Revolution in Agriculture

US$ per farm 3000 -

1950 60 70 1981/82 ...increased mechanization

by hectare

1950 60 70 1981/82 ...fewer workers

bushels 30-

RESULT:

1950 60 70 1981/82 ...fewer farms

bushels 100 -

50 -

1950 60 70 1981/82 ...increased agricultural acreage per farm

1950 60 70 1981/82 ...more fertilizers

1950 60 70 1981/82 ...higher performance

Example: coin bushel per labor hour 1 bushel = 35.3 litres

1950 60 70 1982/82 ...and higher yields

Example: corn bushel per hectare

CRISIS OF THE SMALL FARM

The high efficiency and productivity of American agriculture has its negative side. Farming has become too productive to be profitable to many American farmers. Low crop prices, which have resulted from overproduction, often do not bring farmers enough income to live on. Another difficulty the American farmer faces is the decline of agricultural exports. Farmers depend heavily on exports; one third of the crop land in the United States is planted in crops destined for export. But the market for these export crops is shrinking as the markets of the European community expand.

Increased mechanization of American farming is threatening the existence of the small farmer. Farmers have had to increase their debts to afford expensive farm equipment, and high interest rates make it difficult for many farmers to keep up payments on loans and mortgages. Small farmers are unable to compete with large agribusiness firms that usually have the capital needed to sustain themselves through periods marked by low crop prices and high interest rates. With as many as 200 farmers having to declare bankruptcy every day, many farmers insist on emergency aid from the government. A variety of

agribusiness: farming engaged in as big business, including the production, processing and distribution of farm products.

64 AMERICA IN CLOSE-UP

CORPORATIONS

governmental and private programs, including crop insurance, loan guarantees, and price supports, have been set up to assist farmers. The problems of the American farm economy are not unique. Farmers in the European Economic Community are facing many of the same problems.

The trend in modern agriculture towards large-scale enterprise conforms to the overall pattern in American business. Giant corporations dominate. Small corporations are being consumed by larger ones and large corporations become even larger through mergers.

The Dominance of the Large Corporations

Percentage o' corporations with more than 250 employees around 1980

ENTREPRENEURS

SUCCESS

YUPPIES

Large corporations were once run by individuals with high public profiles. Henry Ford of the automobile industry and Andrew Carnegie of the steel industry are well-known magnates of the early part of this century. Modern corporations, on the other hand, are often run by nearly anonymous career executives who rarely own more than a fraction of one percent of the corporation's stock.

While giant corporations determine much of the nation's economic behavior, entrepreneurs also have a significant impact on the American economy. In 1984, 700,000 small businesses were started in the United States. Since the 1970s such businesses started by entrepreneurs have provided more new employment than larger corporations.

The high-tech era has produced a new generation of entrepreneurs. One example from the 1970s is that of two young men who worked together to design a new and better computer. They gathered money needed to pay for large-scale production, and in 1977 Apple Computer Corporation was started. By the end of 1984, that company, started by two business-minded entre­preneurs, was one of the largest computer makers in the United States.

This success story is similar to others in American history. The Coca-Cola company began when an American pharmacist mixed together the first Coca-Cola drink and began selling it in Atlanta, Georgia, in the 1890s. The famous Heinz food company, which specializes in mustard, pickles, and ketchup, began when a teenager started to sell various food items on the street. While most people who start businesses do not become millionaires, Americans do believe in the potential for individual success that exists within their free enterprise system.

Americans are known for being highly success-oriented and dedicated to hard work. Today's baby boom generation has acquired a reputation for its

baby boom generation: people born in the 1950s and 1960s when birthrates were extremely high.

THE U.S. ECONOMY 65

LABOR UNIONS

AFL-CIO

DECLINING MEMBERSHIP

relentless drive for material success. The term "yuppie," meaning young upwardly-mobile professional, has been coined to describe those people be­tween the ages of 25 and 45 who, according to the stereotype, devote them­selves to careers and status.

Whereas the drive for success is firmly entrenched in American ideology, what is curiously absent is focused ideological support for America's labor unions. Although a legal framework for worker representation and collective bargaining was established by legislation in the 1930s, labor unions in America do not have the power or political direction of their counterparts in Europe.

