Marshall Loeb

America’s Fortune

VTR Date: June 8, 1991

Guest: Loeb, Marshall


Host: Richard D. Heffner
Guest: Marshall Loeb
Title: “America’s Fortune”
VTR: 6/8/91

I’m Richard Heffner, your host on THE OPEN MIND. Time is rather much on our side at least to the extent that as today we can rather routinely go back after years, sometimes even after decades, to the same ideas and issues and even to the same guests to see larger, or lesser, consistencies, patterns, truths, if you will. Or misreadings, miscalculations of what supposedly ws to become the future, but from today’s perspective is already the past.

So it is with today’s guest. When he joined me here, on THE OPEN MIND a decade ago, Marshall Loeb was Managing Editor of Money magazine. Today he is managing Editor of Fortune magazine and undoubtedly will be just as harsh with me as he was then if I should have the temerity to repeat my old cop-out about my eyes glazing over whenever I am confronted with economic matters, or quote my nephew again to the effect that our family seems to lack the gene for making and productively investing money.

But so it be. And so I turn to Marshall Loeb again for some larger insights relating to dollars and sense. Not on the level of where to make our bets today, after all we record this program early in June 1991, and you may not see it for some months, or longer. For what I have learned, much to the consternation over the years, on my own part, is quite how volatile markets are, particularly the market. And sometimes, at least, without easily discernable reasons.

At any rate, a decade ago at this table and at the beginning of the Reagan era, Marshall Loeb said about our economy that “in the immediate future, the rate of change will accelerate and the degree of change will sharpen and in some cases, become more shattering”. But I want to ask my guest today, whether it’s true in this instance that the more things have changed, the more have they have really stayed the same. Marshall, ten years ago you knew what you were talking about. Ten years later, have we really changed that much?

Loeb: Oh, we have changed dramatically. The whole world has changed. You may have been wise enough then to say that the wall would fall, the curtain would part, the oppressed people of Eastern Europe would rise up and become free. I don’t think that any of us thought that it would happen so sweepingly and so soon. Just one example.

Heffner: And the impact of that example and many others upon our economic situation, because that’s really what I was referring to.

Loeb: Certainly it would have a significant impact because I think that you’re finding much of the world moving toward freedom and away from controlled economies. You see that now, dramatically in Latin America…beginning in Africa, surely many countries of Asia have done the same, and indeed, some of Europe in which you had at least quasi-Socialist governments have moved toward freer governments. I think that the world has changed significantly in many ways. A number of our cities are not as well-off as they were ten years ago. I think relations between the two sexes are better. Women have a, have a fairer and better opportunity, by and large today in society and certainly in the economic world. And if you’re looking for the accumulation of money…it’s fascinating…markets certainly are very, very volatile. But if you look back over almost any lengthy period of time, all the way back to 1926, or take virtually any five year period in there, you will see that the stock market has risen very well indeed. It’s risen on average 10% to 11% per year. Obviously, it hasn’t made that gain in most of those years, in some years much more, in other years less, in a number of years a real decline. But if you go back over the long term, the stock market has performed by giving advantage and gain to people who have been patient and have stayed with it for any period of time.

Heffner: So your conclusion then, by definition, has to be that we’re that much better off today, ten years later, then we were when you and I last faced each other…

Loeb: I think…

Heffner: …across the table.

Loeb: …I think the mass of people are better off. There are certainly many things that have deteriorated in that period of time. Our nation’s infrastructure has gone down. Surely there is a crisis in America’s public education which I suspect is the worst immediate problem confronting us. Relations between the races have probably deteriorated, although some minorities are better off now than they were ten years ago. I think, however, if you take the broad mass of people, they are generally better off in real terms, in our country. Surely better off in many, many foreign countries than they were ten years ago. That does not mean that we do not have very pronounced problem. We do, and we must address them. We have in our country an under-class…I hope that’s not too politically incorrect a term…but I don’t know how large that under-class is…somewhere between perhaps 12% and 15%. I don’t think any American, no matter how affluent, how well educated can sleep…can be comfortable knowing that so many of our fellow Americans are so far behind.

