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PANEL DISCUSSION: CALL TO ACTION FOR THE l980s Erich Bloch (Chairman), George S. Ansell, Jordan J. Baurch, Irving Bluestone, John K. Castle, Allen Newell, and Peter Scott Mr. Bloch The panel for this afternoon was picked with great care. Irving Bluestone, Professor of Labor Studies, will reflect on the labor aspect of the changes that we have been discussing. Jordan Baruch, President of Jordan Baruch Associates, former Assistant Secretary of Commerce for Productivity, Tech- nology, and Innovation, will look at the problem from a public policy viewpoint. George Ansell, Dean of Engineering, Rensselaer Polytechic Institute, will represent the university viewpoint. Allen Newell, Professor of Computer Science at Carnegie- Mellon University, a pioneer in computer science and artificial intelligence, will give a technial futurist's viewpoint. John Castle, President and Chief Operating Officer, Donaldson, Lufkin, and Jenrette, will look at manufacturing from a financial and capital investment vantage. Peter Scott, Executive Vice President of United Technologies Corporation, will represent the management view. Let me start the discussion with something that was mentioned during the day but did not receive enough consideration: it is the shift in employment from the industrial sector to the service sector. We have seen a shift like that before when agricultural employment dropped significantly and industrial employment picked up the slack. Are we going to see that same thing happening again? The displacement occurring in one sector: Can it be neutralized by the employment opportunities in the new services and information sector? Mr. Bluestone First of all, it is self-evident, and I believe that by and large labor has accepted this, that technological advance is essential to improving our competitive status, enlarging the productive wealth which we can produce as a nation, and providing the opportunity to enhance the economic well being of our citizenry. Advancing technology, however, poses problems for labor and manage- ment in which each has, or should have, a keen interest. This is especially true in light of recent projections that by the year 2000 only about 5 percent of the work force will be employed in the manufacturing sector (President Cynert, Carnegie-Mellon University). One of the problems has been and continues to be, especially with traditional and orthodox management, that by and large management fails to recognize that the most important resource anyone can bring to the workplace is his or her own intelligence and innate capability, his creativity as a human being. We know that in the workplace, and this relates to white-collar as well as blue-color workers, management executives historically have taken the position that they make the decisions, they give the orders, and they want the employees to follow those orders. Even line supervisors and middle managers complain that l29
l30 little by little there has been an erosion of their authority to make decisions as the decision-making process becomes increasingly centralized. As we enter into new fields of technology advance, it is an absolute necessity for management to change from its traditional role and to recognize that a new system or organizational and work structure is needed that will incorporate the opportunity to accord all employees at all levels of the organization the right to be involved in the decision-making process. Last year, I understand, a study was undertaken to determine how much managers actually know about workshop and worksite problems, and the research indicated that a manager knows approximately 4 percent of the problems that are actually occurring on the shop floor, a superintendant about 79 percent, a line supervisor about 97 percent, and the workers l00 percent. Engineers in this regard have an essential role to play as well. Unfortunately, the engineer too often has been divorced from the workplace in the sense that he fails to consult with the operator, the person who knows most about what is wrong and perhaps can make suggestions as to how to correct it. Engineers should relate more closely to the workplace, whether it is an office or a manufacturing facility; they should work more closely with the operators themselves, who have intense and direct knowledge of what is going on and how to make corrections. This utilization of the human being as a creative person, as someone who has knowledge and experience, as someone who wants to develop a sense of enhanced self-worth, self-respect and self-development, is increasingly a subject in the negotiations undertaken between management and unions and is generally referred to as "improving the quality of worklife." This concept represents a sharp de- parture from the eight-decade-long concept, the traditional imposition of the principle of scientific management, with which engineers are so familiar. It is a departure from that tradition in which the employees are merely order takers, and it moves instead toward involvement of the