The Slack Is Gone: How the United States Lost Its Competitive Edge in the World Economy

Abstract

T mmediately after the Second World War the United States enjoyed a crushing economic advantage because its productive machinery was more modern than anyone else's (and had not been bombed). But by the early 1970s, the forces that would eventually destroy South Chicago were being set in motion around the world. As investment capital became more mobile, companies were freer to shop for locations with lower wages and better climates, whether in Tennessee or Taiwan. The oil-price increases engineered by OPEC in 1973, and the resulting inflation, reduced the standard of living for most Americans-but not for workers in the heavy industries, whose unions had negotiated the cost-of-living adjustments known as COLAs. This was a temporary advantage for them and a long term disaster for their industries. During the late 1970s, when chronic inflation eroded the dollar's value in international trade, American goods became artificially attractive to foreign buyers-and American manufacturers were lulled into an artificial sense of security about their ability to compete. They were not prepared to adapt when circumstances changed in the early 1980s and an overvalued dollar drove their foreign customers away.' It is by now no secret that, in recent years, the economic performance of the United States has declined, especially when compared with that of other nations such as Japan. On the other hand, little careful analysis has been done on why this has occurred. Such an analysis is more critical than ever, but before we as a nation can determine how to regain our competitive edge, it is first necessary to understand the factors that shaped the old way of doinig business and why the old paradigm no longer applies. Only then can we look clearly at the new and new organizing assumptions that are essential to success in today's environment. In the pages that follow, we will consider the factors that are responsible for the recent economic difficulties of the United States: the evolutionary path of the modern U.S. corporation and the kinds of consumer markets it created to complement its organizational structure; the special kinds of labor-management agreements that evolved as a result; and the role the government assumed in managing the U.S. economy. In addition, the predominant position that until recently the U.S. had commanded in world markets contributed to its failure and, paradoxically, as a result of enormous successes, not failures, in managing the domestic economy, this nation was that much more vulnerable to the various world crises of the mid-1960s and 1970s. Finally, the refusal of Third World countries to play along with the rules of the game according to conventional economic theory added to our economic problems. To put it succinctly, the hardships we are currently experiencing are directly traceable to a failure to understand the critical role played by every one of these factors.2