On the Bright Side: U.S. Firms Taking Lead in Preparing for 21st Century

After a tumultuous market week like the one just ended, it is useful to listen to a slow-speaking, methodical, 72-year-old man with something to say. “Important technological changes have been emerging in recent years that are altering, in ways with few precedents, the manner in which we organize production, trade across countries and deliver value to consumers,” Alan Greenspan, Federal Reserve Board chairman, said recently at UC Berkeley.

That Greenspan speech was widely noted for his hint that the Fed may reduce interest rates. But Greenspan devoted most of his long address to a discussion of how technological changes have made the U.S. economy more productive.

He suggested that we have yet to fully exploit the improvements from new technologies. The laser was invented in the 1960s, Greenspan noted, but its potential wasn’t realized until the 1980s with the introduction of fiber optics for telecommunications.

Against the crisis of confidence racking stock markets even as he spoke, Greenspan was calling attention to the underlying health of U.S. industry.

Greenspan is right. The strength of many U.S. companies today is real and founded on years of high investment in communications and computing systems in the 1990s. Business capital spending in this decade has risen dramatically and provided the driving force for a prosperous economy.

In addition to capital investments of more than $1 trillion annually, a 25% increase over 1980s levels, U.S. companies increased research and development spending by 42% in this decade to more than $40 billion a year.

Other parts of the world are now following the U.S. example. A surge in exports of software, computer electronics and telecommunications equipment to Europe, Latin America, Canada, Mexico and China almost fully offsets the expected decline in high-tech exports to the rest of the troubled Asia Pacific region this year, the American Electronics Assn. reports.

Societies and industries in all parts of the world are using technological innovations to, in Greenspan’s words, “organize production” differently and better.

And that’s reassuring. It indicates that world economies are improving despite the crises in currency and stock markets.

That’s not to say that the stock markets are wrong, that everything is all right and that investors are overly jittery. Stocks are taking a beating everywhere because there is a slowdown in profits. Growth markets in Asia have been knocked out. Lower profits will reduce business investment in the U.S. economy next year, and cut economic growth to little more than 1%, forecasts J.P. Morgan Co.

And stock markets are down because of grave worries about a world system in need of repair. So it is not a time to rush out and buy stock. But it is a time to look at underlying trends.

“From China and Japan to Brazil and Israel, telecommunication investments are increasing,” says Regis McKenna, head of a leading Silicon Valley marketing company. And U.S. industry, through years of investment, has taken a leadership position in preparing for the global environment of the new century, McKenna says.

To see the truth of that, look to the broad range of U.S. heavy industry, to firms such as Caterpillar, the Peoria, Ill.-based leading maker worldwide of earth-moving and construction equipment.

Cat, now with more than $20 billion in annual sales, has been hurt by the slowdown in Asia. But increased business in Latin America and Europe will make up for that, says Douglas Oberhelman, vice president and chief financial officer. Sales should increase this year and annual profit, though down, will be almost at the $1.7-billion record levels of 1997, Oberhelman says.

The work of the world goes on. Caterpillar continues to do good business in Russia, where its equipment is developing oil fields. Cat is also developing ventures in China.

In short, Cat is a sophisticated global company. In the 1980s it responded to a competitive challenge from Komatsu of Japan and others by setting up production in Europe and Japan, to challenge competitors in their home markets.

And in this decade Cat has invested in communications to reduce costs and increase business. “The aim is to make our operations seamless,” Oberhelman says. He’s referring to Internet connections with customers and suppliers by which Cat can make deliveries and receive supplies more efficiently. It can put specifications of equipment on its Web site and reduce parts inventories everywhere; it can give customers immediate access to repair information. Cat has reduced the time is has to wait for payments and cut costs of making payments.

And Cat’s development of its Internet network is only in its early stages, as is the case with most companies.

Caterpillar stock, like that of many companies, is down 25% from its 52-week highs in the current turmoil. The stock of major Internet equipment supplier Cisco Systems is down maybe 15%. That doesn’t mean that this is a time to buy. But it’s a good time to reflect on healthy trends in U.S. industry.

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James Flanigan can be reached at jim.flanigan@latimes.com.