[Congressional Record Volume 140, Number 87 (Friday, July 1, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: July 1, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
           U.S. COMPETITIVENESS CANNOT RELY ON A WEAK DOLLAR

                                 ______


                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                        Thursday, June 30, 1994

  Mr. LaFALCE. Mr. Speaker, over the years, the United States has 
identified important problems and tackled them with focused intensity: 
LBJ's War on Poverty, the War on Drugs, the War on Crime. It is now 
time to bring that same focus and energy to the issue of international 
competitiveness. Both U.S. policymakers and business leaders have yet 
to fully recognize the critical importance of the competitiveness of 
the U.S. manufacturing sector to this country's underlying economic 
strength.
  Our economy is now back on a growth track, and the prospects for our 
manufacturing sector look much brighter than they once did. Over the 
last several years, U.S. manufacturers have taken measures to increase 
productivity, aggressively market their products, and forge creative 
competitive strategies. Most notably, we have succeeded in 
significantly expanding manufacturing exports.
  But we must not be lulled into a sense of false security. Not all of 
our success is our own doing. In the export arena in particular, much 
of the export expansion can be attributed to a vastly weakened dollar 
which has made U.S. exports far less expensive.
  In fact, we have not fully prepared ourselves for a sustained 
competitive struggle over the long haul. We have not solved the 
underlying economic problems of this country. Nor have we taken the 
necessary steps to ensure that our industries will be capable of 
effectively competing when the dollar is once again stronger.
  Last month the Competitiveness Policy Council, which was created 
pursuant to legislation I authored in 1988, issued its third annual 
report. That report warned that the economic factors integral to 
achieving a rising standard of living--the ultimate measure of a 
nation's competitiveness--have not improved appreciably, if at all. The 
level of savings and investment, the commitment to research and 
development, the quality of education and training--these are the keys 
to competitiveness. But the Council's report emphasizes that 
improvement in these key areas have been pitiful.
  For example, net private investment in 1993 reached 4 percent of 
GDP--only half of the percentage level in 1973 and the lowest of all 
the industrialized nations. Private savings actually fell in 1993 to 
1.5 percent of net national product, and were nearly wiped out by the 
budget deficit. Moreover, any improvement in macroeconomic indicators 
masks what is really happening to individuals. The percentage of people 
living below the poverty line is increasing, and the gap between income 
groups is widening.
  The United States must come to terms with the fact that we are in a 
competitiveness struggle for the long haul. Other countries know this. 
Japan has worked to retain its competitive edge even as the yen has 
appreciated 150 percent against the dollar since 1985. If U.S. industry 
is to be competitive, it must be as prepared to compete effectively if 
and when the dollar rises to the peaks of 1985 as it is now with the 
dollar at historically low levels.
  U.S. policymakers and the leaders of our business community must show 
new resolve, commitment, and aggressiveness if we are to achieve 
sustained competitiveness. In short, we must adopt a ``take no 
prisoners'' approach. Other countries do and will continue to do so. We 
must not rely on a low dollar to maintain our competitive position, or 
our economy's strength relative to that of our competitors will only 
diminish over time.
  Mr. Speaker, I am submitting for the Record an article written by 
John F. Welch, chairman and CEO of General Electric, that appeared in 
the Wall Street Journal last week. He eloquently articulates the danger 
of relying on exchange rates to achieve competitiveness, and the need 
to take the economic challenges of this new global marketplace 
seriously if we expect to compete successfully in the years ahead.

                       A Matter of Exchange Rates

                           (By John F. Welch)

       The American manufacturing sector has been getting some 
     pretty good press lately, even from those busy writing its 
     obituary just a few years ago. We've been described as ``back 
     with a vengeance,'' ``tough, farsighted, clever,'' even ``the 
     envy of the industrialized world.''
       Almost every American industry, by almost every measure, 
     has seen improvement in its productivity and it relative 
     competitive position. And this improvement is reflected in 
     another statistic: Exports as a percentage of gross domestic 
     product are up more than 50% from a decade ago.
       Yes, the numbers are pretty good. But there's a case to be 
     made for at least a second look at this newly acclaimed 
     supremacy of American manufacturing.
       I like to think of what we have come through over the past 
     decade as the leading edge of a hurricane, buffeting and 
     turbulent. We got through this front edge with innovation, 
     higher productivity, pain and sacrifice. Now we find 
     ourselves not in the clear air of fair weather, but in the 
     deceptively tranquil center of the storm--the eye of the 
     hurricane. Exhibit A is the currency situation.


