Basic industry going down the tubes? Only if you misread short-term signals
This country's basic industries are going down the tube because of the overwhelming pressures of foreign competition. Government must step in to ensure the survival of older but basic industries, especially in the Midwest. We are becoming a service economy focusing on information, hamburgers, and dress shops.
At least that is the rhetoric that we hear so often today. But is all this true?
As is so often the case, facts are undramatic, not supportive of any extreme position, and thus uncompetitive in the marketplace for public policy viewpoints. The truth of the matter is that some of this nation's heavy industry is no longer competitive and is in the process of shrinking in size and importance. Steel and auto companies have reported the most dramatic cutbacks.
But by and large, American manufacturing companies - hard-goods and soft-goods producers alike - are holding their own while adjusting to the business cycle. The levels of output in most sectors today are higher than in comparable periods of earlier business recoveries. Total industrial production (measured in physical volume terms) is at its all-time peak.
Unfortunately, many observers still fall into the analytical trap of drawing heroic and long-term conclusions from the most recent data that they have seen. Thus, the downside of the business cycle in 1981-82 spurned a plethora of gloom-and-doom soothsayers proclaiming the beginning of the end, at least as far as this country's industrial economy is concerned. There is a recognition lag between the time that the industrial economy turns around and when the ''mega-trend'' thinkers take notice of the change.
There are serious problems facing American industry. Many specific companies have not learned how to control their costs, even in the presence of static or declining productivity. But those that succeed in raising productivity and keeping expenses under control will improve their competitiveness; many of them will maintain or even enhance their market positions, domestically and internationally.
The simple-minded dichotomy which sees only expanding high-tech and declining low-tech industries needs to be examined more carefully than has been done by the widely publicized prognosticators of the demise of traditional industry.
If such industrial giants of the past as Henry Ford, Andrew Carnegie, and Harvey Firestone would visit their old companies, they would be pleasantly surprised by the array of high technology in use - industrial robots, sophisticated process control, laser inspection, flexible manufacturing systems, automated material handling, and computer-aided design and computer-aided manufacturing.
The man-machine interface is being redefined. Manual operations using gears, pulleys, and belts are being replaced by microprocessors, keyboards, electronic switches, and cathrode ray tubes. In the textile industry, lasers inspect 10,000 yards of cloth an hour - 15 times as fast as a human being once could. In the steel industry, lasers and innovative sensing devices perform inspection and even check refractory lining wear in steelmaking furnaces.
It is ironic that just when the promoters of industrial policy are bemoaning the effects of reliance on free markets and urging greater reliance on government, writers in the Soviet Union are blaming the centralized nature of the Soviet state for that nation's poor economic performance.
Viewed in this light, the numerous industrial policy proposals for funneling federal funds to ''worthy'' private investment areas are out of tune with the times. But there is no need to advocate a ''do nothing'' approach to the serious economic problems that face the United States.
There is an industrial promotion strategy that involves no expansion in government power or federal spending. Its elements are basic - tax simplification, regulatory relief, and curtailed government borrowing and lending. The most effective way to encourage private capital formation is to remove the regulatory obstacles to growth and reduce the federal drain on private saving by curbing deficit financing.
Such action would help to bring lower interest rates and a more realistic relationship between the dollar and foreign currency. And that in turn would surely contribute to restoring the position of American products in world market.