The MacNeil/Lehrer NewsHour

Intro

JIM LEHRER: Good evening. In the headlines today, the unemployment rate remained the same for the fifth month in a row. The fires in the West began to diminish. OPEC met in Vienna to combat falling oil prices. And Lebanon moved to prevent a U.S.-led boycott of the Beirut Airport. Robert MacNeil is away; Judy Woodruff is in Washington. Judy?

JUDY WOODRUFF: After a rundown of the day's news, we have three main focuses on the NewsHour. First, the latest unemployment figures. An economist puts them in perspective and we visit a community where not having a job is a way of life. Then the turmoil in OPEC. We get an explanation of what it could mean for us from an oil analyst. Finally, a documentary report on the longtime rivalry between Pepsi and Coke. News Summary

LEHRER: The unemployment rate is stuck at 7.3 . The Labor Department said today that was the figure for June, as it was for the previous four months. Janet Norwood of the Bureau of Labor Statistics said the numbers show continued serious trouble in the manufacturing industries, particularly steel, textile and leather products. A group backed by organized labor held a news conference to say the 7.3 figure was artificially low.

ELLEN VOLLINGER, Full Employment Action Council: That rate has remained stuck for five months running, but even that rate, which is stagnating, understates the extent of the unemployment problem in the country. Our organization has taken into account underemployed people, people who are too discouraged to look for a job, people that the government does not take into account when it figures the national average jobless rate. And we estimate that real joblessness last month was 13 . And again, that's much higher for particular groups that are not sharing in the so-called recovery.

LEHRER: The U.S. Chamber of Commerce chief economist offered a different analysis of the figures when he spoke to report Kenan Block.

RICHARD RAHN, U.S. Chamber of Commerce: Right now we have a higher percentage of our adult population at work than at any time in our nation's history. We have a higher percentage of our population at work than any other nation in the world. We've had much stronger job growth here in the United States than any other major industrialized nation. We are clearly in a much stronger job position than we have ever been in. The nation's employment situation right now is very strong. It will be getting much better. But the macroeconomic growth alone is not going to cure the problem of the inner-city worker and the teenager who can't find a job. We have to do more and a better a job in education and communication to these people and tell them where the jobs are, and get them to leave the locales where there is high unemployment and move to those areas where there is a shortage of workers.

LEHRER: We'll look at the unemployment numbers and at some of the unemployed people in our lead focus segment. Judy?

WOODRUFF: Firefighters in southern California got a break today in their effort to control stubborn blazes that have laid waste to thousands of acres of land. Also hit have been nine other Western states, all in all forcing the evacuation of thousands of people. We have a report from Marika Gerard of the independent L.A. News Service.

MARIKA GERARD, L.A. News [voice-over]: The record-breaking heat wave that has baked California all this week and fanned the flames of numerous brushfires has finally broken. Cool, moist air coming in from the ocean comes as a welcome relief to firefighters battling a five-day-old blaze north of Los Angeles.

TOM BUCKLEY, U.S. Forest Service: We've had a slight weather change that started last night. We've had some fog come up the drainages. We have cooler temperatures today, slightly higher humidities. This has slowed the fire down considerably as of this morning.

GERARD [voice-over]: At its height the fire threatened both the towns of Ojai and Carpinteria 80 miles northwest of L.A. As many as 2,000 people were forced from their homes as the flames moved towards residential areas. Today most of those people have moved back. Although fire has blackened 66,000 acres of brush, only four homes have been lost. Officials now believe that if the weather continues to cooperate, weary firefighters too will soon be going home.

WOODRUFF: Three Western states have still another concern this week in contaminated watermelons. California, Oregon and the state of Washington ordered supermarkets to take watermelons off the shelves after 46 people became sick, apparently after eating melons tainted with pesticide. An investigation focused on growers in two California counties.

LEHRER: The OPEC oil cartel met today in Vienna to worry about the continuing fall in oil prices. The oil ministers were scheduled to hold a formal meeting, where they would have been empowered to make decisions but they never did. Instead they gathered for a series of informal consultations. After five hours of meetings, no new strategy emerged, and representatives of the 13 oil-producing countries agreed to try again tomorrow. An oil analyst will dope out OPEC's options and probabilities for us later in the program.

WOODRUFF: The State Department said today that Syria's President Assad is making an effort to win the release of the seven remaining American hostages in Lebanon. A story in today's Washington Post said Assad was not receptive to President Reagan's request for help in a telephone conversation earlier this week. But a State Department spokesman today said that Syria has an important role to play in Lebanon. In Washington a delegation of three Arab diplomats asked State Department officials to reconsider the U.S. call for an international boycott of the Beirut airport. They said the U.S. should take into account the measures the Lebanese government is now taking to beef up security at the airport. Meanwhile, in Beirut, there were radio reports that President Amin Gemayel met with the U.S. ambassador to Lebanon, Reginald Bartholemew, who delivered a letter from President Reagan. Sources in Beirut said Gemayel stressed his government's opposition to terrorism and indicated that it will continue to oppose U.S. moves to isolate the airport. The Lebanese are asking European nations to hold off joining the U.S. effort. For a report from the airport here is Alistair Clark of Visnews.

ALISTAIR CLARK, Visnews [voice-over]: Around the airport perimeter earth embankments are being erected and a new fence is being built. Troops from the Army's Sixth Brigade have taken charge of security around the stranded TWA jet. Rumors that a bomb is still on board have been dispelled by the authorities. It's thought the hijackers will not release the plane until the sanctions against the airport and Middle East Airlines have been withdrawn.

WOODRUFF: In Washington a State Department spokesman said this about the new security measures at Beirut Airport.

