The Economy: New & Exuberant

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Competition's tropical-like growth stems mostly from the new economy's technological explosion, which is rapidly outmoding the methods, machines and products of only yesterday. Courtlandt Gross, 58, chairman of Lockheed Aircraft, the nation's biggest defense contractor, loses exact count of the division-strength army that Lockheed now uses to devise new products and processes to keep ahead of competitors—but the number runs to 13.000 or 14.000 scientists and engineers. Says Gross: "I suspect there's more science and engineering in a button today than there was 20 years ago." In, steel, Europe's new oxygen furnaces have outmoded the old open hearth, which is much slower and costlier, and forced many U.S. steel firms to begin installing the more efficient furnaces.

Modernization & Overcapacity. The new technology has outmoded more than plants and processes; it has weakened the hoary notion that U.S. industry suffers from overcapacity—too much plant and equipment for what it is called on to produce. "It's really not a question of capacity, but of modern capacity," says Gross. Though the U.S. is producing at less than 90% of total capacity, many economists and industrialists alike feel that up to 20% of U.S. industrial capacity is either outdated or inefficient—and that capacity figures are therefore misleading. When steel firms install new oxygen equipment, for example, they may not tear down their massive old furnaces but keep them as standbys. The new process adds to their capacity to produce steel; the old furnaces, though idle, continue to be counted in capacity figures. The result: though steel may be operating at 100% ©f its effective modern capacity, the figures now show it producing at scarcely 83%.

Most businessmen consider the last 10% or so of capacity in most industries almost inevitably inefficient, agree that producing at full capacity leaves no room for flexibility and frequently leads to costly breakdowns and power failures, crash expansion programs and industrial slovenliness. Chairman Charles ("Tex") Thornton, 49, of Litton Industries, which has done so well in keeping ahead of the competition with new electronics products and processes that its sales have increased an awesome 13,000% in the ten years of its history, believes that "to properly modernize U.S. industry, there should be expenditures of $100 billion to $300 billion."

U.S. industry has already modernized sufficiently so that the labor cost of producing goods—from toothbrushes to turbines—fell by 2% last year. But the bill for modernization came so high that earnings after taxes were an estimated 5.7% of invested capital, compared with 6.7% a decade ago. While profit totals are running at record highs, the businessman is finding it harder to raise his percentage of profit on sales. Says Du Font's President Lammot du Pont Copeland, 58, a Harvard-educated scion of inherited wealth: "Keener competition may be good for the economy, but it takes its toll in profits."