Business Must Share the Blame : Poor Management Contributes to U.S. Economic Problems
When the nation’s Roman Catholic bishops issued a pastoral letter calling poverty levels in the United States “a social and moral scandal,” a group of conservative lay people accused the bishops of having too much faith in government action and too little in the competitive enterprise system.
The best way to help the poor, the conservative critics said, is to allow the free-enterprise system to thrive, thus producing more jobs, goods and services.
It’s interesting to note that the bishops and their critics were in agreement on an important point: Decisions that are made in corporate board rooms have a far-reaching effect on the lives and well-being of the American people. The quality of those decisions, then, is everybody’s business.
Although there are some bright spots, including low inflation and relatively stable unemployment rates, the U.S. economy as a whole is in trouble. Growth is sluggish, and would be even more so except for heavy borrowing by business and consumers to finance purchases.
Neither Congress nor President Reagan has demonstrated the courage and statesmanship to deal realistically with the enormous federal budget deficit. A $170-billion-a-year trade deficit reflects the collective inability of American producers to outsell foreign competitors either at home or abroad. Important portions of this country’s manufacturing base have moved overseas.
Things are looking a little brighter as a result of the devaluation of the dollar versus the Japanese yen and several other major trading currencies. The Japanese are reducing the barriers to foreign penetration of their home market, and are exercising restraint on the exports of some goods to the United States. They may show still more give in order to head off protectionist legislation from the new, Democratic-controlled, Congress.
It is very clear, however, that American business bears its own share of responsibility for what has happened to the U.S. economy. Anybody can draw up his own bill of particulars, but the most persuasive criticisms deal with the mind-set found in many big corporations these days.
Deputy Treasury Secretary Richard G. Darman attracted a lot of attention with a speech early this month in which he charged that too many large companies are run by corporate bureaucracies that are “bloated, risk-averse, inefficient and unimaginative.”
For examples of complacent, lethargic companies that were outmanaged by foreign competitors you need look no further than the automobile, machine-tool and consumer electronic industries, among others.
American executives work in a business and financial environment that rewards short-term profits with little regard for the effect on long-term competitiveness. The result tends to be underinvestment in research and development, lack of interest in new products and markets that will be profitable only over the long haul--and companies that are run by executives who are more skilled at financial manipulation than at developing, producing and marketing a superior product.
The American people, whose livelihoods and quality of life are directly involved, have a right to expect better performances from U.S. business. To the degree that government is used to give the process a nudge--through judicious tax laws, intelligent regulation of financial markets and support of an educational system geared to modern needs--it is important to learn from the successes as well as the failures of American business.
If you look at studies about the subject, it turns out that competitive success depends on managers whose mind-sets are the opposite of those that were criticized by Darman.
An especially interesting insight is provided by the American Business Conference, whose members are all mid-sized companies with sales of up to $1 billion a year, and whose earnings amounted to 15% or more of sales during the past five years. In other words, ABC members by definition are winners, not losers.
Keep in mind that middle-sized companies, though less well known than their big-business contemporaries, provide a disproportionate share of job creation and competitive success. ABC leaders, however, make the point that the common ingredients for success of medium-size companies are not very different from those found to be characteristic of successful big companies.
Studies made for the American Business Conference provide an interesting profile of the sort of management that holds its own against all competitors, foreign or domestic.
According to the ABC-sponsored study, the people who run successful companies are profit-oriented, but that isn’t what really drives them. Instead, they take personal pride in providing high-quality goods or services and follow-up customer service. They overspend, if anything, on research and development. And they place great store on motivating their employes.
The Catholic bishops are right on target in demanding that capitalism be judged not just by its contribution to gross national product but also by the fair distribution of the wealth that is produced. The conservative lay people are justified in reminding the bishops that it isn’t enough to cut the pie into equitable slices, but the pie itself must grow.
Most of us will find the truth somewhere in the middle. Which means that the business executive who collects a million-dollar-a-year salary while presiding over the destruction of his company should not be surprised if the people’s elected representatives decide that, just as war is too important to be left to the generals, business is too important to be left to self-important graduates of the Harvard Business School.
