National Academies Press: OpenBook

Challenge to Manufacturing: A Proposal for a National Forum. (1988)

Chapter: Reorganizing Production to Restore Competitiveness

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Suggested Citation:"Reorganizing Production to Restore Competitiveness." National Academy of Engineering. 1988. Challenge to Manufacturing: A Proposal for a National Forum.. Washington, DC: The National Academies Press. doi: 10.17226/18604.
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Suggested Citation:"Reorganizing Production to Restore Competitiveness." National Academy of Engineering. 1988. Challenge to Manufacturing: A Proposal for a National Forum.. Washington, DC: The National Academies Press. doi: 10.17226/18604.
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Suggested Citation:"Reorganizing Production to Restore Competitiveness." National Academy of Engineering. 1988. Challenge to Manufacturing: A Proposal for a National Forum.. Washington, DC: The National Academies Press. doi: 10.17226/18604.
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Suggested Citation:"Reorganizing Production to Restore Competitiveness." National Academy of Engineering. 1988. Challenge to Manufacturing: A Proposal for a National Forum.. Washington, DC: The National Academies Press. doi: 10.17226/18604.
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Suggested Citation:"Reorganizing Production to Restore Competitiveness." National Academy of Engineering. 1988. Challenge to Manufacturing: A Proposal for a National Forum.. Washington, DC: The National Academies Press. doi: 10.17226/18604.
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Suggested Citation:"Reorganizing Production to Restore Competitiveness." National Academy of Engineering. 1988. Challenge to Manufacturing: A Proposal for a National Forum.. Washington, DC: The National Academies Press. doi: 10.17226/18604.
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Suggested Citation:"Reorganizing Production to Restore Competitiveness." National Academy of Engineering. 1988. Challenge to Manufacturing: A Proposal for a National Forum.. Washington, DC: The National Academies Press. doi: 10.17226/18604.
×
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Suggested Citation:"Reorganizing Production to Restore Competitiveness." National Academy of Engineering. 1988. Challenge to Manufacturing: A Proposal for a National Forum.. Washington, DC: The National Academies Press. doi: 10.17226/18604.
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Reorganizing Production to Restore Competitiveness Stephen 5. Cohen and John Zysman with Sabina Deitrick Fundamental changes in the international economy are reordering the hierarchy of wealth and power among nations, and the United States is not navigating this transition very well. Two sets of basic forces are driving the transi- tion. The first set consists of fundamental changes in both the extent and the nature of international competition confronting Ameri- can producers of almost everything from semiconductors, to autos, to financial serv- ices. A generation ago foreign competition was a marginal phenomenon in the U.S. mar- ket; today upwards of 70 percent of every- thing we make is subject to direct (or immi- nent) foreign competition. We face not just a sudden increase in the extent of competition but a significant change in its nature. The change is not just from the Atlantic to the Pacific as the common shorthand has it. Rather it concerns America's response to the challenge of the Developmental State—a new set of arrangements among government, soci- This paper draws heavily on Stephen S. Cohen and John Zysman, Manufacturing Matters: The Myth of the Post- industrial Economy (New York: Basic Books, 1987) and Stephen S. Cohen and John Zysman, "Manufacturing Innovation and American Industrial Competitiveness," Science, 4 March 1988. ety, and industry designed to change the structure of a nation's comparative advantage in international trade. It was first, and most effectively, developed in Japan, but is now being imitated, with varying degrees of suc- cess, in country after country. The second set of forces consists of funda- mental changes in the organization of produc- tion, extending from the shop floor through corporate, institutional and societal arrange- ments for production. Its emblematics are flexible production as opposed to standard, mass production; total quality as opposed to a trade off between quality and cost, and "just in time," and accelerated product cycles. This "soft" or organizational change is reinforced in its impacts by a simultaneous change in the technology of production, consisting essen- tially of the advent of microprocessor-based technologies in the production of everything, from watches to computers to insurance poli- cies. All these forces interact and magnify one another. The intensified competition drives the changes in production, which in turn cre- ate yet newer competitive pressures. Old advantages erode, new ones compound. And