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Beacon Council - Miami 9/30/91 [OA 8329] [3]
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5
THE BEACON COUNCIL
ONE WORLD TRADE PLAZA, SUITE 2400
80 SOUTHWEST EIGHTH STREET
MIAMI, FLORIDA 33130
TELEPHONE: (305) 536-8000
FAX: (305) 375-0271
TELEX: 6974115-BEAINTL
MEMORANDUM
TO:
WHITE HOUSE SPEECH WRITING STAFF:
TONY SNOW
JOE DUGGAN
BOB SIMON
FROM: MARY DI LANDRO api
DIRECTOR OF COMMUNICATIONS
THE BEACON COUNCIL
Jeb - current chm.
last day
DATE: SEPT. 9, 1991
Burton
RE:
AT THE BEACON COUNCIL ANNUAL MEETING ON SEPT. 30 Landy - new
BACKGROUND INFORMATION FOR PRESIDENT'S SPEECH
clum.
Following is information -- including history and new
leadership -- on The Beacon Council, Miami/Dade County,
Florida's economic development organization.
I have attempted to address some of The White House's
questions while encapsulating the particular challenges this
community faces and the points we would like President Bush
to cover when he speaks to our community and constituents.
The President's endorsement of our new economic development
plan of action -- and "TEAM MIAMI," the vehicle that The
Beacon Council will use to execute these programs -- would
surely help us hit the ground running. TEAM MIAMI is a
similar to President Bush's "Enterprise of the Americas" in
that it's based on the concept of public-private partnership
and cooperation to get things done. (I have explained TEAM
MIAMI in greater detail in the outline following.)
Regarding the issue of the impact free trade with Cuba would
have on Miami, I have attached an article from Sunday's Miami
Herald.
Please call me directly at (305) 536-8032 if you have any
questions or need additional information.
highthare
Reg Biscape
on
Hispone
2000 open to public
NY
counsells general
local goit
mayors of Dude
GUIDING MIAMI'S ECONOMY INTO THE FUTURE
businessn
THE BEACON COUNCIL
The Beacon Council, Dade County, Florida's economic
development organization, was formed by regional leaders in
November 1985 as a public-private partnership. The mission
of the Beacon Council is to guide and facilitate Dade
County's economic growth.
A private not-for-profit partnership of Metro-Dade
county government and the region's business community, the
Beacon Council has an annual operating budget of $3.5 million
for the fiscal year of October 1990 to October 1991. The
organization employs 33 staff members.
PAST ACCOMPLISHMENTS
By promoting its business assets, The Beacon Council has
worked with other community groups and leaders to bring out-
of town investment -- both national and international --to
Miami/Dade County. As a results of The Council's business
development efforts, such companies as Palex Corporation, a
Barcelona-based manufacturer of medical instruments; Recchi
Spa, an Italian construction firm; Atlanta-based Arby's; and
Kodak brought new operations to Miami.
The Beacon Council has also worked with local companies
in retention and expansion activities. Greenwich Air
Services, Associated Grocers and Airbus Service Center's
training facility are a few of the local companies whose
operations have been retained and/or expanded in Dade County.
On a daily basis, The Beacon Council's research
department assists both local and out-of-town businesses
retrieve information, such as market analyses, site
information, labor force and demographics information and
other data.
RECENT DEVELOPMENTS
In July 1991, John C. Anderson became the Beacon
Council's president and chief executive officer. Mr.
Anderson, an economic development professional with 20 years'
experience, has held a number of senior economic development
and international trade posts.
In the public sector, Mr. Anderson has served as
director of the Texas Department of Commerce; director of the
State of Washington Department of Trade and Economic
Development; and director of the State of Oregon Economic
Development Department.
In the private sector, Mr. Anderson has held a number of
management posts for a several business interests, including
the Boeing Company of Seattle, Washington.
VISION:
The Beacon Council's fiscal 1991-92 programs have been
developed to realize the following vision:
By the end of the 20th century, Miami and Dade County,
Florida, will evolve into a major world city and region
with a trade-based, international economy linking the
Americas with Europe and Asia. Our community will be a
center for culture, education and recreation, offering
an enviable quality of life to residents and visitors.
MISSION STATEMENT
The Beacon Council shall assist Miami and Dade County in
achieving this vision by providing process, programs and
leadership to facilitate the region's economic development.
PLAN OF ACTION
Phase I
In the first of its two-part business plan for fiscal
1991-92, the Beacon Council has identified eight business
sectors in Dade County with the greatest prospects for
growth. These sectors are industries or interests that have
strong roots in Dade County; the county has the existing
infrastructure to support these sectors, which include:
1. Headquarters Miami
2. Entrepot Miami (International Trade)
3. Health Technologies
4. Apparel Industry
5. Transportation-Related Industries
6. Marine & Related Industries
7. Leisure & Recreation Facilities
8. Film, Television & Recording Industries
Dedicated programs for the first four -- Headquarter
Miami, Entrepot Miami, Apparel Industries and Health
Technologies -- of these eight sectors will be launched
as Target Development I Programs during fiscal 1991-92 (Oct.
1, 1991-Sept.30, 1992)
The last four -- Transportation-Related Industries,
Marine & Related Industries, Leisure & Recreational
Facilities and Film, Television and Recording -- will be
implemented as Target Development II programs during the
following fiscal year.
Phase II
In the second part of its plan -- Business Assistance --
The Beacon Council will work toward the retention and
expansion of existing businesses in Dade County. For fiscal
1991-92, the staff has developed specific, proactive programs
that will identify and address the needs of local businesses
in the region.
As part of the Business Assistance, The Council will
also address general investors with interests not addressed
by the Target Development I phase of its action plan.
Business Assistance is a particularly important
phase of the overall action plan, given the slow-down of the
U.S. economy and increased global competition.
MIAMI/DADE COUNTY'S CHALLENGES & OPPORTUNITIES
Implementing The Beacon Council's new plan of action --
a program that for Dade County entails an entirely new
approach to countywide economic development -- faces
particular challenges because of the unique community we
represent. On the flip side, this community also affords
some tremendous opportunities.
Following are the challenges/opportunities that make
Miami/Dade County unlike any other in the U.S.:
*
Miami is a young city that has not yet
established the traditions and institutions
typical of other major U.S. cities
*
many of Miami's leaders are from out-of-town
and have been here a relatively short time
*
culturally, Miami is fractured; we have a
cultural constituency unlike that of many
other cities in the U.S.; our strong Latin
community, which accounts for 49% percent of
our total population, is now the majority --
consists of Cubans, South and Central
Americans and immigrants from countries in the
Caribbean Basin; our black community consists
of Afro-Americans, Haitians, Jamaicans, etc.;
a large number of constituents in our Anglo
community are Jewish
*
like many other cities, Miami has a crime
problem and an educational system that need to
be improved to address the demands of
residents
*
Southeast Florida's unemployment -- at 9.3% -
-is the highest its been in eight years and is
currently higher than the national
unemployment average of 6.8%; in Miami,
*
major employers like Florida Power and Light
Co. and Ryder have had substantial layoffs;
Eastern Airlines, one of the largest employers
in the county, closed its operations several
months ago; there are 50,000 more people
unemployed in Dade County since January 1991.
*
tourism, one of Dade County's largest
industries, has declined, due in large part to
reduced consumer spending and repercussions of
the Gulf War
Miami boasts the second-largest international
airport in the nation in terms of both
passengers and cargo
Miami's seaport is the cruise capital of the
world and one of the largest cargo ports in
the Southeast U.S.
*
in the last five years, Miami has become the
seat of major-league sports interests,
including the Miami Heat, home of the Lipton
International Tennis Tournament and, most
recently, a National League baseball
franchise, the Florida Marlins
*
in the past five years, major performing arts
interests, including the Miami City Ballet and
the New World Symphony national training
orchestra, have come to our area and there has
been a push for a performing arts center for
Dade County
TEAM MIAMI
This community has problems -- but it also has
incredible opportunities. The Beacon Council has created a
vehicle we hope will unite our splintered, young community.
This vehicle will doubtless help Dade County harness its
assets and talents to address problems and seize new economic
opportunities.
This mechanism is TEAM MIAMI. It's a mechanism that
operates on the spirit of cooperation among the groups --
both public and private -- whose expertise, functions and
resources are needed to get the job done. TEAM MIAMI is
partnership -- one that changes to suit the nature of a
community problem or opportunity.
For instance, to attract the sponsors of an annual
comedy festival to select Dade County as that festival's
"home,' " TEAM MIAMI could be the City of Coral Gables, the
Greater Miami Convention & Visitors Bureau, Metro-Dade
Aviation Department, the Greater Miami Chamber of Commerce,
SunBank and Florida Power and Light Co.
###
Florida Gov. Haydon Burns announced that the state would pur-
visitors and lighthouse keepers alike, is decayed and in danger of
chase the property belonging to Alemán's widow. The 510 acres
collapsing. The watchroom's steel components are corroded and
were the first parcel of land that would eventually become the 900-
show the ravages of time. Numerous glass window panes are missing
acre Bill Baggs State Park.
from the lantem and the steel enclosure in the lens room has dete-
In 1971 the lighthouse was listed on the National Register of
riorated.
Historic Places. The light was relit in 1978 after 100 years of dark-
The architectural and engineering work involved in restoring the
ness and today sends a flashing white beam (6 seconds on, 6 seconds
lighthouse is estimated to cost approximately $750,000, according
off) seven miles across the sea.
The Light has been turned off due
to a feasibility study conducted through the Florida Department of
State and the Department of Natural Resources. The work will
Today+ de teriora hoN /safety Factors.
consist of carefully stabilizing and preserving the lighthouse.
I
ODAY, the Cape Florida
lighthouse is endangered.
Each year nearly one million
persons visit the Cape Florida park
and historic site, yet money to repair
and restore the lighthouse falls far
short of what is needed to sustain its
existence. The preservation of historic
landmarks, like the Cape Florida
lighthouse, is not insured by federal or
state conservation measures.
The physical condition of the
Cape Florida lighthouse is rapidly
weakening. The exterior brick surface
of the lighthouse tower is severely
deteriorated with large areas of brick
missing from the surface. Years of
neglect, vandalism and the salt water
environment have croded the surface
and caused a 50 percent loss of the
exterior bricks. The long narrow
windows seen from a southcasterly
approach are sadly dilapidated and in
disrepair.
The lighthouse interior is no
longer open to the public. The wind
ing interior stair, once climbed by
5
Miami has a professi
and ballet company, whi
County Auditorium. Va
ture visiting artists from
abroad. There are also
the Coconut Grove Play
atrical productions.
Places of Interest. Gre
ber of art museums. Villa
aissance-style palazzo bu
Deering, houses the Da
On the campus of the
Coral Gables is the L
paintings from the Kres
Museum is in Miami I
seums include the Histo
ern Florida, the Holbre
Gun Museum, and the N
a planetarium.
There are numerous
nature. The Everglades
unique opportunity to ob
of an unspoiled wilderne
Hammock State Park, nea
animal refuges include t]
Key Biscayne; Monkey J
both south of Coral Gabl
with marine shows, on
Tropical plants and flow
Miami Beach Garden C
GEORG GERSTER, FROM PHOTO RESEARCHERS
Downtown Miami (foreground), with Port of Miami terminal in Biscayne Bay. Across the bay is Miami Beach.
Orchid Jungle and the I
Park, in the Homestead
Tropical Gardens, in sou
MIAMI, mi-am'è, is a city in southeastern Florida,
People. Greater Miami is predominantly white,
are also many public pa
the most southerly major city in the continental
but an increasing percentage of the city's popula-
trees and flowers. Some
United States. It is located on the Atlantic
tion is nonwhite, mostly black, with a sprinkling
for camping and various
coast, some 2° north of the Tropic of Cancer,
of other races. More than a quarter million per-
Economy. Tourists-ov
and has a warm subtropical marine climate, with
sons of Cuban origin live in and around Miami.
generate more than 60%
an average annual temperature of about 75° F
This group has expanded greatly from an influx of
nomic activity. To serv
(24° C). Because of its mild weather, ocean set-
10% of the work force is
refugees both after Castro came to power in Cuba
ting, and extensive resort facilities, Miami, to-
in 1959 and during Castro's release of persons
motels, restaurants, ano
Various other industries
gether with its environs, is one of the great tour-
seeking to leave Cuba in 1980. A large segment
ist centers of the world.
of the population-about 14% of the total-consists
and wholesale and reta
Miami and Environs. Miami, with an area of
of people 65 years of age or older, many of
pend, directly or indirec
54 square miles (140 sq km), fronts on Biscayne
whom retired to Florida from the northern United
Military installations, in
Bay, an arm of the Atlantic Ocean created by
States. In Miami Beach nearly half the residents
Air Force Base, also cor
islands that constitute the northern reaches of
Greater Miami has
are in this age group.
the Florida Keys. The Miami River, which is
The city of Miami had a population of 1,681
facturing, notably in the
connected by canal with Lake Okeechobee to the
in 1900., By 1960 it had increased to 291,688,
also an important agricu
northwest, bisects the city. Miami is divided into
by 1970 to 334,859, and by 1980 to 346,865.
tomatoes, avocados, ma
four parts-Northwest, Northeast, Southwest, and
Greater Miami rose in population from 935,047
though Dade county is
Southeast-formed by the intersection of Flagler
in 1960 to 1,267,792 in 1970 and to 1,625,781 in
citrus belt, there is a larg
Street, running east and west, and Miami Avenue,
1980.
Transportation. Miam
running north and south.