employees in the decision-making process. There are two fundamental issues from a labor point of view that must be considered and on which action must be taken. One is to introduce vast training and development programs for those whose jobs are being deskilled, for those whose operations will require enhanced skills. Unless this is done, the workers themselves will be demanding the opportunity to learn the new jobs and to learn the new skills. The second is not to overlook while you are inventing new ways, new means of creating greater efficiency, there is also the problem of redundancy, and those who are adversely affected will be insisting upon a system whereby the advance of technology occurs at a rate that will ensure lay-off avoidance. Employment security becomes an essential element in decisions to adopt new technologies. The major corporations of Japan, of course, recognized this some years ago, and it has made a vast difference in the attitude the employees themselves take toward the workplace. These are the issues that require very active consideration and participation by managementâthe training, development, and employment security issues. Mr. Bloch Thank you, Irving. You didn't really answer my question. I would want to come back to that later. But your comments triggered another question: Peter Scott, how come management fails to recognize the innate capability of our employees and knows little about what is going on on the shop floor? Mr. Scott I wish I knew the answer to that, but I don't. I certainly concur with what Dr. Bluestone just covered. However, I would like to pick up on one
l3l comment that he made (which I happen to agree with), the solution to which will be one of the major problems facing us over the next couple of decades. That was his comment that he believes labor is beginning to accept the effects of automation and what it is going to do to the workforce. Mr. Bluestone Pardon me. Has accepted. Mr. Scott I probably would agree that they have begun to accept it, but I think the overriding problem is they don't know what to do about it. The job security you speak of is the issue in their minds. Whether or not they have accepted it or are beginning to accept it is not the point that I am making. The point is that they don't know where to look to solve the problem: to government or to industry? We have talked all day about the changes in everything, the rapid technology infusion into manufacturing. Those people understand that these changes must come, but what is not clear to them is how they will fit into the new structure. Lip service relating to retraining for a technology that is so foreign to the individual that he cannot cope with itâthat is the real problem. I recently looked at a long-term unemployment forecast by a major U.S. corporation that is very credible in this area, which projected that our current rate of l0.l or 102 percent would still be between 7 and 8 percent by l990. Obviously, if you look at the long-term unemployment forecast and couple it to this whole issue of retraining, the problem, I think, is bigger than what we think it is. Mr. Bloch Mr. Ansell, you probably want to talk about the retraining problem. Mr. Ansell I would like to go to the retraining question and the initial ques- tion raisedâthat is whether, in the shift in employment from the manufacturing sector, productivity gains will occur through labor acceptance, as Professor Bluestone said. Will the service sector indeed absorb that displacement and will retraining be effective? I think that is a very dangerous assumption, although it is paid lip service, and the reason for the danger is that the very improvements and changes in automa- tion, which are largely information-based, have had more effect in the service sector to date than they have had in the manufacturing sector. The easiest way is to look at the discussions of the integrated department store, bank, insurance company, or brokerage firm, which is truly managed to handle product-in, product- out, sales, inventory control, etc., in a totally integrated process with large-scale reduction in workforce. Most of what we are talking about in integrated manu- facturing systems will occur more quickly in the service sector. We are faced with labor displacement in both sectors due to analogous productivity enhancement. This aspect of the productivity shifts in both the manufacturing and the service industry is much more complex in the United States than in any other country. Each of the other countries in which productivity shifts are occurring in the manufacturing sector shows a concurrent gain in business expansion and growth, while in the United States we are just talking about replacement of equivalent markets. That issue is fundamental to all of the issues discussed today. Mr. Bloch Are you pessimistic about our ability to absorb? Mr. Ansell Not at all. I am pessimistic about the ability to absorb, but it is unnecessary. We have talked ourselves into a societal structure that has stag- nated at a 40-hour workweek and a 45-year working life. That stagnation started sometime between the end of the Second World War and the current time, follow- ing a long history of change. As Professor Quinn has shown, both the workweek and the working life were experiencing a gradual but steady reduction from the
