A Misguided View Of American Industry

Tweet

He could look, for instance, to Apple Computer, Atex, Atari, Federal Express, Genentech, Wang Laboratories, Commodore Business Machines, Tandem Computers, or any number of other entrepreneurial U.S. companies. Many large U.S. businesses already have noted the success of these formerly small companies and are striving to imitate them in many respects.

Last year, the chairman of General Electric Co. told The Wall Street Journal that he was "trying to reshape GE . . . as a band of small businesses . . . to take the strength of a large company and act with the agility of a small company." Since 1981, IBM employees have been able to create their own "independent business units," essentially small businesses within IBM's fortress walls. Recently, such a group created a robotic system for industrial assembly work.

GE, IBM, 3M, and other large corporations have learned that to stay competitive and continue to grow, they must find ways to tap the entrepreneurial energies of the people who work for them. Reich wants the same results with his "flexible system" concept, but he would constrain entrepreneurs within an industrial policy administered by federal planners drawn from the ranks of corporate executives, union officials, and government regulators.

Reich's planners will see that enterprises deploy their human capital intelligently. They will ensure that businesses behave in a "socially just" fashion. Does a company want to move a plant? Either it locates in a socially advantageous location, or no plant financing is available. Does it want to change industries? Okay, but only if it retrains its workers according to government-approved standards. Every move by, presumably, every company in the United States will be judged by two criteria: economic advantage and social merit.

In theory, Reich's policy offers something for everyone: social regulation for liberals and entrepreneurial vigor for conservatives. Yet problems abound. Set aside the fact that these programs will, for the foreseeable future at least, be run by the same shortsighted bureaucrats and "paper-entrepreneurs" he castigates in the first half of his book. Reich still fails to account for psychological motivation and historical precedent.

His flexible-system industrial policy is about as flexible as a steel tourniquet and suggests that Robert Reich has never met a real entrepreneur in his life. Entrepreneurs operate in the middle ground, somewhere between the strictures imposed by corporate or bureaucratic organizations on the one extreme and total independence on the other. This middle ground allows people unhappy with existing institutions to create microenvironments of their own design.

Some of these people -- such as Stanford R. Ovshinsky, the self-taught physicist who invented amorphous semiconductors, and whose company, Energy Conversion Devices Inc., today works in partnership with Standard Oil Co. (Ohio) and Sharp Electronics Corp. -- are the "lonely geniuses and backyard inventors" that Reich chooses to dismiss. Others are perhaps less impressive than Ovshinsky, but they create goods, services, and jobs. Collectively, these people are responsible for the liveliest, most vital sector of the U.S. economy -- and Reich, who virtually denies their existence, offers them nothing.

Further, Reich ignores the bleak operating history of government efforts to play entrepreneur. Well-meaning British economic planners committed ?100 million to launch De Lorean Motor Co. in Northern Ireland. That money is gone now, as is much of the capital the French government lavished on the Telematique program, its effort to help French companies compete with the likes of Apple and Wang.

But the finest example of what you get with Reich's kind of planned industrial policy is Canadair, the Canadian government's gamble to save jobs by building a Lear-designed corporate jet. William Lear pronounced the project hopeless shortly after its inception, but Canadian planners wanted jobs. Last year, Canadair reported losses of $1.4 billion (Canadian), believed to be the worst in Canadian corporate history.

Give economic planners control of small business, and they won't produce a crop of socially minded Apples, Ataris, and Wangs. They will just build miniature versions of the Belgian steel industry: a lot of deficits, bloated payrolls, and unwanted products. In short, there will be more Canadairs and De Loreans.

It is simply impossible to ignore the a priori objections to government control of private enterprises: Bureaucracies are slow and inbred, and they select their leaders by every standard except ability to compete. External criteria, from racial hiring quotas to "fair" geographic distribution of resources, to whatever you like, although worthy of consideration, are not, as Reich believes, natural incentives to rapid economic growth.

Reaching political consensus on sensitive issues will remain the same long, sloppy, and painful process it has always been. Workers can and should help resolve questions of production and design within the company. But to engage workers, bureaucrats, and voters in every economic choice a business must make is to guarantee that U.S. companies will be consistantly outmaneuvered by their international competitors. Any country (and Japan is surely not one of them) that makes its every economic move wait upon the debates of politicians or the deliberations of bureaucrats can only stumble from one well-intentioned disaster to the next.

Reich's description of the American dilemma isn't bad, but his solutions only combine sophistry with wishful thinking. Reich doesn't understand how entrepreneurism works or what conditions are required to nourish it and keep it working. He is asking us to sacrifice real American strengths for imagined foreign virtues.

 PREV  1 | 2