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MIT releases study on productivity

By Prabhat Mehta

"Relative to other nations and relative to its own history, America does indeed have a serious productivity problem," and "the causes of this problem go well beyond macroeconomic explanations of high capital costs and inadequate savings to the attitudinal and organizational weaknesses that pervade America's production sytem," concluded the MIT Commission on Industrial Productivity in its newly released book, Made in America: Regaining the Productive Edge.

The culmination of a two-year, eight-industry study, Made in America examines the causes of the recent slowdown in US productivity growth and makes recommendations for improved economic performance. It cites six problems relating to productivity performance: outdated strategies, short time horizons, technological weakness in development and production, neglect of human resources, failures of cooperation, and government and industry at cross-purposes.

Recommendations for improvement include specific proposals for industry reform and larger macroeconomic imperatives. Focusing upon international markets and the importance of technology and education, the macroeconomic recommendations call for a focus on "the new fundamentals of manufacturing," the cultivation of a new "economic citizenship," a blend of cooperation and individualism, adaptation to an emerging world economy, and provision for the future through investment and education.

The commission was appointed by MIT President Paul E. Gray '54 in November 1986 "to identify what happened to US industrial performance and what we and others might do to help improve the situation." The 17 members, all of whom are faculty members, include Michael L. Dertouzos PhD '64 (chairman), Robert M. Solow (vice-chairman), Richard K. Lester PhD '80 (executive director), Suzanne Berger, David Botstein, H. Kent Bowen, Don P. Clausing, Eugene E. Covert ScD '58, John M. Deutch '61, Merton C. Flemings '51, Howard W. Johnson, Thomas A. Kochan, Daniel Roos '61, David H. Staelin '60, Lester C. Thurow, James C. Wei SM '54, and Gerald L. Wilson '61.

Dertouzos, Solow, Lester, and Berger will testify tomorrow on the commission's findings before the Senate Committee on Labor and Human Resources.

Weak productivity performance

In the second chapter of Made in America, the commission observes, "In view of all the turmoil over the apparently declining stature of American industry, it may come as a surprise that the United States still leads the world in productivity." But in the same paragraph, it notes that "American productivity is not growing as fast as it used to, and productivity in the United States is not growing as fast as it is elsewhere, most notably in Japan."

Productivity growth determines the rate at which standard of living increases. As the commission notes, if the growth of labor productivity from 1948 to 1973, which averaged three percent per year, had continued until today, the US economy would now be almost 50 percent more productive than it currently is; labor productivity has been increasing, on average, little more than one percent per year after 1973.

The six reasons the commission gives for recent weakness in productivity performance blame both business and government:

O+ Outdated strategies. An over-reliance on mass production of standard commodity goods and an emphasis on domestic production at the expense of developing international frontiers represent outmoded strategies for industry and result in a restriction of productive potential.

O+ Short time horizons. American industry focuses too much upon short-term profits and therefore fails to invest in long-term production expansion and modernization. The recent surge in takeover activity is specifically criticized for not contributing to overall output increase.

O+ Technological weaknesses in development and production. Although the United States still leads in many fields of basic research, American companies have fallen behind in the application of new technologies to industry. One reason given is the unattractiveness of product development and process improvement to engineers and scientists, who seem to prefer original research and discovery.

O+ Neglect of human resources. The poor performance of American students when compared to the performance of students in other industrial nations and the lack of extensive on-the-job training and education are particularly damaging in light of the increasing demand for technologically competent workers and the growing number of labor force entrants from traditionally "disadvantaged" groups.

O+ Failures of cooperation. A fundamental lack of cooperation and communication between individuals and groups with firms, between firms and their suppliers or customers, among firms in the same industry segment, and between firms and government prevents beneficial planning and positive relations between management and labor.

O+ Government and industry at cross-purposes. The report asserts that, on the whole, the kinds of government intervention -- rather than the amount of it -- have hurt productivity. The commission claims that technology policy has been a key area of public weakness.

Five imperatives for productivity

The commission cites six key similarities among those firms which have best adapted to the modern economic climate, which is characterized by growing internationalization, increasing consumer sophistication/specialization, and rapid technological progress: 1) a focus on simultaneous improvements in cost, quality and delivery; 2) closer links to customers; 3) closer relationships with suppliers; 4) the effective use of technology for strategic advantage; 5) less hierarchical and compartmentalized organizations (for greater flexibility); and 6) human resource policies that promote continuous learning, teamwork, participation and flexibility.

On a larger scale, the commission proposes five imperatives for improving the rate of productivity (and hence income) growth:

O+ Focus on the new fundamentals of manufacturing. "Too much attention is being paid to indicators of short-term financial performance, such as quarterly earnings," the commission asserts. An emphasis on technical and organizational excellence in manufacture is necessary for any competitive firm in today's economy.

O+ Cultivating a new "economic citizenship." Increased technological competence will be required for the labor force. In addition, workers should have more job security and receive ongoing vocational training

O+ A blend of cooperation and individualism. Schools and companies should reward both individual and cooperative achievement to promote a combination of competitive aggressiveness and responsible coordination. Partnerships among various social institutions help to overcome "some of the defects of the market," the commission asserts.

O+ Adapting to an emerging world economy. Americans should be more aware of the diversity of world cultures, and shop internationally for technology, materials, and innovative industrial practices.

O+ Provision for the future through investment and education. Educational reform must create a more technically literate, culturally tolerant population. In addition, domestic investment must be promoted through savings incentives and consumption taxes so that future capital development is financed by Americans instead of foreigners.

The commission visited more than 200 companies and 150 plant sites, and conducted more than 500 interviews in the United States, Japan, and Europe to complete a "bottom-up" survey of industries for Made in America. In its study of particular industries, the commission formed eight teams from members of the MIT community to study eight particular industries: automobiles; chemicals; commercial aircraft; consumer electronics; machine tools; semiconductors, computers and copiers; steel; and textiles. Each team was headed by a commissioner.