U.S. Ought to Give Exporters a Better Break
The dollar is down, the yen and deutsche mark are up, the tide is supposed to be turning in favor of U.S. manufacturers. So why isn’t Caterpillar Inc., of Peoria, Ill.--one of the champion exporters in U.S. business--doing better than it is?
Cat, the world’s leading producer of earth-moving equipment, is closing plants in Davenport, Iowa; Dallas, Ore., and Glasgow, Scotland, continuing a program of capacity cutbacks that dates to 1983 and the three-year period when Cat suffered almost $1 billion in losses. The company earned a slim profit in 1986--$76 million or just 1% of its $7.3 billion in sales--and foresees a first-quarter loss in an otherwise profitable 1987.
Why so little joy in Peoria? Three reasons: because world economic growth is too slow, because of past neglect of American business interests by the U.S. government and because the company made a mistake or two of its own.
Not to overstate the situation. Against stiff competition, Caterpillar has retained its leadership position in a basic world industry. The fact that in a so-so year like 1986 Cat’s exporting ability produced a $1-billion contribution to the U.S. balance of payments tells you it’s a standout company.
Difficulties Say a Lot
But just because it is a standout, its difficulties say a lot about what the government should do now but didn’t do in the past to help U.S. companies in the global marketplace.
Starting in 1981, the government erred when it let the value of the dollar balloon and neglected the interests of Cat and other manufacturers throughout the Midwest. Their product prices were forced to rise on world markets, while the foreigners--particularly Cat’s big rival Komatsu of Japan--gained an advantage. The high dollar also stifled growing markets in Latin America and elsewhere, as it made debt payments more expensive and hurt the economies of developing countries.
Such neglect was historical. Peter Drucker, the management authority, reported in 1983 that Japanese industrialists could not believe the U.S. government would persist in a policy that hobbled such companies as Caterpillar. But Drucker knew better. He knew that since the time of Andrew Jackson, the U.S. government’s attitude was that the export interests of American companies were no concern of the policymaker. Drucker thought such an attitude had to change.
And three years later, it has. Treasury Secretary James A. Baker III is goading Japan and West Germany to buy more goods from the developing nations in order to help U.S. manufacturers like Caterpillar.
Followed Earlier Policy
The more money Brazil can earn, that is, the more it can spend to build roads and airports with Cat earthmovers. But if the policy has changed, why isn’t Cat in clover? Ironically, because it mistakenly followed the government’s earlier policy. In 1983, believing that Washington would never do anything about exchange rates, Cat transferred production overseas for smaller bulldozers, of the kind used in housing construction. But now, with housing one of the only growth markets in the U.S. economy, Cat is importing those bulldozers from its plants in England and Japan--suffering along with its foreign competitors from the strong yen and pound sterling. That, however, is a short-term problem; Cat can shift production back again once exchange rates stabilize.
Long term, the challenge is to refine its manufacturing. In recent years Cat and other companies in the Midwest have made sacrifices to reduce costs and get ready for an upturn in the world economy--to become, in the current phrase, “lean and mean.” Now they are finding, as slow economic growth continues, that lean and mean is not enough. They must become flexible as well by rejiggering their factories. That is why Caterpillar has committed $1 billion to a four-year program that does away with assembly lines in favor of computerized manufacturing centers.
John West, founder and president of Cimlinc Inc., a supplier of computer systems to that Caterpillar program, explains that the new requirement is not merely for a big plant to fill big orders, but for a manufacturing system that can economically fill small orders and large--one better able to shift gears in good times and bad. David Sutliff, who follows heavy machinery for Salomon Bros., says Komatsu of Japan already has such a plant.
What’s the point? That obviously if the competition is getting down to sophisticated questions of plant design, the issue of competitiveness is more complex than the White House and Congress--preaching competitiveness the way reformed sinners hail salvation--make it out to be. But obvious, too, from the continued efforts of Caterpillar and other manufacturers, is that with the right government policy behind them, U.S. companies are a match for anybody in the global market.