Achievements of European labor, such as worker participation in corporate strategy in West Germany and nationalization of industries in Great Britain seem radical compared with the achievements of American workers. Some significant gains American labor unions have won for their members include benefits such as increases in overtime pay, paid vacations, premium pay for night work, and employer subsidized health insurance plans. Although Amer­ican workers are now beginning to focus their demands more on job security than benefits, few employees can aspire to the job security won by unions in continental Europe. In America, lay-offs of blue-collar workers in industries such as automobiles, aerospace, and shipbuilding are routine. In Europe, corporations are deterred from laying off workers. Laws require companies to make costly redundancy payment to workers who are dismissed.

One explanation for this difference between labor unions in Europe and America is that American workers have traditionally valued self-reliance and individualism. Furthermore, the lack of rigid class distinctions has given many workers the feeling that they are not permanently destined to a working-class existence. The lack of class consciousness and the belief that one can rise to a higher station in life through individual effort help explain why socialism has not gained mass appeal as a unifying ideology among American workers.

Today the largest American labor union is the joint AFL-CIO, the American Federation of Labor and Congress of Industrial Organizations. The AFL-CIO is active in the world labor movement. It is an affiliate of the International confederation of Free Trade Unions (ICFTU) which has members in 95 countries and territories.

American labor unions today are losing members and influence. In 1950, as many as 1 in 3 wage earners were union members. Now that percentage has dropped to 18 percent and shows signs of shrinking further. The AFL-CIO has also been troubled by a sharp decline in membership. Between 1975 and 1985, membership dropped from 14 million to 11 million workers.

The decline in labor membership is related to the changing trends in the economy as a whole. Foreign competition has depressed many U.S. industries and left many workers unemployed. The decline in manufacturing industries, once a stronghold of unionism, and the rise in service and high-tech industries, which employ fewer blue-collar workers, has contributed to the decline of America's labor unions. Another explanation for the unions' loss of member­ship is the movement of many industries to the South, where right-to-work laws hinder union organizers.

Automation and other technological innovations in industrial production have displaced many blue-collar workers. The transition to a post-industrial economy presents challenges not only to labor unions, but to all sectors of the U.S. economy.

part в Texts

The New Entrepreneurs

Peter Drucker on Entrepreneur

From U.S. News & World Report

Peter Drucker is probably the most widely respected corporate management expert in the United States. Beginning in 1939 with The End of EconomicMan, he has written more than 20 books on economics, corporations and management, including most recently The Changing World of the Executive. In this interview with the editors «/U.S. News & World Report, Drucker, a professor of social science at Claremont Graduate School in California, discusses America's new wave of entrepreneurs.

Is it still possible to start new companies today and succeed?

It's more than just possible. We have on our hands an en­trepreneurial boom the like of which we have not seen in a century. The most important economic event of the last few years, in fact, is the emergence of this entrepreneurial trend.

In the past decade, the United States has created 20 mil­lion new jobs—the largest number ever created anywhere in such a short period. At the same time, large, established companies have lost several million jobs. Government has not grown, either. Most of these 20 million additional jobs are in small, new enterprises. They absorbed all the post-World War II babies, and they absorbed the millions of women who entered the job market.

Would you characterize these as high-tech businesses?

No. The high-tech people are traditional entrepreneurs, which means nine of every 10 of them will lose their busi­ness within two years. They talk profit, and in a new busi­ness it's not profit that matters but cash flow, and they don't know how to make a cash-flow forecast. Too many high-tech people can't build teams or train people, either. Their enterprises tend to resemble entrepreneurships of years ago—a game in which all the cards are marked and you don't know what anyone has up his sleeve.

// not in high technology, where are these millions of jobs being created?

I'll give you an example. The fastest growing and most profitable new business I know is a chain of barbershops founded by two young men, neither of whom had ever had a pair of scissors in his hand. Rather than eke out an exis­tence like most barbershops, theirs are earning 30 to 40 per­cent returns on investment.