EDWARD DJEREJIAN, State Department spokesman: Security measures commensurate with the situation are needed. Obviously any efforts by the government of Lebanon to improve security at Beirut International Airport wouldbe welcome, but much, much needs to be done. We continue to believe that the threat to Americans in Beirut remains very high and that no one should consider himself or herself immune to that threat. As we have said before, we believe that Americans should avoid travel to Lebanon and that Americans in Beirut should take advantage of opportunities to leave. The travel advisory for Lebanon remains in effect and applies to everyone.

WOODRUFF: The chairman of Middle East Airlines, which is Lebanon's national carrier, said he had been assured by France, Switzerland and Greece that their national lines would not stop flying in and out of Beirut.

LEHRER: A robot submarine appears to have found wreckage from the Air India jumbo jet that may include the plane's flight recorder. The plane went down off the southwest coast of Ireland June 23rd, killing 329 people. The operators of the submersible robot said pieces of a plane's interior, passenger seats, and a fragment of tail were found in 6,700 feet of water where the 747 went down. The robot transmitted pictures of the items, and a company spokesman said they believe the plane's flight recorder is in the found tail section. Authorities are seeking to determine the cause of the crash of the plane, which was on a flight from Montreal to Bombay. Two Sikh extremist groups have claimed they put a bomb aboard.

WOODRUFF: A medical panel in South Africa today found two white government doctors guilty of misconduct in the 1977 death of black leader Steve Biko. Biko has become a martyr in the struggle against white minority rule. The panel ruled that the doctors failed to provide adequate care shortly before Biko died in police custody. An inquiry at the time of his death found that Biko probably died of brain injuries received in a scuffle with police. The decision came as hundreds of people demonstrated in Johannesburg over another case, the killing last week of four black anti-apartheid activists. Jobs & Jobless

LEHRER: We look first tonight at what the unemployment rate did not do again, and why. It did not change again. It was 7.3 in June, according to the monthly Labor Department report. That was also what it was in May, April, March and February, and marks the first time in 15 years the rate has remained the same for five months in a row. Audrey Freedman will now supply the why. She is the chief labor economist with the Conference Board, a New York-based business research group.

Ms. Freedman, what is behind this five months of no change, in the simplest possible terms?

AUDREY FREEDMAN: Just to get the unemployment rate to fall we have to create about one and a half million new jobs in the economy each year, because that's how fast the labor force normally grows. So we have to be running --

LEHRER: In other words, there are always that many new people coming into the labor force.

Ms. FREEDMAN: New people looking for work. About one and a half million a year. So we would have to create that many jobs steadily just to keep the unemployment rate where it is now.

LEHRER: And we're not doing it.

Ms. FREEDMAN: We're not doing it. We have not been growing jobs as fast as we were in the past. The economy isn't as strong as it was in the past. And so the unemployment rolls are just staying static. In the last month, for example, manufacturing payrolls fell again. They had been falling since January. Since January manufacturing payrolls have been down almost a quarter of a million jobs. Now, service jobs are still growing, but they're not growing enough.

LEHRER: What kind of service jobs are growing?

Ms. FREEDMAN: Mostly in financial services and business services. During the entire --

LEHRER: Meaning what kind of jobs?

Ms. FREEDMAN: Well, in business services, accounting, advertising, temporary help services, agencies. And in finance, in banking and insurance. In this recovery, for example, business services have grown over a million jobs, but last month only 12,000 jobs.

LEHRER: Now, what's that mean to you?

Ms. FREEDMAN: That means that the recovery is slowing down considerably, and the labor market is turning a little bit hostile toward growth in employment. But also you have to remember that in June, usually a lot of teenagers and also teachers enter the labor force. And so the seasonal adjustment in June is a very big one. For example, without seasonally adjusted figures, we had an increase of 939,000 employed people from May to June. Almost a million employed people, before seasonal adjustment. After seasonal adjustment, that translated into a decline of 590,000 employed people.

LEHRER: Seasonal adjustment means you just -- you deduct for various factors.

Ms. FREEDMAN: You discount for the usual growth in employed teenagers and of teachers in June.

LEHRER: Now, tell me about the serious downside in this, which is in the manufacturing area. What are the manufacturing industries that are getting hurt the most, and why?

Ms. FREEDMAN: Steel. In the auto industry there's been a recovery, but now that is slowing down. Electrical products, machinery industries. Most of the metals-using industries are not doing well. And all the durable goods industries are experiencing tremendous competition from foreign products. Also they can't export at the levels they used to export, so in two ways --

LEHRER: That's because of the dollar problem.

Ms. FREEDMAN: That's right. In two ways they're affected by the strong dollar.

LEHRER: Now, you said that this is a sign that the economy is not doing very well right now. And yet earlier this week there were some good -- there was good news on the economy -- in housing and things like that. Why does employment seem to be out of whack with these other signs, or is it the other way around?

Ms. FREEDMAN: Well, employment is just not growing at the rate that it was in the past. That's -- it's not a turndown, it's not the first sign of a recession. We may get that next year, but not now. It's simply that it isn't growing at the rates that it's been, and what we're seeing is stagnation in the labor market. If we go into another recession, though, in 1987 -- '86, as we probably will -- I mean, we haven't licked the business cycle -- we might be going into a recession at the beginning with an unemployment rate of 7 . It would go up from there.

LEHRER: What do you think it's going to do next month? Are we going to have six months of 7.3? What does it look like in the immediate future?

Ms. FREEDMAN: I think it'll sit around -- somewhere between seven and seven and a half percent all year.

LEHRER: Now, why?

Ms. FREEDMAN: It's been really -- since last fall it's been moving between 7.5 and 7.1 percent, just moving around at that central figure. Why? Because we are not creating enough jobs to absorb the labor force.

