A Labor Day Report Card

A Labor Day Report Card

Tom Peters

The Labor Day holiday means “back to work.” And back to work is
indeed the order of business. Some forecasters are still humming
an optimistic tune. To be sure, inflation is under control, gross
unemployment statistics continue to inch downward and interest
rates are mellow by recent standards. Yet most indicators of long-
term health are grim:

o DEBT. As recently as 1982, we were the world’s biggest net
creditor, $141 billion in the black; today, the U.S. has become
the largest debtor, $264 billion in hock to other countries as of
last year’s end. The federal budget deficit is stuck around $175
billion a year with total U.S. debt outstanding exceeding $2
trillion dollars. Only Japan’s continued willingness to finance
our debt (for instance, they purchased two-thirds of the most
recent Treasury bond offering) keeps the dollar afloat as one of
the world’s three major currencies, along with the yen and
deutsche mark.

o SAVINGS. The nearly rock-bottom savings rate is flirting with
new lows. At the start of the so-called supply-side revolution in
1981, Americans saved 7.5 percent of disposable personal income.
By early 1987, we were saving just 2.8 percent, contrasted with
17 percent in Japan and 12 percent in West Germany. Only those
staggering debts to others we continue to heap are keeping
investment moving ahead.

o SPECULATION. Eighty trillion dollars in currency is exchanged
to support just $4 billion in goods and services trade.
Furthermore, new speculative financial instruments literally
appear daily. Speculation also explains most of the continuing
stock market run-up, which certainly is not due to any latent
strength of the individual firms’ securities.

o PRODUCTIVITY. Productivity in the U.S. grew by 3 percent a year
between 1950 and 1965 and 2 percent a year between 1965 and 1973.
Since 1973, productivity increases have crept along at 1 percent
a year. Japan’s productivity growth has been seven times higher
than ours since 1973, and even Great Britain’s has been three
times higher. U.S. service sector productivity growth since the
start of the 1980s has run at the zero mark, despite massive
capital spending (the service sector buys 85 percent of high
technology capital goods today).

o INCOME. Families used to count on doubling their real (adjusted-
for-inflation) income in the course of a generation. No more.
Real median household income is 8 percent less now than in 1973.
Real gross weekly earnings are less than in 1962. A 30 year-old
American male earned $25,545 in 1973 (denominated in 1986
dollars); by 1986, his pay was down 28 percent, to $18,236. And
home ownership by young families is off by over 20 percent just
since 1980. (And these figures do not include the de facto
lowered standard of living from the precipitous decline of the
dollar since 1985.) Our per capita income now trails that of
Japan, West Germany, Switzerland, Sweden and Denmark among

o TRADE. The trade deficit just won’t shrink significantly,
despite the dollar’s battering. Our $150 billion-a-year negative
trade balance has inspired the 1987 omnibus trade legislation,
which will only make things worse. Protectionist measures already
on the books cost the consumer an estimated $65 billion a year —
yet another blow to the standard of living.

o CORPORATE WOES. Beyond the gross statistics are the endless
stories of the battering of our most venerated firms. As of late
May, General Motors had lost one-fifth of its market share in
just one year, despite lavish buyers’ incentives and the strong
yen that forced Japanese price increases. The Bank of America was
almost sold in 1987 and still is suffering catastrophic losses,
only partially cushioned by selling off real estate and the few
remaining profitable business units. Procter & Gamble recently
wrote off hundreds of millions of dollars and is madly
restructuring. General Electric, which now prefers to be called
GE, is recklessly buying and selling in search of some elusive
nirvana; since 1981, it has bought 325 or so businesses — who
can keep track — for $12 billion and sold off 225 or so for $8
billion. Kodak is cutting staff and reorganizing everything and
is so panicked that it successfully pressured the University of
Rochester, bastion of free-market economic doctrine, to expel one
lone, previously accepted Japanese MBA candidate from arch-
competitor Fuji of Japan. IBM is hurting badly and scrambling,
too. Citicorp wrote off about $4 billion dollars this spring, and
the stock market rewarded it with an instant 15 percent stock-
price jump. This type of odd stock market response, a big price
leap following a huge loss or write-off, is now commonplace in
all industries and stands as stark testimony of the market’s
prior low valuation of management’s actions. And the woes of big
steel, big textiles, big semiconductors, big machine tools, big
construction and farm equipment, big banking across the board,
big health care and big air and rail transportation are all too
well known. Typical of the panicky response to this malaise is
the latest hair-brained scheme of the Silicon Valley
semiconductor barons. They plan to pool their already highly
questionable manufacturing skills into a consortium to be called
Sematech, which will be partially overseen by that bastion of
manufacturing efficiency, the Department of Defense.

Next Labor Day will mark the official kick-off of the 1988
presidential election campaign and as usual, we will be subjected
to simple-minded nostrums summed up in 15-second TV “newsbites”.
Between this Labor Day and next, we had best forget the pap,
acknowledge the crumbling economic scene and get down to the
unglamorous task of transforming the American economy, one
difficult step at a time.

(c) 1987 TPG Communications.

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