Heffner: Now, Marshall, that’s a, a moral judgment on your part and it’s one that I really would expect you…knowing you…expect you to make. But are you saying that we who are more, or more fortunate, should not or are not…should not be or are not comfortable when we sleep at night about what the economic problems of our nation…

Loeb: I think…I think too many of us are comfortable. I think we should not be comfortable. I think that although the majority in society are moving ahead, materially and by other measures, there are many in our country, our very affluent country, who are left behind, and I think it’s incumbent upon the total population to recognize that situation and to do something about it. And to do something about it, I think it requires a total commitment on the part of the country. It requires more spending in a lot of areas, but even more that that, Richard, it requires a dedication to say, “Look this is a problem. It can be addressed”. President Kennedy challenged us to put a person on the moon within a decade…we did. What we need now is some really pronounced national leadership to say, “We have a whole set of problems and we really should realize that and, more important, address them”. For example, I would think that if you and your wife go out and spend the weekend white-washing an apartment in some depressed area of your community, it makes you feel real good and I suppose it makes some minor contribution to our society. But really not much. What we need is some form of organized volunteerism to bring in almost the whole of the population. To say that “I will be willing to pledge a certain number of hours per year”…to teach someone to read, to teach someone to write, to work with other citizens in rebuilding our infrastructure. That’s just one of many things that I think we require in our society. The fact is that we do have a problem. The problem is very visible. It’s visible in our decaying cities, it’s visible in crime, it’s visible in lack of security in our streets. It’s surely visible in the crisis in our schools were our children are not being taught what they should be taught to cope and to compete in this increasingly competitive world of ours.

Heffner: In a recent Fortune magazine edition on issue on where we will be in this new century…

Loeb: Yeah.

Heffner: …you, you said that competition is going to be the key. And…among nations.

Loeb: Oh, yes.

Heffner: …and how we survive in this.

Loeb: And I think we need a whole set of national policies to stimulate our competitiveness in this world. We have become, as a nation, more competitive in recent years. We have been challenged by foreign competitors, and we’ve done generally well. But there is much more that needs to be done.

Heffner: National economic policy.

Loeb: I’m…I’m against national economic policy if that means that someone in Washington or your state capital dictates that the direction that you’re supposed to go in. You can say the Japanese have that sort of thing…well, not quite, but to a degree. And the Japanese are different from us…the Japanese are essentially a hierarchical command society. We are not. We are a big, sloppy, freedom loving, heterogeneous society. And I wouldn’t want that to change. I don’t think someone can tell me what is essentially good and will grow and what will not grow in terms of industries in the future. However, the government can help more. It can give more for research and development, particularly what we might call “pre-competitive research”. We can generally define some areas “out there” that we think will do well in the future and we can make some contribution to them. We surely can do more to stimulate saving and investment in our country. We have to get down the budget deficit which is the great consumer of savings and we have to take some steps to stimulate investment, perhaps by going back to individual retirement accounts and making them deductible from your income for tax purposes for all citizens. I think an investment tax credit would probably be a good thing in our country. I think we should switch our tax structure so that it stimulates investment and makes that up by taxing consumption. I believe generally that people should be taxed on what they take out of the economy in the form of consumption rather than what they put into the economy in the form of work and saving and investment.

Heffner: Marshall, do you think that in the ten year since we last sat here that the policies that have been allocated…not always put into effect, but advocated by the national government in, in the form of the, of the executive branch…

Loeb: Yes.

Heffner: …have been productive?

Loeb: Well, I…

Heffner: Ones that you can embrace.

Loeb: Oh, yes, I would say, generally, “yes”. If you want me to criticize I could, I could spend hours criticizing certain specific steps. But by and large we have moved away from regulation and toward freedom in the economy and certainly the most important thing, 45 years of bi-partisan foreign policy, supported by Democrats and Republicans alike to, frankly, just bring freedom to Eastern Europe have succeeded beyond our wildest dreams.

Heffner: But in the process…

Loeb: Yes.

Heffner: …the, the issue that you put as number one, if I understood you a moment ago, deficit…that deficit has grown and grown and grown and I would think that would be the primary point that you would make in any critical evaluation…

Loeb: Not…

Heffner: …of the past ten years.

Loeb: …I, I would certainly criticize that. I think probably worse than the deficit is just the deterioration of the…that part of our population that is at the bottom in socio-economic terms. I just think that’s intolerable for a society such as ours which is committed to freedom and to opportunity for one and all.

Heffner: What is your sense of what that will bring about, the fairly broad-base of the unprivileged?