LEHRER: You saw in the news summary, we ran a piece of tape from this group that's backed by organized labor that says even 7.3 is low, that it's really 13 or even higher. Do you agree with that?

Ms. FREEDMAN: No, I don't. I think that's not really an accurate picture. I think the accurate perception is that we have the stagnation in job creation, but not a downturn. The AFL-CIO statement implied a downturn, but I don't think that's correct. In fact, using their numbers you would see, with their kind of calculation of the unemployment rate -- I think they said it was about 13 -- that sort of calculation would have yielded about that level for the past year or more.

LEHRER: And you just think that isn't realistic?

Ms. FREEDMAN: No. And I don't think it would be correct to say we are seeing a jump in the unemployment rate. And that's what their statement this month implies. Actually putting their figures together you might say it's been about at that level for a year.

LEHRER: What about the other side, the man from the Chamber of Commerce, Mr. Rahn, said the answer -- the jobs are there, he says, that the answer is just to get the people who are unemployed to move to these areas where these jobs are. Is that the answer?

Ms. FREEDMAN: Well, he is playing on a fact, and that is that in some parts of the country the unemployment rate is very low. For example, in Stamford, Connecticut, it's about two or three percent. Other parts of the country, in Oregon, along the border with Mexico, it's in the double-digit levels. I think in Laredo, Texas, it's over 22 . So yes, there is a lot of variation in the unemployment rate. There are some labor markets where you can find a job. But if people don't live there, asking them to move there is a major investment, and they might not find a job even if they do move.

LEHRER: But isn't there a basic reality, going back to your first answer, that there just aren't enough jobs in the labor market for the number of people who need or want work?

Ms. FREEDMAN: Yes, there are not enough new jobs, growing industries, to absorb the number of people who are coming along now. That's right. That's why the unemployment rate, it's either not moving or may even begin to go up next year.

LEHRER: Is there anything -- you think it will go up next year?

Ms. FREEDMAN: I think so, yes. As we begin to see a decline. Right now the recovery has reached perhaps its peak. We may have reached the stagnation, and we may be looking toward a decline in 1986. And then unemployment would rise from where it is now; from about 7 it would begin to go up.

LEHRER: Up to what?

Ms. FREEDMAN: I don't know -- 8, 9 percent.

LEHRER: You think it might do that?

Ms. FREEDMAN: We have had in the past recoveries and recessions since 1969. In each peak year we have had a higher unemployment rate. We seem to have higher and higher structural unemployment.

LEHRER: Generally and finally, is the 7.3 today five months in a row something that worries you, as an economist looking at the economy of this country?

Ms. FREEDMAN: It worries me that we seem to be underinvesting in our labor force, and we're underusing our labor force. We are not as much of us productive American as we could be. I think this is a bad sign for the economy, yes, that's right.

LEHRER: Audrey Freedman, thank you very much. Judy?

WOODRUFF: As Ms. Freedman just suggested, whatever happens to the national unemployment rate, there are some pockets of the country that don't seem to be affected one way or another. One such place is Coos County, a lumber and fishing area along Oregon's southern coast. It's a place where unemployment has become a way of life. Marilyn Deutsch of Oregon Public Broadcasting reports.

JEFF MANLEY, social worker: We have here, and we have had for a long time and a very few people have talked about it, the real opportunity to be the next Appalachia. Appalachia, if you'll recall, has a lot of scenic beauty and a lotof hard-working folks and a lot of one-industry towns, and it has the poorest health, poorest education, the shortest lifespan of any area of the country. We have that potential here.

MARILYN DEUTSCH, Oregon Public Broadcasting [voice-over]: Coos County is not just close to home, it is home to more than 60,000 Oregonians. Over 15 of the people are unemployed. Former mill workers, former fishermen, former waitresses and former contruction workers -- people out of work looking for work, and tired of being without work.

RAY HOPPE, unemployed construction worker: So I tried -- you know, there's no fishing here for the fishermen, there's no more logs here for the loggers, and what else is here besides stores and fast-food restaurants? There's nothing here.

DEUTSCH [voice-over]: It has been almost three years since Ray Hoppe's had a steady job. Sometimes he and his wife, Mitzie, make only $150 a month. Most of that comes from what Mitzie earns washing clothes and doing housework. But even after all the dirty socks there's often not enough money to pay the rent. Home for the Hoppes is southeast Coos Bay, right above the railroad tracks. Residents call their neighborhood a slum.

MITZIE HOPPE, waitress: It's really humiliating as far as -- because I know that we both could do better. I mean, if we were just given the opportunity we could be right out there and one of the people that, you know, are making it.

DEUTSCH [voice-over]: Down here in Coos County the Hoppes have plenty of company. There are a lot of people not making it. Estimates are that between a quarter and a third of the residents are poor. That means that somewhere between 14,000 and 20,000 people fall below the government's poverty line, people who cannot make it month to month without welfare, food stamps, energy assistance, whatever's available. For the last five years Coos County has consistently had one of the highest unemployment rates in the state. But it wasn't always this way. During the post-World War II boom years, timber built Coos County. But in the last decade at least six mills have closed. Only three large mills are left, but even they are shipping out less wood than they used to. Here at Weyerhauser, the largest mill in the county, a third of the workforce is gone, and no one knows just how long the 850 remaining jobs will last. Prices for lumber keep dropping, and there's more competition now from Canada and the southern U.S. The tide has also turned for the county's number two industry, fishing. Some say what's responsible for the fishermen's plummeting income is simply a lack of fish. There was too much fishing in the past. But many fishermen blame their problems on Uncle Sam for restricting their fishing seasons. Whatever the reasons, the results are clear: bankruptcies and for-sale signs.