l32 start of the Industrial Revolution. It may be the most important change to affect society. We must start recognizing that one of the benefits of automation, both in the manufacturing and service industries, is the reduced demand on the working life of the individual. It is a bonanza rather than a hindrance. We have treated it so far as a disaster. Mr. Bloch Mr. Baruch, you wanted to comment on this. Mr. Baruch I would like to comment on your first questionâthe absorption by the service sectorâby pointing out two fallacies inherent in the question. You pointed out the decline of the number of people, as did Mr. Quinn this morning, in the agricultural sector of our economy. In large measure that is an artifact of a bad measurement system. The fact is that the measurement system does not include all the people in the manufacturing sector who are designing and building reapers, threshers, plows, and Caterpillar tractors, and other machines. It does not include the people in the manufacturing sector who are making pesticides, who are making fertilizers, and who are making super feeds for our livestock; and it does not include those people in the service sector who are creating the knowledge on which all this is based. We have similarly bad measurements in the manufacturing sector. We show this tremendous growth in the service sector in part because we are transferring, by our new automation and by other things, people from the manufacturing sector to the service sector who are doing the same thing they were doing before. For instance, take a software writer. What could be more service sector that that? He puts out a product that sells for a fortune, and it has raw materials worth practically nothing, nothing but brains. He clearly belongs to the service sectorâ or is he in the manufacturing business? Try to run one of those computer- integrated manufacturing systems without him. Of course he is in the manufactur- ing business. So, let us not get hung up on service, agriculture, and manufacturing sectors. We have a bad measurement problem. The second fallacy inherent in the question is to recognize that part of the reason we are in trouble in manufacturing is because we have not recognized that manufacturing is part of the service sector. Ted Levitt once pointed out that a man does not buy a quarter-inch drill; he buys the expectation of a quarter-inch hole. Unless they are collectors, people do not buy IBM computers; they buy the expectation of computation. The only thing that makes a product worth selling (and Edwin Mansfield has shown this in beautiful econometric terms) is the service that it provides to its buyer in relation to its cost. And unless we recognize that our products are embodiments of service, we will keep on talking about designing for manufacturability, designing products that will sell, based on some set of char- acteristics, instead of recognizing that manufacturingâthe manufacturing design process, product design, and product developmentâare all part of the service sector designed to take some raw materials, some smarts, and turn out services that just happened to be embodied in products. There were two fallacies. One is that the measurement is bad, and the other is that to separate manufacturing from the service sector is a disservice to the people involved because it beclouds their judgement. Mr. Castle I want to comment on the issue of how we can create the jobs and improve productivity to keep American manufacturing industry healthy, rather than to talk about the specific definitions. I agree with the comments that were made on the distortions between the service and manufacturing sectors. In terms of creating jobs and having relatively full employment in an environ- ment where we change how we manufacture, it is clear that technology is the
l33 driving force in improving our productivity. Therefore, the competitiveness of American industry, as well as new technology and the creation of new industries, has been an important factor in creating new jobs. As the financial expert on the panel, I think that venture capital is one very important form of creating and funding new technology and creating new jobs. I know the U.S. General Accounting Office has done a number of studies to demonstrate that many venture-capital companies have created substantial num- bers of new jobs for the amount of money invested. Therefore, I am of a view that we used the right kind of national policies. Earlier today, Mr. Quinn indicated that when the capital gains tax went up, the amount of investing in new companies went down. This illustrates that we should be very concerned about having a lower capital gains tax rate to make it attractive for people to put money in speculative businesses. There is room for even additional increases in the tax credits that