WE ARE living through a transformation that will rearrange the politics and economics of the coming century. There will be no national products or technologies, no national corporations, no national industries. There will no
longer be national economies, at least as we have come to understand that concept. All that will remain rooted within national borders are the people who comprise a nation. Each nation's primary assets will be its citizens' skills and insights. Each nation's primary political task will be to cope with the centrifugal forces of the global economy which tear at the ties binding citizens together-bestowing ever greater wealth on the most skilled and insightful, while consigning the less skilled to a declining standard of living. As borders become ever more meaningless in economic terms, those citizens best positioned to thrive in the world market are tempted to slip the bonds of national allegiance, and by so doing disengage themselves from their less favored fellows. This book describes this economic transformation, and the stark political challenge it presents.
2
WITH numbing regularity we hear of the gross national product, the nation's trade balance, the nation's rate of economic growth, the nation's savings rate, the nation's unemployment rate, national productivity, the value of the nation's assets, the profitability of the nation's corporations. Incumbent politicians point to some figures with pride; their challengers point to others (and sometimes even the same ones) with dismay. It has become a national sport. Each new set of figures brings a frenzy of speculation: Are we doing better or worse? Is another nation beating us? Are we pulling ahead? What does this mean for our economic future? Numerous talking heads (mine included) appear on television and solemnly deliver the indispensable answers.
The optimists point ever upward: Look at the number of new jobs! Marvel at all the small entrepreneurial firms! Wonder at the number of new patents in exotica like monoclonal antibodies and digital optics! Take pride in all the foreign capital pouring into the nation as a result! The economy is booming as never before! The pessimists point downward: Bemoan the loss of manufacturing. Bewail the trade deficit, and our huge debt to the rest of the world. Abhor the loss of assets to foreigners. The economy is collapsing around us.
Who is correct? Are we becoming better off or worse off? Where are we heading? It depends on whom you mean by "we."
Underlying all such discussion is the assumption that our citizens are in the same large boat, called the national economy. There are different levels of income within the boat, of course (some citizens enjoy spacious staterooms while others crowd into steerage). Yet all of us are lifted and propelled along together. The poorest and the wealthiest and everyone in between enjoy the benefits of a national economy that is buoyant, and we all suffer the consequences of an economy in the doldrums.
In the United States, the national economic boat is thought to be piloted by a number of Americans: the President, the chairman of the Federal Reserve Board, several thousand chief executives of major American corporations, the leaders of organized labor; and, arrayed around this core group, the executives of smaller American companies, investors and venture capitalists, and a wide-ranging collection of scientists, inventors, and entrepreneurs. Americans depend on these "pilots." Their collective wisdom, foresight, and ambition spell the difference between national prosperity and stagnation. Other Americans must faithfully do their parts as well, of course. All must work hard, save as much as possible, and inculcate in their children similar habits of diligence and frugality.
The metaphor is readily extended to other boats, one of them called the Japanese Economy, another the German Economy, a third the South Korean Economy, and so on, including every nation on earth-all comprising a grand flotilla of national economies sailing on the same wide sea. One boat's speed and safety depend somewhat on the speed and safety of the others (there is need for some coordination lest we collide with one another or run aground on the same shoals, and there are substantial advantages in selling them some of our goods in exchange for some of theirs), but everyone knows that each boat is also competing with every other in a worldwide regatta whose prize is economic preeminence. Boats that are in the lead at one point in history may fall behind at another time. Thus we must maintain our vigilance.
This picture, or something like it, has characterized the way Americans and most other people around the world have come to view their economic life together. The public interest is defined as national economic growth; the common good, as a buoyant national economy. We are bound together, if not by the threat of a foreign predator, then at least by a common economic fate. Each of us relies on our nation's economic prowess, which, in turn, depends on how effectively the nation's resources are developed and mobilized.
This vision's clarity and soothing comprehensibility are its only virtues. The problem with this picture is that it is wrong.
3
ABSENT memory, we are, with Santayana, condemned to repeat the mistakes of the past. But excessive reliance on memory can be equally debilitating. A fixation on what was can blind us to what is, blocking the recognition of change. In matters of economic and social organization we are especially susceptible to vestigial thought. Because few of us have occasion to see the whole of society, we learn to rely on pictures taken in the past. Some of these pictures can be remarkably durable-especially those that are the most pleasing to look at. But an outmoded image can be dangerously misleading.
So it is with our picture of the national economic boat, in which all of us sail together. The picture once represented reality, but it no longer does. Its perseverance has led to a fraudulent diagnosis of economic and social problems, and of the challenges ahead. It has distorted discussions about national purpose. The economic pessimists are as misled as the optimists. Both begin from the wrong premises.
There has been no lack of warning that reality has changed. Some of the manifestations of the change are easily observed, in the United States as elsewhere. It is now a commonplace, for example, that large corporations are no longer as profitable as they were twenty-five years ago. From a peak of nearly to percent in 1965, the average net after-tax profit rate of America's largest non financial corporations declined in the 1970s, bounced back somewhat between 1982 and 1985, and then resumed its downward slide. When adjusted for inflation, the highest Dow Jones Industrial Average of the bullish 1980s, reached in August 1987, was actually below its peak of January 1966. Further, America's 500 largest industrial companies failed to add any American jobs between 1975 and 1990, and their share of the civilian labor force dropped from 17 percent to less than to percent during the same interval.
Organized labor has shrunk to a small fraction of' the work force. In 1960, 35 percent of all nonagricultural workers in America belonged to a union. By 1990, the figure was 17 percent. Excluding government employees, the unionized portion of the work force was only a bit over 13 percent-less than it was in the early 193os, before the Wagner Act created a legally protected right to union representation.
There is a growing awareness, too, that foreigners are coming to own an ever greater proportion of America's productive assets. As recently as 1977, no more than 3.5 percent of the manufacturing capacity of the United States, by value, was owned by non-Americans. By 1990, foreigners exercised effective control over almost 11 percent of American manufacturing and employed more than 1 o percent of American manufacturing workers. Meanwhile, American corporations are investing abroad at a furious pace. Between 198o and 19go, American companies increased their overseas spending on new factories, equipment, and research and development at a higher rate than their investments in the United States.
Money, technology, information, and goods are flowing across national borders with unprecedented rapidity and ease. The cost of transporting things and communicating ideas is plummeting. Capital controls in most industrialized countries are being removed; trade barriers, reduced. Even items that governments wish to prevent from getting in (drugs, illegal immigrants) or out (secret weapons) do so anyway.
At the same time, there has been an increasing divergence in compensation between corporate executives and the workers laboring under them. In 1960, the chief executive of one of America's 100 largest non financial corporations earned, on average, $ 190,000, or about 40 times the wage of his average factory worker. After taxes, the chief executive earned only 12 times the factory worker's wages. By the end of the 1980s, however, the chief executive earned, on average, more than $2 million-93 times the wage of his (rarely her) average factory worker. After taxes, the chief executive's compensation was about 70 times that of the average factory worker.
This divergence has been matched by an increasing inequality in the incomes of Americans overall. Between 1977 and 1990, the average pretax earnings of the poorest fifth of Americans declined by about 5 percent; during the same interval, the richest fifth became about g percent wealthier, before paying taxes. The income disparity has widened fastest between people who graduated from college and those who graduated only from high school or dropped out. This trend is not unique to the United States; many other advanced industrial nations are witnessing a similar divergence.
The divergence in earnings is related to where people have chosen to reside. Until the late 1970s, the average incomes of the inhabitants of different towns or states were slowly converging, as industry spread outward to embrace less developed areas of the nation. Since then, however, the trend has been in the opposite direction. Relatively wealthy towns and states have become even more wealthy; the poorer have grown steadily poorer by comparison. Such regional disparities are growing in many other nations as well-between Tokyo and outlying prefectures, between southern England and the Midlands, between Italy's affluent north and more primitive south.
All of these manifestations of change have the same root cause, which I will explore in the following pages. Americans are no longer in the same economic boat (nor, for that matter, are the citizens of other nations in the same boat). Yet the prevailing image remains fixed in our heads. The old picture gives comfort, suggesting national solidarity and purpose. If we are all in it together, then we can rely on one another in a pinch.
THE AIM of this book is to paint a new picture, one more reflective of the realities of the emerging global economy and of the societies that are being shaped as a consequence. As almost every factor of production-money, technology, factories, and equipment-moves effortlessly across borders, the very idea of an American economy is becoming meaningless, as are the notions of an American corporation, American capital, American products, and American technology. A similar transformation is affecting every other nation, some faster and more profoundly than others; witness Europe, hurtling toward economic union.