it all moves very quickly. Not long ago it took more than 25 years for industries to move from world leaders to basket cases; now the transformation is being accomplished in five. In this paper, we maintain that weaknesses in manufacturing capabilities have been at the heart of America's eroding competitiveness. It has not been the unique cause, nor is it the single remedy. Macroeconomic difficulties— feeble savings rates, and a severely overval- ued dollar—played major roles in turning a manageable problem into a national emer- gency. But although macroeconomic solutions are necessary to any sustained improvement, without a focus on major improvements in the production process, America will not be able to reassert its economic primacy. The wealth and power of the United States de- pend, as never before, on a major reorganiza- tion of production. Although the exchange rate has been brought back down, and some "good numbers" are beginning to appear, we have not solved our problem. Instead, what we have done, at great cost, is to open the possibility of ad- dressing those problems. That window will 34 COHEN AND ZYSMAN

not stay open very long. Other countries have forfeited the advantages of a devaluation. We must not assume that a similar unhappy fate cannot happen to us. American wealth and power rested on the preeminence of American manufacturing. America produced goods, in vast quantities, that other nations simply could not produce competitively. That was the basis of our fabu- lously high wages, whole number multiples of those paid by our best competitors. Our manufacturing preeminence in turn was rooted in a particular organization of produc- tion: mass production. Innovated in the late nineteenth century and perfected in the first half of this century, American mass produc- tion was the most successful production or- ganization the world had ever seen. It won the war; it won the peace. It was the envy of the world. And after the war everyone else, the Japanese, the French, and the Germans set out to copy it and catch up with their future. What actually happened was not so much faithful copies, but something quite different. New forms emerged from efforts to follow America's need in radically different environ- ments. These innovations in production have substantially changed the terms of competi- tion and introduced new models that acceler- ate cycle time, heighten product differentia- tion, and oppose economies of scope and flexibility to traditional economies of scale. THE SHIFTING COMPETITIVE ADVANTAGE IN MANUFACTURING The most obvious sign of U.S. weakness is the trade deficit, which climbed to a record $173.7 billion in 1987, while our major high-wage, advanced-technology competitors (Japan and the Federal Republic of Germany) ran mas- sive surpluses. Despite substantial improve- ments in recent months, the trade deficit has not reversed nor has it even dropped as sharply as expected, given the extent and the duration of the dollar's decline. Further de- valuations are not the answer. There is, of course, some exchange rate that will balance not just our trade account but also our com- mercial account (which includes the interest we now must pay to foreigners on our mas- sive debts to them). But a steadily declining dollar translates as a steadily impoverishing and weakening America. It is not the policy objective; it is the price of inappropriate re- sponse. In 1971 the United States ran its first merchan- dise trade deficit in this century. The Nixon administration responded to this unprece- dented event by removing fixed exchange rates and devaluing the dollar. Macroecon- omic policy worked; exports grew against imports. By the late 1970s, however, the trade account turned negative again, while the dollar remained low against the major com- petitors' currencies. Clearly, something more fundamental than exchange rate misalign- ment was affecting America's competitive performance. Many often point to the strengths of Ameri- can high-technology industries as offsetting deficits in other industries. But high technol- ogy cannot answer our trade problems; high- technology goods are not something separate from manufacturing—high technology is a part of manufacturing. The Germans have successfully adopted new technologies to traditional manufacturing production, and, with their high wage economy, are a world leader in "traditional" manufacturing indus- tries such as machine tools, chemicals, and automobiles. A Japanese steel plant does not look "low tech" with its sophisticated control systems. High-tech intermediate goods such as semiconductors depend on downstream markets for sales, both high-tech computer sales and traditional industrial and consumer electronics markets. As has already happened in the United States, without domestic pro- duction in a final market such as consumer electronics, semiconductor makers lose access and then even the ability to manufacture de- vices for that market located abroad. Furthermore, and critically, America's com- petitive advantage in high technology has decreased, not increased, from the late 1970s, as both industrialized and developing coun- tries continue to close the technology gap (Carvounis, 1987, p.18). The U.S. trade bal- ance in high tech dwindled from a surplus of $25.5 billion in 1980 to the first deficit in 1986. In high tech the United States runs a deficit with Japan and the Asian "Four Dragons"— Singapore, Taiwan, Korea, and Hong Kong— while maintaining a surplus against Western Europe as a group and Canada. Also impor- tant to consider are sectoral subgroupings: in high tech, aircraft exports often conceal trade REORGANIZING PRODUCTION 35