Sports and Recreation. Few places offer such
tion center. There are
Miami is the seat of Dade county, which is
a variety of sports, both professional and non-
the area, of which the m
coextensive with the Miami metropolitan area, or
professional, as the Miami area. There are ex-
ami International Airpo1
Greater Miami. Greater Miami consists of 27 in-
tensive opportunities for aquatic activities-swim-
of the city, with flights
dependent municipalities and of large unincorpo-
ming, water skiing, skindiving, fishing, and
Europe, as well as to cit
rated areas, some of which are heavily populated.
boating-as well as for golf ( over 40 courses),
Direct passenger rail se
northeast and midwest 1
Among the communities north of Miami are
tennis, shuffleboard, bowling, and other sports.
bus lines also serve the
North Miami Beach, North Miami, and Miami
Among professional sports there are Thorough-
Shores. Hialeah and Miami Springs are to the
bred racing (at Hialeah and Calder tracks and at
with the Florida turnpike
west, and Coral Gables, South Miami, and Home-
Gulfstream track in Hallandale, just north of
way system.
stead are to the south. On islands offshore, east
Situated on the Atla
the Dade county line), dog racing, and jai alai.
of Miami across Biscayne Bay, are the luxurious
The Miami Dolphins of the National Football
way, Miami is a major SE
League play at Joe Robbie Stadium, northwest
cruise lines. In 1960 the
resorts of Miami Beach, Surfside, and Bal Har-
bour. These communities, as well as fashionable
of downtown Miami. The Orange Bowl is the site
istered by the Dade Cou
Key Biscayne to the south, connect with the
of the Orange Bowl Classic, a championship in-
began the long-range
mainland by causeways.
tercollegiate football game, held annually on
water marine terminal in
Dade county covers 2,408 square miles (6,237
New Year's Day, and the North-South College
tion to extensive cargo
sq km), of which 354 square miles (917 sq km)
All-Star Game. Another sports facility is Ma-
the terminal is used as
Oceanic and Atmospheri
is water. The western half of the county forms
rine Stadium, on Rickenbacker Causeway leading
Rosenstiel School of N
part of the Everglades National Park, one of the
to Key Biscayne, for spectators of powerboat
Sciences of the Universit
nation's most extensive wilderness preserves.
racing and regattas in Biscayne Bay.
4
Encyclopedia americana
FILED 8/29/91.
NOMINATION OF LAWRENCE B. LINDSEY
TO BE A MEMBER OF THE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. RIEGLE, from the Committee on Banking, Housing, and Urban
Affairs, submitted the following
REPORT
TOGETHER WITH
ADDITIONAL VIEWS
The Committee on Banking, Housing, and Urban Affairs, to which was
referred the nomination of Lawrence B. Lindsey to be a member of the
Board of Governors of the Federal Reserve System, reports favorably
thereon and recommends that the nomination be confirmed.
COMMITTEE ACTION
The nomination of Lawrence B. Lindsey, of Virginia, to be a member
of the Board of Governors of the Federal Reserve System for the unexpired
term of fourteen years from February 1, 1986, vice Manuel H. Johnson,
resigned, was submitted by President Bush to the Senate on February 28,
1991, and was referred to the Committee the same day. Mr. Lindsey
testified before the Committee on May 7, 1991.
At its meeting on July 10, 1991, the Committee voted 16-5 to report
the Lindsey nomination favorably to the Senate. Voting in favor of the
nomination were Senators Garn, D'Amato, Gramm, Bond, Mack, Roth,
Domenici, Kassebaum, Chafee, Dodd, Dixon, Shelby, Graham, Wirth, Kerry,
and Bryan. Voting against the nomination were Senators Riegle, Cranston,
Sarbanes, Sasser, and Sanford.
1
COMMITTEE COMMENTS
Mr. Lindsey has had a distinguished academic and professional
background that qualifies him for the Federal Reserve nomination. He
graduated magna cum laude from Bowdoin College in 1976. In 1981 he
earned a Masters Degree in Economics from Harvard University and
received his Ph.D. in Economics four years later. His Doctoral Dissertation
received the National Tax Association's Outstanding Thesis Award for that
year. Mr. Lindsey served three years, 1981-1984, at the Council of
Economic Advisors under Chairmen Murray Weidenbaum and Martin
Feldstein where he became Senior Staff Economist for Tax Policy. Mr.
Lindsey joined the Harvard economics faculty in September 1984 and was
promoted to Associate Professor in 1988. In January 1989, he joined the
Bush Administration as Associate Director for Domestic Economic Policy in
the White House Office of Policy Development. In January 1990, he was
commissioned as a Special Assistant to the President for Domestic Economic
Policy. Mr. Lindsey is the author of more than 40 publications on economic
policy as well as a book, The Growth Experiment, published last year.
In approving the nomination, the Committee found that Mr. Lindsey
met the qualifications and residency requirements required by law of all
Federal Reserve nominees. The law requires "In selecting the members of
the Board, not more than one of whom shall be selected from any one
Federal Reserve district, the President shall have due regard to a fair
representation of the financial, agricultural, industrial and commercial
interests and geographic divisions of the country."
With respect to the residency requirement imposed by law, Mr.
Lindsey has lived in the Fifth District for a total of five and a half years.
He and his wife own a home in Clifton, Virginia where they have lived since
Mr. Lindsey returned to join the Bush Administration. They have also
resided in Arlington, Virginia. They own no real estate or personal property
in any other state and vote, pay taxes, and register their cars in Virginia.
Mr. Lindsey was commissioned from Virginia as an officer in January 1990,
when he was named Special Assistant to the President.
The Committee majority shares President Bush's view that Mr.
Lindsey is qualified to serve as a Federal Reserve Governor. Senator John
Warner of Virginia testified to the Committee, "Lawrence Lindsey will make
a great contribution as a Governor of the Federal Reserve, and I endorse his
nomination." Senator Daniel Patrick Moynihan concurred, stating, "The
2
breadth and depth of Dr. Lindsey's knowledge, his skills and abilities make
him, in my estimation, an ideal candidate for the Board of Governors."
Stuart Eizenstat, Domestic Policy Advisor to President Jimmy Carter wrote,
"I cannot think of a better fit between job and person than [Larry Lindsey]
at the Fed -- particularly at this difficult time."
During his confirmation hearing, Mr. Lindsey cited three goals which
he would seek as a Governor on the Federal Reserve Board. First, he would
strive to ensure economic recovery and a regulatory stance which does not
unnecessarily restrict credit conditions. Second, Mr. Lindsey believes that
the Federal Reserve must play a guiding role in the reform of the nation's
financial system in order to meet the challenges of the global marketplace of
the 21st century. Third, as there is no long term tradeoff between higher
economic growth and lower inflation, Mr. Lindsey feels that the Federal
Reserve should gradually reduce the rate of inflation so that the nation may
come to enjoy the long term benefits of price stability.
As a nominee, Mr. Lindsey combines academic and practical economic
policy experience. Mr. Lindsey is an objective and pragmatic economist who
will make decisions based on a balanced review of the best available
evidence and not on preconceived notions or ideological views. For example,
his book, The Growth Experiment, has received favórable review from all
points of the political spectrum. It was favorably reviewed in both The New
Republic and National Review, as well as numerous business publications
and was cited in a report on the family published by the Progressive Policy
Institute, Putting Children First: A Progressive Family Policy for the 1990s.
Lindsey's doctoral thesis, which formed the basis for the analysis in his
book, received the Outstanding Doctoral Dissertation Award from the
National Tax Association, the oldest and most respected tax research
organization in the country. His work has also received the
Wriston/Citicorp award.
The majority recommends strongly that the full Senate confirm the
President's nomination of Lawrence B. Lindsey to the Federal Reserve
Board.
3
ADDITIONAL VIEWS OF SENATORS SANFORD, RIEGLE,
CRANSTON, SARBANES, AND SASSER
We voted against Mr. Lindsey's nomination because we believe that he
does not meet the qualifications for members of the Board of Governors of
the Federal Reserve System specified in the Federal Reserve Act. We also
believe that Mr. Lindsey lacks the depth and breadth of experience and the
realistic appreciation of the problems of the U.S. economy that are needed
on the Board of Governors at this time.
I.
Over-representation of the First Federal Reserve District
The law setting forth the qualifications for appointment to the Board
of Governors of the Federal Reserve System is contained in Section 10 of the
Federal Reserve Act:
"In selecting the members of the Board, not more than one of whom
shall be selected from any one Federal Reserve District, the President
shall have due regard to a fair representation of the financial,
agricultural, industrial, and commercial interests, and geographical
divisions of the country." (12 U.S.C. 241)
1
It is quite clear from the legislative history of the Federal Reserve Act
that those involved in the establishment of the Federal Reserve System
were very concerned about the distribution of power on the Board. At the
time the Senate debated passage of the Federal Reserve Act, Senator
Swanson, a member of the Senate Banking Committee, in defending the
composition of the Federal Reserve Board, noted:
"I am satisfied that a better system of appointment could not be
devised, and I am satisfied that the Federal Reserve board when
constituted will wisely, faithfully, fearlessly, and patriotically
discharge the duties conferred upon them to the benefit of the country
and without favoritism to any." Congressional Record, Vol. 50, Part 1,
p. 5933, November 17, 1913.
In expressing views prior to the enactment of the Federal Reserve Act,
Senator Newlands of Nevada, also a member of the Senate Banking
Committee, outlined his vision of what was needed to meet the concerns of
many. He stated:
"I would then federalize these State reserve associations through the
organization of a national banking board, of which a certain
2
proportion of the members should be selected by the national reserve
associations under some plan that would promote proper geographical
distribution." Congressional Record, Vol. 51, Part 1, p. 431, December
8, 1913.
In taking into account these concerns about the need for adequate
geographical distribution of power on the Board of Governors, the Congress
devised a structure with 12 Federal Reserve Districts in the country. A map
outlining these districts follows these views. It also expressly prohibited
membership on the Board of more than one person from any one Federal
Reserve district.
Mr. Lindsey's nomination, in our view, is not consistent with these
requirements. A fair reading of Mr. Lindsey's background, education and
work experience quite clearly shows that he does not add any geographic
diversity to the Federal Reserve Board. Mr. Lindsey's primary associations
lie clearly in the First Federal Reserve District. That district includes the
state of Maine, where Mr. Lindsey spent four years while attending college,
and the state of Massachusetts, where Mr. Lindsey has spent half his entire
professional life. He attended graduate school for his masters degree and
3
Ph.D. in Massachusetts and went on to spend 4 1/2 years teaching at a
school there, from which he is still on leave.
However, currently serving on the Board of Governors is John
LaWare, who was nominated and confirmed as a representative of the First
Federal Reserve District. Mr. LaWare was a life-long resident of that
district, and served as chief executive officer of a bank holding company in
Boston. Another current Board member, David Mullins, also has strong ties
to the First District, where he was a professor for many years, also at
Harvard."
The Second District is represented by Chairman Alan Greenspan, a
nearly life-long resident of New York. Mr. Lindsey was born and grew up in
New York State, which is in that district.
II.
Not a Fair Representative of the Fifth District
In addition to our concerns that Mr. Lindsey would become, in effect, a
second representative of the First District is our belief that Mr. Lindsey is
*
He was nominated as a representative of the Eighth Federal Reserve
District, on the basis that he grew up, attended college, has family, personal
relations, and maintains property in Arkansas. A third current Governor,
Edward Kelley, attended Harvard, as did Mr. La Ware.
4
not a fair representative of the Fifth Federal Reserve District, from which
he was nominated. The Fifth Federal Reserve District is comprised of North
Samford
warner
Carolina, South Carolina, Maryland, Virginia, the District of Columbia and
parts of West Virginia. His only connections with the Fifth Federal Reserve
District have been during the three years he was on the staff of the Council
of Economic Advisers in the early 1980s, and during the most recent two
and a half years while serving in the White House.
Mr. Lindsey, by his own admission during his confirmation hearing,
has engaged in no significant economic activity in the Fifth Federal Reserve
District other than living in a D.C. suburb, where he owns a house. His
1
activities while living in Virginia have been solely working in the District of
Columbia on policy issues for the White House, not engaging in any broad
based activity that would give him contacts with or close knowledge of the
business community or the financial communities of the Fifth District.
We do not believe that the Federal Reserve Act should be interpreted
to be a mere residency requirement. It is not sufficient to have lived,
however briefly, in the District from which one is nominated. A nominee
must be able to speak for and have close knowledge of the economic life of
5
the District. Mr. Lindsey does not and cannot fairly be said to represent the
interests of the Richmond Federal Reserve District.
Nor does Mr. Lindsey improve the representation of "financial,
agricultural, industrial, [or] commercial interests," as called for in the
statute. Mr. Mullins taught at Harvard while Mr. Lindsey taught there,
and Mr. Greenspan served as Chairman of the Council of Economic Advisers
for 4 years. In sum, Mr. Lindsey would be the fourth Board member (of six)
from the Northeast, and the third whose last non-governmental job was in
Boston. His work experience would be overlapped by that of other members.
Moreover, a look at the Federal Reserve nominees over the past
decade indicates that the Congress and the President have taken seriously
the geographic mandates of the statute in nominating and confirming
members of the Board of Governors of the Federal Reserve. We believe this
record is an appropriate precedent that we should continue to observe.
III. Lack of Broad Experience
In addition to our concerns about Mr. Lindsey's lack of contribution to
the geographical or economic diversity of the Federal Reserve Board are our
6
concerns about the depth and breadth of experience that Mr. Lindsey would
bring to the Federal Reserve Board. Mr. Lindsey is a 37 year old economist.
He finished his Ph.D. in 1985, spent the next three years teaching, and has
spent the last two years on the staff of the White House. He is the youngest
ever to be nominated to the Federal Reserve Board and brings to the
position a fairly narrow background and few, if any, contacts with the
business or financial community.
At a time when the country is going through very difficult economic
times, with more than 8 million Americans out of work, and with questions
coming on all fronts about the direction our economy is headed, we are
troubled at the prospect of putting on the Federal Reserve Board someone
with no "hands on" experience.
We fear that Mr. Lindsey is likely to bring a narrow and academic
view of the economy to the Board. He was specifically asked during his
confirmation hearing who he would turn to if he wanted to get a sense of
what was really going on in the private sector and in the business
community and his response was, "Well, I think that I would call on
academic economist friends of mine who have worked for business
organizations." At a time when the Federal Reserve needs to be in close
7
touch with what is truly going on in the economy and the lives of workers
and business people across the country, we find that response quite
troubling.