Reprinted from U.S. News if World Report, March 26, 1984, published at Washington, D.C. © 1984 US News Sc World Report, Inc.

They did nothing more than apply elementary manage­ment. They asked, "What are the key factors?" The answers are location, traffic and the number of people you can cut in a day without anyone's having to wait. They knew how to build their team and how to train their people.

These barbershop fellows understand cash flow, too. One of them told me: "I started another business once, and after nine months I was in a cash bind and had to give away 40 percent of the business to the next batch of investors. With these barbershops, I make sure of the money six months before I need it." That's the whole secret of finan­cial management: know when you'll need money and make sure of it before you need it.

The new entrepreneurs, then, don't go near glamour, and they don't bet on new technology but on something far more predictable: demographics, population trends and things of that sort.

How do they get started?

Most come out of big companies or institutions. Typical­ly, after eight or 10 years of being trainees and young man­agers, they realize their next promotion is a ways off. So they get an idea and start off on their own. By that time, they know a lot about what we call upper management and orga­nization.

These are a stable group of people who look systematical­ly for opportunities, and the casualty rate of their businesses is quite low. Few of them have any illusion that they're going to build thousand million-dollar companies. A good many, once their businesses get to 10 or 15 million dollars in sales, set out to start something new again.

Aren't these small businesses vulnerable to competition from giant companies?

There is no longer a premium on big size in many indus­tries. Companies pay a price for size; they are not very agile. Elephants can't turn on a dime, and neither can huge orga­nizations with all their layers of management.

Politically, they are too visible in a world in which business is damned if it does and damned if it doesn't. The smart business executive knows the advantages of anonymity. But if you run one of the world's great banks, don't expect to have it.

Are you implying that the day of the big company is over?

I'm not saying we won't have large companies but that we
no longer need them in many instances. For 30 years the
trend was toward the large unit because it was the one we
knew how to manage—or thought we did. That is over. We
are deinstitutionalizing. You see it in hospitals, where clinics
now perform outpatient surgery. You see it in education,
where the huge consolidated secondary school is being
judged a failure. And you see it in business, where the spot­
light is shifting toward the smaller unit. ♦

THE U.S. ECONOMY 67

By Gene Bylinsky

Scientific advances at America's top research laboratory run the gamut from building an efficient phone system to discovering evidence of the Big Bang.

Research laboratories within large companies have been one of the great incubators of scientific discovery in the United States. Charles Steinmetz, whose 30years of research at General Electric helped usher in the age of electricity at the beginning of this century, established the model of an alliance between creative genius and big business. In more recent times IBM scientists have designed fundamental computer languages and software; in 1987 two of their colleagues were awarded a Nobel Prize for their pioneering work on

superconductors. Similarly, researchers at Du Pont have used chemical compounds discovered in their labs to develop plastics and other materials put to everyday use.

America's largest and most famous research facility is Bell Laboratories, a division of American Telephone & Telegraph (AT&T). Scientists at Bell Labs have won more Nobel Prizes than any other industrial institution in the world. Yet since 1984, when a federal judge ruled that AT&T must be split up because its control of U.S. telephone service violated

antitrust law, the American scientific community has been concerned about the scaled-down company's support for its distinguished research arm. As the author of this article reports, however, Bell Labs has survived the breakup and its research remains as innovative as ever.

Gene Bylinsky is on the board of editors of Fortune magazine, where he has been a science writer since 1966. He is the author of several books including Mood Controland Life in Darwin's Universe.

68 AMERICA IN CLOSE-UP

2. continued

ell Laboratories, the premier corporate research facility in the United States for most of its 62-year history, has produced the transistor, the laser, the solar cell and the first communications satellite, as well as sound motion pictures, the science of radio astro­nomy and crucial evidence for the theory that a Big Bang created the universe. Today the vital signs are still strong at the Bell Lab head­quarters in northern New Jersey, putting to rest fears that without the vast revenue base provided by ЛТ&Т, the parent operating company, Bell Labs might wither into just another run-of-the-mill industrial research and develop­ment (R&D) operation.