deficits in other critical industries, such as semiconductors and computer peripherals, and the equipment to make them. While the U.S. deficit continues in the face of a lower dollar, our competitors maintain trade surpluses with rising currencies. Japan, in particular, has succeeded in increasing its exports and expanding in overseas markets, even with a doubling in the value of the yen in relation to the dollar over the past two years. From this point of view the Federal Republic of Germany has also been doing quite well. Japanese producers are succeeding in a situ- ation in which U.S. firms failed. In contrast to the American experience a few years earlier, to compensate for the rapidly rising yen, Japanese firms increased, rather than de- creased, their investment in manufacturing systems to boost productivity gains. Further- more, the Japanese were able to carve out market shares earlier when the value of the dollar was high relative to the yen, and now, to protect those markets, have introduced new products and cut profits to maintain those shares. To be sure, many Japanese firms have lost money in some segments and re- located some production offshore, some to cheap labor sites, more to high-cost sites such as the United States to leap over anticipated import barriers. But these cheap-labor moves should not be mistaken as revealing the Japa- nese long-term response. Japanese firms are not following the example of American pro- ducers, who fought cost battles by seeking to cut labor costs, especially direct labor, rather than seeking to change production itself. The Japanese have shown that they can produce and be innovative in a high wage location, much as American producers did 30 years ago, and that their competitive advantage rests on manufacturing innovation. For Amer- ica the solution to balancing trade accounts while maintaining our wealth and power lies not just in exchange rates and macroeconomic policies, but in something more fundamental to the working of the economy and produc- tion. We argue here that in recent years, other na- tions have introduced innovations to the pro- duction process that have enabled them to produce more competitively than the United States. These innovations began as small ad- aptations of traditional production methods, tailoring best practice to the constraints, strengths, and social institutions in those nations. They do not encompass radically new tools or automated lines as much as a reorganization of ideas, people, and produc- tion methods. These organizational innovations have pro- ceeded gradually, but their impact has threat- ened American firms sharply in just the past decade or so. Only with dramatic losses of market share in certain industries—beginning in industries such as consumer electronics and continuing through steel, shipbuilding, automobiles, and machine tools to such high- technology sectors as semiconductors—have producers in the United States begun to con- sider the nature and the import of these changes. How have these changes come about, and why has the United States been so slow to respond? Even for a brief answer, we must step back to an earlier period, when firms in the United States built their manufacturing capabilities on a set of institutions that devel- oped during a different era of capitalism. Beginning in the early nineteenth century with the introduction of interchangeable parts for guns at the Springfield Armory, American firms forged a system of mass production that reorganized capital and labor and swept away artisan and craft work in many indus- tries. By the time of Henry Ford's moving assembly line for the Model T, the modern mass production system had begun to take hold in a wide range of industries. Coupled with the rise of scientific management, mod- ern mass production generated greater spe- cialization of production and further subdi- vided labor within the plant (Chandler, 1977, Parts III and IV). The new system revolved around the management of people, referred to as Taylorism, and control of markets and production strategies, Fordism. The system focused on volume production of standard- ized products for a relatively homogeneous market. Volume allowed the specialization of tasks, both for machines and for people. The steady increase in specialization and the 36 COHEN AND ZYSMAN

