The future of; 21; American Business

From WMUR in Washington D.C. the future of another in a series of discussions of alternative futures. Your moderator is Joe coach of the world future society. Mr. Coates the subject of this evening's discussion is the future of American business. We have with us Carl Madden chief economist of the Chamber of Commerce of the United States and also a director of the world future society. I suppose that American business is under the gun for him for many quarters perhaps the war and pollution being the dominant current wave of criticism marking its alleged to a real social irresponsibility. How is business standing up under the fire. Well actually a business I think is more responsive to. Public opinion than it has ever been because there has been a very definite generation dritte jump in management of business. For one thing and for and for another thing

business is recognised more today than ever before. That they do have certain social responsibilities. You mean in spite of the classic picture of the board of directors is that business is really a young man's game. Yes as a matter of fact if you look at men like Lee Iacocca who just assumed the presidency of Ford Motor Company at forty six and the fact that IBM has no line officers who are over 50 at the vice president level and such things as you find that the business community is run at the top by vigorous young men on the average Well what do you what do you see. If we can do a brief stocktaking of American business what's the status of American business today. Well in terms of its success I think it's the most successful form of productive organization in the history of mankind. I through

the Organization of American business the United States with 6 percent of the world's population and 7 percent of its land area produces about 33 percent of the goods and services in the world uses about 40 percent of the world's resources has a median family income of about $10000 a year. Twenty nine hundred dollars in real terms since 1960. Some critics you realize would label all that greed with a capital G. American rapacity but we'll come back to that. Well as a matter of fact there is there is some merit in the view that as we get more affluent we need to consider many more choices as to how to use our resources. However I think some of the people who are concerned about. Economic growth are confusing the use of material resources with the growth in the value of the output of a country I could see how

the United States could still dominate the growth and value of output while getting more and more efficient in the use of resources and using fewer resources or using the resources we use better sort of have your cake and eat it may be a future possibility. But let's go on with the stocktaking we can come back to the social criticism Yeah. Well business is of course. Now extending its activities very significantly into international operations the so-called multinational corporation which is a corporation operating in several different countries is a new phenomenon in the world such as Standard Oil shell and IBM and Caterpillar and Ford and such things as this. This is the essential difference between these corporations and the earlier international corporations is that we now have the communications and management techniques whereby the world as a whole can be

considered as the unit in which resources are used rationally. In the 19th century it was the nation as a whole after the railroads were built which we could use as the unit in which resources were allocated with some rational. Calculation now it's the world and it is this advance in the rational allocation of resources that is a significant aspect of the multinational corporation which by the way is the most rapid growing type of economic activity in the post-war world. The sales of these corporations has have been growing since 19 around 1950 at a 10 percent rate. Compound per year an amount to two hundred billion dollars a year now that's the third largest economy in the world. When you say 200 billion perhaps give that some perspective what's the total GWP growth product.

Right. We can only estimate this with extreme crudeness but something around 3000 billion dollars of which the United States produces one thousand billion dollars. And if you add the sales of U.S. based multinational corporations to the sales of such corporations based elsewhere in the world you come to one sixth of this total of 3000 billion dollars about 500 billion dollars worth of output is now produced by multinational corporations. American American and foreign based Yes. Well what what else is there in this stock taking the status of American business that we ought to know. I think another important fact to note about the success of American business is its its ability to respond to change the market mechanism. Whatever one thinks about it ideologically is in a operational sense the most responsive instrument mankind has invented to reflect changes in taste and changes in technology and the

business corporation whether it likes it or not has got to respond to change in a market setting or go out of business. But the business itself drives this change doesn't it through the use of such things as heavy advertising. Doesn't something like a third or more of the soap dollar go for advertising. My machine is feeding the machine. Yes to some extent although I think that when people change their opinions about products businesses respond to these changes very rapidly and the case of detergents businesses responded very rapidly to changes in the attitude of people towards non degradable detergents and then set about producing detergents at degradable. It's interesting I think that you've chosen and presumably very calculatedly to use the word public attitude because it was quite clear to the cognizant he at least 10 to 12 years ago

