Enterprise and double cross; at the heart of America's industrial decline is a culture of mistrust.

• Author: Reich, Robert

ENTERPRISE AND DOUBLE CROSS

In 1985, soon after the Reagan administrationarranged quotas on the importation of foreign steel, the U.S. Steel Corporation dropped plans for new investment in a Utah facility. Instead, it opted to import semi-finished slabs from South Korea to feed its West Coast finishing mills. Soon thereafter it spent $3.6 billion to purchase Texas Oil and Gas Corporation, on top of the $6 billion it spent a few years before to buy Marathon Oil. In mid-1986 it dropped "steel' out of its name and became USX, the last letter serving as an indelible reminder that what the corporation now stood for was unknown and unknowable. By that time energy accounted for two-thirds of its revenues and all of its profits, and thousands of workers had lost their jobs.

The ensuing political debate centered, predictably,on the benefits and the pains of economic change. Unionized workers, and not a few liberals, complained that U.S. Steel was abandoning steel, and so it was. They lamented the resulting unemployment of steel workers and the decline of traditional steel towns. On the other hand, conservatives pointed out correctly, there was no future in making basic steel. South Korea's Pohang Iron and Steel Company, for instance, operated one of the most modern mills in the world; it generated over nine million tons of steel a year. Pohang's workers earned an average of $2.50 per hour, or about a tenth of U.S. Steel's pay scale.

On the opposite end of the industrial spectrum,the Zenith Corporation invested several hundred million dollars in the 1970s trying to implement a potentially revolutionary idea: using lasers to play sounds recorded on a plastic disk. The lasers would "read' information encoded and compactly stored on the disk and reproduce sounds far more faithfully than conventional tapes or records. By the end of the decade, Zenith had abandoned the effort: production was simply too risky and expensive. Zenith opted instead to import videocassette recorders--a comparable but simpler technology--to sell under its own brand name. Sony, meanwhile, introduced the first successful mini-sized, laser-operated compact disk player, which swept the American market.

Both U.S. Steel and Zenith made rationalcalculations of the cost of pursuing a market and, following the logic of standardized mass production, opted out. In principle, however, each had other options. U.S. Steel could have eased out of steel and into new alloys and plastics that combine high strength with light weight. Or it could have moved into advanced ceramics that resist corrosion and heat, or into any number of other new materials that do what steel does, but better or cheaper. In most of these areas, no foreign producer was yet ready to compete. U.S. Steel could then have maintained its marketing links to its customers who made cars, buildings, and appliances. American auto makers, for example, were beginning to turn to Japan for ceramic engines and carbon-fiber chassis. Had U.S. Steel moved in this direction, it could have retrained many of its workers, already skilled in making one kind of durable material, to meet the same needs with new products. It could have become U.S. Advanced Materials--a robust descendant of its former self. Zenith, likewise, could have regarded the laser disk not just as one potential product but as the wellspring of a stream of products flowing out of the collective experience gained by making the first--items like optical computer memories, disks containing information services, video disks that could be erased and revised. In this way, Zenith too could have evolved as its work force, and its surrounding network of suppliers and customers, also evolved.

Pursuing these options, however, would haverequired a fundamentally different approach to capitalism: collective entrepreneurialism. Traditional capitalism relies on a lone inventor or entrepreneur to dream up a big idea, investors to provide the capital, managers to translate the idea into rigid production systems, and "drone workers' to man that system. In collective entrepreneurialism, the distinctions between innovator, manager, and worker become blurred and investment becomes a mutual affair. Owners continuously invest in workers by giving them training and experience in new technologies. Workers invest in one another by sharing ideas and insights. Workers invest in the overall enterprise by moderating their wage demands. Such matual investment extends outside the company as well. Suppliers of materials and parts invest by committing to produce specialized components. Creditors supply capital without requiring a rigid projection of how the funds will be used. This vision of collective entrepreneurialism should not seem unfamiliar. These are just the sort of feelgood management ideas that fill the bookstores and business schools.

Yet neither Zenith nor U.S. Steel followed anysuch path. What are we to conclude from this? One possibility is that the notions of collective entrepreneurialism are pipedreams, and that the only realistic options from most American workers are protection, idleness, or wages as low as their competition abroad. Another possibility is that the managements of U.S. Steel and Zenith were simply too dim to spot the sources of future profits. Neither of these explanations holds, however, either for Zenith and U.S. Steel or for the many other American companies who cling to the logic of standardized mass production and balk at a strategy of collective entrepreneurialism. The problem is rooted in a deeper dilemma: a simple lack of trust within American business culture.

Workers who bolt

Trust is by no means foreign to Americanenterprise, of course. There is evidence, for example, that employers commonly maintain wages and employment during downturns in the business cycle at higher levels than a strict reading of supply and demand would warrant. The reason for this defection from economic theory is due to employers' eagerness to maintain workers' loyalty, lest employees depart during upturns in the cycle. It is simply too expensive for employers to find and train good employees with every up and down in the economy. Similarly, sellers often allocate scarce goods to steady customers when supplies...