Fourteen hundred dollars is how much Frances and Mike Hague earned last year fishing. They sold their home; now they live on their fishing boat with two sons. Quarters are always cramped, sometimes cold. This the Hagues say is the price they pay for being fishermen, but another line of work is something they've ruled out, even if it means giving up a few frills.

MIKE HAGUE, sherman: We wouldn't mind going to Sizzler's and having dinner once a month or something like that. That'd be a luxury.

DEUTSCH [voice-over]: But luxuries and necessities may be getting harder to find. Just ask Coos County social worker Jeff Manley. He's been in the business of helping people here for almost a dozen years.

Mr. MANLEY: The restaurant over here closed the other day. The old tourist hotel up here was given away to an organization because the owners couldn't keep it open.

DEUTSCH: Some new business has moved into Coos County, but they've been few and they haven't made up for the jobs that have been lost. In the last two years, the county's gained just 10 jobs.

[voice-over] And even businesses that are going full speed ahead now may have a shaky future.

BOB MATTACHECK, local businessman: You know, you just have to keep going along from day to day the best you can. You can't -- I can't move the building. I can't take it with me to Portland or something.

DEUTSCH [voice-over]: Throughout the county, for-sale signs tell the story. One hundred fifty businesses just disappeared in two years. That's jobs and people. The country's lost more than 10 of its population since the beginning of the decade. What residents have set their sights on is this: the international port of Coos Bay. It's the one resource they think can bring in more money and jobs, and pull Coos County out of its five-year slump. But what's ahead is not certain.

CHUCK HOLBERT, Mayor, Coos Bay: To get back to where we were in 1975, the heyday of this port -- ve, 10 years, maybe longer. It's hard to say.

Mr. HOPPE: But hopefully this is the year I'll find a steady job and we'll get some bills caught up. But if not we'll survive another year.

Mrs. HOPPE: I hate to say that, because I don't want to -- I mean, I want to do more than survive. I'm tired of just surviving.

WOODRUFF: That report by Marilyn Deutsch of Oregon Public Broadcasting.

LEHRER: Still to come on the NewsHour tonight, what OPEC may do to combat the continuing drop in oil prices, and a full and frank report on the combat between the colas, Coca-Cola and Pepsi-Cola. OPEC: Prices Falling?

WOODRUFF: Our next focus tonight is OPEC and the meeting in Vienna of oil ministers from the 13 big oil-producing nations. Analysts are saying this meeting could be critical because oil prices have been falling, and the survival of the OPEC cartel could depend on whether its members decide to stick together in the face of pressures to cut prices and production still further. Here to sort all this out for us, including its effect on American consumers, is William Randol, vice president and senior petroleum analyst with First Boston Corporation, a New York investment firm.

Mr. Randol, first of all, did anything happen at today's session?

WILLIAM RANDOL: Well, the reports that I've gotten show that there was very little, if any, action taken. They didn't even have a consultative meeting. They're still thrashing around trying to reach some consensus. I spoke with a highly-placed Nigerian oil official 24 hour ago, and he indicated that this meeting would probably be quite lengthy, meaning three to four days minimum.

WOODRUFF: Why is this meeting so critical, so important?

Mr. RANDOL: Well, let me just summarize what's happened in the last two or three months that has caused the problem for OPEC. Demand for petroleum on a worldwide basis has continued to fall below anyone's expectations. Now, this is because of conservation, the substitution of other fuels, and also because of the rising non-OPEC production. And so OPEC being the marginal supplier for the free world, and despite the fact that they have lived within their 16-million-barrel ceiling, it's become painfully obvious that the ceiling is too high; they must reduce production further to tailor their output to what is being demanded in the free world.

WOODRUFF: You mean their ceiling is just too high for what the demand is?

Mr. RANDOL: Exactly. And that means they must reduce their production, and the nub of the problem is, they can't reduce their production any further for financial reasons, both individually and collectively.

WOODRUFF: Why has demand dropped as it has? You've mentioned a couple of the reasons.

Mr. RANDOL: Yeah, it's been falling for five out of the last six years because of the steady encroachment of non-OPEC supplies, the conservation, substitution of other fuels such as natural gas, coal, wood-burning stoves, nuclear energy and so forth. And OPEC, as I say, is the residual supplier to the world. Any oil supplies that are discovered in non-OPEC countries as a rule of thumb get produced to full capacity because of balance of payments and national security reasons in those countries. So OPEC has borne the whole brunt of it, and they've run out of room to reduce production any more.

WOODRUFF: And what's happened to prices over that period?

Mr. RANDOL: Well, prices have tumbled. Spot prices currently are about a dollar to a dollar and a half below official postings. If you look back at the history of OPEC prices, their first price cut ever in their then-22-year existence was in March of 1983, when they dropped the price by $5 from 34 to 29. Many people, including myself, believe that this was not only forced on OPEC by the market but also because of the wishes of two of the key members of OPEC, Saudi Arabia and Kuwait, who have very long-lived reserves and wanted to effect some stimulation and demand in a long-term sense. Since then the only other price cut has been in January of this year by a dollar a barrel.

WOODRUFF: What do you think is going to happen now? I mean, do you think something has got to happen at this meeting or not?

Mr. RANDOL: Well, yes and no. Something should happen, and their options are fairly simple. They can either cut production or they can cut the price or they can do both. But as Sheik Yamani, the Saudi oil minister, said in a recent interview with Petroleum Intelligence Weekly, if they cut the price a little bit it's sort of like being a little bit pregnant. You either keep the price where it is or it can fall in a very, very major way. And the reason is that as the price comes down one notch, it exacerbates the pressure on the producers to pump more volume to make up for the loss in unit revenue. And this is the thing that they all fear, the downward, uncontrolled spiral in prices. The lifting costs in the Middle East of a barrel of oil is maybe one or two dollars a barrel, and the official selling price is 28 right now.