Not only has basic research come through the court-ordered break-up of AT&T largely un­scathed, but Bell Labs is also branching into new commercial areas — in part by launching new R&D companies —and looking into licensing of companies as far afield from telecommunications as airlines and shipping firms.

Historically, basic research ab­sorbed only about 10 percent of manpower and spending at Bell Labs, and that proportion remains unchanged. Most of the employees are engineers, who have worked on applications, not basic research.

But basic research at the Labs has always been a huge attention-getter because of its unmatched results and epochal discoveries. The 1947 invention of the tran­sistor set off the world microelec­tronics and computer revolution. Seven Bell Lab scientists have won Nobel Prizes. In 1985 President Reagan awarded Bell Labs the National Medal of Technology — the only U.S. laboratory ever singled out for it.

What happens at Bell Labs is of vital interest to American industry because of the labs' high quality of research and because it has been strong where the United States

now finds itself weak: in the trans­fer of research results into prod­ucts. Says Robert M. White, president of the National Aca­demy of Engineering: "America's problem is notlack of basic re­search but inadequate conversion of scientific discovery to commer­cialization. Bell Labs does that very well indeed."

Bell Labs is striving to help AT&T's businesses by tailoring basic research more closely to the needs of the parent company with­out sacrificing the scope and sweep of investigations. The economics and psychology departments have been cut drastically while robotics and computer science have grown, but that shift in emphasis involved only about 40 of the 200 or so scientists who pursue the purest kind of pure research.

"To an outside observer it may seem that we've gone product oriented, but the intellectual con­tent of the work is the same," says Arno A Penzias, vice-president in charge of research at Bell Labs. Penzias, an ebullient astrophys­icist, made his mark soon after he arrived at the labs in 1961. He was asked to join a committee of older scientists who were trying to devise the best way to calculate the precise positions of communi­cations satellites. The scientists were talking about setting up tall, expensive radio masts when Pen­zias piped up with the suggestion that nature's own radio masts — radio stars, which emit charac­teristic frequencies from fixed po­sitions in the sky—would serve equally well at no cost whatever. Penzias's idea was accepted and the committee disbanded on the spot.

Later, Penzias and his colleague Robert Wilson built measuring devices for Bell Labs' radiotele-scope as part of their effort to track down the source of static that often interfered with their studies of radio waves from the

Milky Way. The noise they studied turned out to be the residual radiation from the Big Bang; for their discovery, the two men shared a Nobel Prize in 1978.

The scope of research at Bell remains wider than at most other industrial labs and even some uni­versities. The staff includes 3430 Ph.D.s — more than the total re­search staff of the closest rival cor­porate lab, at IBM. The scientists at Bell are spread among physics, chemistry, computer science, mathematics, electronics and sun­dry other fields. Bell Labs' method has always been to assemble a huge mass of diverse specialists who interact closely. The spraw­ling headquarters building is an immense beehive. It houses more than 3000 researchers, product developers and support staff along lengthy corridors lined with hundreds of small labs crammed with the latest instruments.

The physics-research division alone employs 250; it's larger and more diverse than most university physics departments. Investiga­tions range from basic studies of the nature of matter, including such current topics in theoretical physics as instabilities and chaos, to building ceramic superconduc­tors and creating so-called neural networks in silicon chips that mimic rudimentary animal brain pathways. Electronics and optics are two other large areas of em­phasis. Recently AT&T began to install the world's most advanced fiber-optic transmission system, developed at Bell Labs, which can speed 24,000 telephone calls simultaneously through a pair of fibers, each twice the thickness of a human hair. It has 40 percent more capacity than any other commercial system.

The most basic work at Bell Labs has a way of merging into development, though that's not immediately apparent from the activities of some of the basic

THE U.S. ECONOMY 69

scientists. One recently reported on the activities of ants in the jungles of Brazil; another observes faint galaxies at the edge of the universe from observatories in Chile and Hawaii. The student of ants, Thomas Gradel, reports that a major cause of acid rain in the Amazon is formic acid, a pungent, colorless substance released by the decomposing bodies of anls. How­ever, Gradel's interest in the Amazonian ants is highly prac­tical: he is a corrosion chemist, and part of his job is to find out why telephone equipment can fail in various environments.