So who is "us"? The answer lies in the only aspect of a national economy that is relatively immobile internationally: the American work force, the American people. The real economic challenge facing the United States in the years ahead-the same as that facing every other nation-is to increase the potential value of what its citizens can add to the global economy, by enhancing their skills and capacities and by improving their means of linking those skills and capacities to the world market. This is not the challenge of "national competitiveness," as typically conceived. There is no longer any reason for the United States-or for any other nation-to protect, subsidize, or other-wise support its corporations above all others, as some have argued. Nor are there grounds for reducing public expenditures and cutting taxes in order to give the nation's citizens more money to invest-an argument in vogue among those with an often quasi-religious faith in free markets. Neither the profitability of a nation's corporations nor the successes of its investors necessarily improve the standard of living of most of the nation's citizens. Corporations and investors now scour the world for profitable opportunities. They are becoming disconnected from their home nations.
Conventional discussions of the economy-the gross national product, national economic growth, the nation's competitiveness-are beside the point, as are the predictable range of prognostications concerning the economy's future. The optimist's view is accurate-but only for a small portion of America's workers who are becoming ever more valuable in the world economy. Because these Americans are every bit as insightful as their most talented Japanese and European counterparts and are successfully selling their insights around the world, talk of a "Japanese challenge" or the "resurgence of Europe" misses the mark. The pessimist's prognosis, on the other hand, is accurate for most other Americans, but it neglects this thriving minority, who represent one of the great successes of modern economic history.
The underlying question concerns the future of American society as distinct from the American economy, and the fate of the majority of Americans who are losing out in global competition. The answer will depend on whether there is still enough concern about American society to elicit sacrifices from all of us-especially from the most advantaged and successful of us-to help the majority regain the ground it has lost and fully participate in the new global economy. The same question of responsibility confronts every other nation whose economic borders are vanishing.
It is not simply a matter of national security. Modern technologies have diffused global power. Even relatively poor nations can now finance weapons of fierce destruction. It is, rather, a matter of national purpose. Are we still a society, even if we are no longer an economy? Are we bound together by something more than the gross national product? Or has the idea of the nation-state as a collection of people sharing some responsibility for their mutual well-being become passé
From: Rober Reich, The Work of Nations: Preparing Ourselves for 21st Century Capitalism: Random House: New York, 1992; 3-9.
From High Volume
to High Value
THE MODERN corporation at the close of the twentieth century bears only a superficial resemblance to its mid-century counterpart. The names and logos of America's core corporations are still emblematic of the American economy-General Electric, AT&T, General Motors, Ford, IBM, Kodak, American Can, Sears, Caterpillar Tractor, TWA, and so on, including even a few new giants virtually unknown at mid-century, like Texas Instruments, McDonald's, Xerox, and American Express. They still conjure up images of vast wealth and control over the wheels of commerce. They are still headquartered in formidable glass-and-steel buildings, as before, and their top executives still hobnob with politicians and celebrities, and write autobiographies congratulating themselves on their wisdom and daring.
But underneath, all is changing. America's core corporation no longer plans and implements the production of a large volume of goods and services; it no longer owns or invests in a vast array of factories, machinery, laboratories, warehouses, and other tangible assets; it no longer employs armies of production workers and middle-level managers; it no longer serves as gateway to the American middle class. In fact, the core corporation is no longer even American. It is, increasingly, a facade, behind which teems an array of decentralized groups and subgroups continuously contracting with similarly diffuse working units all over the world.
2
THE TRANSFORMATION has been less than smooth. NO longer able to generate large earnings from high-volume production of standard commodities-and unable to restore profits by protecting the American market, cutting prices, or rearranging assets America's core corporations are gradually, often painfully, turning toward serving the unique needs of particular customers. By trial and error, by fits and starts, often under great stress, and usually without much awareness of what they are dong or why, the firms that are surviving and succeeding are shifting from high volume to high value. A similar transformation is occurring in other national economies which have traditionally been organized around high-volume production.
A few illustrations will help make the point.' In the United States, as in other leading areas of the world economy, the fastest growing and most profitable part of steelmaking is no longer in mammoth 5,ooo-employee integrated mills producing long runs of steel ingots. It is in steels intended for particular uses: corrosion resistant steels (hot-dipped galvanized or electro-galvanized) produced for specific automobiles, trucks, and appliances; iron powder that can be packed and forged into lightweight and precisely balanced parts used in crankshafts and other high-stressed parts of engines; alloys comprising steel mixed with silicon, nickel, or cobalt, for turbine and compressor disks, spacers, seals, and other high-temperature components of aircraft (McDonnell Douglas now buys composite helicopter blades comprising seventeen different materials, for $50,000 each); and mini-mills, using electric-arc furnaces and scrap metal to serve particular customers. A similar transformation is occurring in plastics, where high earnings no longer flow from large batches of basic polymers like polystyrene, but from special polymers created from unique combinations of molecules which can withstand varying degrees of stress and temperature and can be molded into intricate parts (like those found in cellular telephones or computers). In chemicals, the biggest profits likewise lie in specialty chemicals designed and produced for particular industrial uses.
Whether the industry is old or new, mature or high-tech, the pattern is similar. Leading tool and die casters make precision castings out of aluminum and zinc for computer frames, inserts, housings, and disk-drive components. The most profitable textile businesses produce specially coated and finished fabrics for automobiles, office furniture, rain gear, and wall coverings. The fastest-growing and most profitable semiconductor firms make specialized microprocessors and customized chips tailored to the particular needs of buyers. As computers with standard operating systems become commodities, the largest profits lie in the software that links computers to particular user needs. (In 1984, 80 percent of the cost of a computer was in its hardware, 20 percent in software; by 1990, the proportions were just the reverse.)
Traditional services are experiencing the same transformation. The highest profits in telecommunications derive from customized long-distance services like voice, video, and information processing; from "smart buildings" connecting office telephones, computers, and facsimile machines; and from specialized telecommunications networks linking employees in different locations. The fastest-growing trucking, rail, and air freight businesses meet shippers' needs for specialized pickups and deliveries, unique containers, And worldwide integration of different modes of transportation. The most profitable financial businesses offer a wide range of services (linking banking, insurance, and investment) tailored to the specific needs of individuals and businesses. As news becomes a commodity available on twenty-four-hour television, the fastest-growing news and wire service businesses similarly assemble unique packages of information tailored to subscribers' needs (customized newsletters, video news release services, eventually even home-computer-customized "videotext" newspapers). Again, from high volume to high value.
These businesses are profitable both because customers are willing to pay a premium for goods or services that exactly meet their needs and because these high-value businesses cannot easily be duplicated by high-volume competitors around the world. While competition among high-volume producers continues to compress profits on everything that is uniform, routine, and standard-that is, on anything that can be made, reproduced, or extracted in volume almost anywhere on the globe-successful businesses in advanced nations are moving to a higher ground based on specially tailored products and services. The new barrier to entry is not volume or price; it is skill in finding the right fit between particular technologies and particular markets. Core corporations no longer focus on products as such; their business strategies increasingly center upon specialized knowledge.
3
LOOK closely at these high-value businesses and you see three different but related skills that drive them forward. Here, precisely, is where the value resides. First are the problem-solving skills required to put things together in unique ways (be they alloys, molecules, semiconductor chips, software codes, movie scripts, pension portfolios, or information). Problem-solvers must have intimate knowledge of what such things might be able to do when reassembled, and then must turn that knowledge into designs and instructions for creating such outcomes. Unlike the researchers and designers whose prototypes emerged fully formed from the laboratory or drafting table ready for high-volume production, these people are involved in a continuing search for new applications, combinations, and refinements capable of solving all sorts of emerging problems.
Next are the skills required to help customers understand their needs and how those needs can best be met by customized products. In contrast to selling and marketing standardized goods which requires persuading many customers of the virtues of one particular product, taking lots of orders for it, and thus meeting sales quotas-selling and marketing customized products requires having an intimate knowledge of a customer's business, where competitive advantage may lie, and how it can be achieved. The key is to identify new problems and possibilities to which the customized product might be applicable. The art of persuasion is replaced by the identification of opportunity.