WOODRUFF: Do you think they will agree either to cut production or cut prices or both, or what?

Mr. RANDOL: Well, let's put it this way. Going into the meeting there were one or two countries, mainly Gulf producers, in the Persian Gulf -- Saudi Arabia and Kuwait -- who wanted to lower the price of the heavy grade of oil by anywhere from 50 cents to a dollar and a half. There is a contingent of other producers in OPEC, mainly Nigeria, Algeria, Libya, Venezuela, Iran even, that is adamantly opposed to any cut in any crude prices, whether heavy or light. I think all of them are concerned about dropping the light crude price, because that is the official marker -- that's sort of the standard for oil prices around the world. And so I think they may be forced to do it at this juncture; then again they may not. Whether it happens at this meeting or not, it is going to happen, because the forces are there, and as I say, they've run out of room to reduce productionfor financial reasons.

WOODRUFF: And I was going to say, whichever way they go, what effect does that have on American consumers, the people who are waiting to buy gasoline?

Mr. RANDOL: It's a Christmas present in July. We think that the price will ratchet downward over the next 12 to 24 months into the low 20s, and I have no great conviction of what's going to stop it there. The problem is --

WOODRUFF: Twenties -- that's $20 a barrel.

Mr. RANDOL: Let's say 20 to 22 dollars a barrel. But I don't have a great deal of conviction it will stop there. It could fall into the teens.

WOODRUFF: And what would that translate into in terms of price per gallon in the States?

Mr. RANDOL: If it falls to 22, that's a $6 cut from the current level. That would be 14 a gallon to consumers of both heating oil and gasoline. If it fell to 18, that's 24. A big number relative to the current selling price.

WOODRUFF: And you think that that's likely to happen, whether they reach some kind of group agreement or not.

Mr. RANDOL: Yes, I do. But I think it will happen in stages. I see more of these mini-crises -- the frequencies of them seem to be getting shorter and shorter, and the swings in the spot market versus the official market seem to be getting more and more dramatic. I think the problems facing OPEC next year and in '87 could even be more profound because of some longer-term negatives that we've highlighted in some of our reports which I can go into with you if you want to. One of them could be a world recession, as the previous speaker was discussing, which would cause a shrinkage in oil demand, and of course OPEC would take the brunt of it.

WOODRUFF: Is this all a question of whether OPEC survives or not? Is that's what's at stake here, whether OPEC is with us or not?

Mr. RANDOL: Oh, I suspect OPEC will be with us in one way, shape or form for years to come. But there certainly is a degree of disarray and lack of unity now that has never been there in the past. One point I would like to make: the depressing thing from their standpoint is they can look forward to at least two or three years of these stagnant market conditions, because world consumption will only rise very modestly, let's say by half a percent a year, maybe 1 a year in the most wildly bullish forecasts, whereas non-OPEC supplies we can say with certainty will continue to rise through 1987 and 1988. And it's only in the post-'88 environment where OPEC starts to enjoy an expanding market again. So they're stuck with 16 million barrels a day of production maximum for the next two to three years, and there is no hope of any recovery in demand for their oil.

WOODRUFF: And what's bad news for them is good news for us, is what you're saying.

Mr. RANDOL: Absolutely. With one caveat: the international banking system, which worries me. That's outside my field of expertise, but there are large banks in New York and elsewhere that have extended massive amounts of funds to oil-producing countries, both within OPEC and outside of OPEC, such as Venezuela, Nigeria, Mexico, Indonesia, that are at serious risk if the price really plummets. Plus you have the regional banks in the Southwest that have loaned a lot of money to independent oil and gas producers that may not weather this storm.

WOODRUFF: I'm sure that's a subject we will look at on another day. William Randol, thank you for being with us.

Mr. RANDOL: It's a pleasure to be here. Cola Wars

LEHRER: A Friday night after the Fourth of July seems like a good night to do something a bit out of the ordinary for us. It's to tella story that takes 23 minutes to tell, a story about soda pop, a subject we wouldn't ordinarily spend that much time telling. But this one is different. It's Coke versus Pepsi in the battle for supremacy in the biggest soda-pop war of all time. The reporter is Terence McKenna of the CBC.

TERENCE McKENNA, CBC [voice-over]: There is a man inside this box being paid by the Coca-Cola Company. That, believe it or not, is the opening shot in the latest battle between Coke and Pepsi. It's high noon in Atlanta, Georgia, Coke headquarters. The company is providing Coke and circuses for the company town. The occasion is to launch the new taste of Coke. Everything is here to remind you what Coke is supposed to be: energetic and young, wholesome, but sexy. Certainly all-American. The decision to change the taste of Coke is a daring endeavor, but what happens if it doesn't work? That prospect has Coke executives a little edgy. Here they drag out all the hoopla, thinking that they're going to war against the arch-rival, Pepsi, but it turns out they've picked a fight in their own backyard with their best friends, heavy Coke drinkers, who are not at all happy with the new taste. Now, all that has got to be hard on the nerves for Roberto Goizueta, the Cuban-born Coke chairman responsible for the change. He's not giving any interviews here; he's not even giving a speech for fear of being hooted down by fanatic demonstrators who want him to go back to Cuba. It's the Coca-Cola USA president Brian Dyson who has to put on a brave face and confront the situation.

[interviewing] After 99 years, why?

BRIAN DYSON, Coca-Cola: If you can do something better, if you can offer something better to loyal consumers of yours for 99 years, you give me a reason why we should not do that. The one thing that you have to do is do your homework right. But we have done that absolutely.