growth of new functions within the firm such as distribution and marketing eventually resulted in a brilliantly successful new form of enterprise, the hierarchical, divisionalized corporation. The modern American company emerged after World War II powerful and positioned to dominate the world economy. The system defined the lines along which technological advance would proceed, and technological advance steadily improved the system's per- formance. Despite new technologies and new industries developing during the past 40 years, the basics remained entrenched. Why did the system congeal? First, of course, because it not only worked but worked better than anything that came before or anything elsewhere. It was simply the best production system in the world. It defeated Fascism abroad; it won social peace at home. It was the model for every nation in the world. And it was improving steadily. That is a powerful first reason. There were several secondary reasons for its stubborn stability. A great many dominant industries such as automo- biles and steel had become stable oligopolies with mature, sluggishly increasing demand and high barriers to entry. These structures diverted competition from basic change in production or technology into marginal changes in product, price, and style. Also, complex social structures are robust. The production structure had developed elaborate systems of labor relations and comparably complex systems of management training, organization methods, and reward. Massive forces ranging from unions through business schools (a product of this period) had in- vented themselves and structured themselves around the basic design of that production system. Changing it would mean changing them. The mass production paradigm was not going to change without the shock of innova- tions from abroad. That shock took a long generation to come; when it hit, it hit hard. CHANGING THE MASS PRODUCTION PARADIGM Two innovations in particular made the dif- ference. The first consists of a new and active role for the state in systematically developing industry and in seeking to directly change the structure of the nation's comparative advan- tage. As mentioned above, Japan is the pre- mier example but not the only case. (For the role of institutions and economic develop- ment in Japan see Johnson, 1982.) Here, the government instituted a set of policies to pro- mote investment over consumption, target strategic industrial sectors through state- steered financing, and, crucially, protect do- mestic producers from foreign competition. The second form of innovation is the focus of our attention. Its effect is to turn the manufac- turing process itself into a source of advan- tage. The emblematics of the production inno- vations are carried by code words such as "flexibility," "just in time," and "total qual- ity." These both suggest and obscure concrete changes in the way goods are designed and produced. In the best firms these innovations extended well beyond the shop floor to the nature of the product, beginning with a de- sign concern for manufacturability and extending to a corporate decision process in which anticipated economies of scope could justify investments in new technologies that are difficult to justify through more tradi- tional criteria but figure in the firm's strategic positioning against its competitors. In this light, just in time reduces the costs of carrying expensive inventories at every stage of pro- duction; these cost savings can be quite sig- nificant, and they are calculable by traditional methods. But the decisive advantage of just in time is not to be found by the methods taught in U.S. business school and practiced in American corporations, that is, through quan- tification of reductions in inventory carrying costs. Just in time means, fundamentally, a new relationship with suppliers, something quite different from the traditional Detroit whipsaw, and the most significant benefits realized take the form of continuing improve- ments in quality and accelerations of product cycle time. Reduced cycle time creates not marginal pricing advantages, but decisive strategic advantage. Japanese automakers have substantially benefited from their huge advantage in cycle time over their American competitors. In industry after industry and product after product the Japanese used manufacturing advantage to gain market share, market share to further enhance manufacturing advantage, REORGANIZING PRODUCTION 37

