Author Argues Business Must Change Mind-Sets

HEDRICK SMITH is no fan of downsizing. In his fourth and latest book, "Rethinking America" (Random House), the Pulitzer Prize-winning journalist takes issue with companies that have laid off tens of thousands of workers without considering labor as an asset to be developed.

"Find me the quotes from the people who built America, and get them to tell me that downsizing is the way to build the country in the future, and I'll be more persuaded than I am today," he says in an interview.

But Mr. Smith's laundry list of business and societal missteps includes any activity that weakens America's ability to compete in the global marketplace: Corporate leaders who take short-term action, like downsizing, to put money in demanding shareholders' pockets, instead of developing long-term strategies for efficiency; and high school educators who focus only on college-bound teens, rather than on the other 70 to 75 percent of students who are needed to fill the growing demand of technical jobs.

"In the new economic competition," he writes, "the pieces need to be fitted together more purposefully - management and labor, business and education, government and industry."

Smith, a former New York Times reporter, began researching his book in 1990 and now proposes an agenda for "rethinking" America's economic future that he says applies to society as a whole, not just businesses.

Central to his lengthy book is the need to replace outdated "mind-sets" about the way businesses are run and children are taught with more far-reaching ones.

He illustrates his point by comparing companies that clung to the status quo and stumbled - RCA Corporation, IBM Corporation, and General Motors Corporation - with forward thinkers, or "American innovators" in business and education, who revised their approaches and generally succeeded. He also draws on the practices of Japan and Germany, offering insight into what America's "main rivals" are achieving.

Some fodder for what Smith calls a book about "winners and losers" comes from the auto industry. In the 1980s, General Motors, seduced by technology, spent $77 billion automating its plants and trying to bring down production costs, he writes. The company sacrificed some labor dependency but gained little ground.

At the same time, executives at the Ford Motor Company, also dogged by increasing financial losses, achieved success by forging a "bottom up" alliance with labor - actively involving workers in decisions about quality and efficiency. Ford "put its faith in people," Smith writes.

The author says innovators at Ford and Motorola Inc., "who were pursuing what were humane policies of collaboration and shared power, were actually turning themselves around economically more rapidly than the people who were pursuing the traditional method, which is cut costs, cut people."

Although Smith acknowledges that the United States is faring better in the global economy than when he began the book, he explains that short-term gain is not what really matters. "What we need to be concerned about is the long run: Are we spending enough money on R&D [research and development]? Are we nurturing our own creativity? Are we bringing along our work force?"

"The critical words are 'permanent revolution,' or the Japanese word kaizen - constant, continuous improvement," he says.

Backing up that improvement is a relevant educational system. Smith finds that the school-business partnership in educational reform is vital in "the new global game." He emphasizes the need to develop school-to-work programs such as those that have proved successful in Germany.

"The dividing line in the world today that is the most important is the skill line," he explains. "If you have the skills, and you have a society, which has the skills, then it seems to me you've got hope, and you've got a chance for cohesion."

Ultimately, Smith says, America's future depends on adopting a four-pillar strategy: rethinking old mind-sets, putting people at the center of any plan, collaborating with others, and trusting in new ways of doing things.

"America's got an enormous amount to build on," he says. "There's tremendous strength and resilience in this country.... But you can't get to the building, and you can't get to the good news unless you're willing to be honest enough to confront what your problems are."