There`s no agreement on the economic policies the country should follow in 1988. There`s plenty of confusion and controversy, though, and lots of wild-eyed suggestions out of Washington.
We`ve had proposals to raise taxes even before we`ve had the full benefit of the tax reforms of 1986. We`ve had proposals to weaken the dollar, impose tariffs, establish quotas and create some kind of national economic planning system. We`ve had bills to restrict one company`s freedom to merge with another, to limit a company`s ability to close an inefficient plant, to compensate its executives, or even to declare dividends for its shareholders. Shades of the 1970s, when the bureaucrats and politicians decided that we couldn`t trust the free market. Fortunately, by 1980, most people realized it was time to give the system a chance to work again.
Good things are happening. Out of the limelight, and without much notice by the headline writers, managers started running their businesses to meet their competition and satisfy the demands of their customers. Managers increased spending for research and development, for new-product development and for new manufacturing and distribution systems. Managers started negotiating wage concessions instead of wage increases. New managers took over inefficient companies, and made them more efficient.
The results are impressive. Productivity in the United States has been increasing at its fastest rate in 30 years. American business is more efficient in its home markets, and is expanding overseas. Some of this is due to the decline in the dollar, but most of it is a result of a new competitive attitude by American companies.
Most people don`t realize how times have changed for the better. Ten years ago, no one would have thought we`d get back to an inflation rate of about 4 percent, a prime rate under 9 percent and an individual tax rate of only 28 percent. No one could have thought we`d create 13 million jobs without inflation. No one would have thought we`d have a cheap dollar against the yen and the German mark. No one would have thought we`d have a return to the old work ethic in America. People today believe in the free enterprise system.
We have what every business manager says he has always wanted-less regulation, lower taxes, a more dedicated work force, and a pro-free enterprise attitude among citizens not just of this country but of the world. American business couldn`t ask for more.
Unfortunately, nothing comes easily or automatically. America`s competitors are tough, smart and aggressive. They`ll continue to fight us in the marketplace. We`re now in a better position to fight back. But American business managers will have to break some old habits, adopt some new ways of doing business and pay more attention to the fundamentals.
I think we can learn from the experiences of my company, IC Industries, what that kind of management attitude involves. In many ways, IC is a microcosm of what`s been happening in American business over the last few years.
We started life as a railroad. We moved into other businesses to offset the regulated, capital-intensive railroad business. For a time, we bought almost everything we could afford. By 1980, we were a diversified
conglomerate-more than 60 separate businesses. Some were good, some bad; some could be fixed, and with some we couldn`t decide what to do.
But we knew we had to get this portfolio organized. The company set some objectives for performance and measured each firm against them. We separated the winners from the losers. We had more than 90 divestitures, and a number of real estate transactions that generated more than $2 billion. We also made more than 90 acquisitions and joint ventures representing an investment of $3 billion. We also improved operations. We cut costs, increased margins, supported our operating managers, developed new products and new markets and expanded overseas. Productivity, margins and earnings are all up. So is return on invested capital.
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But programs that worked five years ago won`t work today. Our markets are more competitive, and shareholders expect more in value creation. We have to change to fit the times. In setting our new direction, we`re going to follow five basic principles for strategy and growth-principles I recommend for any organization. They`ll work wonders.
Principle No. 1: Establish a long-range strategic plan. Seeking limited success today, often through some accounting trick, at the expense of competitiveness and growth tomorrow doesn`t work. Business needs to take the long view.
Principle No. 2: Concentrate on the core businesses. No one can be a jack of all trades. In the past, when times got tough, some companies tried to diversify their way out of trouble. Steel companies went into the oil business. Oil companies went into the typewriter business. But to be competitive, a company, like an individual, should do what it can do best.
Principle No. 3: Invest for internal growth. American business was shortchanged in the 1970s. Because of inflation, high interest rates and costly environmental regulations, business didn`t invest in new products and more efficient plants at the same rate as our foreign competition did. It`s no wonder we lost markets to the Japanese and Germans. Then in the 1980s, business went on a buying binge. It spent more acquiring other companies than it spent for capital expenditures. More than 12,000 companies have changed hands in the last three years. Some of these deals made sense, but a lot of them made no economic sense at all.
This may sound as if I`m against mergers and acquisitions, so let me set the record straight: I believe in making strategic acquisitions when they lead to better products, lower production and distribution costs and increased sales. But I`m dead set against raiders who put a company into play in order to make a few bucks. I`m against the takeover artists who buy companies, sell off the pieces, pocket the cash and then walk away. They`re predators. They don`t create jobs. They don`t generate wealth. They don`t make America competitive.
Principle No. 4: Pay attention to operations, not management theories. A good manager gets out of his office, talks with his workers and pays close attention to the quality of his products and service.
Principle No. 5, the most important one of all: Make the customer happy. If the customer isn`t satisfied, nothing else is going to make a difference.
For the time being, American business is blessed with low taxes and common-sense regulations. We have low inflation and reasonable interest rates. Business also has the support of the public, and the momentum of five years of solid economic growth. It`s a window of opportunity, and I hope we`ll make the most of it. Deep down, I think we will.