Third are the skills needed to link problem-solvers and problem-identifiers. People in such roles must understand enough about specific technologies and markets to see the potential for new products, raise whatever money is necessary to launch the project, and assemble the right problem-solvers and -identifiers to carry it out. Those occupying this position in the new economy were typically called "executives" or "entrepreneurs" in the old, but neither term fully connotes their role in high-value enterprise. Rather than controlling organizations, founding businesses, or inventing things, such people are continuously engaged in managing ideas. They play the role of strategic broker.
4
IN THE high-value enterprise, profits derive not from scale and volume but from continuous discovery of new linkages between solutions and needs. The distinction that used to be drawn between "goods" and "services" is meaningless, because so much of the value provided by the successful enterprise-in fact, the only value that cannot easily be replicated worldwide-entails services: the specialized research, engineering, and design services necessary to solve problems; the specialized sales, marketing, and consulting services necessary to identify problems; and the specialized strategic, financial, and management services for brokering the first two. Every high-value enterprise is in the business of providing such services.
Steelmaking is becoming a service business, for example. When a new alloy is molded to a specific weight and tolerance, services account for a significant part of the value of the resulting product. Steel service centers help customers choose the steels and alloys they need, and then inspect, slit, coat, store, and deliver the materials. Computer manufacturers are likewise in the service business, where a larger and larger portion of every consumer dollar goes toward customizing software and then integrating and installing systems around it. IBM is a service company, although it appears annually on the list of the nation's largest industrial firms. In 1990 more than one-third of its profits came from designing software, up from 18 percent in the mid-1980s, and more than 20 percent came from integrating computer systems. Much of the rest was related to what it calls "sales and support," which involves helping customers define their data-processing needs, choose appropriate hardware and software, get it up and running, and then working out the bugs. Less than 20,000 of IBM's 400,000 employees were classified as production workers engaged in traditional manufacturing. The immensely successful IBM personal computer itself comprises a collection of services-research, design, engineering, sales, service; only 10 percent of its purchase price is for the physical manufacture of the machine.'
America's arcane system of national accounting still has separate categories for manufacturing and services-classifying, for example, computer software as a service (although it is reproduced like a manufactured item) and a computer as a manufactured good (although an ever-larger portion of the cost of a computer lies in computer services). The pharmaceutical industry is classified under "manufacturing," although a drug's production costs actually represent only a tiny fraction of the total costs, which mostly involve services like research and development, clinical trials, patent applications and regulatory clearances, drug detailing, and distribution. We are told, repeatedly, that nearly 8o percent of the new jobs created in the 1980s were in services, and that some 70 percent of private-sector employees now work in service businesses. But as the lines begin to blur between services and goods, such numbers are increasingly meaningless in terms of what is actually occurring in the economy and where the real value lies.
From: Rober Reich, The Work of Nations: Preparing Ourselves for 21st Century Capitalism: Random House: New York, 1992; 81-86.
of Enterprise
There was ... a mysterious rite of initiation through
which, in one way or another, almost every member of the
team passed. The term that the old hands used for this
rite . . . was "signing up." By signing up for the project
you agreed to do whatever was necessary for success. You
agreed to forsake, if necessary, family, hobbies, and
friends-if you had any of these left (and you might not if
you had signed up too many times before) .... Labor was
no longer coerced. Labor volunteered.
TRACY KIDDER,
The Soul of a New Machine (1981 )
THE HIGH-VALUE enterprise has no need to control vast resources, discipline armies of production workers, or impose predictable routines. Thus it need not be organized like the old pyramids that characterized standardized production, with strong chief executives presiding over ever-widening layers of managers, atop an even larger group of hourly workers, all following standard operating procedures.
In fact, the high-value enterprise cannot be organized this way. The three groups that give the new enterprise most of its value -problem-solvers, problem-identifiers, and strategic brokers need to be in direct contact with one another to continuously discover new opportunities. Messages must flow quickly and clearly if the right solutions are to be applied to the right problems in a timely way. This is no place for bureaucracy.
Anyone who has ever played the children's game Telephone-in which one person whispers a phrase to the next person in line, who then whispers the phrase to the next, and so on, until the last person announces aloud a phrase that invariably bears no resemblance to the original-knows what can happen when even the simplest messages are passed through intermediaries: "Have a nice day" turns into "Get out of my way." If problem-identifier had to convey everything they were learning about the needs of their customers upward to top management through layers and layers of middle managers, while problem-solvers had to convey everything they were learning about new technologies upward through as many layers, and then both groups had to await tot management's decisions about what to do-decisions which they had to travel back down through the same bureaucratic channels-the results would be, to say the least, late and irrelevant and probably distorted.
Thus one of the strategic broker's tasks is to create settings in which problem-solvers and problem-identifiers can work together without undue interference. The strategic broker is a facilitator and a coach-finding the people in both camps who can lean most from one another, giving them whatever resources the need, letting them go at it long enough to discover new complements between technologies and customer needs, but also providing them with enough guidance so that they don't lose sight c mundane goals like earning a profit.
Creative teams solve and identify problems in much the Sam way whether they are developing new software, dreaming up new marketing strategy, seeking a scientific discovery, or contriving a financial ploy. Most coordination is horizontal rather than vertical. Because problems and solutions cannot be defined in advance, formal meetings and agendas won't reveal them. They emerge instead out of frequent and informal communication among team members. Mutual learning occurs within the team as insights, experiences, puzzles, and solutions are shared-often randomly. One solution is found applicable to a completely different problem; someone else's failure turns into a winning strategy for accomplishing something entirely unrelated. It is as if teal members were doing several jigsaw puzzles simultaneously wit pieces from the same pile-pieces which could be arranged to form many different pictures. (Such intellectual synergies can be found, on rare occasions, even in university departments.)
Instead of a pyramid, then, the high-value enterprise looks more like a spider's web. Strategic brokers are at the center, but there are all sorts of connections that do not involve them directly, and new connections are being spun all the time. At each point of connection are a relatively small number of people-depending on the task, from a dozen to several hundred. If a group was any larger it could not engage in rapid and informal learning.' Here individual skills are combined so that the group's ability to innovate is something more than the simple sum of its parts. Over time, as group members work through various problems and approaches together, they learn about one another's abilities. They learn how they can help one another perform better, who can contribute what to a particular project, how they can best gain more experience together. Each participant is on the lookout for ideas that will propel the group forward. Such cumulative experience and understanding cannot be translated into standard operating procedures easily transferable to other workers and other organizations. Each point on the "enterprise web" represents a unique combination of skills.
2
SPEED and agility are so important to the high-value enterprise that it cannot be weighed down with large overhead costs like office buildings, plant, equipment, and payroll. It must be able to switch direction quickly, pursue options when they arise, discover new linkages between problems and solutions wherever they may lie.
In the old high-volume enterprise, fixed costs such as factories, equipment, warehouses, and large payrolls were necessary in order to achieve control and predictability. In the high-value enterprise, they are an unnecessary burden. Here, all that really counts is rapid problem-identifying and problem-solving-the marriage of technical insight with marketing know-how, blessed by strategic and financial acumen. Everything else-all of' the more standardized pieces-can be obtained as needed. Office space, factories, and warehouses can be rented; standard equipment can be leased; standard components can be bought wholesale from cheap producers (many of them overseas); secretaries, routine data processors, bookkeepers, and routine production workers can be hired temporarily.
In fact, relatively few people actually work for the high-value enterprise in the traditional sense of having steady jobs with fixed salaries. The inhabitants of corporate headquarters, who spend much of their time searching for the right combinations of solutions, problems, strategies, and money, are apt to share in the risks and returns of their hunt. When a promising combination is found, participants in the resulting project (some at the center of the web, some at connecting points on the periphery) also may share in any profits rather than take fixed salaries.
With risks and returns broadly shared, and overhead kept to a minimum, the enterprise web can experiment. Experimentation was dangerous in the old high-volume enterprise because failures (like Ford's notorious Edsel) meant that the entire organization had to change direction-retool, retrain, redirect sales and marketing-at a huge cost. But experimentation is the lifeblood of the high-value enterprise, because customization requires continuous trial and error.
Sharing risks and returns has an added advantage. It is a powerful creative stimulus. If they are to spot new opportunities in technologies and markets, problem-solvers, -identifiers, and brokers must be highly motivated. Few incentives are more powerful than membership in a small group engaged in a common task, sharing the risks of defeat and the potential rewards of victory. Rewards are not only pecuniary. The group often shares a vision as well; they want to make their mark on the world.