go for incremental R&D efforts. Within our society we have created a number of inter- esting and exciting ways of funding new types of technology, including the R&D partnerships that are taking the country by storm. In this form of venture, investors get near-term write-off, and a capital gain, hopefully, in the long term. There are other mechanisms for the institutionalization of the venture-capital process that has been going on over the last decade. I believe it is important that we get money f unneled into those activities and areas that give us a competitive edge and create new employment opportunities for people. That should be our focus. Professor Quinn said that the number of acquisitions has gone down in recent years. While this might be true, the fact is that the dollar amounts have gone up, so that you have billions of dollars going into certain types of acquisi- tions; the same amount of money deployed in perhaps creative entrepreneurial kinds of ventures and vehicles might create a lot more jobs and make our economy much more viable. Mr. Bluestone I wanted to raise, and perhaps supplement, what was just said concerning financing. When I went to school I was brought up on the notion that the free enterprise system grew strong because people were willing to take risks, and the older I get the more I feel that the most conservative element in our society is risk capital. What has been happening is indeed that vast sums of money, hundreds and hundreds of billions of dollars, which should be sent into risk capital for the purpose of creating wealth and creating jobs, is moving into mergers and acquisitions; the most ridiculous one that took place was between Bendix and Martin Marietta recently. When Mr. Daley said that the barriers to what we have been talking about all day rest at top-level management, I think he is right. Those barriers exist because, first, debt/equity ratios exert a constant pressure on management to maximize dividends and profits in the short run. This pressure to maintain dividends, this pressure to maintain a high credit rating, causes companies to distribute dividends even when they lose money. This is ridiculous; the need is to invest that money in order to become more efficient and more productive. Mr. Castle I think one of the reasons capital has become so conservative is the very high interest rates that we have had in the United States. If within the last year you could invest your money on a tax-free basis at l3 or I** percent, there was no reason to put your money into anything that was terribly risky. Now, the high interest rates are caused by many factors, but they are probably heavily related to the large federal government deficit. In fact, if the prime rate went to 3 or k percent, you would find this money becoming substan-
l34 tially more venturesome and eager to stimulate new activities. But the high rates of the recent past have been stifling, and it is a lot easier to say, "Well, I will buy the l4 percent municipal bond rather than take any chances." Mr. Bluestone But the largest number of mergers and acquisitions, based upon what we saw earlier today, came when interest rates were low! Mr. Bloch What Mr. Bluestone implied is that the value and reward system that U.S. management has been operating on prevents it from doing the right things from a technological and management viewpoint. If trueâand it is trueâthat is a problem that needs our attention. Let me get to another question and ask the panel to comment: What is the most important action the various sectors of society must take to help us make the transition into this new world of manufacturing? How would you answer Mr. Scott, from a management viewpoint? Mr. Scott The best way I could address that question would be to go back to two particular points in Professor Quinn's opening keynote speech that struck home to me. He said that from l960 to l977 the U.S. position in world trade was reduced from 25 percent to l7 percent. That was a reduction of 30 percent in l7 years. Heaven help us if it continues at that rate over the next l7 years. The second thing he said was that we should adopt a positive vision of the future. Those things are obviously opposed if one looks at what has happened and what the trend is. It becomes very difficult to adopt a positive view and positive vision of the future. To do so requires what everybody talked about todayâchange. That is the answer to the problem. The change that we talked about is going to have to come about, and yet, we must be sensitive to all the things we were just talking about. Many of you probably are familiar with the writings of the famous Belgian writer, Maurice Metterling. He said: "Every progressive spirit is opposed by a thousand people self-appointed to guard the past." That is the problem we have. Mr. Bloch Mr. Bluestone, what should labor do? Mr. Bluestone In the past l0 years, in part at the insistence of labor and in part at the insistence of management, there has been a growing effort for man- agement and labor to move copperatively with regard to