And Now for Some Good Economic News; R. Shannon

THIS PAST SUMMER, the economic news was good. Congress and the Reagan Administration agreed on an unprecedented package of budget cuts and tax incentives designed to curb inflation and boost the econ omy. The Dow Jones average rose above 1000. The much-taunted "supply-side" economics had ar rived, and the stock market, seeing it, found it good. Then came the fall. Prospects of huge budget deficits and persistent double-digit inflation kept interest rates high and interest in stock pur chases low. The construction indus try continued to flounder, and sav ings and loan associations hovered on the brink of catastrophe. What's worse, alarming signs suggested extensive government Russell Shannon Is a professor in the Department of Economics, College of Industrial Management and Textile Science, Clemson University. 12 controls and subsidies could be re stored. The Reagan Administra tion's agreement to limit Japanese auto imports served as a frightening precedent for other industries to seek similar trade restraints. Farm groups, having lent their support for Reagan's tax and budget adjust ments, pressed for further federal fi nancial aid.

l In short, the outlook became so bleak that "supply-side" economics now seemed likely to be come just another version of what Carlyle called the "dismal science." Yet a pleasant prospect glows be neath the gloom. Harking back to the refreshing optimism expressed by Adam Smith, the founder of mod ern economics, it relies upon the dramatic possibilities for expanding output via the advantages of spe cialization, innovation, and free trade. Smith showed what the division AND NOW FOR SOME GOOD ECONOMIC NEWS! 13 of labor did just to the production of pins. One pin-maker, working alone, said Smith, "could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty." But specialization changed all that. Now one man, as Smith described it, "draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head."

Altogether, Smith said, the pro cess of making pins had been broken up into "about eighteen distinct op erations." But with what marvel lous results! Each person, Smith re ported, ended up making not just 20 but the equivalent of about 4,800 pins in a day.2 What a fabulous in crease in productivity! What a strong argument for maintaining free and open markets in which to sell this prodigious output! About a century after Adam Smith wrote, the moving assembly line further enhanced the production process. Usually we associate the name of Henry Ford and automo biles with that feat. In fact, Gus tavus Swift was more instrumental and the product was meat. As quoted by the historian Daniel J. Boorstin, Upton Sinclair de scribed the new assembly line for processing in his novel The Jungle: "The carcass hog was strung up by machinery and sent upon another trolley ride." It then passed between two lines of men, "each doing a cer tain single thing to the carcass as it came to him.· One scraped the out side of a leg; '~nother scraped the in side of the same leg. One with a swift stroke cut the throat," and so on.3 Swift imaginatively combined the assembly-line dismembering of hogs with distribution of the finished product via refrigerated railroad cars.

So sharply did Swift cut costs and so vastly did he increase production that he was able to market meat not only throughout the U.S. but in Europe and the Orient as well.4 Now anoth~r century has elapsed since Adam. Smith wrote, and we find ourselves face to face with the prospect of a further momentous up surge in productivity launched by the computer. ,Gene Bylinsky gave a glimpse of the amazing future that it promises in!the October 5 issue of Fortune magazine. Specifically ~ the innovation Bylin sky describes' is called CAD/CAM (Computer Aided Design/Computer Aided Manufacturing). Bylinsky uses for an example the tubes which Northrup needs for its aircraft. Prior to the new coroputer process, "it took Northrup six weeks from release of engineering drawing to bent tube in hand." But the use of CAD/CAM col lapsed the time from six weeks to 18 minutes! Similarly, Pratt & Whit ney report that CAD/CAM allows a 50 to one reduction in labor, and GM 14 THE FREEMAN now "turns out car-body components such as fenders in half the time it took with manual techniques."5 Of course, there are those who will despair at these fabulous prospects.

What, they ask in dismay, will peo ple do for jobs if computers merci lessly replace all those diligent workers? One who does not share such a gloomy view is Alvin Toffier. Writ ing in his recent book, The Third Wave, Toffler notes: "Between 1963 and 1973 Japan had the highest rate of investment in new technology, as a percentage of value added, of any country in a seven-nation study. It also had the highest growth in em ployment. Britain, .whose invest ment in machinery was the lowest, showed the greatest loss of jobs."6 Now the labor unions are upset with President Reagan for his treat ment of the air traffic controllers. Many people look with dismay at the perceived dismantling of gov ernment social programs by an Ad ministration bent on balancing its budget. But there is a vital question which must be squarely faced: Can labor Alfred North Whitehead IDEAS ON unions, or social programs, or trade restrictions possibly provide for the health and welfare of American workers and consumers even a small fraction of what the innovations in technology, ranging from pin making, to meat dressing, to com puter designing, have demonstrably achieved? Expressed another way, can the promises of shallow social ism and meager mercantilism ever hope to match the powerful impact of creative capitalism? The impres sive evidence of the past two centu ries surely suggests that the answer is "no." , -FOOTNOTESl"The Ripples of a Farm Recession," Business Week, September 28, 1981,27.

2Adam Smith, An Inquiry into the Nature and Causes of the Wealth ofNations (New York: Modern Library, 1973; originally published in 1776),4,5. 3Daniel J. Boorstin, The Americans: The Democratic Experience (New York: Vintage Books, Random House, 1974),319. 4Ibid., pp. 318-20. 5Gene Bylinsky, ''A New Industrial Revolu tion Is on the Way." Fortune, October 5, 1981, 106-14. 6Alvin Tomer, The Third Wave (New York: Bantam Books, 1981), 192. LIBERTY WITHOUT a society in which life and property are to some extent secure, existence can continue only at the lowest levels-you cannot have a good life for those you love, nor can you devote your energies to life on a higher level.