McKENNA: What do you tell to the old Coke drinker who comes up to you and says, "I loved it the way it was"?

Mr. DYSON: We say try it, you're going to love it.

McKENNA [to protesters]: You don't like the new taste of Coke?

1st COKE DRINKER: I can't tell the difference between the new taste of Coke and the old taste of Pepsi.

McKENNA: Why are you upset about it?

1st COKE DRINKER: Because I'm 46 years old and I bought my first Coke with a nickel when I was five years old. I helped build this multinational corporation. My oldest daughter's 22. Her first word was "Coke." Her second word was "Mommy." We drink Coke, and I don't think it's fair or honest or honorable of them to do this.

McKENNA: You know what I hear from people who are attached to the old taste of Coke -- they say it tastes more like Pepsi.

Mr. DYSON: That's -- they -- the ones that have been interviewed in blind taste tests, they say this is in the character of Coca-Cola, only better, because the whole focus of the flavor scientists was going after a cleaner, fuller, more natural cola taste.

1st COKE DRINKER: Flat, watered-down Pepsi. We're forming a society for the preservation of the real thing. Try to get in touch with us, find us, and we'll help you.

McKENNA [voice-over]: Everyone here is getting free Coke today. The human bomb seems to like it well enough, but the elephants aren't so sure. And the citizens of Atlanta are split.

2nd COKE DRINKER: I can't say it is an improvement if it don't taste any worse.

3rd COKE DRINKER: It's sweeter and it's sharper, and it's better than the old and new Pepsi. I love it.

4th COKE DRINKER: It tastes like Coke except it's a lot sweeter. I would prefer it the way it used to be.

McKENNA [on camera]: The soft-drink business is a fad-driven, cutthroat war. For decades Coke has stayed on top by being cautious and conservative, sitting back on its secret formula, gently protecting its market lead. Lately, though, Pepsi is growing faster than Coke. The Pepsi Challenge is clearly hurting. And so Coke returns to its more aggressive marketing techniques, the ones on which its empire was built.

[voice-over] The roots of Coke go back to the end of the Civil War, which brought total disaster to the American South. As the Confederate Army was destroyed, the city of Atlanta was burned to the ground. In the aftermath, melancholia, depression and alcoholism were rampant. The antidote to this misery was offered by legions of snake-oil salesmen, the traveling hucksters of potions and tonics to cure any ailment. One of them was John L. Pemberton, a former Confederate officer and druggist. In 1886, in a brass kettle in his backyard, Pemberton cooked up a pleasant-tasting potion that was good for what ails ya. It was marketed as the ideal brain tonic, Coca-Cola. Coke was first sold exclusively as a medicinal syrup until an Atlanta drugstore owner by chance combined it with soda water and discovered a popular soft drink. Just as Coke took off, though, Pemberton's health and fortunes declined. He died destitute right after he sold out to another druggist, Asa Candler.

Religious revivalism was sweeping the American South, and the Candler family was also running the Southern Methodist Church. So the Coca-Cola Company was married to the values of church, temperance and prohibition. Cola historian Jay C. Louis.

JAY LOUIS, author: Coca-Cola was in search of new consumers. The church was in search of new converts. The church's marketing strategy was preaching purity through cleanliness and sobriety. Coca-Cola was appealing to exactly those two factors.

McKENNA [voice-over]: Candler was the first to market Coke with mass advertising, he was the first to bottle it, and he was the first to change its formula: to eliminate cocaine traces, improve the taste and increase the shelf life. Coca-Cola spawned legions of imitators, but only that hung on. It was also created by a druggist, Caleb Brabham, and it was also a medicinal syrup, this one to treat stomach ulcers and dyspepsia -- and so it was called Pepsi-Cola. For years it operated out of the back room of Brabham's drugstore in North Carolina.

Mr. LOUIS: It was much more of a street-corner, a drugstore type of product. It didn't have the backing, it didn't have the financial clout. It was essentially a neighborhood product, a Ma and Pa store product, and that was a reputation that would follow it for many years to come.

McKENNA [voice-over]: War has never been good for Pepsi. Take World War I. The price of sugar skyrocketed. Pepsi invested heavily just before the sugar price crashed. Then came sugar rationing, another disaster because Pepsi tried to substitute molasses for sugar in their drink. Longtime Pepsi chairman Donald Kendall.

DONALD KENDALL, Pepsico: And as long as the product was consumed reasonably soon, why, they were all right. But they put this out in distribution and it started getting into basements, where it wasn't used immediately, and put in storage, and all of a sudden they started exploding. They had explosions all over in Norfolk, Virginia, and Charlottesville, and these franchises and the bottlers all of a sudden were broke because they had lawsuits. People got hurt, and so the company really went out of business.

McKENNA [voice-over]: In the '20s Coca-Cola entered its golden age under a new owner, Robert Woodruff, who represented northern banking interests. Woodruff wanted posters on every street corner in America, and Coke in every store and home -- business principles lauded today even by Pepsi International president Robert Beeby.

ROBERT BEEBY, Pepsi-Cola International: The amount of cola consumed is directly related to the amount on hand, and that's why Woodruff, who was the big driving force behind Coke, said I want to put a Coke within arm's reach of everybody. That sounded like a kind of a silly statement, but it was very important. Very important. And Coke has followed that, and we follow it too.

McKENNA [voice-over]: In 1931 Coke invented the modern image of Santa Claus, transforming the many legends of elves, Father Christmas and Saint Nicholas into the big jolly man in the white beard and Coca-Cola colors. In the '30s Pepsi once again became a threat, rebuilt by a new owner who lucked into the concept of selling it in big bottles because he couldn't find small bottles like Coke.

