Q: You seem to be saying
that because of global competition and because of Wall Street many of these
companies simply don't have the choice to do what you think would be good for
them and for the rest of us.
Luria: That's right. There's no question that it's harder to take the risk of
doing the right thing if you face those pressures, but what makes it worse in
some ways is that most government policies are actually discouraging them from
doing the right thing as well. So Wall Street is enjoined in this case by the
government. It makes no sense that we permit cities and states to offer
companies generous tax breaks to close their mature plants in the cities and go
build identical plants somewhere in a "greenfield," in a semi-rural area. That
makes absolutely no sense for anybody.
Second, of course it's more tempting to avoid making capital investments if
you can go out and get an almost unlimited source of labor at six or seven
dollars an hour. A higher minimum wage would obviously make that more
difficult to do.
Q: I'm going to ask you a little more about government policy, but I
also want you again to answer the first question. Because of global
competition, because of Wall Street -- it sounds to me like you're saying a lot
of these companies simply have no choice to do the right thing, to do what's
good for them or for the rest of us.
Luria: Most companies do have a choice. Most companies could do the right
thing, but to do so would entail risks.
Q: And the risks are?
Luria: The risks are that they would not be able to generate a return quickly
enough to satisfy the capital markets.
Q: We'll get back to government policy in a second. Let's talk a little
bit about specific products. Some products are more given to being able to
adopt this high investment, sophisticated worker policy than others. What are
Luria: That's right.. Products that are complex to manufacture and in which it
would be harder for a new competitor to enter and to compete away the business
are obviously those that are the most likely to be made with a high wage, high
investment, high technology recipe. But the vast majority of products out
there are in fact relatively complex, and in almost every industry and with
almost every product, there are examples of manufacturers who are doing the
Q: Is, for example, a Briggs & Stratton lawn mower engine so much less
sophisticated than a Chrysler automobile engine that it makes some sense not to
develop -- not to utilize all these sophisticated techniques?
Luria: Well, lawn mower engines are an interesting case. It is a fairly
complex product, although not as complex as an automobile engine. What has to
happen for a company like Briggs & Stratton is they have to make a decision
about whether or not they are going to continue to produce low cost basic lawn
mower engines, or whether or not they are going to continuously innovate the
design of lawn mower engines in order to establish a premium position in that
Q: Now, a lot of companies have just been making the basic product --
saying let's compete on price.
Luria: That's right.
Q: In the end, is that damaging for the country? For them and the
Luria: I think it is. I think that what happens if a company like Briggs &
Stratton -- not to pick on them -- decides to continue to produce engines with
designs that are ten, fifteen, twenty years old, it's not surprising that in
the current policy atmosphere they can probably go build a new plant in
Kentucky or Tennessee or North Carolina that can make those standard engines
more efficiently than a high-cost unionized plant in Milwaukee. But if Briggs
& Stratton really wants to be positioned as the top global lawn mower
engine company, it needs to be thinking about what is the lawn mower market
going to look like fifteen, twenty, thirty years out. For example, are there
going to be requirements for a green lawn mower engine that has lower emissions
-- that's going to require qualitatively new designs and tighter tolerances.
Developing that kind of an engine will be done better by a mature, skilled
union-represented labor force in Milwaukee than it is in some "greenfield"
location in Kentucky or North Carolina.
Q: What about a Masterlock? Looks like an awfully simple product., but
they have developed some sophisticated ways of producing their locks. They
stayed in Milwaukee. The retained an experienced high wage labor force. Why
were they able to do that?
Luria: Well, that really makes my point. Even though a padlock is a much
simpler device than a lawn mower engine or an automotive engine -- even in that
case there was a recipe in which more sophisticated machinery, more technology,
more training could offset the disadvantages of relatively high cost labor in a
northern urban area.
Q: Explain -- how are they able to utilize sophisticated production
methods and keep a high wage work force going making such a simple product?
Luria: It looks like a simple product, but it's very important for
Masterlock -- if it wishes to have a premium position in the market -- to be
sure that those locks are made with very, very high quality -- a bullet can be
fired into that lock and yet it won't disengage, yet simply turn the key and it
will disengage it. It's actually a much more sophisticated product than it
looks and that's actually the case for an awful lot of manufactured
Q: But let me ask again, why is it valuable for them to develop
sophisticated production methods, utilize a high wage sophisticated work
Luria: In the short run, it's a higher risk strategy than the low road, but in
the long run it's the only insurance that they'll be in business ten, twenty,
thirty years down the road, and that's simply because at some point the best
companies -- those with the most technology, the best design in engineering and
the best work force -- are going to figure out new things that need to be
locked. New designs for locks and it's a sure bet that if all you're doing is
making locks today the same way you were making them twenty years age, you are
not going to be around when things are done in a different way in the future.
You're not going to be able to export locks to Europe, to Asia, if your locks
are just like everybody else's. You're going to constantly find yourself
defending a position at the low end of the market, and that's where producers
in Mexico and Singapore and Malaysia are simply going to eat your lunch.
Q: Now can Chrysler, which outsources so many of its parts -- that is to
say buys so many of its parts from non-Chrysler companies -- can they begin to
build and make their own parts in-house for the very same reasons?