At the web's outer edges, suppliers of standard inputs (factories, equipment, office space, routine components, bookkeeping, janitorial services, data processing, and so forth) contract to provide or do specific things for a certain time and for a specified price. Such arrangements are often more efficient than directly controlling employees.2 Suppliers who profit in direct proportion to how hard and carefully they do their jobs have every incentive to find increasingly efficient ways of accomplishing their tasks. Consider the owner of a McDonald's franchise who works fifteen hour days and keeps the outlet sparkling clean; or the machine operator who, owning the equipment and contracting to do jobs with it (and keep the profits), maintains the machine in perfect condition.3
3
ENTERPRISE webs come in several shapes, and the shapes continue to evolve. Among the most common are: Independent profit centers. This web eliminates middle-level managers and pushes authority for product development and sales down to groups of engineers and marketers (problem-solvers and -identifiers) whose compensation is linked to the unit's profits. Strategic brokers in headquarters provide financial and logistical
help, but give the unit discretion over how to spend money up to a certain amount. By 1990, Johnson & Johnson comprised 166 autonomous companies; Hewlett-Packard, some 50 separate business units. General Electric, IBM, AT&T, and Eastman Kodak, among others, were also adopting this approach. For much the same reason, large publishing houses were busily creating "imprints"-small, semiautonomous publishing houses within the structure of the parent firm, each comprising a dozen or so people with considerable responsibility for acquiring and publishing books on their own.
Spin-off partnerships. In this web, strategic brokers in headquarters act as venture capitalists and midwives, nurturing good ideas that bubble up from groups of problem-solvers and -identifiers and then (if the ideas catch on in the market) spinning the groups off as independent businesses in which the strategic brokers at headquarters retain a partial stake. Xerox and 3M have pioneered this form in the United States, but it is nothing new to the Japanese. Hitachi, for example, is actually more than 6o companies, 2'7 of which are publicly traded. Some venture-capital firms and leveraged-buyout partnerships are coming to resemble the same sort of' web, in which risks and returns are shared between headquarters and the managers of the separate businesses.
Spin-lit partnerships. In this web, good ideas bubble up outside the firm from independent groups of problem-solvers and -identifiers. Strategic brokers in headquarters purchase the best of' them, or form partnerships with the independents, and then produce, distribute, and market the ideas under the firm's own well-known trademark. This sort of arrangement is common to computer software houses. In 1990, for example, over 400 tiny software-developing firms were purchased by big software companies such as Microsoft, Lotus, and Ashton-Tate. The software developers thus received a nice profit on their efforts, while the larger firms maintained a steady supply of new ideas.
Licensing. In this web, headquarters contracts with independent businesses to use its brand name, sell its special formulas, or otherwise market (that is, find applicable problems for) its technologies. Strategic brokers at the center of the web ensure that no licensee harms the reputation of the brand by offering inconsistent or poor quality, and also provide licensees with special bulk services like computerized inventory management or advertising.
Most of the ownership and control, however, is left in the hands of licensees. One example is franchises, which are among the fastest-growing businesses in every advanced economy, now selling everything from tax preparation and accounting services to hotel accommodations, cookies, groceries, printing and copying, health care, and bodybuilding. In 1988, American franchisees comprised 509,000 outlets and accounted for $640 billion in sales, amounting to more than 10 percent of the entire national product.
Pure brokering. In the most decentralized kind of web, strategic brokers contract with independent businesses for problem solving and identifying as well as for production. This web is ideal for enterprises that need to shift direction quickly. By 19go, for example, Compaq Computers of Houston (which did not exist in 1982 but eight years later had revenues of $3 billion) was buying many of its most valuable components on the outside (microprocessors from Intel, operating systems from software houses like Microsoft, liquid-crystal screens from Citizen), and then selling the resulting machines through independent dealers to whom Compaq granted exclusive sales territories. The Apple II computer cost less than $500 to build, of which $350 was for components purchased on the outside .5 Meanwhile, the Lewis Galoob Toy Company sold more than $50 million worth of tiny gadgets conceived by independent inventors and novelty companies, designed by independent engineers, manufactured and packaged by suppliers in Hong Kong (who contracted out the most labor intensive work to China and Thailand), and then distributed in America by independent toy companies. Movie studios that once relied on their own facilities, crews, and exclusive stables of actors, directors, and screenwriters were contracting on a project-by project basis with independent producers, directors, actors, writers, crews, and cinematographers, using rented space and equipment, and relying on independent distributors to get the films into appropriate theaters. Book publishers were contracting not only for authors but also for printing, graphics, artwork, marketing, and all other facets of production. Even automakers were outsourcing more and more of what they produced. (By 1990, Chrysler Corporation directly produced only about 30 percent of the value of its cars; Ford, about 50 percent. General Motors bought half its engineering and design services from Boo different companies.)
4
AMERICANS love to debate old categories. Does manufacturing have a future or are we becoming a service economy? Are big businesses destined to expire like prehistoric beasts, to be superseded by small businesses, or are big businesses critical to our economic future? Such questions provide endless opportunities for debate, not unlike the arguments of thirteenth-century Scholastics over how many angels could comfortably fit on a pinhead. Such debates are socially useful in that they create excuses for business seminars, conferences, and magazine articles and thus ensure gainful employment for many. But such debates are less than edifying. Debaters usually can find evidence to support whatever side they choose, depending on how they define their terms. Whether manufacturing is being replaced by a service economy depends on how "manufacturing" and "service" are defined; whether small businesses are replacing large depends equally on what these adjectives are taken to mean. In fact, all manufacturing businesses are coming to entail services, and all large businesses are spinning into webs of smaller businesses.
The federal government's Standard Industrial Classification system is as unhelpful and anachronistic here as before. It defines "establishment" as any business, including one that may be pal t of a larger company. Thus, not surprisingly, official statistics show that the number of small "establishments" nearly doubled between 1975 and I 99o, creating millions of new jobs just as the high volume, hierarchical corporation was transforming into a high value, decentralized enterprise web. But even discounting this statistical sleight of hand, the shift from high-volume hierarchies to high-value webs would create the appearance of a dwindling core simply because core corporations no longer employ many people directly and their webs of indirect employment defy easy measurement.
As stated earlier, by most official measures, America's 500 largest industrial companies failed to create a single net new job between 1975 and t 1990, their share of the civilian labor force dropping from 17 percent to less than 10 percent. Meanwhile, after decades of decline, the number of people describing themselves as "self-employed" began to rise.' And there has been an explosion in the number of new businesses (in 1950, 93,000 corporations were created in the United States; by the late 1980s, America was adding about 1.3 million new enterprises to the economy each year)." Most of the new jobs in the economy appear to come from small businesses," as does most of the growth in research spending.'° A similar transformation has been occurring in other nations."
But to draw the natural conclusion from these data-that large businesses are being replaced by millions of tiny businesses-is to fall into the same vestigial trap as in the debate over "manufacturing" versus "services": both ignore the weblike relationships that are shaping the new economy. Here, the core corporation is no longer a "big" business, but neither is it merely a collection of smaller ones. Rather, it is an enterprise web. Its center provides strategic insight and binds the threads together. Yet points on the web often have sufficient autonomy to create profitable connections to other webs. There is no "inside" or "outside" the corporation, but only different distances from its strategic center.
The resulting interconnections can be quite complex, stretching over many profit centers, business units, spin-offs, licensees, franchisees, suppliers, and dealers, and then on to other strategic centers, which in turn are linked to still other groups. Throughout the 1980s, for example, IBM (which, as you recall, had jealously guarded its independence even to the point of departing India rather than sharing profits with Indian partners) joined with dozens of companies-Intel, Merrill Lynch, Aetna Life and Casualty, MCI, Comsat, and more than eighty foreign-owned firms-to share problem-solving, problem-identifying, and strategic brokering. Similarly, AT&T (which for seventy years had prided itself on having total control over its products and operating systems) found itself in a newly deregulated, unpredictable world of telecommunications, which required hundreds of alliances and joint ventures, and thousands of subcontracts.12 Core corporations in other mature economies are undergoing a similar transformation. Indeed, as we shall see, their increasingly decentralized enterprise webs are becoming undifferentiated extensions of our own."