Mr. KENDALL: He got beer bottles. They happened to be 12-ounce because he couldn't afford to buy the others, and that was a big marketing genius who people gave credit for being a packaging genius, and actually it was only when he was buying beer bottles at one cent and putting out a two-cent a piece deposit, making money on the bottles.

McKENNA: That kind of put Pepsi in the ballgame, the 12 full ounces.

Mr. KENDALL: That was 12 full ounces, twice as much for a nickel too. And that of course is what got us started.

McKENNA [voice-over]: In 1939, Pepsi invented the musical jingle and the filmed commercial. Both were wildly popular. Coke tried to stop Pepsi's momentum by suing them in a Canadian court for using the word "cola." For the first time, Coke lost a legal trademark fight. Everything was going right for Pepsi, but then another war brought another disaster. Within days of America's entry into World War II, the Coca-Cola Company pledged to get a Coke to any G.I. who wanted one anywhere in the world. Coke used its political connections and was declared a war priority item, meaning that it was moved to the front alongside food and ammunition by commissioned company men called Coca-Cola colonels. When the U.S. Army invaded Europe and the Far East, they brought their own Coke bottling plants ashore with them.

Mr. LOUIS: When World War II ended there were 64 bottling plants built at government expense all around the world, and Coca-Cola as a result became a global empire built at government expense.

McKENNA [voice-over]: Through its government connections, Coke escaped the wartime sugar rationing which once again brought Pepsi to its knees. When war ended, Coke came home a hero, but sugar rationing continued and so did Pepsi's problems.

Mr. LOUIS: Pepsi had to get its sugar delivered from Cuba during that period. That was the only way that they could get around the government sugar rationing, and there were the shipments in the dead of night and the rest of it. But that became a very serious problem for Pepsi-Cola, and one of their principal motives right after World War II for seeking the political alliances that became a hallmark of Coke and Pepsi politics really from that day to this.

McKENNA [voice-over]: Pepsi's first serious political alliance was with the anti-Communist Senator Joseph McCarthy, who accepted a $20,000 payoff from a Pepsi lobbyist and helped the company end sugar rationing. But in the decades that followed the Second World War it was Coke that maintained an easy alliance with the White House. John Kennedy and Lyndon Johnson tried to bring the Coke organization into the Democratic Party, while Pepsi invested its fortunes with a Republican, Richard Nixon. The relationship began in 1959, when then Vice President Nixon visited an American trade fair in Moscow. It was the scene of the famous kitchen debate where Mr. Nixon brought Soviet Premier Nikita Khrushchev over to the Pepsi booth, a publicity stunt arranged by Pepsi executive Donald Kendall.

Mr. KENDALL: At that time our campaign was "Be sociable. have a Pepsi," and I got Khrushchev drinking Pepsi with Nixon. The headlines around the world were "Khrushchev learns to be sociable."

McKENNA: Did Richard Nixon help you get into the Soviet Union?

Mr. KENDALL: Nixon was a very good friend of mine, but he doesn't have anything to do with selling soft drinks.

McKENNA [voice-over]: That's not entirely true. In the '60s Donald Kendall hired Richard Nixon as a corporate lawyer and international ambassador for Pepsi. Nixon toured the world meeting foreign leaders and preparing a political comeback, all at Pepsi's expense. When Mr. Nixon won the White House in 1968 he wasn't about to forget his friends. Donald Kendall was sent on an American trade mission to Moscow, and Pepsi won a lucrative contract to become the first consumer product allowed in the USSR.

Temporarily shut out of the White House, Coke turned to Jimmy Carter. He had grown up in Coke's backyard, even standing around on Coke bottles to cure his flat feet. When Jimmy Carter launched his long campaign for the presidency, Coke provided the money and organization, at home and abroad.

Mr. LOUIS: He was flying around on Coca-Cola jets, he was using Coca-Cola's advertising agency, and he even made a remark once to a reporter that he didn't need the State Department to expand his influence, he had the Coca-Cola Company.

McKENNA [voice-over]: The week Jimmy Carter moved into the White House, he ordered Nixon's Pepsi machines out and installed Coke machines. Just as Pepsi moved into the Soviet Union under Nixon, Coke used its Carter connections to take China. And so it has gone all over the world. Today India and Africa are the hot spots in these cola territorial battles. Local soft drinks are crushed by the preference for American beverages.

Mr. BEEBY: That's why in every country in the world cola dominates, and Pepsi and Coke are there. We have a messianic complex, and we, you know, we feel that we have to plant our flag everywhere even before the Christians arrive, you know. And you'll find us in markets in the remotest places, you know, of civilization. And you have to ask yourself why? I mean, no one could make money here. And we don't. But we're selling Pepsi. And someday that's going to be a big market.

McKENNA [voice-over]: TV advertising. It's the decisive factor in the Coke-Pepsi competition. A few years ago this famous Mean Joe Greene ad sent America's little boys crashing to the refrigerator to guzzle Coke. And so it was reformulated for Argentina, and for Thailand, and for Brazil.

The '50s. Coke's early TV ads featured endorsements from celebrities like Eddie Fisher.

[Coke commercial with Eddie Fisher]

McKENNA [voice-over]: Things changed a lot in the '60s and '70s. The Coke account was in the hands of a songwriter and advertising genius. Bill Backer has a theory about how soft-drink advertising should respond to the mood of the market. In the '60s he thought things were going great for America.

[William Backer singing "Things Go Better with Coke"]

WILLIAM BACKER, advertising executive: And then I guess the next that came along was%%%

[William Backer singing "It's the Real Thing"]

McKENNA [voice-over]: In the '70s, when TV news was dominated by the Vietnam War, demonstrations and riots, Bill Backer wrote a soothing commercial that became a smash hit song.