those issues that are of mutual and common concern. Part of that movement has, as I noted earlier, been directed toward affording all employees an opportunity to participate in making decisions. In other words, the hierarchical structure begins to change; it gets loosened up; it becomes more flat; and, in effect, there is a willingness, a desire, a request that people use their brain power, whereas previously they were told simply to obey orders and not to think. In that regard labor has an important role to play: bringing more democratic values into the workplace which, in the final analysis, result in benefits to management in the form of improved efficiency, to the workers in improved job statisfaction, and to the consumer in a better-quality product. Mr. Bloch Mr. Newell, what should research and technology provide? Mr. Newell I will answer that in one moment, but I have to start by finding ways to disagree with Mr. Goldhar. When asked what ought to happen, I was going to say manufacturing must become a science. On the other hand, Mr. Goldhar said manufacturing^ a science. The problem is, he is wrong. He hopes it is a science, and I am not trying to disparage the number of people, especially those in engineering disciplines, who have already accomplished some of the concepts disclosed today. If one, however, believes that manufacturing is in the same
l35 position as chemistry or physics or even mechanical engineering, that simply is not true. There is no body of PhDs generating theories of manufacturing and devoting their lives to understanding the nature of manufacturing. It is clear, by the way, from everything that was said today, that manufacturing is going to get intimately involved with the information processes used in manufacturing. There are at the moment few people devoted to understanding those kinds of systems. Mr. Goldhar was a little premature. We will give him a little rhetorical excuse for being that way. In fact, one thing we must do is to see if we can find a way to create in the scientific world, on the campuses, the notion of manufacturing as a fit topic for scientific study. There is a very interesting lesson, by the way, in operations research. I am not trying to tread on anyone's toes, but if right after the World II War one would have proposed that something like inventory control was a proper problem that an academic should actually be interested in, that would have been unthinkable. However, one of the most intriguing transformations that occurred on the intel- lectual scene in the United States after World War II was the transformation of a whole bunch of processes that no self-respecting academic would ever have looked at into fascinating areas to which operations research and management science people devote their lives. That same kind of transformation, I think, has to take place if one wants to proceed with the rationalization and the understanding of manufacturing. Mr. Bloch Mr. Ansell, what should the education sector do? Mr. Ansell As a Dean of Engineering, I do not think manufacturing need be a science, but it must at least be an engineering discipline, and that is not meant as a facetious remark. It is unlikely manufacturing will ever be a science. That has no relevance except that to make things one needs to draw on bases in the applied sciences and the engineering arts. But the issue of whether it is a discipline or not is a very serious one in terms of an engineering area. Manufacturing has not been a serious engineering discipline in the past. As a result, we are not looking at a field that obviously needs a generation of skilled people to develop and put new technology in place for innovation and people to manage these new manufacturing systems. It is not clear that these people exist, nor is it clear that the best and brightest of our students are really attracted to manufacturing careers. This must change. Fortunately, there is an awareness of the problem both in the educational institutions and in industry, and attempts are being made in both sectors to try to change this situation. It is not clear where the endpoints of these changes will occur, but it is clear that there must be the development of an engineering discipline in manufacturing which at least has viability within an engineering educational institution and other university structures. What is difficult about this field is the need to integrate and synthesize some very classic generic disciplines that now exist in other engineering fields: arti- ficial intelligence, controls, automation, robotics, materials, process areas. The synthesis and integration of these disciplines and their application to the manu- facturing process does not exist as a coherent field within engineering schools. Young people have to be in an environment in which they can learn from faculty who themselves contribute at the leading edge of a discipline. At the present time we have not created a system in educational institutions that assures the continued contribution and development of faculty at the leading edge of manufacturing.