The trend should not be overstated. Even by the 1990s there remain large corporations of bureaucratic form and function, which directly employ many thousands of workers and which own substantial physical assets. But these corporations are coming to be the exceptions. That they survive and prosper is despite, rather than because of, their organization. The most profitable firms are transforming into enterprise webs. They may look like the old form of organization from the outside, but inside all is different. Their famous brands adhere to products and services that are cobbled together from many different sources outside the formal boundaries of the firm. Their dignified headquarters, expansive factories, warehouses, laboratories, and fleets of trucks and corporate jets are leased. Their production workers, janitors, and bookkeepers are under temporary contract; their key researchers, design engineers, and marketers are sharing in the profits. And their distinguished executives, rather than possessing great power and authority over this domain, have little direct control over much of anything. Instead of imposing their will over a corporate empire, they guide ideas through the new webs of enterprise.
pp. 87-97
THE NEW organizational webs of high-value enterprise, which are replacing the old core pyramids of high-volume enterprise, are reaching across the globe. Thus there is coming to be no such organization as an "American" (or British or French or Japanese or West German) corporation, nor any finished good called an "American" (or British, French, Japanese, or West German) product.
The old American multinational corporation was controlled from its American headquarters. Its foreign subsidiaries were indeed subsidiary-as foreign workers and customers were often reminded. Whether they extracted raw materials and sent them back to the United States for processing, or distributed and sold American-made products in their own markets and sent the revenues back to America-even if they manufactured the products according to specifications set by headquarters in America before marketing and distributing them and then sending back the revenues-it was clear that the subsidiaries served the interests of their American parent. Ownership and control were indisputably American. There was no doubt about which nationality was at the top of the pyramid. And regardless of how much of the final product was made abroad, the most complicated work-design and fabrication of the most intricate parts, and strategic planning, financing, and marketing-was done in the United States, by Americans. Such financial and technological dominance prompted many Europeans, and then East Asians, to respond by creating their own national champions.
But this kind of top-down control and centralized ownership is impossible in the weblike organizations of the high-value en terprise. Here, power and wealth flow to groups that have accumulated the most valuable skills in problem-solving, problemidentifying, and strategic brokering. Increasingly, such groups are to be found in many places around the globe other than the United States. As the world shrinks through efficiencies in telecommunications and transportation, such groups in one nation are able to combine their skills with those of people located in other nations in order to provide the greatest value to customers located almost anywhere. The threads of the global web are computers, facsimile machines, satellites, high-resolution monitors, and modems-all of them linking designers, engineers, contractors, licensees, and dealers worldwide.'
Of course, many nations still try to inhibit the flow of knowledge and money across their borders. But such inhibitions are proving increasingly futile, partly because modern technologies have made it so difficult for nations to control these flows. By the last decade of the twentieth century, governments could successfully block at their national borders few things other than tangible objects weighing more than three hundred pounds. Much of the knowledge and money, and many of the products and services, that people in different nations wish to exchange with one another are now easily transformed into electronic blips that move through the atmosphere at the speed of light. In 1988, some 17,000 leased international telephone circuits carried engineering designs, video images, and data instantaneously back and forth between problem-solvers, -identifiers, and brokers working together on different continents. The threads of the emerging global webs are barely visible, thus often elusive.
2
IN THE older high-volume economy, most products-like the corporations from which they emanated-had distinct nationalities. Regardless of how many international borders they crossed, their country of origin-the name of which was usually imprinted right on them-was never in doubt. Most of the work that went into these products was done in one place, simply because economies of scale necessitated a central location. Into the large, centralized factory would go raw materials like coal or cotton, or commodities like steel or cotton fabric; out would come standard products like automobiles or dresses.
But in the emerging high-value economy, which does not depend on large-scale production, fewer products have distinct nationalities. Quantities can be produced efficiently in many different locations, to be combined in all sorts of ways to serve customer needs in many places. Intellectual and financial capital can come from anywhere, and be added instantly.
Consider some examples: Precision ice hockey equipment is designed in Sweden, financed in Canada, and assembled in Cleveland and Denmark for distribution in North America and Europe, respectively, out of alloys whose molecular structure was researched and patented in Delaware and fabricated in Japan. An advertising campaign is conceived in Britain; film footage for it is shot in Canada, dubbed in Britain, and edited in New York. A sports car is financed in Japan, designed in Italy, and assembled in Indiana, Mexico, and France, using advanced electronic components invented in New Jersey and fabricated in Japan. A microprocessor is designed in California and financed in America and West Germany, containing dynamic random-access memories fabricated in South Korea. A jet airplane is designed in the state of Washington and in Japan, and assembled in Seattle, with tail cones from Canada, special tail sections from China and Italy, and engines from Britain. A space satellite designed in California, manufactured in France, and financed by Australians is launched from a rocket made in the Soviet Union. Which of these is an American product? Which a foreign? How does one decide? Does it matter?
3
IN SUCH global webs, products are international composites. What is traded between nations is less often finished products than specialized problem-solving (research, product design, fabrication), problem-identifying (marketing, advertising, customer consulting), and brokerage (financing, searching, contracting) services, as well as certain routine components and services, all of which are combined to create value.
When an American buys a Pontiac Le Mans from General Motors, for example, he or she engages unwittingly in an international transaction. Of the $io,ooo paid to GM, about $3,000 goes to South Korea for routine labor and assembly operations, $1,750 to Japan for advanced components (engines, transaxles, and electronics), $750 to West Germany for styling and design engineering, $400 to Taiwan, Singapore, and Japan for small components, $250 to Britain for advertising and marketing services, and about $50 to Ireland and Barbados for data processing. The rest-less than $4,000-goes to strategists in Detroit, lawyers and bankers in New York, lobbyists in Washington, insurance and health-care workers all over the country, and General Motors shareholders-most of whom live in the United States, but an increasing number of whom are foreign nationals.
The proud new owner of the Pontiac is not aware of having bought so much from overseas, of course. General Motors did the trading, within its global web. This is typical. By the 1 990s, most "trade" no longer occurred in arm's-length transactions between buyers in one nation and sellers in another, but between people within the same web who are likely to deal repeatedly with each other across borders. They may be part of the same multinational corporation, collecting salaries from one source, or they may be working in different companies that share in any profits from the joint venture, or they may simply contract with one another to perform specific services for a preestablished fee. The West German engineers who designed the Pontiac Le Mans may be on GM's payroll; or they may be on the payroll of West German owned Siemens AG, within a joint venture between Siemens and GM; or Siemens may simply license GM to use automotive designs developed by its engineers. Regardless of the precise legal form it takes, the economics are similar: West German design engineers have added value to a global web, for which they are compensated. The exact amount of compensation may vary, but the reward is likely to approximate whatever value these West German engineers added to this global enterprise web.
Sometimes, of course, geographic specialization of this sort allows economies of scale within particular stages of production. 'Tail cones for jet aircraft, for example, can be produced in large volume within Canada, to be combined in unique ways with other mass-produced components in order to create a wide variety of aircraft. But even under these circumstances, much of the value of the final product derives from the problem-solving, -identifying, and brokering skills entailed in putting such modules together in unique ways.
Such cross-border links now comprise most international trade among advanced economies. Less than half of America's declining trade balance in the 1980s was due to imports of finished products like cars, videocassette recorders, fax machines, or any of the other wonderful gadgets that American consumers demand. Most of the imports were parts of such items, plus the engineering, design, consulting, advertising, financial, and management services which would find their way into them. In fact, in 19go more than half of America's exports and imports, by value, were simply the transfers of such goods and related services within global corporations.'
This sort of trade is hard to pin down. When, as now, traders deal repeatedly with one another across borders-exchanging services that are priced not in an open market but among divisions of the same global corporation, or within complex employment contracts, profit-sharing agreements, and long-term supply arrangements-determinations about what it is that one "nation" has paid out to another "nation" can be no better than fair approximations. Thus trade statistics are notoriously imprecise, subject to wide swings and seemingly inexplicable corrections. The truth is that these days no one knows exactly, at any given time, whether America's (or any other nation's) international trade is in or out of balance, by how much it is out of balance, or what the significance of such an imbalance might be.
For the same reason, it is becoming impossible to tell with any precision how much of a given product is made where. National governments seeking to levy income taxes on parts of global webs are often baffled. What was earned on work performed within the nation? Armies of international tax attorneys have been kept busy for years, Internal Revenue Service regulation writers have done overtime, Ministers of Finance from around the world have met endlessly, with no final resolution in sight. As more and more enterprises become parts of global webs whose internal accounting systems record the transfers of intermediate goods and related services, earnings and revenues can appear in all sorts of places (often, not coincidentally, where taxes are lowest). Exactly who earns what and where is a question for which there is, apparently, no straightforward answer.