Luria: It's very difficult to get back on the high road when you've gotten off
it. It's very hard to get out of a business and then get back into it. Part of
what's made Chrysler so successful is that as they began in the early 1980's --
when it looked like they might go bankrupt -- to stop making so many things
inside and to start letting suppliers do it, they let go the engineers that
used to know how to build those things inside. So it would be very difficult
for them to get back into it. I think probably the most one can hope for is to
keep large companies like Chrysler or Ford or General Motors or General
Electric from becoming more hollow than they already are. It's very hard once
you've selected the low road to make a switch and go back to the high
Q: Roughly how many companies are taking the high road these days?
Luria: No more than twenty percent of American companies are clearly on the
high road today. Everyone else has either chosen the low road or is being
tempted to take the low road, and that is in large part what's wrong with the
American economy; it's what makes us produce too many things that are at the
low end of the food chain in manufacturing and not enough at the high end. It
is why we are no longer the world's leaders in special machine tools. It's why
we are no longer the world's leading producer of steel. It's why we are no
longer the world's leading producer in any given year of cars and trucks. In
many years Japan outproduces us, and it's because of the fact that more and
more companies have taken the low risk, low road and find themselves in a less
and less good position to compete. We don't see this as clearly as we will in
a few years. The fact that the dollar has been so weak has managed to make a
number of not-very-good American companies look better than they are. If and
when the dollar begins to strengthen against the currencies of our major
trading partners, people will see that American manufacturing is by and large
weaker than we believe.
Q: The high investment strategy is a high risk strategy. You could put
all this money and you could have the best intentions of the world and you
could lose your shirt.
Luria: Absolutely right. But if you don't take the risk, you are not going to
be a leader in your field in the long haul.
Q: And you'll lose your shirt anyway.
Luria: And you'll lose your shirt anyway and you'll drag down your nations
living standards on the way.
Q: Is that what's happening in America?
Luria: Absolutely. The most significant source of falling living standards for
manufacturing workers is the fact that more and more of them work in companies
that have chosen the low road.
Q: Let's talk a little bit, very quickly, about government policy. You
think government has to step in somehow or other.
Luria: Well, I think government has a role in essentially creating an
appropriate set of incentives. And government, it certainly seems to me,
should not be providing a set of incentives for companies to do things which
are bad for America's living standards, which is what government policy often
Q: What should government do?
Luria: Government should have a tax system which provides an advantage for
mature, high wage, high capital investment companies and plants vis a vis, new
low investment plants. For example, an investment tax credit which is only
available for purchases of equipment in plants that have been around for a
while -- that would be a very good thing to do. There ought to be higher
minimum wage. If you couldn't get workers for five or six dollars an hour,
there would be an awful lot more incentive for people to think about investing
in labor saving machinery.
Q: Let me ask -- why would an investment incentive to stay in the
central city be beneficial.
Luria: Well, because if you look at cities and metropolitan areas generally,
that is where the mature, high investment, high wage plants have been. It's
partly the history of trade unionism. It's partly because that is where the
pools of skilled labor have been. Keeping those plants in business rather than
letting them be put out of business by rural companies operating on the low
road would obviously be good nationally.
Q: There are several proposals in Washington about giving tax
incentives to corporations to retain employees or to hire them. Do you think
Luria: I think that they're well-intentioned and some of the specific proposals
are better than others. I think that the critical thing is not to have
essentially across-the-board entitlements. What we really want to do is
target those advantages to companies that are taking the risk of staying on the
high road in their existing plants with their existing work force -- in their
existing locations, often in cities.
Q: Are we going to solve these problems without some government
Luria: Absolutely not. The policy environment is always tremendously
important. It's not the whole answer. Things are going to have to be done to
reorient--Wall Street has to be more forward looking and less interested in
short-term results. But even there, government has a role -- changes in the
way in which taxes are accounted, changes in the way in which equipment is
depreciated, and so on, can have a major result. It could have a major impact
on the way in which Wall Street assesses the profitability and survivability of
Q: We spoke to a couple of workers who got rehired after being let go,
one at Masterlock, another at Chrysler. They are needless to say ecstatic.
Can they breathe easy now?
Luria: I think it depends on the case. I think that the way I generally look
at this is for the first several years after a major new investment in your
plant, you are probably safe, in the sense that the company is going to be
forced to play its cards out after making that investment to at least see how
well it's working out. In the long run, as long as the low road is as tempting
as it is, and as long as the high road is as risky as it is, no one is
Q: A lot of corporate CEOs are saying, hey, things are now turned around
in America. We're on the road to success, to solving the problems and, yes,
the American worker can begin to believe in the American Dream again. Is that
Luria: Well, 1995 looks like the first year in a long time in which real wages
went up rather than down, so there's hope.
Q: We talked to a couple of people who found jobs again. They're
ecstatic. Sometimes their management tells them the good old days have
returned. Is that really the case?
Luria: Partly, thanks to the weak U.S. dollar. Some good American employers
are now being able to expand employment again, and that means that some workers
are going to have rising living standards again and be able to, at least for a
while, get their piece of the American dream. The problem is that most of the
new jobs being created are not the jobs at Masterlock or at Chrysler. Most of
the new jobs being created are relatively low wage jobs in companies that are
not investing in their workers or in their plants. And the proof of that is
this: You can argue that we're close to full employment, but then why is it
that anywhere in the United States where somebody announces that they're going
to have ten openings at $15.00 per hour, why do 5,000 workers show up and camp
overnight in hopes of getting one of those jobs?
Q: Some companies tell us they're having trouble filling those
Luria: Well, most companies that are having trouble finding labor are
having trouble finding it because they're not paying enough for it.