Loeb: I think that as we enter into a world…into an economy that is more and more international, our competitors are not just down the street or in the next city or in the next state, but they’re in 160 countries all around the world. There will be a premium put on those countries that can master the technologies that are becoming increasingly complex. Those of us in the United States who can work within these demanding technologies or in services like financial services, and information services that feed into and off of the new technologies, we certainly will do very, very well. Our material rewards will increase. The majority of society will, will rise like that. Those people who are really unlettered in the new educational requirements and the new technologies, who do not have the skills or cannot contribute the services to the new techno…to the new economy, they will either stay at a certain level, at best, right where they are now, or actually decline. Either way, Richard, the gap between those who advance and those who are at the boom, that gap grows ever wider and you can just imagine all sorts of negative consequences flowing out of that. Therefore, I say for moral reasons, as well as for practical reasons and human reasons, it’s incumbent upon all of us to see that the people who are at the bottom in socio-economic terms, basically educational terms, are given the opportunities to advance along with the majority of society.

Heffner: But now, knowing that you’re going to…

Loeb: Yes.

Heffner: …come back ten years from now…

Loeb: Thank you.

Heffner: …put on that hat again…

Loeb: Sure.

Heffner: …what do you think will happen to those people? To the marginal people in our society, if people can be considered marginal…they occupy marginal positions, at least.

Loeb: Yes, my best hope is…

Heffner: No, no, no…

Loeb: I’m sorry…okay…

Heffner: …Marshall…not hope…

Loeb: …okay…

Heffner: …what’s your best bet, your wisest bet as to what will happen? That’s not unfair, is it?

Loeb: My, my, my bet, to my great regret is that the situation will get worse and there will be certain eruptions in society that will be quite damaging. My hope is that a combination of private business and government and society at large in the form of volunteerism and other institutions like the churches and synagogues and so forth will act together to come up with programs and processes to help equip those of our fellow Americans who do not have education and skills with just those necessary attributes.

Heffner: You know, Marshall, one of the problems over the 35 years that I’ve been doing THE OPEN MIND is that one wants to embrace the people who are hopeful. One wants to embrace the people who see…who want to see the brighter side. But how are we ever going to gear ourselves to do what has to be done if we cannot, at this very point, recognize what the bet must be, and you made a bet…and it’s a rather grim bet, mustn’t one make the bets and then think in terms of “what does it mean for us”?

Loeb: Yes, and “what can we do?”

Heffner: And well, not just what can we hope will be done, but won’t society be changed fundamentally, won’t our politics, our economy…

Loeb: Sure. Of course.

Heffner: …and then deal with that.

Loeb: Let me give you one hopeful sign and indeed there are many hopeful signs. I do think that the business leadership in this country has awakened in recent years to the reality of this particular crisis, and it is a crisis that we’re talking about. They’ve done it, I think for practical reasons as well as moral, human reasons. They look around, they see what’s happening in certain parts of, of the country. They certainly speak with their colleagues and members of their families. But as well they know that they cannot get the workers to serve in this increasingly demanding economy. You’ve heard all the horror stories of the tests that are given, entry-level at the telephone company and banks and so forth and 80% to 90% of the applicants for the bare bones examination flunk the test and so the standards are reduced and reduced and reduced. The business community realizes that something has to be done. So, they’re beginning to do two things…one, companies, corporations, the Fortune 500 corporations are becoming the educators of last resort. People go in and they are trained. They are not necessarily trained in how to operate the machines, they are trained in the basic three “R”s…getting the kind of essential schooling that they didn’t get in their public schools. Second, business leaders are increasingly becoming very active in their communities in school reform. Getting involved in bond drives, bond issue campaigns in order to raise monies, necessary monies for the schools, lending technicians and managers to become part-time instructors in the schools, doing a whole variety of things and I could give you countless examples of that. I think that’s a good sign.

Heffner: Marshall, in the evaluation that Fortune did of…

Loeb: Yes.

Heffner: …futures…is there any indication of what our potential…what our competitors and our potential competitors think about where we are going?

Loeb: Oh, I think that until fairly recently they have looked down upon the United States, in the typical rather supercilious response from certain people in Europe…”you don’t make anything in your country that we really want to buy”. A lot of that has turned around recently fro a couple of reasons. First, manufacturing productivity in the United States has just surged, about 4% per year from 1982 onward, as, as an average. That’s a lot. Where we have suddenly become quite competitive, indeed, world leaders in quality and technology in a whole variety of fields, aerospace, biotechnology, telecommunications, still the leaders in computers and many, many other things that I could talk about.

Heffner: But, of course, that’s not the impression one gets by reading, at least, the daily press.