eventually dominating industries that only shortly before seemed impregnable. After all, in 1962 Detroit produced more automobiles in one week that Japan produced in a whole year; today Japan produces more automobiles than the United States. Initially American firms attributed the Japa- nese advantage to low-cost labor. The re- sponse was to seek even cheaper labor—off- shore. As a competitive strategy, relocating production offshore proved to be the wrong solution to the wrong problem derived from the wrong analysis. It assumed that the com- petitive problem was direct labor costs and attacked at that point. But labor costs were only one element—and a rapidly shrinking one—of the Japanese advantage. Indeed in many of the industries that ran offshore for cheap labor, direct labor was only about 20 percent of cost, at most, and often a good deal less. As many producers were to realize soon, but nonetheless, too late, the Japanese advan- tage hinged more on production organization than on low-wage labor. The American con- sumer electronics industry was an important leader in this downward direction, moving production offshore, lobbying successfully for special legislation to protect its reimports, and blinding themselves to the reality of their competitive problem until a dominant indus- try was effectively wiped out. For as Ameri- can firms shifted production to low-wage sites in Asia and Latin America, they acceler- ated their own downward spiral. First the cheap labor solution permitted them to ignore the need to rethink their production organ- ization. It bought time, not for a long-term competitive response, but for the Japanese competitive advantage to cumulate beyond reversal. This strategic debacle affected not only the consumer electronics industry but a broad set of other industries such as semicon- ductors, which would have been a very dif- ferent case of industrial history had the Japa- nese not wrested dominance in consumer electronics, and used it as the key to the mas- tery of volume production in semiconductors. Moving production offshore further reduced the manufacturing infrastructure of the United States not only by relocating jobs over- seas, but by helping to develop systems of suppliers, subcontractors, and technology transfer to the overseas locations. In our best competitor countries, especially in Japan, rapid industrial growth afforded firms the opportunity to invest in new machines and new production methods. But the intro- duction of a new machine does not necessar- ily guarantee productivity gains. Installing new machines is the second part of the story; reorganization of production must come first if the machines are to live up to their poten- tial. In many U.S. companies, the machines were installed, often at colossal expense, but the painful organizational questions were sidestepped. General Motors spent "more on automation than the gross national product of many countries," (Stephen G. Payne, quoted in Business Week, 6 June 1988, p.100) but the benefits have yet to be realized. In contrast, GM's joint venture with Toyota, the New United Motor Manufacturing, Inc.(NUMMI) plant in Fremont, California, is one of GM's most productive plants; the plant's success stems from its changed labor relations and reorganization of production on the line, rather than the implementation of the most automated equipment (see Turner, 1988). FLEXIBILITY IN MANUFACTURING Mass production is inherently static. More important the managerial methods and calcu- lations to which it gave rise and which are so deeply embedded in American business schools and corporate practice are also static. Production dynamics are not. When mass production competed with artisanal and batch production, its static approach did not matter; its revolutionary power obscured the problem; the efficiency advantage was over- whelming. Today, however, greater uncer- tainty in markets and technology rewards flexibility in manufacturing rather than static approaches. American management is cling- ing to its static, quantitative methodologies and the standard, mass production approach. A study by Jaikumar (1988) demonstrates this contention more concretely. Comparing both Japanese and U.S. flexible manufacturing systems (FMS), the author found that for making comparable products, the Japanese and American firms used almost the same number of tools—six in Japan, seven in the 38 COHEN AND ZYSMAN

United States. From those tools, however, the Japanese made an average of 93 parts, com- pared with 10 in the U.S., while the average volume per part in the U.S. was 1,727 against only 258 in Japan. The American firms essen- tially applied the new flexible tools to their old inflexible style of manufacturing, while the Japanese used the tools to develop and produce a flexible range of products. The author concluded that the use of FMS in the United States showed a basic lack of flexibil- ity in use (Jaikumar, 1986, p. 69). The Ameri- can firms used the new tools to improve economies of scale—lowering the cost of pro- duction through increasing output. The Japa- nese firms increased production and effi- ciency through economies of scope—increas- ing production in a range of goods. Some, even many, American firms, and indus- tries, are attempting to produce more flexibly. The era of static, mass production has not ended, but a shift to more flexible production has helped the competitiveness of some firms. Companies such as Allen Bradley and Black and Decker have embarked on new produc- tion strategies to reduce costs and improve designs. There are examples in other compa- nies ranging from Hewlett-Packard, to Cin- cinnati Milicron, to IBM, to Timken Roller- bearings, and even, uncharacteristically, to