How to propel US industry into 21st century
A tidal wave of adjustment is beginning to engulf some of the great basic industries of the United States as a growing number of other nations snatch competitive advantage away.
Nowhere is this more clearly seen than in the US auto and steel industries, both of which are closing plants and idling hundreds of thousands of workers in the face of foreign competition.
A Japanese factory puts a small, fuel-efficient car into a US showroom for hundreds of dollars less money -- despite transport costs and import duty -- than Detroit can build an equivalent model.
It costs the Japanese $1,200 to $1,700 less to produce a car, says Robert W. Crandall of the Brookings Institution. ''Add $300 or $400 (to Japanese costs) for transport, plus $200 for the US import duty, and the Japanese cost advantage still is great.''
A Japanese steel mill, according to figures worked up by Paine Webber Mitchell Hutchins Inc., puts a price tag of about $442 on a ton of steel, compared with $565 for an American mill.
Japanese workers earn a lot less than their American counterparts. But Mr. Crandall looks at the wage differential question more broadly.
Wages in US steel plants, he notes, ''are 70 to 75 percent above the average manufacturing wage in the United States. In autos, the differential is 60 to 65 percent.''
Over the years Americans in these key industries, backed by powerful and militant unions, made themselves kings of the blue-collar mountain -- and priced themselves out of jobs.
The cost of materials also figures in. ''A ton of cold rolled steel costs at least $100 more in the US than in Japan,'' says the Brookings economist. ''About a ton of steel is used in a car. That makes a $100 differential right there.''
Although they share the general problems of high wages and competitive loss, the US auto and steel industries came to their present situations by somewhat different routes.
Steel has what Crandall calls ''an enormous amount of sunk costs'' -- money tied up in obsolescent integrated steel plants, which cannot be moved. No new integrated steel plant has been built in the US since 1962, he says, while ''Japan has doubled and redoubled its capacity.''
Taiwan, South Korea, and Mexico -- to name a few rapidly advancing developing countries -- now boast more modern steel plants than those operating in the United States.
Meanwhile, world demand for steel stagnates, thrusting the European steel industry into deep trouble and forcing Japan to idle much of its capacity.
Assuming world demand picks up, Crandall sees hope for US steelmaking, ''if there is a breakthrough in using electric furnaces.'' These units, utilizing steel scrap (automobile hulks and the like), are much smaller and, in today's technology, more efficient than old-fashioned, sprawling integrated plants.
Protecting the American steel industry through import barriers does not, in Crandall's view, solve the problem.
''Imports of almost all products fabricated from steel,'' he said, ''have been increasing faster than steel imports themselves. So the more you protect steel and keep US steel prices artificially high, the more you increase imports of steel-fabricated products -- raising cries for protection from other industries.''
Basic costs of US carmakers are not ''sunk'' as deeply as in the steel industry, says Crandall, partly because the average life of an automobile factory -- built to accommodate frequent model changes -- is seven years, half that of a steel plant.
The future of both industries, many specialists agree, includes a whittling down of the work force. This would mean more automation of car assembly lines and, in the case of steel, a shrunken industry clustered in smaller, more modern plants.
US automakers could, and to some extent do, lessen their costs by ''outsourcing'' -- bringing parts made overseas to the United States for assembly.
In its recent contract with Ford Motor Company, the United Automobile Workers tried to prevent a mushrooming of this trend by pledging to reduce labor costs through deferral or rollback of wage and benefit gains.
Another possibility is for US and Japanese firms to join in producing small cars in US plants, with the Japanese perhaps designing the cars and American workers building them.
Toyota and General Motors, respectively the largest carmakers in Japan and the US, have started exploratory talks on joint production, according to wire service reports out of Tokyo. Earlier talks between Toyota and Ford broke down.
Steel and autos provide dramatic evidence that large segments of the giant US economy are aging. They are losing their comparative advantage of past decades to surging industries in ''young'' industrial powers, which base their growth partly on cheaper labor, partly on more modern plants.
The problem is pervasive throughout the industrial world. Unemployment in many European lands is higher than in the US, as old industries lose their grip in world markets.
''All this,'' says analyst Crandall, ''is a terrible problem for a small industrial power like Luxembourg, where one out of six people works in a steel industry that increasingly is outmoded.''
The United States, at least, retains a combination of size, diversity, and sophistication that no other nation can match. This may serve it well during the transition years ahead.