4
GLOBAL webs often cloak themselves in whatever national garb is most convenient. When operating within a nation whose market is protected from foreign competition, they characterize themselves as loyal citizens, even occasionally demanding more protection. In 1987, for example, the Hyster Company, an American-owned manufacturer of forklift trucks (used to shuttle heavy materials around factories and warehouses) headquartered in Portland, Oregon, accused several Japanese-owned firms of pricing their forklifts sold in America below what they charged in Japan, prompting the Commerce Department to impose special duties on the forklift imports. In response, the Japanese firms began to make forklifts in the United States. Hyster cried foul, arguing that the competing forklifts were still `Japanese," since many of their parts came from Japan. What Hyster carefully did not reveal, however, was that its own "American" forklifts contained even more foreign parts than those they were accusing of being `Japanese." What looked like foreign "dumping" in the United States was in reality nothing more than one global web charging a lower price in the United States for its globally made forklifts than that charged by another global web . Changing national costumes can be relatively easy. Consider, for example, how effortlessly global webs manipulate Pentagon regulations requiring that the agency purchase "American" military supplies unless foreign goods are substantially cheaper. Such rules are, of course, justified as necessary for national defense and as being in the interest of American workers (who, it is supposed, are more deserving than foreign workers of such privileges as laboring in dangerous munitions factories). But since most weapons systems use components that are designed and fabricated all over the world, the practical effect of these regulations has been to encourage American companies to front for foreign designers and fabricators. The U.S. government considers a firm to be "American" if it is incorporated in the United States, so it is a relatively easy matter for an "American" firm to assign the work to its far-flung global web. In reality, the Pentagon has no idea who is making what and where.,' Bull HN, an amalgam of French owned Bull, American-owned Honeywell, and Japanese-owned NEC, repeatedly reassures the Pentagon that it is still an American company, entitled to all the pecuniary advantages of citizenship, even though it designs and makes gadgets for the Pentagon all over the world.
When there are greater advantages to being seen as "foreign," on the other hand, even the most native of goods and services are magically transformed into alien products. Is a particular American firm still operating a firm in South Africa? No longer, says the corporate director of public relations reassuringly. The company has pulled out. Closer inspection reveals a somewhat less heartening reality. The corporation has merely changed the legal form of its web, which still extends deeply into that nation. Instead of owning its South African subsidiary outright, it now licenses it to make and sell the same product. Revenues flowing from South Africa to the American strategic brokers and investors remain identical.
Such costume changes can be breathtakingly quick. Consider the Ford Motor Company's instant 19go alteration in light of Environmental Protection Agency (EPA) regulations. The EPA had required that every automaker's fleet of "American-made" cars achieve a certain minimum average fuel economy. Any foreign cars made or imported by the American firm would have to meet the same standard when these cars' fuel economy ratings were averaged together. By not allowing American automakers to average their small, fuel-efficient imports with their far more profitable American gas guzzlers, the EPA had wanted to encourage American automakers to retain small-car production in the United States. In 1989, however, Ford-displaying a talent for regulatory innovation-as-circumvention-concocted a brilliant idea: By increasing the foreign-made parts in its American gas guzzlers just a tad, Ford could qualify the big clunkers as "foreign-made," thus permitting them to be averaged with all the high-mileage Ford imports. Presto! Overnight, Ford's remarkably inefficient "foreign-made" Mercury Marquises and LTD Crown Victorias could be sold in America without first having to be balanced by smaller (and far less profitable) high-mileage cars made in the United States. Ford's clever costume change did not serve the cause of energy conservation, but it did save the company a heap of money.
Official decisions about how much of a product must be produced within the nation in order for it to qualify as "domestic" rather than "foreign"-and how to measure such things-have consumed millions of hours of legal time and herculean efforts by regulators here and abroad. Must go percent of its value originate here in order for it to be deemed a domestic product? Sixty percent? Should the cost of advertising and marketing the product be included in the tally? What about interest payments to banks located within the nation? And so on. With each passing day, the rule books get thicker, the regulations more complex, the inspections and accounting ledgers more picayune.
Such decisions have required delicate diplomatic maneuvers as well. In the 198os French bureaucrats limited Japanese automobile imports to 3 percent of the French market, but then faced the awesome task of explaining to Margaret Thatcher why Nissan Bluebirds, assembled in Britain, 8o percent of whose parts came from Europe, would be subject to the quota (the bureaucrats failed). When in 1989 Taiwan tried to apply its ban on Japanese car imports to Toyotas assembled in the United States, it was the Bush administration's turn to express outrage-and Taiwan backed down. In a remarkably facile, though somewhat less successful turnabout, the administration then attempted to beat back a European Community ruling that Ricoh copiers assembled in California were really "Japanese" and therefore subject to special import duties.
The notion that products have national origins is so deeply ingrained that governments, and the publics they represent, are unable to adjust to the emerging reality. Preoccupied with vestigial concerns, they continue to focus on the wrong question: Is it a "foreign" or a "domestic" product? The answer they find is perplexing and elusive, predicated on refined measurements, subtle discriminations, and bureaucratic and legal manipulations. Unfortunately, all of these contortions accomplish little more than distracting attention from a far more relevant question: For any given product, which nation's workers have gained what sort of experience, equipping them to do what in the future? I shall return to this more fundamental question in later chapters.
pp. 110-118
The Three Jobs
of the Future
THE USUAL discussion about the future of the American economy focuses on topics like the competitiveness of General Motors, or of the American automobile industry, or, more broadly, of American manufacturing, or, more broadly still, of the American economy. But, as has been observed, these categories are becoming irrelevant. They assume the continued existence of an American economy in which jobs associated with a particular firm, industry, or sector are somehow connected within the borders of the nation, so that American workers face a common fate; and a common enemy as well: The battlefields of world trade pit our corporations and our workers unambiguously against theirs.
No longer. In the emerging international economy, few American companies and American industries compete against foreign companies and industries-if by American we mean where the work is done and the value is added. Becoming more typical is the global web, perhaps headquartered in and receiving much of its financial capital from the United States, but with research, design, and production facilities spread over Japan, Europe, and North America; additional production facilities in Southeast Asia and Latin America; marketing and distribution centers on every continent; and lenders and investors in Taiwan, Japan, and West Germany as well as the United States. This ecumenical company competes with similarly ecumenical companies headquartered in other nations. Battle lines no longer correspond with national borders.
So, when an "American" company like General Motors shows healthy profits, this is good news for its strategic brokers in Detroit and its American investors. It is also good news for other GM executives worldwide and for GM's global employees, subcontractors, and investors. But it is riot necessarily good news for a lot of routine assembly-line workers in Detroit, because there are not likely to be many of them left in Detroit, or anywhere else in America. Nor is it necessarily good news for the few Americans who are still working on assembly lines in the United States, who increasingly receive their paychecks from corporations based in Tokyo or Bonn.
The point is that Americans are becoming part of an international labor market, encompassing Asia, Africa, Latin America, Western Europe, and, increasingly, Eastern Europe and the Soviet Union. The competitiveness of Americans in this global market is coming to depend, not on the fortunes of any American corporation or on American industry, but on the functions that Americans perform-the value they add-within the global economy. Other nations are undergoing precisely the same transformation, some more slowly than the United States, but all participating in essentially the same transnational trend. Barriers to cross-border flows of knowledge, money, and tangible products are crumbling; groups of people in every nation are joining global webs. In a very few years, there will be virtually no way to distinguish one national economy from another except by the exchange rates of their currencies-and even this distinction may be on the wane.
Americans thus confront global competition ever more directly, unmediated by national institutions. As we discard vestigial notions of the competitiveness of American corporations, American industry, and the American economy, and recast them in terms of the competitiveness of the American work force, it becomes apparent that successes or failures will not be shared equally by all our citizens.
Some Americans, whose contributions to the global economy are more highly valued in world markets, will succeed, while others, whose contributions are deemed far less valuable, fail. GM's American executives may become more competitive even as GM's American production workers become less so, because the functions performed by the former group are more highly valued in the world market than those of the latter. So when we speak of the "competitiveness" of Americans in general, we are talking only about how much the world is prepared to spend, on average, for services performed by Americans. Some Americans may command much higher rewards; others, far lower. No longer are Americans rising or falling together, as if in one large national boat. We are, increasingly, in different, smaller boats.
IN ORDER to see in greater detail what is happening to American jobs and to understand why the economic fates of Americans are beginning to diverge, it is first necessary to view the work that Americans do in terms of categories that reflect their real competitive positions in the global economy.