l36 Some interesting shifts have occurred at several institutions that are trying to put in place efforts large enough to be viable. The system of rewards in universities must adapt to that requirement, so as to encourage and develop long-term careers in this field. The real issue in the engineering institutions is to try to develop such manufacturing systems in cooperation with both government and industry, and I think the question of the cooperation with government and industry is one of continuous stimulation, one in which there is a reality to the process as well as the cogent development of that discipline. That is the experiment we are now engaged in, and it is interesting that sev- eral major corporations are leading in the pressure to improve that situation in the universities. Mr. Bloch Mr. Castle, what should your sector do besides not looking at quarterly reports only? Mr. Castle That is an unfair point. You see, it is all those pension funds that want to have a good quarterly performance, and those pension fund trustees are usually corporate managers. It is a terrible cycle, but we must provide an envi- ronment, an ambience, that makes it attractive to invest in more high-risk tech- nological areas. A lot of that has to come from public policy, through tax changes, through moving away from a government deficit that creates very high interest rates that make it more attractive to put money in a high fixed-income security than into something that has more risk associated with it. I am personally very optimistic about all the attention this problem has received. After years and years in which the senior management of major corporations had to focus on marketing problems, now they can concern themselves with the kind of manu- facturing that is going to lead to the technical innovation that we need. Mr. Bloch Mr. Baruch, what does the public sector do, what should government do? Mr. Baruch I am not going to talk about what government should do because I am tired of trying to get government to do anything. In the area of what public policy should be, I am going to talk about the public I know best, the engineering profession. We are in trouble. Every one of us has seen the cover of today's program, which shows the marvels of modern scientific manufacturingâcathode ray tubes, drawings, robots, drills, automatic paint sprayingâand I have not heard one of you scream in outrage that the hex-nut on the cover has eight sides and that the robot is grabbing it by the points rather than by the flats. We are forgetting that we are engineers. The fact that we meet in this building implies that engineering is a branch of science, namely applied science, and that is nonsense. Engineering is a profession that applies science. Gilfillen summed it up when he said that the invention of the steam engine did more for the science of thermodynamics than the science of thermodynamics did for the steam engine. When my son wrote his resume as a young engineer, I told him, "You have to end it with one sentence that will tell an employer what he really ought to know about you." He came back with a defiant look in his eye and threw it down on the table and said, "How is that?" His sentence at the end said, "I make things work." It is too bad we have a bunch of engineers in our society who have forgotten that the role of engineering is to make things work. Instead, we complain about managers and how they behave. Yes, they are largely technologically illiterate. When I was at the Harvard Business School and got elected to the Academy of
l37 Engineering, I was all excited. I went out into the hall and told my colleagues about it. They all congratulated me and then asked me what it was. Yes, we have mergers. We have finance people running our companies. When all you have is a hammer, everything looks like a nail. Let us recognize that the only industries that are going to survive in the future in this country are the knowledge-based industries. Our initial leadership was based on cheap rents, later on cheap labor, and later on cheap capital. We will never see those things again, nor will we ever again see cheap energy. The only cheap thing we have left is smarts. If the only industries that are going to survive are those that are knowledge- based, and if engineers are the ones who are skilled in applying knowledge to problems, then the engineers will have to learn to be part of the management group, not pointing at others but pointing to themselves as management. The striking part of Japanese industry, when you look at its automation, is the fact that more than 50 percent of its managers come from engineering and the hard sciences, not from finance and marketing. I would like to challenge the National Academy of Engineering rather than the government. I would challenge it to exercise a certain degree of leadership to bring to the engineering curriculum the knowledge of how industrial processes work. Why teach students about the natural laws of gravity, the natural laws of friction, and the natural laws of stress and strain, but not about the natural laws of economics, technology diffusion, organizational management, and supply and demand? We are going simply to have to take over the management of industry in the country, and, to me, that is the best public policy one can charge the engineering profession with. Mr. Bloch That was almost the last word, but not quite. There is not a single action that will fix the problems we discussed today. There are many actions by all sectors of our society that need to taken to solve the deep issues we are facing as a profession, as an industry, and as a country. Courtland Perkins opened the program this morning. He has the privilege and the right to close it. Mr. Perkins I think that this has been an exceptionally fine technical session. It follows last year's on genetic engineering, which was also exceptional, and it proved the point that it takes an awful lot of work to put one of these sessions on successfully. The steering group has worked long and diligently to put this program together, and we all thank them for a job well done. We also ought to thank Kerstin Pollack, who is the administrator on the NAE staff. We have been blessed by a very fine staff in the Academy of Engineering. As for our members and guests in attendance, we have been delighted to have you here and we hope you can attend next year's annual meeting.