While we might place less emphasis on these factors if Mr. Lindsey
came to this position with truly unique and perfectly suited skills for the
Board, we do not believe that he does. Indeed, his academic work has been
almost entirely in the area of tax policy -- not the monetary policy issues
that the Federal Reserve Board regularly considers. Most of his writings
have focused on promoting a capital gains tax and studies supporting the
Reagan tax cuts of the early 1980s. Whatever the merit of those studies
may be, we do not believe that they make Mr. Lindsey well qualified for the
Federal Reserve Board.
IV. Narrow Economic Views
Finally, our concerns over the appointment of Mr. Lindsey to the
Board of Governors rest also with his views on the economy and the
relationship between tax policy and monetary policy.
8
Just last year, Mr. Lindsey wrote a provocative book in which he
makes a number of claims with which we take strong exception. Mr.
Lindsey states, for example:
"Its effects [supply-side policy] have made the U.S. once again the
leader of the world economy." The Growth Experiment, p. 4.
"[T]he Reagan tax cuts contributed only trivially to the booming
deficits of the 1980s." p. 11.
"The Reagan boom was distinguished by an especially rapid growth in
business investment." p. 11.
"The recovery of the eighties was not launched on a sea of red ink.
Americans are not, as Reagan critics claim, in debt up to their ears.
Their financial positions improved quite substantially " p. 11.
"The country has exchanged economic peril for economic prosperity
Those days [the late 1970s] of constant crisis are gone, largely because
the large tax rate cuts for upper-income and upper-middle-income
9
taxpayers restored the incentives that drive the American economy."
p. 150.
We are quite concerned about the implications of these statements.
They reflect, in our view, a gross distortion of the truth and a willingness to
look at economic data through a particular set of rosy glasses. At a time
when the economy of this country is in a considerable state of flux, we
believe that we must have on the Board individuals who are willing to look
openly and honestly at the condition of our economy, and who are willing to
take steps to ensure economic prosperity for all Americans, not just for the
wealthy few.
We are equally troubled by what these views say about the methods
for resolving our current fiscal and economic troubles. Contrary to Mr.
Lindsey's statements, we believe that many of the economic woes and the
recession we have been experiencing are the direct result of the excesses of
the 1980s, including the large 1981 Reagan tax cut, the significant increase
in defense spending, and the expansive fiscal policy of the 1980s.
Moreover, we believe that fundamental problems in our economic
sector can be traced to a lack of investment in infrastructure, both by the
10
government and the private sector. We do not see the tremendous growth
in business investment that Mr. Lindsey does. Indeed, we are concerned by
what the record shows to be a very significant drop in net business
investment as a percent of GNP. Our net business investment over the past
decade has averaged barely 2% of GNP, compared with average levels closer
to 4% during the previous 3 decades.
Our concerns are also raised by the fact that corporations increased
their borrowings dramatically during the 1980s, replacing more than half a
trillion dollars of equity with debt. This massive increase in leveraging was
brought on by the hostile takeover craze, the junk bond phenomena, and
other activities in the securities markets that were largely overlooked by
federal authorities but had a significant impact on American business and
its competitiveness, We are concerned that the need to service
extraordinary debt levels has contributed to the recession last year and this
year, and diminishes our prospects of recovery.
We are also concerned about Mr. Lindsey's view that the economy is
on the right track and that the 1981 tax cuts have "made the U.S. once
again the leader of the world economy." Mr. Lindsey makes such
statements despite the fact that in 1982, the United States was the world's
11
largest creditor, with net foreign investment of $258 billion, yet just eight
years later had become the world's largest debtor, with a negative foreign
investment balance of $360 billion.
Finally, to the extent that Mr. Lindsey's writings touch on monetary
policy, we are disturbed by his belief that tax cuts, more than monetary
policy, have been responsible for bringing inflation down. At great economic
and social cost, the Federal Reserve succeeded in reducing inflation from
double digit rates in 1981 to a range of 3 to 4 percent in subsequent years
by raising and holding up interest rates long enough to induce a major
recession. Despite Mr. Lindsey's claims to the contrary, interest rates
finally fell because the Federal reserve ultimately responded to the serious
deterioration of the economy and the sharply lower inflation rates. Inflation
slowed because the economy slowed first, making it costly for workers and
firms to continue raising wages and prices as rapidly.
Mr. Lindsey's analysis is especially troubling given the difficulties
facing our economy. Because of our tremendous budget deficits,
overleveraging in the private sector and a weakened financial services
system, the Federal Reserve faces tough decisions. Indeed, in the recent
past our monetary policy has been too restrictive, and the Federal Reserve
12
has been too slow to react to changes in the economy that signalled
recession.
We are very concerned about the debilitated state of our economy,
generally, and particularly the plight of the unemployed, and there is a
danger that misjudgements by the Fed may hinder needed economic
improvement. We believe that a Federal Reserve appointee should show
evidence of a more balanced understanding of the role and power of
monetary policy.
CONCLUSION
Because we do not believe that Mr. Lindsey fairly meets the
geographical and economic representation requirements for the Board of
Governors of the Federal Reserve and because we are troubled by his views
of the economy of where the nation is heading and of the role that monetary
policy can and should play in setting our economic agenda, we oppose the
confirmation of Mr. Lindsey to be a member of the Board of Governors and
urge our colleagues to vote against his confirmation.
Terry Sanford.
Donald W. Riegle, Jr.
Alan Cranston.
Paul Sarbanes.
Jim Sasser.
13
SEP-24-1991 13:15 FROM BEACON COUNCIL
TO
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P.01
THE BEACON COUNCIL
91 SEP 24 P | : 50
ONE WORLD TRADE PLAZA, SUITE 2400
80 SOUTHWEST EIGHTH STREET
MIAMI, FLORIDA 33130
TELEPHONE: (305) 536-8000
FAX: (305) 375-0271
TELEX: 6974115-BEAINTL
Date 9/24/91
7
No. of Pages
Including Cover Sheet
TO
TONY SNOW /BOB SIMON
FROM Landro
FAX# (202) 456-6218 PHONE #
SUBJECT
MESSAGE TONY/Bob - Following is aletter from
Jeb Bush that will appear in The Miami
Herald "VIEWPOINTS" SECTION ON SUNDAY
9/29. I BELIEVE IT WRAPS UP SOME OF
THE ELEMENTS WE'VE DISCUSSED.
SIGNED ALSO FOLLOWING IS AN ARTICLE ON CRIME
Please contact us immediately if you do not receive all
pages, or if there is a problem.
SHOULD you NEED ADDITIONAL INFO ON
CRIME, PARTICULARLY ) TS ECONOMICIMPACT,
PLEASE CONTACT: WILLIAM WILBROOK, a Professor
with the Dep't of Criminology at Flor, DA
INT'L UNIVERSITY: (305)554-3196.
SEP-24-1991 13:16 FROM BEACON COUNCIL
TO
12024566218
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FINAL COPY
"VIEWPOINTS"--THE MIAMI HERALD--9/29/91
By JEB BUSH
Chairman, The Beacon Council
Reaching the five-year mark is an important milestone for any
organization. The Beacon Council, which will commemorate its
fifth anniversary tomorrow, is no different.
Looking back over the past five years, we've seen significant
change in our community and unprecedented change in the
world. This is an opportune time to pause and consider what
these changes mean to our community and what kind of
vision we have for the future.
The Beacon Council begins its sixth year with a new president
and CEO. This past July, after a four-month, nationwide
search and a careful review of a number of qualified
applicants, we welcomed John C. Anderson on board. With his
outstanding credentials, we believe that this community has
found the finest economic development professional in the
country.
Over the past two months, The Beacon Council, under John's
guidance, has undergone an intensive evaluation process.
We've listened to community leaders, and we see clearly
what these leaders envision as a preferred future for
Miami/Dade County -- that by the turn of the century,
Miami will have completed its evolution into a
major world city -- a center of international trade, culture,
education, health care and recreation, providing a desirable
quality of life for our residents and visitors.
SEP-24-1991 13:16 FROM BEACON COUNCIL
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The Beacon Council's role is to assist Miami/Dade County in
achieving this vision by providing process, programs and
leadership to facilitate the community's economic
development.
From our review, we have drawn several conclusions.
First, this community must reach a consensus that economic
development -- the means through which we can deliberately
improve what would otherwise be the natural evolution of our
community's economy -- must be a priority.
Our current 9.3 percent unemployment rate means almost
90,000 of our workers, both blue-collar and white-collar,
are without jobs. It also means we have to reach that
consensus now!
Many of you may wonder how economic development can affect
your lives. The answer is simple. Healthy and thriving
businesses are direct contributors to our community in every
aspect. A healthy business community means a growing number
of jobs and payroll dollars. Healthy businesses don't drain
our infrastructure. Rather, they add to local, county,
state and federal coffers way beyond what they receive in
services. In addition, business men and women are major
contributors of money and time to charitable and civic
causes.
Second, to successfully meet the many challenges and
opportunities change has brought to Dade County, The Beacon
SEP-24-1991 13:17 FROM BEACON COUNCIL
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Council must itself change.
The Beacon Council has developed a focused action plan to
create the framework necessary to have a healthy and thriving
business sector and, ultimately, contribute to the well-being
of the overall community.
The Beacon Council has developed a 10-year economic
development strategy to take us to the end of the decade and
into the next century. The plan is designed to facilitate the
changes in our economy necessary to achieve the preferred
vision of the community we all share. The 1991-92 plan
continues programs that have worked to date and introduces
some new programs.
The Beacon Council will continue to:
provide outstanding research and information services
for local businesses and the policy makers of businesses
contemplating investing in Miami/Dade County.
take advantage of new economic development opportunities
as they present themselves, as we have effectively done
in the past.
The Beacon Council will:
substantially increase our service and support to
existing Dade County businesses.
substantially increase our service and support to
minority business development working closely with other
public and private institutions in the community that
SEP-24-1991 13:17 FROM BEACON COUNCIL
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share this objective.
place special emphasis on the needs and opportunities of
businesses in industry sectors that offer the greatest
opportunity for expansion over this decade.
These targeted sector activities will include, but not
be limited to: promoting Miami world-wide as an import-
export trade center and location for trade services;
promoting Miami as a regional office location or
headquarters for businesses and organizations
worldwide; encouraging the continued expansion and
development of the health technology and service sector;
promoting Miami for continued apparel, aviation and
marine industry development; encouraging the expansion
of the film, television, recording and print
production industries; and promoting the development of
leisure facilities to further expand our tourism
product.
The Beacon Council will employ a vehicle this entire
community can use to cooperatively encourage economic and
social improvement -- Team Miami.
Team Miami is both a spirit and a process for getting things
done. Through teamwork, we can harness our community's many
talents and resources and turn our well-known cultural
diversity into our competitive edge.
SEP-24-1991 13:18 FROM BEACON COUNCIL
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Team Miami will consist of business, government, academic and
community leaders contributing their talents and
time in solving problems or in taking advantage of economic
opportunities.
The Team Miami approach can be applied to other aspects of
our community's life as well. It can be used, for example,
to address problems such as crime, drugs and homelessness.
We are fortunate that the Metro-Dade County Commission and
the Mayor recognize that public-private partnerships like The
Beacon Council are effective in stimulating business growth
-- and in improving the way we all live.
I believe Miami is at a crossroads. For our community to
realize its vision of a preferred future, teamwork is not
optional -- it's mandatory. We all need to concentrate on a
common goal rather than magnify our differences. Through Team
Miami and economic development, we can dramatically improve
our community's quality of life.
It's now time to roll up our sleeves and get to work.
SEP-24-1991
13:18
FROM
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IHE
L more tourists
TERALD
robbed as city
SAT,
EPT.21
VOWS extra aid
1991
By RACHEL L SWARNS
distribute crime prevention infor-
Herald Staff Writer
mation at Miami International
Miami's battle against crimes
Airport.
on tourists gained momentum
Distribute crime prevention
Friday when a group of politi-
brochures and show videos on
cians, lawyers and police officers
flights to Miami.
got together
Establish better communica-
to discuss the
tions between local police depart-
problem.
ments, so information about sus-
The meet-
pects and robbery tactics can be
ing followed
shared.
yet another
"This is still a wonderful place
incident: two
to be." Bloom said. "We just want
Germans
to make sure tourists are as care-
robbed on
ful here as they are in their own
Miami Beach.
countries."
One victim
The German tourists tried to
was dragged
be careful. They got their rental
two blocks
car agency to take the identifying
when
he
bumper stickers off their red
Bloom
refused to let
1991 Buick Park Avenue.
go of the man driving off with his
It didn't help. The car license
rental car Thursday night.
plate still started with a Y
NEW STRATEGY: Scenes from the Greater Miam
"We know we have a very seri-
marking the couple as a target for
ous problem." said state Rep.
two young robbers waiting near
Elaine Bloom. D-Miami Beach,
the corner of Collins Avenue and
who organized the meeting. "We
60th Street at 6 p.m. Thursday.
have to do everything we can to
The men waved and said the
Miami targe
protect our visitors."
cat was on fire. When Dieter and
Some steps have already been
Hanelore Hergesell stopped to
taken:
check, one man grabbed the 49-
Bloom has proposed scrap-
year-old woman's purse. The
By KIDWELL
ping a 2-year-old law that put eas-
other jumped into the driver's
Herald Staff Writer
MORE FOR
ily recognizable license plates on
seat.
Full-page color ads designed to
rental cars.
Hergeseil, 51, grabbed the
entice young. affluent vacationer to
Other ini
A Dade prosecutor is on call
driver and the door as the car
Dade County will likely start turnis
Bureau for the
24 hours a day to take sworn
pulled off. The suspects dragged
up soon in such familiar U.S. magn-
A new
statements from tourists who are
him for two blocks, banging on
2mes as National Geographic Trav-
A we
robbed just in case they can't
the tourist's hand until he fell in
eler, Bride's and Ebony.
hotel reserve
return to testify against their
the street.
Greater Miami will be working to
The
assailants.