Official data about American jobs are organized by categories that are not very helpful in this regard. The U.S. Bureau of the Census began inquiring about American jobs in 1820, and developed a systematic way of categorizing them in 1870. Beginning in 1943, the Census came up with a way of dividing these categories into different levels of "social-economic status," depending upon, among other things, the prestige and income associated with each job. In order to determine the appropriate groupings, the Census first divided all American jobs into either business class or working class-the same two overarching categories the Lynns had devised for their study of Middletown-and then divided each of these, in turn, into subcategories.' In 1950, the Census added the category of "service workers" and called the resulting scheme America's "Major Occupational Groups," which it has remained ever since. All subsequent surveys have been based on this same set of categories. Thus, even by 1 1990, in the eyes of the Census, you were either in a "managerial and professional specialty," in a "technical, sales, and administrative support" role, in a "service occupation," an "operator, fabricator, and laborer," or in a "transportation and material moving" occupation.
This set of classifications made sense when the economy was focused on high-volume, standardized production, in which almost every job fit into, or around, the core American corporation, and when status and income depended on one's ranking in the standard corporate bureaucracy. But these categories have little bearing upon the competitive positions of Americans worldwide, now that America's core corporations are transforming into finely spun global webs. Someone whose job falls officially into a "technical" or "sales" subcategory may, in fact, be among the best-paid and most influential people in such a web. To understand the real competitive positions of Americans in the global economy, it is necessary to devise new categories.
Essentially, three broad categories of work are emerging, corresponding to the three different competitive positions in which Americans find themselves. The same three categories are taking shape in other nations. Call them routine production services, inperson services, and symbolic-analytic services.
Routine production services entail the kinds of repetitive tasks performed by the old foot soldiers of American capitalism in the high-volume enterprise. They are done over and over-one step in a sequence of steps for producing finished products tradeable in world commerce. Although often thought of as traditional bluecollar jobs, they also include routine supervisory jobs performed by low- and mid-level managers-foremen, line managers, clerical supervisors, and section chiefs-involving repetitive checks on subordinates' work and the enforcement of standard operating procedures.
Routine production services are found in many places within a modern economy apart from older, heavy industries (which, like elderly citizens, have been given the more delicate, and less terminal, appellation: "mature"). They are found even amid the glitter and glitz of high technology. Few tasks are more tedious and repetitive, for example, than stuffing computer circuit boards or devising routine coding for computer software programs.
Indeed, contrary to prophets of the "information age" who buoyantly predicted an abundance of high-paying jobs even for people with the most basic of skills, the sobering truth is that many information-processing jobs fit easily into this category. The foot soldiers of the information economy are hordes of data processors stationed in "back offices" at computer terminals linked to worldwide information banks. They routinely enter data into computers or take it out again-records of credit card purchases and payments, credit reports, checks that have cleared, customer accounts, customer correspondence, payroll, hospital billings, patient records, medical claims, court decisions, subscriber lists, personnel, library catalogues, and so forth. The "information revolution" may have rendered some of us more productive, but it has also produced huge piles of raw data which must be processed in much the same monotonous way that assembly-line workers and, before them, textile workers processed piles of other raw materials.
Routine producers typically work in the company of many other people who do the same thing, usually within large enclosed spaces. They are guided on the job by standard procedures and codified rules, and even their overseers are overseen, in turn, by people who routinely monitor-often with the aid of computers -how much they do and how accurately they do it. Their wages are based either on the amount of time they put in or on the amount of work they do.
Routine producers usually must be able to read and to perform simple computations. But their cardinal virtues are reliability, loyalty, and the capacity to take direction. Thus does a standard American education, based on the traditional premises of American education, normally suffice.
By 1990, routine production work comprised about one quarter of the jobs performed by Americans, and the number was declining. Those who dealt with metal were mostly white and male; those who dealt with fabrics, circuit boards, or information were mostly black or Hispanic, and female; their supervisors, white males.
In-person services, the second kind of work that Americans do, also entail simple and repetitive tasks. And like routine production services, the pay of in-person servers is a function of hours worked or amount of work performed; they are closely supervised (as are their supervisors), and they need not have acquired much education (at most, a high school diploma, or its equivalent, and some vocational training).
The big difference between in-person servers and routine producers is that these services must be provided person-to-person, and thus are not sold worldwide. (In-person servers might, of course, work for global corporations. Two examples: In 1988, Britain's Blue Arrow PLC acquired Manpower Inc., which provides custodial services throughout the United States. Meanwhile, Denmark's ISS-AS already employed over 16,000 Americans to clean office buildings in most major American cities.) In-person servers are in direct contact with the ultimate beneficiaries of their work; their immediate objects are specific customers rather than streams of metal, fabric, or data. In-person servers work alone or in small teams. Included in this category are retail sales workers, waiters and waitresses, hotel workers, janitors, cashiers, hospital attendants and orderlies, nursing-home aides, child-care workers, house cleaners, home health-care aides, taxi drivers, secretaries, hairdressers, auto mechanics, sellers of residential real estate, flight attendants, physical therapists, and-among the fastest growing of all-security guards.
In-person servers are supposed to be as punctual, reliable, and tractable as routine production workers. But many in-person servers share one additional requirement: They must also have a pleasant demeanor. They must smile and exude confidence and good cheer, even when they feel morose. They must be courteous and helpful, even to the most obnoxious of patrons. Above all, they must make others feel happy and at ease. It should come as no surprise that, traditionally, most in-person servers have been women. The cultural stereotype of women as nurturers-as mommies-has opened countless in-person service jobs to them.'
By 199o, in-person services accounted for about .3o percent of the jobs performed by Americans, and their numbers were growing rapidly. For example, Beverly Enterprises, a single nursing home chain operating throughout the United States, employed about the same number of Americans as the entire Chrysler Corporation (115,174 and 116,250, respectively)-although most Americans were far more knowledgeable about the latter, including the opinions of its chairman. In the United States during the 1980s, well over 8 million new in-person service jobs were created in fast-food outlets, bars, and restaurants. This was more than the total number of routine production jobs still existing in America by the end of the decade in the automobile, steel making, and textile industries combined.'
Symbolic-analytic services, the third job category, include all the problem-solving, problem-identifying, and strategic-brokering activities we have examined in previous chapters. Like routine production services (but unlike in-person services), symbolic-analytic services can be traded worldwide and thus must compete with foreign providers even in the American market. But they do not enter world commerce as standardized things. Traded instead are the manipulations of symbols-data, words, oral and visual representations.
Included in this category are the problem-solving, -identifying, and brokering of many people who call themselves research scientists, design engineers, software engineers, civil engineers, biotechnology engineers, sound engineers, public relations executives, investment bankers, lawyers, real estate developers, and even a few creative accountants. Also included is much of the work done by management consultants, financial consultants, tax consultants, energy consultants, agricultural consultants, armaments consultants, architectural consultants, management information specialists, organization development specialists, strategic planners, corporate headhunters, and systems analysts. Also: advertising executives and marketing strategists, art directors, architects, cinematographers, film editors, production designers, publishers, writers and editors, journalists, musicians, television and film producers, and even university professors.
Symbolic analysts solve, identify, and broker problems by manipulating symbols. They simplify reality into abstract images that can be rearranged, juggled, experimented with, communicated to other specialists, and then, eventually, transformed back into reality. The manipulations are done with analytic tools, sharpened by experience. The tools may be mathematical algorithms, legal arguments, financial gimmicks, scientific principles, psychological insights about how to persuade or to amuse, systems of induction or deduction, or any other set of techniques for doing conceptual puzzles.
Some of these manipulations reveal how to more efficiently deploy resources or shift financial assets, or otherwise save time and energy. Other manipulations yield new inventions-technological marvels, innovative legal arguments, new advertising ploys for convincing people that certain amusements have become life necessities. Still other manipulations-of sounds, words, pictures-serve to entertain their recipients, or cause them to reflect more deeply on their lives or on the human condition. Others grab money from people too slow or naive to protect themselves by manipulating in response.
Like routine producers, symbolic analysts rarely come into direct contact with the ultimate beneficiaries of their work. But other aspects of their work life are quite different from that experienced by routine producers. Symbolic analysts often have partners or associates rather than bosses or supervisors. Their incomes may vary from time to time, but are not directly related to how much time they put in or the quantity of work they put out. Income depends, rather, on the quality, originality, cleverness, and, occasionally, speed with which they solve, identify, or broker new problems. Their careers are not linear or hierarchical; they rarely proceed along well-defined paths to progressively higher levels of responsibility and income. In fact, symbolic analysts may take on vast responsibilities and command inordinate wealth at rather young ages. Correspondingly, they may lose authority and income if they are no longer able to innovate by building on their cumulative experience, even if they are quite senior.