                          currency is critical

       In 1985 the yen was 270 to the dollar. Today, it's roughly 
     150% stronger, at 105. In 1985, the mark was 3.30 to the 
     dollar. It's now about 50% stronger, 1.65. How much would we 
     be selling; how bold and innovative would we American 
     managers be; how envious would the world be of our 
     manufacturing prowess if that yen and that mark were at the 
     same strength they were not nine years ago, but only three--
     about 140 yen to the dollar?
       Currency is a critical element in a country's 
     competitiveness, and it is increasingly volatile and 
     explosive in its effects. When Italy and Britain left the 
     European monetary system in the summer of '92 and devalued 
     their currencies against the franc and the mark, Italy's 
     export growth surged to more than 18% annually from 4.6%. 
     Britain shot to a 14% growth in exports from 3.5%--in a year.
       American euphoria is enhanced in this pleasant interlude by 
     the way the U.S. situation contrasts with the difficulties 
     our competitors are having with their national economies. The 
     well-deserve affluence and success of the Japanese dulled 
     their competitive edge a bit, and the deflating of their 
     bubble economy has taken its toll. In Western Europe, the 
     bloated bureaucracies of their companies and the social 
     policies of their governments finally caught up with them and 
     severely reduced the competitiveness of their industry. And 
     the West German acquisition of East Germany, while 
     strategically sound, created, in M&A language, a heavy good-
     well amortization burden on short-term performance.
       Finally, while Americans often complain about shareowner 
     activism, impatience and demands for performance, I believe 
     that the indulgence and the patience of the European and 
     Japanese shareowners lessened the bite, the urgency and the 
     overall competitive edge of their companies.
       So, yes, we have plenty of reason to enjoy the relative 
     improvement we see in our manufacturing industries, but we 
     must avoid believing our own press clip--toasting the end of 
     a storm that has not ended. For while we pat ourselves on the 
     back, our global competitors are working feverishly to 
     overcome the disadvantages of their economies and currencies.
       The annual report of Toyota Motor one of the world's 
     greatest manufacturers, lays out very clearly solution number 
     one to the problem of the yen: ``We will cut costs like we 
     have never cut costs before.'' The Japanese are grimly 
     determined to achieve not incremental performance 
     improvements, but what they call ``bullet-train,'' or order-
     of-magnitude, improvements. They put no stock in predictions 
     of a weaker yen, and are preparing themselves to compete at 
     90 yen to the dollar.
       Think about it. An enormously resourceful Japan, 
     handicapped by a strong yen, still exports a record $350 
     billion of merchandise in 1993, grows to what some consider 
     the world's largest manufacturing economy, and is talking 
     about cost reduction of 30% to 50%.
       I could make the case that the powerful yen is the best 
     thing that ever happened to Japanese competitiveness.
       And look at Europe. There's a new, aggressive, smart breed 
     of CEO; privatization is spreading across the continent; 
     companies are increasing their sourcing from low-cost areas 
     within Europe and Eastern Europe; and shareowners are 
     increasingly becoming interested in performance and profits. 
     Companies are delayering, restructuring, attacking 
     bureaucracy and getting faster.
       Global competitors are taking actions today that could push 
     U.S. manufacturers from the deceptive tranquility of the eye 
     back into the turbulence of the hurricane, a hurricane that 
     this time will come with a ferocity that could be intensified 
     should the currency go the wrong way.
       What are we going to do when a restructured and hungry 
     Europe, and a lean, low-cost Japan, with improved economies, 
     come roaring back--show them our press clippings? What 
     happens if the yen swings back over 130, as it was just two 
     years ago, or the mark moves toward 2?
       We should not wait that long. There are things that can be 
     done now.
       First, stop believing the press and the politicians. They 
     were wrong when many of them wrote American manufacturers off 
     as dinosaurs, and now those that have taken the opposite view 
     are equally wrong. This ``happy days are here again'' talk is 
     just talk. We know it. Now we need to make sure each of our 
     constituencies knows it as well, and we need to buttress the 
     urgency of our situation with actions today that prepare us 
     for tomorrow: relentless cost-cutting, rational labor 
     management conversations, resisting the expansionist schemes 
     of a tax-hungry government, and waging an unending war on 
     bureaucracy and bureaucrats.
       If the Japanese are preparing to compete at 90 yen, the 
     U.S. must be ready to compete at 130. Until we are, we delude 
     ourselves if we think we are in control of our own fate.
       Second, we must focus enormous energy on growth, conceding 
     no markets--and no customers--because our competitors concede 
     none. Asia is the greatest growth market we will see in our 
     careers. It is our future. The president's continuation of 
     most-favored nation status for China was as far-sighted as it 
     was courageous.
       Next, this country must get even more productive. The 
     country or the company with the highest absolute productivity 
     may be buffeted by the winds of competition or the 
     fluctuations of currency, but in the long run it controls its 
     own fate.


                         productivity's source

       The best companies now know, without a doubt, where 
     productivity--real and limitless productivity--comes from. It 
     comes from challenged, empowered, excited, rewarded teams of 
     people. It comes from engaging every single mind in the 
     organization, making everyone part of the action, and 
     allowing everyone to have a voice--a role--in the success of 
     the enterprise. Doing so raises productivity not 
     incrementally, but by multiples.
       Only by taking these steps will we be prepared to face 
     what's ahead. Things are going to get tougher; the shakeouts 
     will be more brutal, the pace of change more rapid. When we, 
     someday in the future, look back on this sunny time in 1994, 
     I hope it will be with the satisfaction of knowing we 
     understood it for what it was--and used it to get ready for 
     what was to come.

                          ____________________