Then the robbers dumped the
change its national image. Among
people on the
The Miami Police Depart-
car in a parking lot on 41st Street.
other groups, tourism promoters
A CON
ment has set up a task force
Miami Beach police officer Sgt.
will target affluent blacks.
focusing on smash-and-grab rob-
John Millerick saw the car and got
There won't be any promotional
song You Are
beries. Last month, 34 people
an unmarked police car to watch
packaging, no rock-bottom meal
replaced with
were arrested.
it.
deals. Just a few photogra
ism it's eve
a
The Greater Miami Cham-
Two men returned two hours
wind surfer on sky-blue
ber of Commerce will distribute
later. Eli Dawson, 25, was
neon-lit Ocean Drive, a bike
pamphlets with crime prevention
arrested on charges of strong
young couple anaggling in the
lads in European
tips to hotels and rental car agen-
arm robbery, aggravated battery,
"Miami," the ads say.
Valty
Newsweek and
cies at the end of September.
grand theft and burglary to a
with a rhythm all its OWIL"
among others.
On Friday, additional sugges-
vehicle. Stacey Smith, 24, was
The Greater Miami Convention &
This year, bet
tions were made:
arrested on charges of burglary
Visitors Bureau is on the vergeof 3
duction expense
Establish a hot line for tour-
and possession of marijuana.
major shift in its year-old advertis-
about $1.2 millio
ists.
Hergesell was treated at St.
ing plan.
as much. If,
Establish a welcoming com-
Francis Hospital. The couple
Since last fall, it has spent
bureau's market
mittee of volunteers who would
recovered their belongings.
$600,000 placing image-builein
along with a penc
FIU ascends to 8th place
TOP SCHOOLS
Top regional universities
Lega
the South, according to U.S.
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AM-CUBA
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<TEXT>
AM-CUBA,0489
CASTRO SAYS CUBA IS GETTING NO RAW MATERIALS FROM SOVIETS
MEXICO CITY (AP) - CUBAN PRESIDENT FIDEL CASTRO SAID TUESDAY
THAT CUBA HADN'T RECEIVED ANY RAW MATERIALS EXCEPT FOR OIL FROM THE
SOVIET UNION DURING THE FIRST FIVE MONTHS OF THIS YEAR.
SPEAKING TO CHEMICAL AND MINING ENGINEERS, CASTRO SAID CUBA ALSO
RECEIVED NO SPARE PARTS FOR SOVIET-MADE AND AGRICULTURAL MACHINERY,
ACCORDING TO A DISPATCH FROM HAVANA BY NOTIMEX, THE OFFICIAL
GOVERNMENT NEWS AGENCY.
CUBA IS SUFFERING PERHAPS ITS WORST ECONOMIC CRISIS SINCE THE
1959 REVOLUTION. THE FAILURE OF THE SOVIET ECONOMY HAS CAUSED
SEVERE SHOCKS IN CUBA FOR A FEW YEARS, BUT IT APPARENTLY WAS THE
FIRST TIME THAT SHIPMENTS OF KEY MATERIALS FOR CUBAN INDUSTRY HAD
STOPPED ALTOGETHER.
CASTRO DID NOT SAY SPECIFICALLY WHICH MATERIALS WERE LACKING. HE
SAID THE SOVIETS ARE KEEPING UP WITH THEIR PLEDGE OF 10 MILLION
BARRELS OF CRUDE OIL FOR THE YEAR, BUT THAT IS ABOUT 30 PERCENT
LESS THAN WHAT THEY USED TO SEND.
THE DISPATCH, MONITORED IN MEXICO CITY, SAID CASTRO RECOGNIZED
THE SERIOUS PROBLEMS FACING HIS CARIBBEAN ISLAND NATION OF 10.5
MILLION PEOPLE, BUT DECLARED, WE WILL KEEP DEFENDING THE
REVOLUTION AND SOCIALISM."
CASTRO SAID THE SHORTAGES REQUIRE CUBANS TO PERFORM MIRACLES TO
LET THE COUNTRY FUNCTION AND ASKED WORKERS TO WORK TOGETHER TO
FIGHT A TOUGH SITUATION.
AN ESTIMATED 80 PERCENT OF CUBA'S COMMERCE IS WITH THE SOVIETS
AND MUCH OF THE REST HAS BEEN WITH FORMER SOVIET BLOC NATIONS_
CUBA HAS BEEN HURTING FOR RAW MATERIALS SINCE THE UNITED STATES
IMPOSED A TRADE AND ECONOMIC EMBARGO ON IT NEARLY 30 YEARS AGO
AFTER CASTRO EXPROPRIATED AMERICAN COMPANIES.
INCREASING NUMBERS OF DEFECTIONS HAVE BEEN REPORTED FROM CUBA AS
A RESULT OF THE CRISIS. IN THE LATEST CASE, ROBERTO CASIN CHIEF OF
CUBA'S OFFICIAL PRENSA LATINA NEWS AGENCY IN MEXICO, RESIGNED LAST
WEEK AND IS SEEKING POLITICAL ASYLUM.
THE VENEZUELAN GOVERNMENT SAID CASIN HAD REQUESTED ASYLUM
THROUGH ITS EMBASSY IN MEXICO CITY AND THAT HIS PETITION WAS UNDER
STUDY_
CASIN, HIS WIFE AND 3-YEAR-OLD DAUGHTER ARRIVED IN MIAMI ON
MONDAY, THE MEXICO CITY NEWSPAPER LA JORNADA REPORTED TUESDAY.
"I HAVE FOUND IT IMPOSSIBLE TO KEEP CARRYING OUT OFFICIAL
FUNCTIONS FOR A GOVERNMENT THAT HAS DISTANCED ITSELF FROM THE QUEST
FOR LIBERTY AND THE RIGHTS OF THE CUBAN PEOPLE TO HAVE A BETTER
LIFE," CASIN WROTE IN A THREE-PAGE LETTER TO THE FOREIGN
CORRESPONDENTS' ASSOCIATION IN MEXICO.
AT U.N. HEADQUARTERS IN NEW YORK, WHERE CUBA HAS COME UNDER
INCREASING PRESSURE FOR RIGHTS ABUSES, AMBASSADOR RICARDO ALARCON
SAID HIS GOVERNMENT WILL NOT COOPERATE WITH RIGHTS INVESTIGATOR
RAFAEL RIVAS POSADA, APPOINTED ON TUESDAY TO CHECK ON ANY
HARASSMENT OF DISSIDENTS IN CUBA.
A 1991 RESOLUTION BY. THE COMMISSION ON HUMAN RIGHTS CALLS FOR A
SPECIAL INVESTIGATOR IN CUBA, BUT CASTRO'S GOVERNMENT CALLED THE
RESOLUTION "NULL AND VOID," AND ALARCON DESCRIBED IT AS A U.S.
PLOT.''
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<TEXT>
AM-CUBA-SUGAR (SCHEDULED)
CUBAN SUGAR CROP DROPS AS FUEL, SPARES SHORTAGES HIT HARVEST
BY PASCAL FLETCHER
HAVANA, REUTER - CUBA'S STRATEGIC SUGAR INDUSTRY, HAMSTRUNG
BY SHORTAGES OF FUEL AND SPARE PARTS, PRODUCED 7.6 MILLION TONS
IN ITS 1990-91 HARVEST, SHORT OF THE OFFICIAL TARGET AND WELL
BELOW LAST YEAR'S CROP OF JUST OVER EIGHT MILLION.
THE FALL-OFF IN PRODUCTION OF MORE THAN 400,000 TONS FROM
1989-90 WAS ONE OF THE SHARPEST SEASON-TO-SEASON HARVEST DROPS
RECORDED IN THE LAST DECADE BY THE COMMUNIST-RULED ISLAND, WHICH
IS THE WORLD'S BIGGEST SUGAR EXPORTER.
CUBA'S STATE-RUN MEDIA, REPORTING THE 1990-91 HARVEST FIGURE
OF 7,623,000 TONS FRIDAY, QUOTED PRESIDENT FIDEL CASTRO AS
SAYING THE COUNTRY'S SUGAR WORKER'S HAD DONE ''MIRACLES'' TO
PRODUCE THIS.
THEY HAD MANAGED TO COMPLETE 95 PERCENT OF THE OFFICIAL
SUGAR TARGET FOR THE SEASON, HE TOLD CUBA'S NATIONAL ASSEMBLY
THURSDAY IN A SPECIAL DEBATE ON THE SUGAR INDUSTRY.
''PRODUCING 95 PERCENT OF THE TARGET IS A REAL ACHIEVEMENT
IN THE CONDITIONS UNDER WHICH THEY HAD TO WORK,' CASTRO SAID.
CUSAN OFFICIALS BLAMED DIFFICULTIES IN THE 1990-91 HARVEST
ON CHRONIC SHORTAGES OF FUEL, SPARE PARTS AND LUBRICANTS,
COMBINED WITH HEAVY RAIN FROM MID-APRIL ONWARD WHICH INTERFERED
WITH CUTTING AND MILLING IN THE LAST TWO MONTHS OF THE SEASON.
IN MANY GROWING AREAS, OXEN REPLACED TRACTORS TO SAVE FUEL.
BUT THE COUNTRY'S 4,000 MECHANICAL HARVESTERS, THE MAINSTAY
OF THE CANE-CUTTING OPERATION, WERE KEPT IN SERVICE AS THEY WERE
JUDGED LESS EXPENSIVE OVERALL THAN A MASSIVE MANUAL CUTTING
OPERATION WHICH WOULD HAVE INVOLVED MOBILIZING, HOUSING AND
FEEDING SEVERAL HUNDREDS OF THOUSANDS OF CANE CUTTERS.
THE INDUSTRIAL SHORTAGES ARE THE RESULT OF DISRUPTIONS TO
CUBA'S TRADE LINKS WITH THE SOVIET UNION, THE ISLAND'S MAIN
ECONOMIC SUPPLIER AND THE BIGGEST BUYER OF CUBAN SUGAR.
LOCAL ANALYSTS SAID NEW IRRIGATION, CULTIVATION AND
HERBICIDE TECHNIQUES INTRODUCED IN MOST OF THE ISLAND'S CANE-
GROWING AREAS MAY HAVE HELPED TO AVOID AN EVEN BIGGER SHORTFALL
IN THE HARVEST.
CASTRO SAID SUGAR REMAINED CENTRAL TO CUBA'S ECONOMY, NOT
ONLY BECAUSE IT WAS THE ISLAND'S MAIN TRADING COMMODITY FOR BOTH
HARD CASH AND BARTER BUT ALSO BECAUSE OF THE IMPORTANT
BYPRODUCTS IT COULD GENERATE.
THESE RANGED FROM ANIMAL FEED, AN IMPORTANT SUBSTITUTE FOR
COSTLY IMPORTS, TO OTHER PRODUCTS WITH INDUSTRIAL AND BIO-
CHEMICAL USES LIKE FURFURAL AND DEXTRANE.
DURING THE ASSEMBLY DESATE, JULIO GARCIA OLIVERAS, PRESIDENT
OF CUBA'S CHAMBER OF COMMERCE, SAID THE GOVERNMENT SHOULD BOOST
RESEARCH AND DÉVELOPMENT IN SUGAR BY-PRODUCTS TO TAP WHAT HE
SAID WAS A LUCRATIVE, HARD-CURRENCY EARNING EXPORT MARKET.
SUGAR MINISTER JUAN HERRERA SAID THE SUGAR INDUSTRY
ACCOUNTED FOR 80 PERCENT OF CUBA'S EXPORTS AND GENERATED 20
PERCENT OF ITS GROSS NATIONAL PRODUCT. THE MINISTRY OPERATED 156
SUGAR MILLS AND 368 OTHER FACTORIES PRODUCING A RANGE OF BY-
PRODUCTS, INCLUDING RUM.
REUTER
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<STORY CATEGORY> W
<SUMM>
BC-CUBA-CHANGE 07-23 0728
<TEXT>
BC-CUBA-CHANGE (NEWS ANALYSIS, SCHEDULED)
COMMUNISM, CUBAN-STYLE, SEEN DOOMED DESPITE TOUGH CASTRO TALK
BY BERND DEBUSMANN
WASHINGTON, REUTER - DESPITE FIDEL CASTRO'S AVOWED
RESISTANCE TO CHANGE, EXPERTS HEAR THE BELLS TOLLING FOR
ORTHODOX COMMUNISM IN CUBA.
"NO ONE HAS CHANGED MORE THAN US," CASTRO TOLD REPORTERS
AT AN IBERO-AMERICAN SUMMIT IN THE MEXICAN CITY OF GUADALAJARA
LAST WEEK. "NOW, WHAT WE ARE NOT GOING TO DO IS CHANGE AGAIN.''
BUT EXPERTS ON CUBA IN THE UNITED STATES AND ELSEWHERE SAY
CASTRO HAS LITTLE CHOICE BUT TO INTRODUCE REFORMS OR RISK THE
COMPLETE ECONOMIC COLLAPSE OF HIS COUNTRY, ONE OF THE WORLD'S
LAST BASTIONS OF COMMUNISM.
111 CAN'T SEE THEM HOLDING OUT MUCH LONGER,' SAID SUSAN
KAUFMAN PURCELL OF THE INDEPENDENT AMERICAS SOCIETY IN NEW
YORK. "I THINK THE ECONOMIC DETERIORATION WILL CONTINUE AND I
DON'T SEE HOW HE (CASTRO) IS GOING TO AVOID MAKING SOME ECONOMIC
CHANGES."
NEVER A MODEL OF EFFICIENCY, THE CENTRALLY-PLANNED CUBAN
ECONOMY WAS PLUNGED INTO CRISIS BY THE END OF THE COLD WAR. IT
HAS ALSO SUFFERED FROM THE GRADUAL WITHDRAWAL OF AID AND
SUBSIDIES MOSCOW USED TO PROVIDE FOR THE PRIVILEGE OF HAVING AN
OUTPOST OF SOVIET POWER 90 MILES FROM THE UNITED STATES.
