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The good news is that some of America's industries have made huge progress toward becoming competitive. While General Motors is still struggling to become more efficient, Ford and Chrysler now rank as the world's lowest-cost producers of cars and trucks. Product-quality levels have kept pace, as well as fuel economy. In service businesses, the waves of corporate cutbacks have cut so deeply that the worst may be over. Industries like retailing will have largely taken their lumps by the end of next year, paving the way for a modest recovery. "Beyond a certain point, restructuring is really only living off the legacies from the past. After cleaning up our house, we need to move forward and create new opportunities," says C.K. Prahalad, a management professor at the University of Michigan's business school.
One major obstacle to efficiency remains: a runaway U.S. health-care system, whose costs are rising at the rate of more than 9% a year and today stand at $2,500 a person, more than twice the level of most of the world's industrialized economies. Such costs add 15% to the price of every new motor vehicle, for example, a margin that single-handedly threatens to eliminate the entire cost advantages achieved by Ford and Chrysler.
One legacy of the 1980s simply needs time to work itself out: the debt hangover. The initial stages were painful, wiping out both borrowers and lenders. Bank regulators clamped down on lenders, while borrowers either swore off the credit habit or were deemed bad risks. The result was a credit crunch that has severely hurt businesses, especially small ones. Among the 8 million such companies in the U.S., failures are running at the rate of 240 a day. One of the faces behind the numbers is Joseph Burton, whose plight embodies many of the woes now afflicting small business. In 1974, Burton used his savings to start a home-remodeling company in a Cleveland suburb. The firm thrived by borrowing to finance its work of custom-building homes. But when Burton requested a $25,000 loan last year, he was turned down by seven different banks, although he offered $60,000 in tools as collateral. Last February he was forced into bankruptcy, and 15 employees lost their jobs.
"It is not a happy scenario," comments banking consultant Edward Furash. "It's like the 1930s in terms of how long it will take to work the problem out." In big business, the load of $2 trillion in corporate debt is preventing the sort of capital investment the economy needs to remain on competitive footing in the 1990s. But manufacturers are making some headway, having slashed business debt by 12% in the past year alone.