The stargazer, astrophysicist J. Anthony Tyson, has his feet on the ground as well. He is trying to improve another Bell Lab inven­tion, the charge coupled device — in effect a silicon chip that can see. It has revolutionized astron­omy because it collects light up to 1000 times more efficiently than film, but it also has potential uses as the eyes of robots and in the precision manufacture of semi­conductors. Tyson is one of a handful of Bell's basic scientists who "couple us to the universe of science," as Penzias says. "It's a small but vital part of our business strategy to have a few scientists do work that gives Bell Labs a con­nection to the universities and the rest of the scientific community that it couldn't get otherwise."

Among other things, such con­nections help attract young scien­tists. Bell Labs pays competitive or somewhat higher salaries than other major corporate labs, such as those at IBM and Du Pont. And although Penzias says that some scientists earn more at Bell

Labs, money is not the main draw for most of them. The freedom, the facilities and first-class col­leagues come before that.

Harvesting the fruits of research happens faster than it did in the good old days. Bell Lab President Ian M. Ross is a subdued British-born Ph.D. in electrical engineer­ing with several advances in semi­conductors to his credit. He cites the emergence and the rapid adop­tion of a remarkable mathematical shortcut to the celebrated travel­ing-salesman problem, which re­quires devising the shortest poss­ible route connecting a given number of destinations. Indian-born mathematician Narendra Karmarkar described this new in­sight in 1984. Where programmers and mathematicians once took days to solve a problem with thousands of variables, the Kar­markar algorithm allows them to do so in minutes. AT&T is already using the algorithm to design a vast and complex phone network among the 20 nations of the Pacific Rim. The algorithm is useful in other fields as well; Bell Labs is getting ready to apply it to airline and shipping businesses.

Competing against the rest of the world is teaching Bell Labs' product developers to couple R&D even more closely to both manufacturing and market needs. In the past, technology drove Bell Labs' development; now the cus­tomer does. A classic example of a technology-driven product: the Picturephone of the mid-1950s. It worked well, but market studies of the potential demand for it failed to make clearjust who could afford to use it. Nowadays Bell Labs

would let the market determine whether it would develop a Pic­turephone.

Into the competitive world today Bell Labs' developers are bringing such impressive products as a gigantic computerized elec­tronic switching system, which can cost several million dollars and handles up to 300,000 tele­phone calls an hour. Bell Labs is also helping install a system that will connect McDonald's 7500 hamburger outlets and the com­pany's administrative offices. In all these activities Bell Labs' peo­ple think they have a competitive advantage because research has been integrated into the work of the parent company better than at any other industrial lab.

Just as it opened the new world of microelectronics by inventing the transistor, Bell Labs is now far along in harnessing the electron's ephemeral cousin, the photon, for the task of information movement and management. In Bell Labs' bag of surprises there even could be an optical computer superior to its electronic counterpart. Pro­gress in that field in recent months has been exceptionally rapid. The optical computer, using laser beams instead of electrical con­nections, would work 1000 times faster than today's electronic variety—an almost unimaginable boon to everyone from theoretical physicists to weather forecasters.

Bell Labs' basic scientists insist that competition is nothing new for them, that they have always competed against the world at large. As Arno Penzias puts it, Bell Labs traditionally has been a place that "made its own future happen."

IBM: international Business Machines: large American corporation.

70 AMERICA IN CLOSE-UP

A French-Fry Diary: From Idaho Furrow To Golden Arches

For the Potato That Qualifies, McDonald's Has a Slicer, Sprayer, Drier—and Ruler

BY MEG COX

OAK BROOK, ILL. 2/8/82

eep within the high-rise confines of McDonald's Corp. headquarters, inside his "war room," Chair­man Fred Turner ponders a weighty business issue: the fate of five Idaho potatoes. The potatoes have been transplanted from their American homeland to a field in far-off Holland. Delicate negoti­ations with the government of the Netherlands preceded the move; eight months in Dutch quarantine followed before the potatoes could be planted. "God, I hope they didn't die," Mr. Turner ex­claims.