THE LONDON-BASED INSTITUTE OF STRATEGIC STUDIES DESCRIBES
THE SITUATION IN CUBA AS THE WORST SINCE 1959, WHEN CASTRO TOOK
POWER_ CUBA, THE INSTITUTE SAYS, IS CLOSE TO ECONOMIC COLLAPSE.
A 3-MILLION TON SHORTFALL IN SHIPMENTS OF SOVIET FUEL, STILL
SUPPLIED BY THE SOVIET UNION AT PREFERENTIAL RATES, HAVE BECOME
SO SEVERE THAT TRACTORS ARE BEING REPLACED BY OXEN AND PUBLIC
BUSES BY BICYCLES.
FROM NEXT YEAR, CUSA WILL HAVE TO PAY FOR ALL ITS SOVIET OIL
IN HARD CURRENCY.
"ONE WAY OR THE OTHER, THERE WILL BE CHANGE,' SAID ISAAC
COHEN, DIRECTOR OF THE WASHINGTON OFFICE OF THE UNITED NATIONS
ECONOMIC COMMISSION FOR LATIN AMERICA AND THE CARIBBEAN.
'WHETHER POLITICAL REFORM WILL PRECEDE ECONOMIC REFORM OR
THE OTHER WAY ROUND NO ONE KNOWS_ BUT IT HAS TO HAPPEN_
EVERYBODY AGREES THAT THERE HAS TO BE SOME KIND OF STRUCTURAL
ADAPTATION OF THIS ECONOMY TO A NEW WORLD.''
U.S. OFFICIALS AND DIPLOMATS SAY CASTRO IS EQUALLY RELUCTANT
TO OPEN THE ECONOMY AND TO OPEN THE POLITICAL PROCESS.
''FOR HIM, BOTH GLASNOST AND PERESTROIKA ARE DIRTY WORDS,"
SAID A LATIN AMERICAN DIPLOMAT, REFERRING TO THE TWIN PILLARS OF
REFORMS IN THE SOVIET UNION.
SOME EXPERTS THINK NEXT MONTH'S PAN AMERICAN SPORTS GAMES IN-
CUBA COULD LIGHT THE SPARK FOR MASS DEMONSTRATIONS OF THE TYPE
WHICH BROUGHT DOWN COMMUNIST GOVERNMENTS IN EASTERN EUROPE OVER
THE PAST FEW YEARS.
CUBAN DISSIDENTS MIGHT TAKE ADVANTAGE OF THE PRESENCE OF
HUNDREDS OF FOREIGN JOURNALISTS DURING THE GAMES TO AIR THEIR
GRIEVANCES.
"IT'S REALLY REMARKABLE THAT THERE HASN'T BEEN MORE OF A
POLITICAL AND SOCIAL SURGE OF DISCONTENT SO FAR," SAID DOUGLAS
PAYNE, A LATIN AMERICA EXPERT AT FREEDOM HOUSE, A CONSERVATIVE
THINK TANK IN NEW YORK.
"BUT IF IT BEGINS TO DEVELOP MOMENTUM, CASTRO CAN DO LITTLE
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BUT USE THE HEAVY HAND OF REPRESSION.. HIS ECONOMIC OPTIONS (TO
MOLLIFY DISCONTENT) ARE LIMITED."
CUBA'S PREFERENTIAL TRADE LINKS AND BARTER AGREEMENTS WITH
EASTERN EUROPE VANISHED AFTER THE FALL OF COMMUNISM THERE. NOW
THE GOVERNMENT IS ACCELERATING AMBITIOUS PROJECTS TO ATTRACT
FOREIGN TOURISTS AND, WITH THEM, HARD CURRENCY.
BUT TOURISM PROJECTS, EXPERTS SAY, HAVE HAD A FLIP SIDE.
THEY HELPED CREATE WHAT CRITICS TERM "ECONOMIC APARTHEID.''
ORDINARY CUBANS, WHO ARE NOT ALLOWED TO HAVE DOLLARS, ARE
EFFECTIVELY BARRED FROM A STRING OF TOP-CLASS HOTELS AND
RESTAURANTS, WHICH ACCEPT DOLLARS ONLY. AN ENTIRE HOLIDAY
ISLAND, CAYO LARGO, IS OFF LIMITS FOR CUBANS -- EXCEPT CUBANS
WHO WORK THERE.
AT LEAST PART OF CUBA'S ACUTE ECONOMIC PROBLEMS APPEAR TO
RESULT FROM U.S. PRESSURE ON THE SOVIET UNION TO LOOSEN ITS
LINKS TO WHAT WAS ONCE MOSCOW'S MOST EXPENSIVE ALLY.
"SINCE BUSH HAS BEEN IN THE WHITE HOUSE, HE UTILIZED NEARLY
EVERY SUMMIT WITH (SOVIET LEADER MIKHAIL) GORBACHEV TO TURN THE
SCREWS ON CUBA," SAID PAYNE. "EACH TIME, BUSH EXACTED
CONCESSIONS ON THE SOVIET RELATIONSHIP WITH CUBA.''
PAYNE CITED THE U.S.-SOVIET SUMMER IN JUNE LAST YEAR.
HE SAID: ''GORBACHEV NEEDED TO TALK ABOUT TRADE AND ACCESS
TO MARKETS AND BUSH PRESSURED ON CUBA. WITHIN TWO MONTHS, THERE
WAS A DECIDED CHANGE IN THE RHETORICAL LINE OUT OF MOSCOW AND IT
BECAME EVIDENT THE SOVIETS WERE CUTTING BACK ON OIL
DELIVERIES."
REUTER
REUT11:48 07-23
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UNCLAS 6A
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USIA MIAMI FL
AFOSI DISTRICT 7 PATRICK AFB FL//IVO//
CDR747THMIBN GALETA ISLAND PM
XVIII ABN CORPS INTEL CEN FT BRAGG NC
HQ DA WASHINGTON DC//DAMO-SSM//
COMNAVSASE GUANTANAMO BAY CU
NAVINVSERVRA GUANTANAMO BAY CU
AFE/PAS HOMESTEAD AFB FL
SECSTATE WASHINGTON DC//ARA/CCA//
USIA WASHINGTON DC//VOA/M//
USINT HAVANA
NAVINVSERVA ROOSEVELT ROADS RQ
COMFAIRCARIS ROOSEVELT ROADS RQ
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COUNTRY: CUBA
<$UBJ>
SUBJ: USE OF RATION CARDS IN EFFECT 'FOR ANOTHER YEAR'
$OURCE: MADRID EFE IN SPANISH 0046 GMT 3 AUG 91
<TEXT>
TEXT:
((TEXT)) HAVANA, 2 AUG (EFE) -- THE DOMESTIC TRADE MINISTRY TODAY
ANNOUNCED THAT THE RATION CARDS THAT REGULATE THE PURCHASE OF
CONSUMER GOODS IN CUBA WILL BE IN EFFECT FOR ANOTHER YEAR -- UNTIL
AUGUST 1992.
THE CURRENT RATION CARDS WERE ISSUED IN 1990, WHEN ALL PRODUCTS
ON THE ISLAND WERE RATIONED.
THE SITUATION HAS DETERIORATED IN RECENT MONTHS AND SOME PRODUCTS
THAT BEFORE COULD BE ACQUIRED ON THE FREE MARKET HAVE AGAIN BECOME
SCARCE AND THEIR DISTRIBUTION IS NOW BEING CONTROLLED WITH RATION
CARDS, WHICH WERE INTRODUCED ON THE ISLAND IN THE 1960'S_
(ENDALL) 030046 RN/WASTRACK/CN MWES0308.03E 03/12592 AUG
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<ORIG> API
<TOR> 910827152359
<INTD> A0613
<PREC> U
<STORY CATEGORY> I
<SUMM>
AM-CUBA-SOVIETS BJT 08-27 0575
<TEXT>
AM-CUBA-SOVIETS, BJT,0731
CASTRO'S OPTIONS SHRINK FURTHER WITH END OF SOVIET COMMUNISM
BY JOSEPH B- FRAZIER=
ASSOCIATED PRESS WRITER=
MEXICO CITY (AP) - CUBA FACES FURTHER BELT-TIGHTENING WITH THE
SHREDDING OF SOVIET COMMUNISM REGARDLESS OF MOSCOW'S POLICY TOWARD
FIDEL CASTRO'S HARD-LINE COMMUNIST STATE.
THE LOSS OF SUPPORT AND TRADE FROM EASTERN EUROPE ALREADY HAS
CUBA SCRAPING ITS PLATE. FOOD, FUEL AND SPARE PARTS ARE SCARCE AND
QUICKLY GETTING SCARCER. THE SOVIET UNION HAS BEEN SCALING BACK ON
AID AND OIL TO CUBA AND IS LIKELY TO DO SO EVEN MORE.
CUBA HAS DEVELOPED WHAT IT CALLS A "ZERO OPTION," A PLAN THAT
FORESEES. A POSSIBLE TOTAL CUTOFF OF OIL SHIPMENTS. IT HAS BEEN
TESTED IN SOME TOWNS AND EXPERIMENTAL FARMS AND ENVISIONS, AMONG
OTHER THINGS, COMMUNAL KITCHENS AND USING CHARCOAL A$ AN ENERGY
SOURCE_
CUBA PRODUCES A TINY AMOUNT OF LOW-QUALITY, HIGH-SULFUR OIL USED
MOSTLY TO MOSTLY TO FUEL THE CEMENT INDUSTRY.
so FAR MOSCOW HAS NOT SAID WHAT IT MIGHT DO ABOUT CUBA, ALTHOUGH
RUSSIAN PRESIDENT BORIS YELTSIN HAS SAID THAT THE COUNTRY, WHICH IS
IN AN ECONOMIC CRISIS, CANNOT AFFORD TO CONTINUE ITS LARGESSE TO
FORMER CLIENT STATES.
THIS COULD AFFECT NOT ONLY OIL BUT OTHER ESSENTIALS SUCH AS
WHEAT, WHICH CUBA GETS FROM THE SOVIETS.
CASTRO'S GOVERNMENT HAS SAID LITTLE PUBLICLY ABOUT THE ABORTIVE
SOVIET COUP AND ITS AFTERMATH, CITING IT AS AN INTERNAL SOVIET
AFFAIR.
THE CRUMBLING OF THE EASTERN EUROPEAN BLOC LAST YEAR COST CUBA
AN ESTIMATED 90 PERCENT OF ITS FOREIGN MARKETS. COMECON, THE EAST
EUROPEAN TRADE GROUP OF WHICH CUBA WAS A MEMBER, HAS DISSOLVED.
THE CIA ESTIMATES THE SOVIET SUBSIDY TO CUBA WAS ABOUT $3.5
BILLION LAST YEAR, DOWN FROM $4.16 BILLION IN 1989. MOST OF IT WAS
IN MANUFACTURED GOODS.
SOME CUBA-WATCHERS IN WASHINGTON CONTEND THE SOVIETS OVERVALUED
THE GOODS AND THAT THE REAL FIGURE IS CLOSER TO $1.5 BILLION TO $2
BILLION.
"ABOUT 35 PERCENT (OF SOVIET TRADE WITH CUBA) IS IN
MANUFACTURED GOODS THAT ARE OF SUCH POOR QUALITY THAT IT IS
IMPOSSIBLE TO SELL THEM ANYWHERE ELSE," GILLIAN GUNN, A CUBA
SPECIALIST WITH THE CARNEGIE ENDOWMENT FOR PEACE IN WASHINGTON,
$AID IN A TELEPHONE INTERVIEW. "CUBA HAS NO CHOICE, so IT BUYS
THEM.
SHE SAID THE SOVIETS HAVE BECOME HEAVILY DEPENDANT ON THE CITRUS
AND SUGAR THEY GET IN EXCHANGE FOR THE GOODS AND OIL BUT THAT THE
EMOTIONAL LASHING OUT IN THE SOVIET UNION MAY LEAD TO A CUT IN TIES
ON IDEOLOGICAL GROUNDS AS A SYMBOL OF THE PAST REGIME THAT MUST BE
ESTROYED.
CUBA'S DESPERATION, MEANWHILE, SHOWS MORE BY THE DAY.
DOMESTIC AIRLINE PASSENGERS WRAP THEIR AIRLINE LUNCHES OF BREAD
AND COLD CUTS IN NAPKINS AND SAVE THEM TO EAT LATER OR FOR OTHERS.
PAPER NAPKINS AND PLASTIC FORKS ALSO ARE TUCKED AWAY, AS ARE
UNOPENED CANS OF SOFT DRINKS, VIRTUALLY UNAVAILABLE TO MOST CUSANS.
CUBA, MEANWHILE, HAS INCREASED ITS DEALINGS WITH CHINA BY 150
PERCENT IN THE PAST THREE YEARS.
THOSE TIES AMONG OTHER TOPICS ARE SCHEDULED FOR DISCUSSION WHEN
JIANG ZEMING, THE SÉCRETARY-GENERAL OF CHINA'S COMMUNIST PARTY,
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VISITS CUBA IN SEPTEMBER. VICE PRESIDENT CARLOS RAFAEL RODRIGUEZ
RETURNED FROM A 10-DAY TRIP TO CHINA A MONTH AGO.
A HALF-MILLION CHINESE BICYCLES HAVE APPEARED ON CUBAN STREETS.
CUBA EXPECTS TO HAVE THAT MANY MORE BY THE END OF THE YEAR AND 1.5
MILLION BY NEXT SUMMER.
IN THE COUNTRYSIDE, OXCARTS GRADUALLY ARE REPLACING FARM
MACHINERY. THE MILITARY NOW BURNS WOOD INSTEAD OF OIL TO COOK THE
TROOPS' FOOD AND THE GOVERNMENT IS EXPERIMENTING WITH WINDMILLS TO
GENERATE ELECTRICITY.
THERE ARE LINES FOR EVERYTHING AND VIRTUALLY EVERYTHING IS
RATIONED. RATION CARDS GUARANTEE ONLY THE RIGHT TO BUY AN ITEM IF
IT IS AVAILABLE. IT DOES NOT GUARANTEE THE SUPPLY.