that there was a by a Great Evil detergent problem and it was certainly well known in the industry. And yet the industry blithely went on its way manufacturing its hard detergents. Exercising what some would call little or no social responsibility and in fact isn't this responsiveness of the corporation in a social sense shallow because it only responds to the overt pressures rather than the intrinsic need. Well I think this depends on what your perspective is as to social responsibility. I think a very strong argument can be made that the first responsibility of business in this society is to produce the basic wants of the society and are our business corporations have been very successful in doing this and it's only after these WANT TO satisfied relatively speaking that people then began to seek additions to quality also such things as. The advance of science I think have a

great deal of influence on one's perspective towards business. Before 1914 for example the vitamin was not discovered and so whether a business which produced bread had sufficient vitamins in the bread was a moot question nobody knew the difference. Similarly the ecology business. Surely a highly educated person knew about ecology 50 years ago but it was a long time getting through to the public and a long time for us to realize the implications of mercury poisoning and the little modern such things as this. And I think that in the time span of mankind's evolution on the earth and recorded history that American business has been very responsive historically to the perception of the public as to what it wants. On the other hand I think one could argue that it's only cried uncle when its arm has been twisted that it's only given in under extreme pressure.

I think that the businessman has a problem that few people recognize here. It's a problem represented by the difference between surveys and action. If one asks people whether they what programmes they watch on television they always respond to symphony programmes and cultural programmes but if you actually check their sets they're watching Laugh-In the businessman has to has to test the question of what people really will do and what they will really want not what they say they want. Sure and I suppose that raises a fundamental issue in a in a democratic or any other society for that matter. The difference between intrinsic and expressed needs. Right. And perhaps we can come back to that in discussing business regulation. But in your stocktaking you've been hitting Cheavens in the strengths of American business. Are there any other things you'd like to add to that.

Well I think the business cooperation historically in the United States has been open to the talents of different people and has been open to the advents of knowledge as to how to manage resources more responsive in any other organization of its kind. Now that we know about I think that's the message of Servan-Schreiber who talks about the American challenge and surprisingly to us Americans. The challenge Shriver sees is that we have superior management methods and marketing methods not so much that we have superior technology much of the technology was European developed and European invented but it has been the American corporation which has applied this technology to satisfy people's wants more responsively than European corporations because of our very wide market because of. Our relative equality of opportunity compared with most existing countries and because we have had a new marketing and

management methods very rapidly applied in American business which have not been applied so rapidly in European businesses. This is where I was analysis Karl. But I have a prescription. Presumably it wasn't just an analysis of American success. Well his prescription was that the Europeans should adapt to American methods and keep Americans from using European money as they had been doing to organize American industry in Europe. The euro dollar market which is developed entirely in the last 15 years is essentially a device by which American management methods have been applied in Europe to use European capital the Europeans couldn't use themselves in order to invade the European market with American methods. Do we affectively bring back the prophets to the United States. Well we yes three yes effectively is an important word there and we bring them back not only in financial terms but our trade is at its

highest with other capital intensive industrial nations and in that sense we get a real transfer of resources from the United States to Europe we we swap capital goods with Europe a sophisticated capital goods and also durable goods such as cars. As a result of our invasion of their market and their invasion of ours so that's great for a balance of trade. But when it comes to dealing with corporate profits do they tend to drift back to the United States or do they through the corporate profits by some mechanism staying here. It's I can't answer that question in numerical terms but obviously if if European operations of American corporations continue to expand then to that extent the profits are plowed back in Europe and that has that has been the case as I gave example by mentioning the sales of these multinational corporations growing so rapidly.

So if the situation suddenly became static or became static then the surplus capital would flow back to the United States's distributable income to the extent that European governments would permit this to happen. Yes well that must make for a very interesting gamble on the part of the multinational corporation. Well you were talking though about the openness of the organization. I'm not quite sure I know what that means. Well if you look at the history of American corporations you find that we went from the owner manager in the early after the Civil War to the professional manager and then to the elaboration and central staffs of economists financial experts accountants marketing experts production experts and then psychologists and medical doctors and other ancillary personnel and so the corporation which operates in a gleaming factory like IBM today with a research laboratory which looks like a university