Lower-level McDonald's operatives are asked to check. Alas, the news is bad. The five potatoes, estranged from their native land, have fallen victim to a virulent foreign potato virus. Once again, McDonald's Corp.'s costly, 10-year struggle to take its favorite source of French-fried potatoes to Europe has been thwarted.

Thwarted but not defeated. This company didn't get to be king of fast food by taking French fries lightly. The attention McDonald's lavishes on the spindly side order suggests something approaching a corporate obsession.

And why not? French fries currently pour more than $1 billion a year into McDonald's cash registers, nearly 20% of annual revenue. They are the most profitable food served under the Golden Arches. Seven of every 10 customers arriving after the breakfast hour order fries.

To keep them that way, McDonald's has spelled out no fewer than 60 specifications a strip of potato has to meet to make it into the fry­ing basket. To frustrate imitators, it has a patent on the precise com­bination of steps in making its fries. The restaurants even use a spe­cial blend of frying oil. Its name: Interstate 47.

THE U.S. ECONOMY 71

3. continued

Now, frying is important, but what good is it if you don't have a sturdy potato to begin with? At McDonald's the tuber of choice is the russet Burbank. "People think all potatoes are alike, but they aren't," says Bill Atchley, the chief of McDonald's crew of spud scouts. He explains: "A russet Burbank potato has a distinctive taste and a higher ratio of solids to water, which makes for crispier fries."

There are plenty of russet Burbanks in the U.S., but overseas is an­other matter. Mr. Atchley recently returned from the Philippines, where he spent much of his time on his hands and knees in the dirt trying to teach farmers to plant the right kind of potatoes. "If we can grow these potatoes in the Philippines, we'll learn a lot about how to do it in other tropical countries," he says.

But the big target is Europe. No russet Burbanks are grown there, and the Common Market doesn't allow potato imports. Never mind that the Continent offers several hundred other varieties; Mr. Turner says they are small and yellow and low in solids, producing, he adds with distaste, "small and soggy" French fries.

The state of the art in French-fry making today can be seen at the J. R. Simplot potato factory in Caldwell, Idaho, which processes a good portion of the billion potatoes McDonald's uses each year. "Mac fries," like the ones Simplot prepares for other companies, begin their journey on an assembly line, where women in aprons pluck out the bad potatoes. Like the others, those going to McDonald's are chopped, prefried and frozen.

But there are subtle differences. Other fries are blanched, or quick-scalded, in water; McDonald's has its steamed, figuring that water carries off flavor and nutrients. All the fries in the assembly line are prefried, then dried; but those going to McDonald's are dried at higher heat, to make them chewy. The time and the heat are covered by the patent.

Nor is McDonald's indifferent to the amount of moisture that slips away between the frying and the drying. Company food scientists monitor this. They call it "drier-frier weight loss."

Else.where on the Simplot production line, other people's fries are dipped in sugar to make them brown better. Mac fries get doused in sugar too, but they are sprayed rather than dipped. Spraying the sugar on makes the fries brown unevenly, the company believes, and that makes them look more natural.

In looks, though, color isn't everything. Fries have to be the right length, too. What hungry diner wants to look into his bag and find a bunch of little stubby fries? McDonald's is ruthless about length: 40% of all fries must be between two inches and three inches long;

72 AMERICA IN CLOSE-UP

3. continued

another 40% must be over three inches; the other 20%—well,it doesn't hurt to have a few stubby ones.

McDonald's is convinced all this trouble pays off. It says a 1975 telephone survey showed that Mac fries were the favorite of 70% of those called.

Even some gourmets like them. "I think McDonald's fries are re­markably good," says television chef Julia Child. "They're cooked in extremely fresh fat." Nutritionists tend to be less enthusiastic. Isobel Contento, a nutrition professor at Columbia University in New York, says, "About half the calories in French fries come from fat, there are very few vitamins, and you'd feel a whole lot fuller eating a comparable amount of green vegetables."

WAYNE STAYSKAL Courtesy ChicagoTribune

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THE U.S. ECONOMY 73

⁹ The Forgotten

Farmer

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