AMERICAN CARS BROUGHT IN BEFORE THE U.S. EMBARGO 30 YEARS AGO
ARE ON BLOCKS FOR LACK OF PARTS, AS ARE MANY OF THE EASTERN BLOC
VEHICLES BROUGHT IN LATER.
THE SOVIETS HAVE PULLED MANY OF THEIR ADVISERS FROM CUBA BUT
HAVE LEFT THOSE WORKING ON THE COUNTRY'S FIRST NUCLEAR POWER PLANT.
''IF THEY WITHDRAW THEM THE CUBANS COULD PROBABLY FINISH IT BUT
THEY MIGHT DO so IN A WAY THAT WOULD MAKE THE REST OF THE WORLD
VERY NERVOUS," MS_ GUNN SAID. "IT MIGHT BE IN THE INTERESTS OF
THE UNITED STATES IF THE SOVIETS STAY ON.''
APTV-08-27-91 1523EDT+
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<ORIG> UPI
<TOR> 910908163835
<INTD> 21025
<PREC> R
<STORY CATEGORY> A
<SUMM>
BC-FLORIDA-CUBA:435PED
9-8 0393
<TEXT>
SOUTH FLORIDA BENEFITS FROM CUBAN CRISIS@
MIAMI (UPI) THE ECONOMIC CRISIS IN CUBA AND THE DECISION BY CUBAN
PRESIDENT FIDEL CASTRO TO DROP SEVERAL TRAVEL RESTRICTIONS HAVE BEEN
VERY PROFITABLE FOR MIAMI-AREA TRAVEL AND SHIPPING BUSINESSES, A
PUBLISHED REPORT SAID SUNDAY.
TICKET SALES AND SHIPPING HAVE INCREASED DRAMATICALLY, RESULTING IN A
PROFITABLE RELATIONSHIP BETWEEN THE UNITED STATES AND CUBA DESPITE A 30-
YEAR-OLD TRADE EMBARGO, SAID THE MIAMI HERALD.
THE COMMERCIAL EXCHANGE COULD MEAN AT LEAST $135 MILLION FOR THE
CUBAN GOVERNMENT BY THE END OF THE YEAR. ABOUT $100 MILLION WOULD COME
FROM TICKET SALES AND THE REST PRIMARILY FROM SHIPMENTS OF MONEY,
MERCHANDISING AND MEDICINE, THE HERALD SAID.
OVERALL, THE INDUSTRY THAT HANDLES THE TRAVEL AND SHIPMENT
TRANSACTIONS WITH CUBA GENERATES REVENUES OF MORE THAN $200 MILLION
ANNUALLY. ABOUT $80 MILLION OF THAT WILL REMAIN IN DADE COUNTY AND THE
REST WILL GO TO CUBA, SAID ANTONIO JORGE, A CUBA SPECIALIST AT FLORIDA
INTERNATIONAL UNIVERSITY.
THE FIGURES ARE BASED ON CALCULATIONS MADE BY JORGE AND THE CUBAN
AMERICAN NATIONAL FOUNDATION.
JORGE SAID REVENUE FROM EXILE TRANSACTIONS HELPS FINANCE CUBA'S TRADE
DEFICIT, ESTIMATED AT AROUND $500 MILLION.
''EXILES SUBSIDIZE AT LEAST 20 PERCENT OR 25 PERCENT OF THE DEFICIT,'
HE SAID.
FIU ECONOMICS PROFESSOR JORGE SALAZAR SAID INCOME FROM THE EXILE
COMMUNITY TRANSACTIONS MAKES UP 22.5 PERCENT OF CUBA'S ANNUAL AVERAGE
HARD-CURRENCY RESERVES OF $900 MILLION.
THE FIGURES WERE DISPUTED BY THE CUBAN INTERESTS SECTION IN
WASHINGTON, AND IT SAID REVENUE FROM CUBA FROM U.S. TRAVEL AND
MERCHANDISE IS MINIMAL_ CUBAN OFFICIALS WOULD NOT PROVIDE THEIR
GOVERNMENT'S FIGURES ON THE EXCHANGE.
THE CURRENT EXCHANGE IS WELL BELOW THE PEAK $1 BILLION IN YEARLY
TRADE BETWEEN THE TWO COUNTRIES BEFORE CASTRO CAME INTO POWER IN 1959.
THE EMBARGO WAS DECLARED IN 1962.
THE EMBARGO PROHIBITS ALL TRADE WITH CUBA_ THE NEW EXEMPTIONS ARE
CONSIDERED HUMANITARIAN IN NATURE AND ALLOW EXILES TO SEND UP TO $200 A
MONTH IN MERCHANDISE TO RELATIVES IN CUBA AND BRING FAMILY MEMBERS FOR
SHORT VISITS TO THE UNITED STATES.
EXILES ALSO CAN SEND UP TO $500 IN MONEY EVERY THREE MONTHS TO A
HOUSEHOLD IN CUBA.
OFFICIALS SAY TRAVEL IN SOME INSTANCES HAS GONE UP NEARLY 70 PERCENT
WHILE SHIPPING HAS NEARLY DOUBLED.
UPI 09-08-91 04:38 PED=
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<ORIG> REU
<TOR> 910909105254
<INTD> A0410
<PREC> R
<STORY CATEGORY> I
<SUMM>
AM-CUBA-CIGARETTES 09-09 0474
<TEXT>
AM-CUBA-CIGARETTES (SCHEDULED)
CUBA RATIONS ALL DOMESTIC SALES OF CIGARS AND CIGARETTES
BY PASCAL FLETCHER
HAVANA, REUTER - COMMUNIST-RULED CUBA, KNOWN FOR ITS CHOICE
TOBACCO AND WORLD-FAMOUS CIGARS, SAID MONDAY IT WOULD RATION ALL
SALES OF CIGARETTES AND CIGARS TO ITS OWN PEOPLE.
THE MOVE ANNOUNCED BY THE STATE-RUN MEDIA WAS A FURTHER
HEAVY BLOW TO CUBA'S MORE THAN 10 MILLION PEOPLE, WHO ARE AMONG
THE HIGHEST TOBACCO CONSUMERS IN THE WORLD.
THEY ARE ALREADY SUFFERING WIDESPREAD SHORTAGES OF
PRACTICALLY ALL FOOD AND CONSUMER ITEMS BECAUSE OF DISRUPTIONS
TO TRADE WITH EASTERN EUROPE AND THE SOVIET UNION, TRADITIONALLY
THE ISLAND'S MAIN ECONOMIC SUPPLIER.
MANY, BUT NOT ALL, OF CUBA'S HUNDREDS OF THOUSANDS OF
SMOKERS ALREADY RECEIVED A FIXED QUOTA OF CIGARS AND CIGARETTES
IN THEIR MONTHLY FOOD RATION. BUT UNTIL NOW, SMOKERS COULD ALSO
PURCHASE ADDITIONAL SUPPLIES OF BOTH FREELY IN STATE SHOPS.
THE STATEMENT BLAMED THE SHORTAGES ON A HUGE RECENT SURGE IN
DEMAND FOR CIGARETTES AND PROBLEMS IN PRODUCTION SUCH AS
ANTIQUATED MACHINERY AND LACK OF SPARE PARTS. IT ALSO CITED
INDISCIPLINE AND ASSENTEEISM AMONG WORKERS AT CIGARETTE
FACTORIES IN THE CARIBBEAN ISLAND NATION_
ENSURING A FAIR AND EVEN DISTRIBUTION WAS PREFERABLE TO
USING PRICE RISES TO REGULATE CONSUMPTION AND CONTROLLED SALES
WOULD STOP HOARDING AND BLACK MARKETEERING, IT ADDED_
UNDER THE NEW SYSTEM, ADULT SMOKERS WHO RECEIVED FOUR
PACKETS OF CIGARETTES IN THEIR MONTHLY RATION WOULD BE ALLOWED
TO BUY ONLY TWO MORE PACKETS A MONTH.
THOSE WHO DID NOT PREVIOUSLY RECEIVE A TOBACCO RATION QUOTA
WOULD BE ALLOWED TO BUY UP TO SIX PACKETS A MONTH.
THE OFFICIAL STATEMENT DID NOT SAY WHETHER THE MEASURES
WOULD AFFECT CUBA'S EXPORTS OF TOBACCO AND CIGARS, WHICH ARE
PRIZED AROUND THE WORLD_ THEY ARE AN IMPORTANT SOURCE OF FOREIGN
EXCHANGE.
IN RECENT MONTHS, CIGARETTES AND TO A LESSER EXTENT CIGARS
HAD BEEN IN SHORT SUPPLY ON THE LOCAL MARKET, CAUSING LARGE
LINES TO FORM OUTSIDE KIOSKS.
BUT CUBA'S BEST CIGARS AND CIGARETTES ARE ABUNDANTLY
AVAILABLE TO DOLLAR-SPENDING FOREIGN VISITORS WHO SHOP AT
SPECIAL TOURIST STORES. THIS IS A SOURCE OF GREAT RESENTMENT TO
ORDINARY CUBANS WHO CANNOT BY LAW HAVE DOLLARS AND so CANNOT
SHOP THERE.
CUBANS ARE ALSO ENCOUNTERING DIFFICULTIES IN BUYING ENOUGH
OF THEIR OTHER FAVORITE VICE -- RUM.
WHILE FOREIGN TOURISTS CAN BUY IN DOLLARS A WIDE ARRAY OF
CHOICE BOTTLED BRANDS, ORDINARY CUBANS MUST MAKE DO WITH THE
CHEAPEST VARIETY, DISTRIBUTED BY TANKERS AT STREET-CORNER BARS_
THE TOBACCO RATIONING MOVE CAME JUST FOUR DAYS AFTER THE
COMMUNIST AUTHORITIES ANNOUNCED THE RATIONING OF BOTTLED LIQUID
GAS, THE FUEL MOST USED FOR COOKING ON THE ISLAND.
CUBAN PRESIDENT FIDEL CASTRO HAS SAID THAT, WHATEVER HAPPENS
IN THE SOVIET UNION AND HOWEVER TOUGH THE ECONOMIC PRESSURES
ARE, CUBA WILL NEVER ABANDON ITS ONE-PARTY COMMUNIST SYSTEM.
REUTER
REUT10:53 09-09
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N.Y. Times 9-10-91
Cigars and Cigarettes
Are Rationed in Cuba
171
HAVANA, Sept. 9 (Reuters) -
Cuba, known for its choice tobacco
and world-famous cigars, said today
that it would ration all sales of ciga-
rettes and cigars to its own people.
The move, announced by the state-
run news outlets, was another big
blow to Cuba's more than 10 million
people, who are among the heaviest
tobacco consumers in the world.
They are already suffering wide-
spread shortages of practically all
food and consumer items because of
disruptions in Cuba's trade with
Eastern Europe and the Soviet Union,
the Communist-governed island's
main economic supplier.
Many, but not all, of Cuba's hun-
dreds of thousands of smokers al-
ready received a fixed quota of cigars
and cigarettes in their monthly food
ration. But until now, smokers could
buy additional supplies in state shops.
The Government attributed the to-
bacco shortage to production prob-
lems and a huge surge in demand for
cigarettes.
CUBA: CRIPPLED ICON
WASH.POST:09-12-91
First of Two Articles
1084
Communists
Press Forth
By Oxcart
171
By Lee Hockstader
"Every one of us is convinced we must fight and
Washington Post Foreign Service
struggle to make do, to find some other way to make
things work," said Duarte, echoing President Fidel Cas-
SANTIAGO DE CUBA
tro's slogan-laden vision of what could be socialism's
0
n the outskirts of this
last stand.
Caribbean city, not far
Cuba, an island of 10.7 million people that for three
from where Theodore
decades has defied American power and pressure and
Roosevelt and his Rough Riders
stood as a beacon for Latin leftists and Third World
charged up San Juan Hill a
revolutionaries, has become a crippled icon, staggering
century ago, there is an old meat
grimly toward a forbidding horizon.
packing plant called the
As the largess of its Soviet patron shrivels, the Cuban
Empacadora Santiago where
revolution's achievements in public health and educa-
dress rehearsals are underway
tion and its own brand of social and economic equality
for Cuba's bleak socialist destiny.
are heaving and creaking under the weight of an un-
Code name: The Zero Option.
wieldy centralized economy that does not work and an
Lourdes Duarte, the
American trade embargo that does.
no-nonsense manager, starts the
More than at any juncture since Castro's 1959 New
guided tour in the giant freezers,
Year's Day triumph, what is at stake in this crisis is not
where Cuban workers wearing
the shape of his revolution but its survival in a world
Russian fur hats tend to stiff
turned upside down.
slabs of pork.
"Right now we are preparing
Cuba's Contrasts
in every way for the Zero
Option," she said, referring to an
The fraying fabric of Cuban society was laid bare this
apocalyptic future in which the
summer for a reporter who spent a month here, criss-
Soviet Union would cut off
crossing the island and conducting scores of unmoni-
shipments of petroleum, food and
tored interviews in Havana and 11 of the country's 14
other supplies-a possibility that
provinces.
has become less far-fetched since
Spread over an area the size of Pennsylvania, Cuba is
the failed coup and Communist
carpeted with endless green fields of sugar cane broken
meltdown in Moscow.
only by billboards pitching Castro's revolutionary dic-
"We rehearse for this at least
tums. A motorist can stick to back roads all day, hop-
ping from perfect beaches of tall palms and white sand
once a month. We use charcoal
to lazy rural hamlets of tidy wooden shacks and streets
and kindling instead of kerosene
muddy from afternoon downpours.
for the ovens. We practice
But it is in the larger towns and cities, where three
slaughtering the animals here so
out of four Cubans live, that Cuba's contrasts spring
they don't have to be
into focus. Stately old mansions, once homes to the
transported by truck from the
bourgeoisie, are cracked and peeling from want of
slaughterhouse. We have drills
paint. Grand plazas and leafy boulevards, the legacy of
so that our products would be
colonial times, are fringed with drab apartment blocks
distributed using ox-drawn carts
and squat public buildings, the legacy of socialism. And
instead of delivery trucks."
in the ubiquitous lines that form for groceries, trans-
port, restaurants and even ice cream, there is an inor-
But the austerity plans go
dinately large number of uniformed men and women of
beyond fuel-saving. Soap has
Cuba's army, police and militias.
been unavailable for months, SQ
A visitor was able to question factory workers and
the plant washes blood-stained
farmhands, shopkeepers and pharmacists, bus passen-
aprons with crude cakes made
gers, teachers and doctors. While most people spoke
partly of pig fat. To save money
freely, many preferred not to give their names for fear
in the cafeteria, drippings from
of retribution from the government's security aparatus.
the ovens are collected to use in
The impression was of a fiercely proud and nation-
making croquettes.
alistic people, far better educated and more self-as-
sured than in other Spanish-speaking countries of the
region, whose daily lives and routines have been up-
ended and squeezed by far-away events moving at
breakneck speed.