has it has employed all sorts of talents to produce its products which the captain of industry in the 19th century would have dreamed of as being an appropriate cost for business operation. Well these all seem to be on the by and large favorable factors optimistic factors in the horizons of American business. Let's turn to if you will some of the factors or considerations that may be driving toward quite substantial change and new patterns. For example one hears very much about the the winning distinction between the public and the private sector. The fact that utilities railroads and so forth are essentially so regulated as to only enjoyed by courtesy. The notion of being a free enterprise operator. Well there is some body of opinion which holds that such utility as a railroad should be nationalized for example. However if

one looks at the National as industries of Europe in Japan the railroads of Europe and Japan he finds that nationalization has provided these industries with and with an entrée an open door to the general treasury of the government and that they run their trains Well yes but they also run fairly sizeable deficits. Furthermore they have problems with labor unions which private management. It doesn't have in the same sense that is that the labor unions are now bargaining in such nationalized industries with the government itself and since they constitute an important political bloc It may be that the consumer takes the rap for the bargaining of the labor unions with the government. A second point here is that there is another school of thought and I think a fairly powerful school which holds that the old fashioned notion of public utilities as

applied to railroads and communications is obsolete. The railroads are in a competitive industry namely the transportation industry and they have parallel roadways and it certainly has an airway not to mention all those others that are going by the board. Well that's quite right and some of the some of the work practices in the railroad industry are simply appalling. We still operate the labor unions according to a 100 mile day. And so the crew has to be changed every hundred miles. Furthermore as the Congress just demonstrated if you run a lemonade stand in which the Congress of the United States sets the price of your lemonade and then bargains with a labor union and raises the wages of the labor unions but tells you you can't raise the price of lemonade you can't run a very good private competitive industry. And that's the problem the railroads face. Well. Do you see this movement toward blurring the pro public private sector is likely to continue and move outside the

traditional utilities for example into the automobile industry into the steel industry into aluminum and so forth. Mine's another area that's in trouble. I think that there is a body of opinion that holds this view but I am a somewhat skeptical of it. You don't think the movement will occur. I don't think that movement will occur. I think that in those countries in which as as a sort of a cosmetic at the under developed countries there is a steel industry and an airline industry for purposes of prestige that these industries have been very unsuccessful. And I I think further that. These basic industries are facing increasing competition and are less and less like public utilities. Plastic substitute for stdio pre-stressed concrete substitutes for steel and the steel industry is in a sense in a vastly more competitive market today than it was 50 years ago.

Well if we don't if you don't see the need for nationalization. If you will as a as a more widespread phenomenon do you see that there will be a growth of regulation as an alternative to meeting public needs. Or do you see that competition will effectively deal with the regulatory issues at the present form of regulation in many industries which was developed in the late 19th century in the early 20th century has led to what might be called government cartels. That is to say the government regulatory body has tended to keep the price of the product high and look on the industry as it was when they Regulatory Commission got started because this is written into law and the law is interpreted and the law isn't changed. I rather think our concepts of regulation are more and more obsolete and that we face a decade in which we revise our regulatory attitudes to conform to existing technological and economic fact.

You mean in overall or less regulation or do you see it assuming a new form. I would say overall less regulation of the sort represented by the regulatory commission. There may be more influence on business through government policy which sets social priorities and creates markets for certain types of business and tends to dampen markets for others for example the aerospace industry is very much a creature of the government and in many ways it is quayside government industry and that industry is in considerable trouble now as a result of the cuts in aerospace and defense and on the other hand the government is pressing for more housing and more urban building of all sorts and may well create markets for such a building to occur. To that extent I think the government may influence business more than it did in the days of laissez faire but not through regulation it's a quite in direct regulation the right.

Well let's turn to the to the antisocial aspects of big and small business. How do you see the corporation for the large businesses capable of dealing with such problems as pollution the manufacturing of antisocial devices like automobiles the lack of care and attention in the production of presumably benign things like toys and household items and window glass. How can you deal with the antisocial facts and charges. Well I think that the general public is is not too well informed on this question. The market system is a very very efficient way to allocate resources and it is a game and it has rules and I think that it's vastly more efficient for the consumer and for the American public. If the rules of this game are changed but the participants are left to continue to compete in this game then if the public attempts

