The Glow Amidst the Gloom

Tom Peters

November will bring an “economics election.” So how is the economy? The Economist magazine reported in January that U.S. real family income (adjusted for rising fringe benefits) has gone up steadily and that U.S. manufacturing productivity increases outstripped Japan and Germany in the ’80s (after lagging in the ’60s and ’70s). Our manufacturing exports have grown 90 percent since 1986, compared with 25 percent for the other 23 nations of the Organization of Economic Cooperation and Development (OECD); even in recession-shrouded 1991, U.S. manufacturing exports increased 7 percent, compared with 1.5 percent for the rest of the OECD. In fact, our share of the industrial world’s manufacturing exports regained its 1980 level, up to 18 percent today from 14 percent in 1987.

Surprised? Computer-industry watcher Esther Dyson has an even more contrarian view. In a March Forbes magazine column, she claimed that companies’ recent white-collar job losses are permanent. And, Dyson adds, we should cheer. Huh?

Her logic is impeccable. We’ve led the world by investing hundreds of billions of dollars in information technology, mostly (80 percent) in the service sector. Nonetheless, services productivity has been flat. So current job cuts in the service sector, which has actually added workers in past contractions, are precursors to a long-awaited productivity spurt.

This recession is doing for services what the last one did for manufacturing. The 1980-82 downturn coincided with unprecedented global manufacturing competition. The one-two punch put industrialists on crash diets—and they’ve kept the weight off. While manufacturing as a share of gross domestic product is up, manufacturing employment is not. Result: increased industrial productivity, not de-industrialization.

(In fact, the U.S. is re-industrializing overall. Capital intensity is rising. And the most advanced uses of capital are concentrated in the service sector. Look behind the counter at a McDonald’s, walk through any hospital: They’re more “industrialized” than the average aircraft factory!)

The 19th century’s economic upheaval presaged today’s. Railroads reordered the landscape and spearheaded America’s unique industrial success—but initially contributed nothing to our productivity. It took 50 years to reinvent manufacturing and distribution systems to exploit the railroads’ de facto creation of a national economic network.

Ditto information technology’s saga. “The fundamental blame” for sluggish service-sector productivity, Gary Loveman wrote in Computerworld in late 1991, “rests with organizations. Information technology holds great potential, but companies … have failed to provide structures and processes that facilitate (its) use.”

Now that’s changing. “Re-engineering,” courtesy consultant Mike Hammer, is business’s favorite new buzzword. It’s far more important than “quality” to our long-term competitiveness. Combining re-engineering and information technology allows us to (1) destroy hierarchy, (2) weave together functions such as design, marketing, and manufacturing, and (3) radically devolve authority to the front line. Flat, fast, globally-linked spider webs of organizations will dominate any industry you can name.

In the process, distinctions between manufacturing and services evaporate. Businesses now outsource any task to anyone, anywhere. Thanks to electronic data interchange (EDI), for example, our ability to concoct new products quickly and transact worldwide business with minimum impedance is soaring. When full-fledged, fiber-optic “highway systems” are in place 15 years hence, the global economy will really boom.

But we’ve miles to go. As Loveman and others suggest, the stickiest wicket is changing the way people work together: folks will work at home. We’ll routinely change jobs. Temporary alliances among bits of organizations will beget more and more products. To spur all this on, though, we need an enormous tolerance for ambiguity, something that neither the public nor politicians have much stomach for.

In his book The American Job Machine,” Clemson economics professor Richard McKenzie echoes Dyson: “We would better measure economic success by the elimination of jobs than by their creation. … Economic progress has two legs. One is eliminating jobs with new technologies, the other finding new tasks for workers. … But the whole process of replacing jobs with others is deeply unsettling. … Isn’t that what is behind the lamentation that we are becoming a … ‘productionless society’? … Isn’t that what undergirds the plethora of protectionist proposals … perennially introduced in Congress?”

Don’t expect Professor McKenzie to head the list of leading economic advisers to presidential candidates! Yet he’s correct. (Look, societal change is painful: It wasn’t any fun in 1885 to be a merchant at a booming stagecoach stop when the railroad came through 17 miles to the north.)

Losers, as McKenzie implies, will dig moats and blame others. Winners will grit their teeth and create radical programs to help “human capital” (you and me!) deal with the wrenching transition. Bitter as it is to swallow, those who take the medicine first will emerge healthy quickest.

I’ll neither bless Mr. Bush for creating the recession nor pray for its continuation. On the other hand, this timely contraction has begun to whip our dominant service sector into fighting trim for the century ahead.