Like their compatriots in the meat-packing plant,
many Cubans are planning for even worse times to
come. Many say they are ready for sacrifices. But the
busy preparations and bold talk are a veneer that fails
to mask Cubans' profound pessimism about the future.
Beyond Castro's barrage of slogans and labels-the
already declared "Special Period in Time of Peace," the
coming "Zero Option," the apocalyptic "Socialism or
Death" are currently in vogue-the plain fact is that life
for virtually everyone in Cuba is getting worse and
harder at an astonishing rate.
WASH. POST 09-12-91
274
ing is to guarantee the essentials of life," said Raul
Faced with more acute food shortages since commu-
Taladrid, vice minister for economic cooperation.
nism dissolved in Eastern Europe, the government is
But for many Cubans, especially the two-thirds of the
responding with an epic feat of social engineering. Hun-
population born since Castro's 1959 revolution, that mod-
dreds of thousands of factory and office workers are
est goal is not enough. For them, Latin America is not the
being sent to work stints in the countryside-often
standard; the United States is. And three decades of anti-
against their will and without their families-to move
American propaganda have done practically nothing to
Cuba closer to food self-sufficiency.
blunt the appetite for the consumer goods that are so
In Havana's outlying suburbs, the government al-
abundant just 90 miles across the Straits of Florida.
ready has begun construction of about 30 "new towns,"
Many Cubans fear that if their island is relatively well
where thousands of workers will be moved from the
off compared to their Latin neighbors, this only means
capital to work in the fields beginning next year.
they have farther to fall. Billboards around the island
At the 6,150-acre Yabu farm near the heartland city
read, "We trust in the future!" But given Castro's chill-
of Santa Clara, Jose Padron, the land manager, gave
ing warnings about the Zero Option and, more recently,
this blunt assessment of how thousands of city slickers
the unraveling of the Soviet Union, few Cubans seem to
are adjusting to their new rustic lives: "It's not a ques-
share that view.
tion of whether they like it. It's a necessity."
The evidence of unmet consumer demand is every-
Cuban officials point to production figures that show
where. In Miramar, an elegant Havana neighborhood
increases in fruit, vegetables and pork. Yet judging by
now in graceful decay, hundreds of people stand in line
the test that ordinary Cubans use-what is available on
every day at an old mansion called the House of Gold.
grocery shelves-the government's emergency food
Many are waiting to trade away their family's most
treasured heirlooms.
plan has yet to show results. The appearance of a truck
Cubans come with 40-year-old, top-of-the-line Swiss
full of fresh corn in downtown Havana a few weeks ago
watches, silver dining sets, necklaces, earrings, baubles
was enough to send 100 people scrambling for a place
of every description. Inside, the articles are appraised
in line.
and bought by the state for dollar-denominated "travel-
In addition to the social upheaval underway across
er's checks." The checks are worthless outside Cuba but
the island, even humdrum functions of daily existence
can be used at special dollar stores around the country to
are bending to the exigencies of Cuba's most severe
buy imported clothing, electronics and appliances. The
economic crisis.
government then sells the watches and jewelry on the
"There's been no soap for four months," said a 40-
international market for desperately needed dollars.
year-old textile designer in Villa Clara province, east of
But for Castro's government, the most painful exam-
ple of the undulled consumer impulse is the gradual
Havana in the island's midriff. "How can a person live
resurgence of prostitution in Havana and Santiago de
without soap?"
Cuba, the two largest cities. In the capital, they are
On highways and country roads across the island,
known as "Flowers of Fifth Avenue" for the street
sharp cuts in Soviet fuel supplies have curtailed bus
where they ply their trade. These students or workers,
service, leaving Cuba a country of hitchhikers who wait
who want more than wages and rationing coupons can
for hours to get to work or to the store.
buy, wait outside Havana Club-a new disco for dollar-
In the Sierra Maestra, the rugged eastern mountain
paying tourists-for clients with greenbacks who will
range where Castro and his revolutionaries launched
take them shopping.
their insurrection 35 years ago, an old woman who re-
Having years ago proclaimed an end to prostitution
members feeding and sheltering the small rebel band
as an achievement of the revolution, Cuban officials
shook her head sadly at all the shortages. There was no
insist they are cracking down anew. "We're not toler-
pasta, she said, no matches. She had been searching for
ating it," said a red-faced Juan Escalona, president of
weeks for a certain antibiotic, to no avail.
the National Assembly, at a testy news conference last
"We can't continue like this," she said.
month. Judging from the attitude of police on Fifth Av-
enue, however, the opposite is true.
'The Essentials of Life'
The American middle-class ideal, brought tantaliz-
ingly home to Cuba by letters, calls and visits by the
The government points out rightly that Cuba's stan-
1 million Cubans living in the United States and by per-
dard of living is better than in many other countries of
vasive media images of American life, has shaped Cu-
the Caribbean and Latin America. There are no filthy
bans' expectations. If many Cubans see America as so-
children scrambling over garbage heaps to compete
cially chaotic or physically dangerous, they also imagine
with vultures for scraps of food, as in El Salvador.
it to be an economic paradise.
There are no death squads preying upon the weakest
"Kids in particular compare Cuba with the United
and poorest, as in Guatemala. There is none of the fes-
States," said a 30-year-old grocer in Matanzas, a town
tering disease and crushing poverty that is on display in
east of Havana. "That's not fair, but it's the fact."
any village in Haiti or Honduras or Nicaragua. The vi-
The result is the wrenching spectacle of hundreds of
olent crime, random killing and manic drug trade that
Cuban youngsters fleeing across the Straits of Florida
are Colombia's scourge, and Jamaica's, are practically
to the United States every month aboard flimsy rafts
unknown in Cuba.
fashioned of inner tubes and plywood. More than 1,700
Government officials frequently trumpet the revo-
have arrived that way already this year, braving sun,
lution's achievements of lowering infant mortality or
currents and sharks, and U.S. immigration officials in
increasing daily calorie consumption. "What we are try-
Florida predict the numbers will soar once hurricane
season is over this fall.
For those who stay, the simplest purchases are often
a trial.
Along Cuba's southeastern coast,
WASH. :09-12-91
in the shadow of the Sierra Mae-
er. Most of the Soviet oil comes from
stra, a 29-year-old mother and her
the Russian republic, whose presi-
384
8-year-old daughter stood waiting
dent, Boris Yeltsin, has made clear
for the bus one Saturday last
that he favors ending Moscow's
month. They needed to go 15 miles
charitable trade subsidy for Cuba.
ern Europe are in short supply,
to the town of Chivirico, where
If the Soviet Union does suspend
leading doctors and pharmacists to
there is a small general store that
its oil shipments, or begin to re-
improvise and substitute.
sells fabric.
quire Cuba to pay for them in dol-
"Our first priority is to recuper-
They arrived at the bus stop at
lars rather that the current sugar-
ate what we've lost in food imports
noon, but by 4 there was still no
for-oil swap that has long favored
from Eastern Europe," said Eugenio
bus. A few dozen other people also
Havana, that would force Cuba ei-
Balari, director of the Cuban Insti-
waited, but none was so desperate
tute for Research and Orientation
ther to activate the Zero Option or
as the mother and her daughter,
find large sums of hard currency to
of Internal Demand. "If one product
who stood in the middle of the road
pay for oil.
is in short supply, we're trying to
frantically flagging down cars.
But finding sources of hard cur-
increase production of another, sim-
Under Cuba's rationing system,
rency-dollars-is a particular
ilar product. The goal is to maintain
fabric is bought according to a com-
problem for Cuba. Having sus-
the level of calorie consumption."
plicated system that assigns every-
pended payments on its internation-
Therefore, Balari explained, the
one on the island a designated time
al debt, Cuba cannot borrow
Cuban diet is changing: Instead of
to buy certain goods. The last time
abroad. Its cash reserves, never
bread, Cubans are eating more rice;
the woman was eligible, six weeks
instead of fresh meat, more tubers
very large, were drained by the
earlier, family obligations kept her
such as yucca.
staggering cost of staging last
from going shopping. Unless she
The survival program does not
month's Pan American Games, a
made it to Chivirico this day, she
stop at food production. To save en-
prestige event that Cuba agreed to
would have to wait six weeks
ergy and make up for reduced bus
host years before its economy be-
more-and already her daughter
service, the government is importing
gan to crumble.
had outgrown her clothes.
more than a half-million Chinese bi-
The country's dollar supply was
"The buses are making me cra-
cycles this year. There has been
further depleted this year when de-
zy!" she told a motorist who offered
heavy investment in the island's bio-
lays in shipments of grain and other
her a ride. "Every month it gets
technology industry, which appears
supplies from the Soviet Union
worse. It makes everything impos-
forced Cuba to turn to the world
to be paying off: Exports of pharma-
sible. What if there's an emergen-
ceuticals will generate more hard
market. Without warning this
cy? It's incredible."
currency this year than Cuba's leg-
spring, Havana residents were in-
It was a complaint heard dozens of
endary cigars and tobacco. New ho-
formed that daily bread rationing
times in a tour across Cuba-from
tel construction is expected to add
was in effect-one roll per custom-
doctors who could not reach the hos-
about 5,000 new rooms this year in a
"er. Meanwhile, as Cuban officials
pital for work in the morning to va-
bid to lure more tourists who would
bargained with hundreds of new
cationers who could not get home
pay dollars for food, service and lodg-
Soviet trading companies to set dol-
after an afternoon at the beach.
ing that is a cut above what is avail-
lar-valued prices and contracts, Ha-
able for Cubans.
'Everyone Hopes'
vana was shelling out precious cash
to buy emergency supplies of grain
Trade Embargo Tightens
But to understand the dimensions
from Canada and Argentina and
of the problem, it is instructive to
rubber from Mexico.
The effort to generate dollars is
visit the main bus terminal in Hol-
The shortages have caused some
at times stymied by the United
guin, a large provincial capital in the
sectors of the economy simply to
States' 30-year-old trade embargo,
east. Buses are the main form of
grind to a halt. Most new commer-
which bars American firms from
transportation in Cuba, where there
cial construction projects in Ha-
trading with Cuba and most Amer-
are only about 150,000 privately
vana, as well as many in the prov-
icans from spending money there.
owned cars. At 9 on a weekday
inces, have been suspended. It is
The embargo has become harder to
morning last month, hundreds of pas-
common to see half-finished sites
elude since the 1989 U.S. invasion
apparently abandoned.
of Panama, which has stanched the
sengers were milling about the Hol-
guin terminal waiting for buses run-
At the Universal Products Co., a
flow of some American goods from
ning on a sharply reduced schedule.
warehouse outside Holguin, Orlando
Panama to Cuba.
Cuban officials and some Euro-
The reason: petroleum shipments
Fernandez, the assistant business
pean diplomats and investors in
from the Soviet Union, which ac-
manager, surveyed his shrinking in-
Cuba contend that Washington has
count for more than 90 percent of
ventory of construction materials.
further tightened the screws on the
the nation's fuel supply, have been
"Almost all our wood came from
embargo as Cuba's economy has
slashed by more than a quarter
the Soviet Union. That's down by
withered, and there is some evi-
since 1989. While oil is still going to
20 to 30 percent," he said. "Same
dence they are right.
priority sectors of the economy,
thing for sheet metal and steel
Last year, for example, a tourist
such as factories, farms and hospi-
beams. About half the glass used for
resort planned for Cuba's Cayo
tals, fuel for public transportation
construction is imported, and that's
Coco island lost one of its main in-
have been sharply curtailed. On top
down." Distribution has been com-
vestors, a large Spanish tobacco
of that, spare parts for the buses,
plicated partly by a suspension in
concern called Tabacalera, when
which are made in Hungary and
the shipment of tires from Romania
U.S. officials pressed the firm to
Japan, are scarce.
and Czechoslovakia, he added.
withdraw, according to Cuban and
"In May, we received notice one
Elsewhere, trade relations have
Spanish officials in Havana. The
day: Our gasoline supply was cut by
been collapsing even faster. A long-
Miami Herald reported last month
about 85 percent," said Rolando
standing deal that brought 23,000
that U.S. government pressure also
Pinilla, the beleaguered business
tons of East German powdered milk
forced VASP Brazilian Airlines to
manager of the Holguin bus termi-
a year to the island in return for
break off talks with Castro aimed at
nal. "We had to cut two of our 14
Cuban sugar was canceled after
forging an operating partnership
routes altogether. Some of the oth-
German unification.
with Cuba's state airline.
ers now don't go every day. And we
"It's not fair," said Taladrid, the
But in most other enterprises,
have fewer buses running the
economic vice minister. "They had
Cuba's balky, centralized economy
routes we're still operating.
no right to do that."
is stalled not by U.S. interference
"Everyone hopes it'll get better,
Also lost from former East Eu-
but by its own inefficiency. Near the
but in the meantime you just have
ropean trading partners: fats and
mid-island town of Sancti Spiritus,
to put up with the complaints."
cooking oil, canned meat and veg-
for example, the manager of an ag-
In fact, the Soviet Union's annual
etables, frozen chicken, grains, ce-
ing tile and bathroom fixtures plant
10 million-ton oil shipment, which is
reals and cheese. In addition, pen-
described the government's efforts
the Cuban economy's most vital life-
icillin and other antibiotics and med-
line, looks more threatened than ev-
ications formerly furnished by East-
WASH. POST :09-12-91
to attract foreign investors to mod-
434
ernize his factory and make it more
productive.