particular product lines at General Electrics such as circuit breakers. In the semiconductor and computer industries, several firms are working out new kinds of relations with their components suppliers and with equipment makers. In the semiconductor industry, for example, Cypress Semiconductor, a small firm specializing in fast, high-performance semiconductor devices, produces 74 products in 80 different packages down one line in an integrated production facility designed for flexibility and rapid turnaround. The Sema- tech agreement aims to promote manufactur- ing and production technology in a joint arrangement among semiconductor and equipment firms. Examples abound, and every day there are more. But contrary ex- amples also abound; it is still too early to know whether these examples trace an im- portant trend or catalog heroic but isolated cases. Flexibility, then, is a key to competing in today's markets. Innovations such as pro- grammable automation allow a machine to perform a range of tasks through software changes. This flexibility allows for economies of scope in the production process—produc- ing a set of goods on a common line—some- thing Seiko does in producing three new watches per day. Economies of scope are to flexible production what economies of scale are to rigid mass production. Often, however, economies of scope and economies of scale move together, with large-scale plants allow- ing both volume production and product variety. In the semiconductor industry, the cost of building a production line has risen at least two to three times in 10 years, while at the same time, more and more devices are user-specific products and not standardized. Firms cannot afford to invest solely for econo- mies of scale, since products may change rapidly and they may never produce a large enough volume to realize their investment; they need to build plants that can accommo- date changing chip designs, requiring a flex- ible approach to manufacturing. We should distinguish between two different notions of production flexibility. Static flexi- bility refers to the ability to adjust operations at any moment to a rise or fall in market de- mand. Firms make adjustments within a fixed product or established production structure, with labor being the most flexible way firms can adjust their output within a static frame- work. For American firms this implies layoffs; Japanese firms use a wage system—lump sum bonus payments —to adapt. Dynamic flexibility, by contrast, allows firms to in- crease productivity by improving the produc- tion process and change products quickly. The advantage for firms is to get to the mar- ket quicker and stay ahead of the competi- tion. Some discuss these changes in terms of a historical shift in production. Although most production has always been done in batches, the prevalence of mass production has prompted the placement of technical issues in historical context. Henry Ford's assembly line became Fordism—a type of mass production, and simultaneously, a social organization of production. Subsequent developments REORGANIZING PRODUCTION 39

reverting to batch production have been la- beled post-Fordist, or using general purpose tools to produce a variety of products. Some contend that this technological shift will reor- ganize the structure of firms in an economy to favor smaller firms competing in market niches over large firms in mass markets (Piore and Sabel, 1984; Sabel, 1982). There is, how- ever, nothing in the notion of dynamic flexi- bility that negates scale economies, especially the advantages of size in marketing, financial staying power, and the capacity to invest in expensive machinery. A new romanticism focusing on small firms is not necessarily prudent. We must remember that Matsushita and Seiko are leaders in both flexibility and scale. Of course nothing is certain. But in today's environment, firms rooted in a social organization of production of the past are finding it increasingly difficult to compete. TOWARD A NEW KIND OF INDUSTRIAL ECONOMY We have argued that the world economy is in the throes of a basic transition, propelled by basic changes in the extent and nature of international competition and by revolution- ary changes in both the organization and technology of production. These changes are profoundly affecting the U.S. economy and revealing weakness in an organization of production that propelled the country into world dominance but now threatens to leave it lagging. We see a fundamental weakening of America's productive capacity, a weaken- ing in its ability to regenerate and innovate and subsequently in its competitive position. Traditional explanations may appeal to some, but we are not solaced by them. Some of these have become the basis for policy decisions, despite a lack of evidence or even the pres- ence of contradictory clues. For instance, the United States cannot expect to continue to lead in technological developments if it no longer produces the products that embody those technologies. Many industries already serve as examples