Loeb: Well, read Fortune (laughter). But, ah, sure we can criticize many things that indeed we’re doing wrong, but I think that the competition from Asia and Europe has really been that necessary cold bath that has started us along the way toward a more productive economy. And the second thing is our engagement in the Middle East with Desert Storm I think caused people in many foreign countries to recognize that alas, there is only one super-power and that there are many things that the United States has both the moral fiber and the material goods to do right.

Heffner: Alright, let me go back to the question that you dismiss, jokingly, as “read Fortune”. I do read Fortune but I’m also aware of the contrast between what seems to be the upbeat quality of Fortune’s reportage and the continuing barrage of “look what has happened to us”…

Loeb: Yes.

Heffner: …that one finds in the daily press. Now, how do you account for it?

Loeb: Oh, I think that it’s always easier to look at the negative aspects. They make better headlines oftentimes. Then when you’re just giving a more realistic assessment…and any kind of a realist assessment would be balanced. There is no denying that our exports have absolutely surged in recent years. A lot of it, of course, has been due to the decline in the value of the dollar, but American goods have in just the last few years, become in great demand in many countries, and you just can’t escape that reality.

Heffner: Now how do you account for it?

Loeb: How do I account…

Heffner: Yes. For that switch…

Loeb: …ah…

Heffner: …in what we are literally doing, as you describe it.

Loeb: I think that the vast majority of the fortune 500 companies, Richard, in just the last few years have gone through these drives of what they call ”re-structuring”, cut-backs of inefficiencies, quality improvement drives and just looking at their whole management in terms of “what are we doing wrong” and “what can we improve”. Now, sometimes that has been at human, regrettable human cost. But I have to believe that at the end of this process, the vast majority of American companies are coming out better, smarter, more efficient than they were in the past. Am I saying are they…that they’re more than sufficiently efficient…certainly not. This is a continuing process. Look at the automobiles today. Whether you think the American automobiles are as good as the Japanese automobiles is not the consideration. I think we surely all have to agree that American automobiles today are significantly better in terms of quality, reliability and performance than they were five and ten years ago. And that’s been due to a wide variety of reasons, but paramount among them is that we faced tremendous foreign competition and we had to improve in order to survive.

Heffner: As we are becoming, I suppose you would say this, “meaner and leaner”, and better…

Loeb: I hope not too mean.

Heffner: …what about the other countries that have now prospered so greatly…we suffered from our prosperity. We suffered, I think, to some considerable extent, from being not mean and lean, but…and not even fat and sassy, but from being self-satisfied. Is there any indication…

Loeb: Yes. Oh, indeed, there is. I think particularly in Europe. I expect that Europe will become more productive as time goes on. But there is a danger that the Europeans will face. They’ve been up till now rather complacent. The Japanese are, are making their big assault now on Europe because there are markets there to be won, and it will be fascinating to see how the Europeans respond, and if they respond well enough. The Japanese, I expect, will continue to be Japanese, which is to say, very single-mindedly export conscious, productivity conscious, and will do very well. However, the Japanese are encountering a number of problems. They have an aging population. They have very small population growth, and one has to ask…how…one has to ask, “How long will the Japanese tolerate a rather low standard of living? Small houses and apartments, long commutes to work in very crowded trains, tremendous demands put upon them by their employers. Will the Japanese, as they are exposed to the wider world want to say, “There must be more to life than this”? I think that, indeed, we have to recognize that we will face demanding competition in this global economy of ours. However, I think that the United States is in a situation where we have recognized the competition probably more than our allies in Europe have, and that the Japanese, while they will be significant competitors, are facing some fascinating challenges of their own.

Heffner: So that, as ten years ago, you’re rather upbeat about our, our futures.

Loeb: I think that we have got tremendous human and material resources…really. I think we’re moving in a good direction and if we follow sensible policies, we should do well.

Heffner: That’s a great place in which to end. Thank you so much for joining me today…

Loeb: Thank you.

Heffner: …Marshall Loeb. And thanks, too, to you in the audience. I hope you’ll join us again next time. And if you care to share your thoughts about today’s program, please write to THE OPEN MIND, P.O. Box 7977, FDR Station, New York, NY 10150. For transcripts send $2.00 in check or money order. Meanwhile, as another old friend used to say, “Good night and good luck”.

Continuing production of this series has generously been made possible by grants from: The Rosalind P. Walter Foundation; The M. Weiner Foundation of New Jersey; The Edythe and Dean Dowling Foundation; The New York Times Company Foundation; The Richard Lounsbery Foundation; and, from the corporate community, Mutual of America.