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"SUNSET" PROTECTION Import barriers support such ailing industries as steel and textiles. Some troubled firms, like Chrysler, are propped by federal bailouts. The hidden price is a perpetuation of inefficiency. "You subsidize old, low-productivity industries, while we give aid to new, high-productivity industries," notes Joji Arai, manager of the U.S. office of the Japan Productivity Center. He is, in effect, a legal "spy" whose job is to pass good U.S. ideas back to Japanese companies.
Other, more immediate problems are accelerating the decline in productivity. Output per hour worked usually drops in the early stages of recession. That is because new orders fall faster than employers lay off workers—and so roughly the same force puts out fewer goods. Higher energy costs also raise the cost of using even efficient equipment and, perhaps, move some companies to switch away from fuel-thirsty machines to more labor-intensive production.
One major step to a solution is the spreading awareness that productivity is indeed a problem. "More companies are starting productivity programs," says Grayson, "even though they have not reported any major breakthroughs yet. What impresses me is the totality of the approaches. They are looking beyond industrial engineering to incentive schemes, employee involvement and new systems for management to gather information."
The first step—now being undertaken by companies as diverse as Phillips Petroleum, Lear Siegler, Boise Cascade and Bank of America—is to find ways to measure a firm's productivity. The next step is to improve it by means of frequent meetings between management and labor and by what Grayson calls the three Rs of productivity: recognition, responsibility and rewards for workers. Under pressure from the White House, some of the regulatory agencies are searching for ways to reduce the burden of Government rules on business and to measure the impact against the expected benefits. The idea that companies should be allowed to find their own, most efficient ways of achieving regulatory goals is gaining favor.
Tax reform to spur investment would help productivity by stimulating capital formation. So would any move to give some extra tax benefits for R. and D. spending, possibly by emulating Canada's 150% tax write-off for such expenditures. Since Big Government has caused so many of the problems of productivity, it is only fair that Government contribute to the solutions.