April 1996 € Volume 6 € Number 4

First, Do No Harm To Competitiveness

Editor's Note: The following editorial reflects the viewpoint of the writer. As an educational society, APICS does not take any position on government policies or programs.


By Richard J. Mahoney
Center for the Study of American Business,
retired chairman and CEO, Monsanto Co.



In the 1980s, studies of declining American competitiveness were all the rage. The head-
lines were virtually interchangeable: Our country was falling behind the nation of (fill in the blank) due to (choose three reasons).

Japan and sometimes Germany were the nations of choice, while education, corporate shortsightedness, lack of federal policies, unfair trade practices and good old-fashioned sloth rotated as the principal reasons for decline.

Oddly enough, while our trade balance continues to deteriorate, the noise about competitiveness seems to be abating as Japan and Germany, with their own troubles, no longer seem invincible. And it's hard to get our xenophobia sufficiently aroused by Korea, the Philippines, Singapore, Taiwan or even mainland China, all of which have healthy trade surpluses with America.

So, not to worry? Worry! The country names may change, but the trade deficit problems remain, despite the enormous productivity gains made by the American industrial sector. Over the past several years, I have met with the three most recent secretaries of commerce to suggest they view competitiveness this way: Focus on the individual industries that are trade positive: that is, those industries whose exports exceed their imports. To be "trade positive," these industries must be doing many things right!

From 1991 through 1995, the major manufacturing trade-positive industries were airplanes and airplane parts at $120 billion; chemicals at $83 billion; scientific instruments at $34 billion; industrial machinery at $29 billion; records, magnetic media and printed materials at $19 billion; vehicle parts at $8 billion; power generators at $8 billion; and pharmaceuticals at $7 billion. In addition to manufactured goods, agricultural commodities were trade positive by $96 billion during the five-year period. Without these trade-positive industries, the trade deficit from 1991 through 1995 would have been 70 percent worse than the $579 billion deficit actually recorded in the period.

I urged the various secretaries of commerce to listen to what the trade-positive industries, including my own chemical industry, believe government might do (or not do) to help keep them positive. Indeed, one year I gathered half a dozen CEOs together from these industries so they could personally make their points.

Their first suggestion was that government should follow the admonition given to doctors: First, do no harm! They urged regulators and legislators to consider the potentially negative effects of domestic or international programs on trade. The group encouraged the inclusion of a "Trade Impact Statement" in new program proposals, not unlike the often-required "Environmental Impact Statement." Social programs, which have an unusually high cost to domestic industry, and trade embargoes are two examples of such programs.

In the case of a trade embargo, long after the diplomatic snit might have been resolved, the trade effects often linger as competition from other countries emerges to fill the gap created by the embargo. In another scenario, U.S. suppliers may be seen as captives of unpredictable national policy and deemed to be unreliable long-term suppliers.

The second suggestion is to fix this country's legal problems. High on the list was a call for repair of our "made in America" or, better yet, "only in America" legal system. Export strength is usually built from a domestic commerce base. Consequently, U.S. corporations face the disproportionate costs of America's out-of-control tort system, a situation without comparison in any other country.

Also on the list of legal ills was international trade piracy: unprotected patents and trademarks, especially in developing countries. By ignoring an American company's property rights, competing countries often foreclose local trade opportunities and take an unfair advantage in world markets. The American government's response to trade piracy has been reasonably effective, but many problems still remain.

Finally, the CEOs shared one or two areas where government policies were hurting their unique industries. These areas ranged from import standards, to costs of Superfund, to export licenses. Never did I hear a cry for "protection" from these high-technology industries. They achieved positive trade balances through above-average research and development spending, access to America's high quality university research and graduates, management processes, entrepreneurship or by natural resource advantages.

The list of requests from the trade-positive industries is not a bad one-and certainly not a long one. Encourage the consideration of trade effects when laws and regulations are being made, fix our out-of-control tort system, strengthen international property rights and help laggard industries where trade problems are hurting them. But give at least equal time to helping the winners stay on top, for example, by correcting unfair behavior by America's trading partners.

The message to government from these industries is that the winners won't necessarily fall behind without government help. However, do no harm: It would be nice to have the "winds of policy" at the backs of our leading-edge industries instead of in their faces.


Richard J. Mahoney, retired (1995) chairman and CEO of Monsanto Co., is a distinguished executive in residence at the Center for the Study of American Business at Washington University in St. Louis.
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