[William Backer singing "Perfect Harmony"]

McKENNA [voice-over]: Six years ago Bill Backer walked away from the Coke account and he's not impressed with the changes in Coke advertising since.

Mr. BACKER: I think Pepsi advertising today is much more like Coca-Cola advertising was 10 years ago. They've gone out to buy the top singers. At the time that I was working on Coca-Cola we had all the big-name singers. So you could hardly -- except for the Beatles, and we were actually talking with their manager just before he committed suicide. But the rest of them that we wanted we really had them all singing about Coca-Cola, and today Pepsi's doing that and they're singing about lifestyle, as we were, and Coke is much more hard edged.

McKENNA [voice-over]: Lionel Ritchie is Pepsi's latest pop singer, while Coke has been relying on frenetic no-name singers and dancers.

FAITH POPCORN, marketing analyst: The problem as I see it is that Pepsi has captured a young, hip positioning that Coke by nature of its corporate culture is not really able to understand yet, and that's why Pepsi is succeeding, because it's talking the language of the market.

McKENNA: I see Coke commercials, the sort of "Coke is it" commercials, where there's young people singing, dancing, jumping around. Isn't that Coke doing what it has to do?

Ms. POPCORN: Well, have you noticed young people behaving that way? That's my answer to that. If you know about the Michael Jackson commercial, everybody emulates Michael -- all the young people emulate Michael Jackson in this country. And it must be every young boy's fantasy to turn around and see Michael Jackson. I mean, how wonderful.

[Michael Jackson Pepsi commercial]

McKENNA [voice-over]: But for years Pepsi's most successful ad campaign and market strategy has been the Pepsi challenge, a genuine taste test against Coke. When the challenge was running in North America, Pepsi surged. The challenge was born in the Dallas-Fort Worth market, and Coke tried to stop it right there with Texas bombast.

[Coke commercial]

McKENNA [voice-over]: But Coke couldn't stop the Pepsi challenge. A sweeter drink like Pepsi is generally preferred on first taste. Now the challenge is running overseas and hurting Coke more. Pepsi says the challenge caused Coke's flavor change.

Mr. BEEBY: I really believe that they felt that they had to do something about the fact that they had a product that wasn't preferred to Pepsi. I really think that they just couldn't resist that thought any longer. It just gnawed at them too long. And then they changed the formula and announced it.

McKENNA [voice-over]: The news came from Bill Cosby.

BILL COSBY [Coke commercial]: The words I'm about to say will change the course of history. Here they are. Coca-Cola has a new taste and it is the best-tasting Coca-Cola ever. You like Coke the way it is? Well, me too, always did. I like this better. To me it's more refreshing, more thirst-quenching, more satisfying. You're a Pepsi drinker? Ah-ha. Well, maybe that'll be history too.

McKENNA: For the folks here at Pepsi headquarters, a changed Coke formula could mean the big mistake they've been waiting for, their opportunity of a lifetime, or it could mean disaster. Coke could seize the initiative, the momentum, and wipe out recent Pepsi gains. The Pepsi executives here were forced into a quick decision about their crucial early response. The news hit them as a complete surprise, and so they decided to declare victory.

Mr. BEEBY: It was a declaration that Pepsi is the gold standard and we declared a holiday for our employees, which just sort of exemplified I think our feeling of, you know, we've won.

Mr. KENDALL: We've made formula changes over the years, but we were very quiet about it and did it very gradually and didn't change our heavy user. And I think that's where they have the danger, and only time will tell.

McKENNA: You would not have announced it if you were changing Pepsi in the same way?

Mr. KENDALL: I certainly would not. I'd have better sense than to do that.

McKENNA: Why, what is the downside?

Mr. KENDALL: The downside is that what you do in effect is challenge your heavy user and tell him that the drink he thought was the best is no longer the best, that they've had to improve it.

McKENNA [voice-over]: Coke's attempts to reassure heavy users seemed contradictory. It's new, but it's old.

SERGIO ZYMAN, Coca-Cola marketing: Well, it really is not a new elixir. It is Coca-Cola, only better. It really is Coca-Cola, only better.

McKENNA: What's all the fuss? You know, this little glass of carbonated sparkling sugar water. What is all the fuss about this cola-war business?

Mr. BEEBY: There are of course big dollars at stake here. When you talk about soft-drink consumption, the United States and Canada are so far out ahead of the rest of the world, you know, that these marketing numbers are really big. We talk 600 bottles per cap. I mean, that's every man, woman and child, you know, in a year -- 600 bottles. I mean, that's a lot, you know, of anything.

LEHRER: And there is a news update. NASA announced this week that the next shuttle flight will carry experimental soft-drink cans developed by both Coke and Pepsi. Coke has protested, charging NASA with reneging on an earlier promise that Coke alone would be the first soft drink in space. NASA denied any reneging, and reaffirmed the decision to include Pepsi. Judy?

WOODRUFF: And now for a last look at today's top stories. The jobless rate remained stuck at 7.3 for the fifth month in a row. Firefighters on the West Coast got a little help from the weather as cooler temperatures helped to slow down the spreading blazes. Recovery experts think they've located the black box flight recorder from that Air India jumbo jet that crashed in the Atlantic Ocean last week. OPEC oil ministers met in Vienna to get a grip on falling prices, and the Lebanese government made diplomatic moves to try to get the U.S. to reconsider its effort to close off the Beirut Airport.

Good night, Jim.

LEHRER: Good night, Judy. Have a nice weekend. We'll see you on Monday night. I'm Jim Lehrer. Thank you and good night.