to takeover or attempts to. Tax certain undesired effects for example in the case of pollution. If one could build into the price of a product the cost of pollution abatement or the avoidance of pollution then you and I as we bought goods and services could make our own choices about what we wanted and paying for the goods we could. That we could pay the pollution costs. It may well be the TV cast sets for example with supplant newspapers. If newspapers had to if you if when you bought a newspaper you paid for the pollution involved in the manufacturing process and you paid for similar pollution in the TV cast that you'd have a better way of deciding which you wanted. But we're only going to get that kind of pricing in there we need regulation not so much by regulation as by changes in laws which define profits which define productivity which define costs which define depreciation for example. One way to solve the problem of pollution

abatement for an industry like steel is to consider pollution abatement investment as a cost of doing business which is written off by the business and included in the price of the product along with other costs then people buying steel would buy the pollution abatement. And if so if the demand for steel dropped as a result of this relative to plastics that could be an adjustment of which there are millions like it that occur all the time without any need for government action. How do you deal with a problem. Let's say by this mechanism of the aluminum or the plastic container which is manufactured in the problem doesn't arise in its manufacture but in this disposal by simply paying a premium to people to return the cans and recycling the cans by regulation those know Reynolds Aluminum has a program of this sort that it has established throughout the country and it is working very effectively. The cynic argue that that's public relations fluff.

No no no this is young boys getting 2 cents or 3 cents or a nickel for so many cans and that's an incentive for the young kids to go out and collect the can I appreciate that sure it's an incentive for the kids but the question is what's the incentive for Alcoa. Are they running scared is it public relations or is there really some hard business decision which says it's worthwhile that Boy Scouts collect aluminum cans. It is a hard business decision namely that aluminum is sufficiently valuable so that you can pay people to return it to you and use it again. That's exactly what the decision is. And that might drive bottles and steal kids. Yes but you can be sure that the research departments of all the aluminum companies and the glass companies and others are working furiously to develop products which don't require that kind of treatment. We don't and they're doing it without the government. Regulation or intervention because it's going to be profitable to them to do this. Don't you see the growing consumerism movement the direct intrusion of consumer and public interest on boards and so forth as being an

alternative to the simple operation of the market. I certainly think that if the if the rules of the game are changed for businesses that they can surmount the problem of the environment of the problem of pollution I think it would be a great mistake to confuse the objective of the business by introducing the requirement that it meet social obligations without regard to whether it's making a profit the most. The most important social contribution a business can make of its product is safe and understood and and useful is to make a profit with that product and to meet people's needs with the product. So I'm very much. I'm very skeptical of the wisdom of mixing on a board of directors. The achievement of social responsibility is of some vague sort which can't be measured with the achievement of. Prophet which is after all a prophet is a device whatever the motive of the

profit maker it is it as a social device by which consumers tell producers which products they want and which products they don't want but presumably the people on the board reflect the will of the owners. So if public interest groups got onto boards they would in fact represent some portion of the owners of that corporation. Not necessarily the proposals that I've seen advocate putting public members on the on the boards of corporations who have no stock ownership or stock interest and who are you know jek to the mechanism in which they were voted the stockholders. No I think if stockholders wish to put public members on the board it's their business. Well we've apparently had the implicit assumption that we've been talking about big business. What do you see in relation to big business. Is the future of small business in the United States. Well I see a very rosy future for small businesses. Here again I think there's a lot of misunderstanding if you look at the facts of postwar history

been a vigorous growth of small business but not in the mom and pop store not in the traditional small business that we normally identify rather hamburgers in the franchised hamburger stand and all sorts of other things the motel the travel agency the economic consulting firm. This systems development corporation a host of highly sophisticated businesses that it was hardly just small businesses though in the mom and pop store said how do you get into these new businesses if you already don't have a pool. A quite substantial pool of capital. Aren't we for the future seeing the very small entrepreneur cut off from going into business. Not at all no not at all. We're now we're seeing the very small inefficient entrepreneur competed out of existence and you don't you're not going to see any one man steel industries. But you are going to see McDonald's. Yes. Well Carl Madden thank you very much for a very

stimulating defense of the future of American business. This is been another in a series of discussions presented by the world future society. Those of you who are interested in learning more about the society are invited to write for a free copy of our journal The Futurist. You may write to me Joe coats in care of this station or to the world future society. Post Office Box 1 9 2 8 5. Post Office Box 1 9 2 8 5 Twentieth Street Station Washington DC 2 0 0 0 3 6. This is the national educational radio network.