in which we first lost our competitive position and then lost our tech- nological lead. We used to produce steel and export steel engineering services; we now import both. In consumer electronics, relocat- ing production offshore meant that American producers lost out on the next generation of products, notably the videocassette recorders and compact disc players. In both cases, we lost the "rent" on innovation that enables a firm to increase sales volume in a new prod- uct and invest in R&D for the next-generation product. Moreover, the United States is not experienc- ing a transition from an industrial to a post- industrial, service economy, as some may argue. This is explanation by false analogy, comparing a shift up and out of industry and into services to an earlier shifting out of agri- culture and up into industry. The earlier shift never occurred. We did not abandon agricul- ture or relocate it offshore; we automated it. We shifted labor off the farm and added mas- sive infusions of capital, technology, and edu- cation as we steadily increased output and productivity. Industry now requires the same investments in capital, labor, education, and technology. We argue that millions of high- paid service jobs are complements to indus- try, not substitutes, and if we lose industry, we will lose, not increase those service jobs. To revert to the agricultural analogy, but in a more accurate form, the crop duster is not an agricultural worker; he is a service worker. Move the farm offshore and you also move the crop duster, the winery, the large animal vet, and the harvesters. These jobs, though classified as service jobs, are in reality "tightly linked" to agriculture. They are complements to agriculture. It is quite the same in industry, but on a vastly larger scale. The economy is becoming less gritty. More and more people work in something closer to offices than to dirty, noisy factories. But there is no such thing as a postindustrial economy. The solace such a myth affords us is false. We are in a transition not from an industrial to a post- industrial economy but toward a new kind of industrial economy. That the economy is changing in fundamental ways is clear; what is less clear is what our responses should and will be. We cannot sim- ply copy our best competitors, establish an American Ministry of International Trade and Industry, and merge Citibank, AT&T, and 40 COHEN AND ZYSMAN

General Motors into an American Keiretsu. We can, however, learn from them and adapt. We must realize, however, that our choices are sharply constrained: Future options rest on past decisions, and our opportunities are limited. First, we must not accept the notion that to compete internationally firms must cut wages. Our best competitors—Federal Republic of Germany, Sweden, Japan—pay wages equal to or higher than ours. The trick is to promote productivity increases, to sus- tain high and rising wages. Second, a retreat to blanket protectionism is short-lived at best and does not encourage reorganization among less-than-competitive firms. Third, to generate broad support for a national commitment to growth and innovation, we need policies that reduce inequalities rather than foster them. The opportunities afforded us are likewise constraining. Today, information and technol- ogy flow easily across borders; advantages lie not just in developing that knowledge, but in diffusing it throughout the economy and exploiting it through product and production innovation. Both labor and management can help realize these possibilities. If we cannot keep pace with our new competitors, we could find ourselves in a long cumulative economic decline that ultimately threatens the wealth and power of the nation. Stephen S. Cohen and John Zysman are professors at the University of California, Berkeley, where they direct the Berkeley Roundtable on the Inter- national Economy (BRIE). Sabina Deitrick is a re- searcher at BRIE and a Ph.D. candidate at the University of California. Piore, Michael}., and Charles F. Sabel. 1984. The Second Industrial Divide: Possibilities for Prosperity. New York: Basic Books. Sabel, Charles F. 1982. Work and Politics: The Division of Labor in Industry. New York: Cambridge Univer- sity Press. Turner, Lowell. 1988. NUMMI in Context: A Compara- tive Perspective on the Politics of Work Reorganiza- tion in the U.S. Auto Industry. Paper presented at the Western Political Science Association, 10-12 March 1988, San Francisco, California. References Carvounis, Chris. 1987. The United States Trade Deficit of the 1980s: Origins, Meanings, and Policy Re- sponses. New York: Quorum Books. Chandler, Alfred. 1977. The Visible Hand: The Manage- rial Revolution in American Business. Cambridge, Mass.: Belknap Press. Jaikumar, R. 1986. Postindustrial manufacturing. Har- vard Business Review, November-December: 69-76. Johnson, Chalmers. 1982. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975. Stanford, Calif.: Stanford University Press. REORGANIZING PRODUCTION 41

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