Harvard homily, 1986: placing US trade woes squarely on home front

THE crest on the business school podium said ``Veritas.'' Here we were, back at school again -- only this was just for two hours, a small part of the 350th birthday extravaganza Harvard put on last week. The subject was ``US Competitiveness in the World Economy,'' and perhaps because it was competing with more esoteric subjects such as the origins of the material universe, the business school auditorium was just over half filled.

The speakers were impressive. All professors at the business school, Bruce Scott, Joseph Bower, and George Lodge are experts in this area of competitiveness and the relationship of business structures to their societies and governments.

And if what they had to say wasn't the whole veritas, or the only spin that can be put on their subject matter, it was insightful, provocative, and certainly disturbing.

After six years of public debate, asserted Professor Scott, there is still no consensus in the United States that this country has lost some degree of competitiveness. By competitiveness, Scott said he means a society that has a rising living standard, one that is being earned and not borrowed, and that is making adequate provision for the future.

By this definition alone, the thesis is probably correct. For a long time the US has been more concerned with redistributing incomes than with improving the productive mode of its society.

One need only witness the latest tax reform, in which 6 million fewer people will pay taxes, taxes for those in the upper-middle income brackets will be raised, and business taxes will be increased by $25 billion a year. (One speaker, however, did support tax reform, noting that the long-term economic effect of eliminating most tax shelters would be good.)

The model in their minds seems to be Japan, for at least two reasons. The Japanese have picked areas of opportunity and concentrated on their development.

These areas have been defined as ones that would grow faster than the rest of the economy and ones that would have a large element of technological change. Such decisions, by implication, were capable of being made by the United States if it had had the same business-governmental relationships that the Japanese have.

A second reason the Japanese model is exciting is that the Japanese emphasized the needs of production over consumption. A production orientation, said Scott, is characterized by an emphasis on work, savings patterns, investment, and mobility.

The consumer orientation, more common to Western Europe and even to the US, emphasizes economic security, income redistribution, and short-term consumer benefits.

The seriousness of the problem seems self-evident at this point. Despite falling dollar exchange rates against many other currencies for 18 months, the US trade deficit reached a record high in the month of July and may be $175 billion for this calendar year.

The US has some leeway to adjust, because the dollar is used as a reserve and trading currency by so much of the world. But eventually even the US has to come to terms with the trade deficit, and these experts are saying that the problem is largely made in the USA, not one that can be blamed on the policies of other countries.

Professor Lodge was critical of the relationship between business and government. Too often the US ethos that the less government the better is contradicted by the competition of interest groups for special attention, so that there is actually quite a bit of governmental interference in our business lives, but it is not very effective.

These professors' analysis is good. But is it complete? One wonders if they have missed some of the positive elements of the Reagan years.

While the change has not been overwhelming, there are more people in business today who know they are responsible for their own destinies. A tremendous amount of adjustment to the challenge of the Japanese and others is going on.

There is big support for flexible manufacturing systems in factories, and a feeling on the part of many experts that in the 1990s the flexibility of the American entrepreneur is going to mean more in the battle for international competitivenss than the 1960-70s style industry-government partnership, `a la Japan.

This assumes, of course, that flexible systems take hold on a scale huge enough to make a difference, and that Americans have a more natural affinity for the automated factory than do their competitors. And that remains to be seen.

One hopes that in one area the professors will be proved wrong -- that the US may find itself in a deeper crisis before it realizes how serious the problem is.