowan of MCI graced the covers of major magazines, representing the lean-and-mean new breed of domestic competitors who are leveling the giants of yesteryear in deregulated industries.
RCA, another household name, disappeared when it agreed to merge into General Electric. And International Harvester felt such a strong need to disassociate from its past, that it changed its name to Navistar following years of selling off prime business units. And on and on.
Page three of the Wall Street Journal featured an accountant's debate about reform of so-called "bigbath" asset write-offs. The rather arcane debate rolls over timing issues. Some analysts suggest that the write-offs are a much-delayed public admission of long-festering problems. Indeed, the need for industrial restructuring is so dire, that such write-offs have created a startling paradox: The value of a newly downsized company, as measured by its stock price, technically should decrease to reflect a smaller company with fewer assets. But the stock market has been lavishly rewarding companies that have had the moxie to write off underproductive assets. Often, in fact, the larger the write-offs, the more the subsequent stock price increases.
The article cites recent giant write-offs by Western Union, Allied-Signal, Union Carbide and Aluminum Company of America. All face stiff foreign and domestic competition. One thing is sure—rule changes or not, many more write-offs are yet to come.
Page ten finds an announcement by Colgate-Palmolive of 250 layoffs—all white-collar jobs that are being trimmed from corporate and divisional staffs. The reason: "To eliminate layers of reporting."
Bloated staffs and excess layers of management may be an even more basic stumbling block than unproductive assets when it comes to true corporate revitalization. AT&T discovered this with its recently announced elimination of 20,000 jobs, about a third of which will affect middle and upper managers.
General Motors also recently announced an executive shuffle generally considered a prelude to massive central-staff cuts, on the order of 20 percent. The real news is the constancy of such announcements.
Finally, on page 14 a story summarized Deere & Company's continuing struggles. Buried in the article was the revelation that Deere has halved its break-even point in recent years. Again the refrain is familiar. Chairman Lee Iacocca cut his break-even in half at Chrysler in just 48 m—onths, and many others have takenand are taking—action that is equally, or even more radical.
The day was not unusual in any sense. How extraordinary to call commonplace: (1) the imminent passage of a household-name company; (2) the post-deregulation ravaging of huge firms by small firms; (3) the casual discussion of the ins and outs of the daily parade of billions of dollars of manufacturing asset write-offs followed by dramatic stock-price increases; (4) layoffs of hundreds of corporate executives and removals of multiple layers of management in venerated firms; and (5) news of 50 percent reductions of break-even points. And all that in the space of just 14 pages on an ordinary Tuesday in February 1986!
The parade never slows. When I picked up the next day's Journal, the headline story was Kodak's announcement of the 10 percent (13,000-person) layoffs in a belated effort to match the productivity of Fuji Film, Ltd. Another day, another Journal. The revolutionary change of the U.S. economy continues.
(c)1986 Not Just Another Publishing Company.
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