Symbolic analysts often work alone or in small teams, which may be connected to larger organizations, including worldwide webs. Teamwork is often critical. Since neither problems nor solutions can be defined in advance, frequent and informal conversations help ensure that insights and discoveries are put to their best uses and subjected to quick, critical evaluation.
When not conversing with their teammates, symbolic analysts sit before computer terminals-examining words and numbers, moving them, altering them, trying out new words and numbers, formulating and testing hypotheses, designing or strategizing. They also spend long hours in meetings or on the telephone, and even longer hours in jet planes and hotels-advising, making presentations, giving briefings, doing deals. Periodically, they issue reports, plans, designs, drafts, memoranda, layouts, renderings, scripts, or projections-which, in turn, precipitate more meetings to clarify what has been proposed and to get agreement on how it will be implemented, by whom, and for how much money. Final production is often the easiest part. The bulk of the time and cost (and, thus, real value) comes in conceptualizing the problem, devising a solution, and planning its execution.
Most symbolic analysts have graduated from four-year colleges or universities; many have graduate degrees as well. The vast majority are white males, but the proportion of white females is growing, and there is a small, but slowly increasing, number of blacks and Hispanics among them. All told, symbolic analysis currently accounts for no more than 20 percent of American jobs. The proportion of American workers who fit this category has increased substantially since the 1950s (by my calculation, no more than 8 percent of American workers could be classified as symbolic.
The physical environments in which symbolic analysts work are substantially different from those in which routine producers or in-person servers work. Symbolic analysts usually labor within spaces that are quiet and tastefully decorated. Soft lights, wall-to-wall carpeting, beige and puce colors are preferred. Such calm surroundings typically are encased within tall steel-and-glass buildings or within long, low, postmodernist structures carved into hillsides and encircled by expanses of well-manicured lawn.
analysts at mid-century), but the pace slowed considerably in the lg8os-even though certain symbolic-analytic jobs, like law and investment banking, mushroomed. (I will return to this point later.)'
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THESE three functional categories cover more than three out of four American jobs. Among the remainder are farmers, miners, and other extractors of natural resources, who together comprise less than 5 percent of American workers. The rest are mainly government employees (including public school teachers), employees in regulated industries (like utility workers), and government-financed workers (American engineers working on defense weapons systems and physicians working off Medicaid and Medicare), almost all of whom are also sheltered from global competition.
Some traditional job categories-managerial, secretarial, sales, and so on-overlap with more than one of these functional categories. The traditional categories, it should be emphasized, date from an era in which most jobs were as standardized as the products they helped create. Such categories are no longer very helpful for determining what a person actually does on the job and how much that person is likely to earn for doing it. Only some of the people who are classified as "secretaries," for example, perform strictly routine production work, such as entering and retrieving data from computers. Other "secretaries" provide in-person services, like making appointments and fetching coffee. A third group of "secretaries" perform symbolic-analytic work closely allied to what their bosses do. To classify them all as "secretaries" glosses over their very different functions in the economy. Similarly, "sales" jobs can fall within any one of the three functional groups: some salespeople simply fill quotas and orders; others spend much of their time performing in-person services, like maintaining machinery; and some are sophisticated problem identifiers no different from high-priced management consultants. "Computer programmers" (one of the more recent additions to the standard list of occupations) are as varied: They might be doing routine coding, in-person troubleshooting for particular clients, or translating complex functional specifications into software.
That a job category is officially classified "professional" or "managerial" likewise has little bearing upon the function its occupant actually performs in the world economy. Not all professionals, that is, are symbolic analysts. Some lawyers spend their entire working lives doing things that normal people would find unbearably monotonous-cranking out the same old wills, contracts, and divorces, over and over, with only the names changed. Some accountants do routine audits without the active involvement of their cerebral cortices. Some managers take no more responsibility than noting who shows up for work in the morning, making sure they stay put, and locking the place up at night. (I have even heard tell of university professors who deliver the same lectures for thirty years, long after their brains have atrophied, but I do not believe such stories.) None of these professionals is a symbolic analyst .
Nor are all symbolic analysts professionals. In the older, high volume economy, a "professional" was one who had mastered a particular domain of knowledge. The knowledge existed in advance, ready to be mastered. It had been recorded in dusty tomes or codified in precise rules and formulae. Once the novitiate had dutifully absorbed the knowledge and had passed an examination attesting to its absorption, professional status was automatically conferred-usually through a ceremony of appropriately medieval pageantry and costume. The professional was then au theorized to place a few extra letters after his or her name, mount a diploma on the office wall, join the professional association and attend its yearly tax-deductible meeting in Palm Springs, and pursue clients with a minimum of overt avarice.
But in the new economy-replete with unidentified problems, unknown solutions, and untried means of putting them together-mastery of old domains of knowledge isn't nearly enough to guarantee a good income. Nor, importantly, is it even necessary. Symbolic analysts often can draw upon established bodies of knowledge with the flick of a computer key. Facts, codes, formulae, and rules are easily accessible. What is much more valuable is the capacity to effectively and creatively use the knowledge. Possessing a professional credential is no guarantee of such capacity. Indeed, a professional education which has emphasized the rote acquisition of such knowledge over original thought may retard such capacity in later life.
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How, THEN, do symbolic analysts describe what they do? With difficulty. Because a symbolic analyst's status, influence, and income have little to do with formal rank or title, the job may seem mysterious to people working outside the enterprise web, who are unfamiliar with the symbolic analyst's actual function within it. And because symbolic analysis involves processes of thought and communication, rather than tangible production, the content of the job may be difficult to convey simply. In answering the question "What did you do today, Mommy (or Daddy)?" it is not always instructive, or particularly edifying, to say that one spent three hours on the telephone, four hours in meetings, and the remainder of the time gazing at a computer screen trying to work out a puzzle.
Some symbolic analysts have taken refuge in job titles that communicate no more clearly than this, but at least sound as if they confer independent authority nonetheless. The old hierarchies are breaking down, but new linguistic idioms have arisen to perpetuate the time-honored custom of title-as-status.
Herewith a sample. Add any term from the first column to any from the second, and then add both terms to any from the third column, and you will have a job that is likely (but not necessarily) to be inhabited by a symbolic analyst.
Communications Management Engineer
Systems Planning Director
Financial Process Designer
Creative Development Coordinator
Project Strategy Consultant
Business Policy Manager
Resource Applications Adviser
Product Research Planner
The "flat" organization of high-value enterprise notwithstanding, there are subtle distinctions of symbolic-analytic rank. Real status is inversely related to length of job title. Two terms signify a degree of authority. (The first or second column's appellation is dropped, leaving a simpler and more elegant combination, such as "Project Engineer" or "Creative Director.") Upon the most valued of symbolic analysts, who have moved beyond mere technical proficiency to exert substantial influence on their peers within the web, is bestowed the highest honor-a title comprising a term from the last column preceded by a dignified adjective like Senior, Managing, Chief, or Principal. One becomes a "Senior Producer" or a "Principal Designer" not because of time loyally served or routines impeccably followed, but because of special deftness in solving, identifying, or brokering new problems.
Years ago, fortunate and ambitious young people ascended career ladders with comfortable predictability. If they entered a core corporation, they began as, say, a second assistant vice president for marketing. After five years or so they rose to the rank of first assistant vice president, and thence onward and upward. Had they joined a law firm, consulting group, or investment bank, they would have started as an associate, after five to eight years ascended to junior partner, and thence to senior partner, managing partner, and finally heaven.
None of these predictable steps necessitated original thought. Indeed, a particularly creative or critical imagination might even be hazardous to career development, especially if it elicited questions of a subversive sort, like "Aren't we working on the wrong problem?" or "Why are we doing this?" or, most dangerous of all, "Why does this organization exist?" The safest career path was the surest career path, and the surest path was sufficiently well worn by previous travelers so that it could not be missed.
Of course, there still exist organizational backwaters in which career advancement is sequential and predictable. But fewer fortunate and ambitious young people dive into them, or even enter upon careers marked by well-worn paths. They dare not. In the emerging global economy, even the most impressive of positions in the most prestigious of organizations is vulnerable to worldwide competition if it entails easily replicated routines. The only true competitive advantage lies in skill in solving, identifying, and brokering new problems.
pp. 171-184