"We've had representatives visit
from an Italian firm and a Spanish
CUBA AT A GLANCE
firm. They both came out and
talked, and you know the govern-
Area: 44,218 square miles,
ment is offering 50-50 partner-
nearly the size of Pennsylvania.
ships. But we never heard from ei-
ther of them again," he said.
Population: 10.5 million
Were they deterred by Cuba's
(1990)
political uncertainty? Or did the
United States step in to dissuade
them?
Chief Industries: Sugar is the
most important export by far.
"No, nothing to do with that. It's
the system. I can't blame them.
Tobacco, coffee and many
Tourism is an attractive investment
fruits are also grown. Textiles,
because you can insulate it from the
wood products, and cigars
system-it's just services, and
remain key industries. A U.S.
those can be separated somewhat
embargo, imposed in 1962,
from the system.
ravaged the island's industrial
"But it's another thing to come in
economy.
and try to retool a factory from
scratch. You're dealing with getting
Exports: Other
14.0%
spare parts, the distribution prob-
Minerals 9.0%
lems, fuel problems, supplies of ev-
erything.
Tobacco 2.0%
Sugar 75.0%
"It's not about politics, it's a
question of what works and what
doesn't. This country doesn't
work."
NEXT: Protests embargoed
Nassau
Gulf of Mexico
FLORIDA
&
Key West
BAHAMAS
CUBA
Straits of Florida
North Atlantic Ocean
Havana
Matanzas
Cayo Coco
Santa Clara
Cienfuegos
Sancti Spiritus
Isle of
Youth
Camaguey
Holguin
CANADA
Sierra Maestra
Caribbean Sea
UNITED STATES
Windward
Passage
Cayman
Islands
Santlago de Cuba
Guantanamo Bay
MEX
CUBA
North
(BRIT.)
(U.S. Naval Base)
Atlantic
Ocean
HAITI
JAMAICA
/ENEZ
Pacific Ocean
COL.
Kingston
0
BRAZIL
300
MILES
BY BRAD WYE-THE WASHINGTON POST
WALL :09-12-91
Cuban Casualty
Fidel Castro has been putting up a
nomic aid to Moscow. So Mr. Castro
brave front, but realities are begin-
becomes the odd man out. The Rus-
ning to intrude on his personal never-
sians will have a better chance at get-
never land. As the demise of the So-
ting Western aid. Castro's aid from
viet empire lets the air out of the Cu-
Russia is dwindling away, a victim of
ban economy, he is finally paying the
the failure of the Communist system
price for serving SO many years as a
he served SO loyally.
hireling to Communist bosses in Mos-
His own system, propped up for SO
cow. With their subsidies and military
long by Soviet subsidies, is breaking
presence, they kept him politically
down too. As an AP dispatch reported
alive but on a short leash. Now he,
yesterday, "virtually everything
and the Cuban people, will pay the
available in Cuba is rationed, from
price for the country's lack of accom-
food to paper to shoes, and long lines
plishment during its years as a Soviet
for scarce items are a common sight
satellite.
in the capital city of Havana. On Mon-
This prospect faces him because of
day the Cuban government voted to
the news from Moscow yesterday.
begin tobacco rationing and said it
Mikhail Gorbachev, Soviet president
will start rationing cooking gas on
and nominative chairman of the gov-
Sunday."
erning State Council of the new Union
The Journal's Jose de Cordoba re-
of Sovereign States, told U.S. Secre-
ported from Havana yesterday that
tary of State James Baker yesterday
the government is now trying to crank
that he intends to begin pulling 11,000
up joint ventures with foreign capital-
Soviet troops out of Cuba.
ists to help replace lost trade with the
Mr. Gorbachev informed the U.S.
East Bloc. Still, the head of Cuba's
Secretary that future relationships be-
committee for economic cooperation
tween his country and Cuba will be
calls capitalism "a trap for whoever
only political and economic, which
wants to fall into it."
presumably means that they will no
longer be military. Quite likely, Mr.
Indeed, Mr. Castro says Cuba will
Gorbachev thinks he now has more
remain a Communist country, and he
important fish to fry than listening in
no doubt will adhere to his passionate
on American telephone conversations
hatred of all things Yankee as well.
with the help of the sophisticated So-
None of which will represent much
viet military-communications facility
trouble for anyone other than the Cu-
in Cuba. This spying plus the Soviet
ban people.
bombers and submarines that use
Castro's days as the mastermind of
Cuba as a base have been a signifi-
the communist revolution in the Car-
cant annoyance to the U.S. over the
ibbean-which had one great, but tem-
years, and at times a genuine
porary, success in the Sandinista rev-
threat.
olution in Nicaragua-are numbered.
Mr. Baker thought Mr. Gorba-
How long Cubans will be willing to
chev's move would do wonders for
suffer abject poverty in support of
public opinion in the United States, a
their generalissimo's passions is an
mild hint that Americans might now
open question. But the likely answer
be more friendly toward granting eco-
would seem to be, not much longer.
EUROPE
3M'S STRATEGY
INFORMATION HIGHWAYS: THE GLOBAL RACE
BusinessWeek
THE
SEPTEMBER 16, 1991
A McGRAW-HILL PUBLICATION
MIAMI
FOREIGN INVESTORS ARE FLOCKING TO ONE OF
NORTH AMERICA'S HOTTEST BUSINESS CITIES
AUSTRALIA
A $2.50
DENMARK
D. KR. 22.00
GERMANY
DM 6.00
HONG KONG
HK $25
LUXEMBOURG
L. FR. 110
NORWAY
N. KR. 19.00
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S. KR. 25.00
UNITED STATES
US $2.50
AUSTRIA
SCH 35
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F. MK. 12.50
GREECE
DRS. 330
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LIT. 3,000
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M. $6.00
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NUMBER
3221-551
© ©1991 PORSCHE A.G.
W
The body is guaranteed
for ten years.
The soul will last forever.
PORSCHE
BusinessWet
NUMBER 3221 - 551
SEPTEMBER 16,1991
WORLD TRADE CENTER: MIAMI HAS REBOUNDED IN A BIG WAY TO BECOME A COSMOPOLITAN CITY-EVEN THE TOURISTS ARE COMING BACK
Cover Story
30 JAPAN
40 ANOTHER LONG, COLD WINTER
The $7 billion mortuary industry's
Any new Soviet economic union that
22 MIAMI NICE
hit: High-tech funerals, complete
the 15 republics finally agree on will
Forget the Florida city's TV-crafted
with lasers, smoke, and music
have to weather tough times
image as the cocaine-and-Uzi capital
31 EUROPE
of the globe. Miami today is a
44 COMMENTARY
The world is going gaga over
boomtown. Exports and imports are
How last year's budget deal
Häagen-Dazs ice cream
has choked off America's
soaring, and foreign investors are
flocking in. The lure: A gateway to
33 INTERNATIONAL OUTLOOK
domestic- and foreign-policy choices
COVER ILLUSTRATION BY COCO MASUDA; PHOTOGRAPH ABOVE BY RANDY TAYLOR/GAMMA-LIAISON
the markets of a resurgent Latin
With the Soviet empire crumbling,
America. No longer just a hub for
Fidel has to tough it out alone
Economic Analysis
U.S. companies looking south of the
American News
11 ECONOMIC VIEWPOINT
border, Miami has grown into a
Kuttner: If Connecticut could
world-class city for business
34 MALL'S WELL
balance its budget, why not
26 THE NEW FRENCH CONNECTION
A back-to-school shopping surge is
14 ECONOMIC TRENDS
Miami's ethnic stew has a bit of a
giving retailers a ray of hope
What happens to laid-off workers,
Gallic tang
36 SUPER SALES FOR NINTENDO?
Canada's recovery, capital goods,
Its new system is hot now, but the
the shrinking arms sector
International Business
steep price could discourage buyers
19 BUSINESS OUTLOOK
37 MORE FIZZ AT A COKE BOTTLER
Consumers are willing to spend,
28 EASTERN EUROPE
Buying Johnston may bring CCE
but their wallets are weak
A helping hand from the EC will
badly needed management savvy
boost much-needed aid and trade
Government
38 CRISIS IN THE COALITION?
29 JAPAN
The wrangle over Thomas is only one
46 WASHINGTON OUTLOOK
It's no crisis yet, but the economy is
sign of strain in the civil rights camp
For Bush, a weak run in 1992 could
definitely slowing down
39 BUSINESS WEEK/HARRIS POLL
hobble a second term
2 BUSINESS WEEK/SEPTEMBER 16, 1991
INTERNATIONAL EDITION
66 3M RUN SCARED? NO WAY:
72 THE INFORMATION SUPERHIGHWAY:
76 THE OLD MAN AND THE TEE:
THE RECESSION HAS EATEN INTO
CLEAR OUT THE OLD TECHNOLOGY,
AT 72, ELY CALLAWAY IS DAZZLING
MARGINS, BUT BIG CUTBACKS AREN'T
COORDINATE THE NEW, AND WHAT
GOLFERS FROM CHI CHI RODRIGUEZ TO
IN THE CARDS. AND SPENDING ON R&D
HAVE YOU GOT? DATA MOVING AT
GEORGE BUSH WITH AN OVERSIZED
AND MODERNIZATION HAS KEPT PACE
BREAKNECK SPEED-THE U.S. HOPES
DRIVER CALLED BIG BERTHA
Finance
Science & Technology
Sports Business
48 WHEN BUFFETT TALKS
56 DEVELOPMENTS TO WATCH
80 A KICK FOR AMERICAN SOCCER?
Litigants listen. Will his
'Secrets paper,' patent library on CD,
High hopes for the World Cup in '92
refreshing candor make Salomon
biotech, video, melt-proof plastics
more vulnerable to lawsuits?
Features
58 CONSERVATION POWER
50 CODDLING BONDHOLDERS
There's an energy revolution under
4 BUSINESS WEEK INDEX
For junk-laden companies, these
way-and its name is efficiency
5 READERS REPORT
investors hold the key to survival
62 THE ENERGY GURU
51 THOSE JUICY UTILITY YIELDS
Amory Lovins' ideas seem less dim
5 CORRECTIONS & CLARIFICATIONS
'What worries me is people buying
8 BOOKS
and ignoring the capital risk'
The Corporation
10DE LETTER FROM EASTERN ARIZONA
52 INSIDE WALL STREET
66 3M UNBOWED
82 EDITORIALS
Nike has naysayers eating dust
Earnings have taken a beating, but
Making every gallon of gas count
A wiper maker wipes off debt
it's readying itself for a rebound
How to invest that peace dividend
What's bubbling at Unilab?
May the best fiber optics win
Marketing
68 A COBBLER FOR L.A. GEAR?
Stanley Gold make take a shot at
resoling the once-hot shoemaker
Information Processing
72 FIBER-OPTIC FUTURE
The U.S. is relying on private
industry to build a telecom network
74HE BITS & BYTES
PCs for Marines, faxes into data,
simpler computer commands, poets
on CD, The Far Side on PC
74 THE HOUSEHOLD CONNECTION
Fiber-optic hookups: Not SO fast
People
34 THEY'RE BA-ACK:
28 THE EAST GETS A LIFELINE:
IT'S NO SPREE YET, BUT SHOPPERS ARE
76 BIG BERTHA DRIVES 'EM WILD
AS THE SOVIET ECONOMY implodes,
SHOPPING AGAIN-GOOD NEWS FOR
A WORRIED EC IS suddenly
AN ECONOMY STILL REELING FROM A
Callaway Golf's best-selling club is
ENFOLDING EASTERN europe IN
YEAR OF RETAIL BLUES
sending revenues skyward
A WARMER EMBRACE
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BUSINESS WEEK/SEPTEMBER 16, 1991 3
BusinessWeek Index
PRODUCTION
LEADING
Change from last week: 0.1%
Change from last week: 0.0%
Change from last year: -2.7%
Change from last year: -2.4%
1967=100 (four-week moving average)
185
220
Aug. 24
210.0
180
Aug. 24
215
176.3
175
210
170
Aug. 17
205
Aug. 17
176.2
210.0r
165
200
Aug.
Dec.
Apr.
Aug.
Aug.
Dec.
Apr.
1990
Aug.
1990
1991
1991
1990
1990
1991
1991
The production index was little changed for the week ended Aug. 24. On a
The leading index was flat during the week ended Aug. 24, as the index
seasonally adjusted basis, output of lumber, rail-freight traffic, paperboard, coal, and
continued to signal sluggish economic growth in the coming months. Stock prices were
electric power increased. Truck, steel, and paper production declined. Auto and
lower, and the growth in real estate loans has fallen sharply since early July. On the
crude-oil refining output levels were unchanged from the previous week. Before
plus side were lower bond yields, a smaller rate of decline in materials prices, a
calculation of the four-week moving average, the index advanced strongly, to 177.9,
drop in the number of business failures, and an increase in M2. Prior to calculation
from 176.5 in the prior week.
of the four-week moving average, the index dropped to 209.8, from 210.5.
BW production index copyright 1991 by McGraw-Hill Inc.
Leading index copyright 1991 by Center for International Business Cycle Research
PRODUCTION INDICATORS
LEADING INDICATORS
Latest
Week
% Change
Latest
Week
% Change
week
ago
year ago
week
ago
year ago
STEEL (8/31) thous. of net tons
1,599
1,583#
-16.1
STOCK PRICES (8/30) S&P 500
395.09
386.40
22.8
AUTOS (8/31) units
107,788
111,948r#
-14.2
CORPORATE BOND YIELD, Aaa (8/30)
8.70%
8.68%
-9.0
TRUCKS (8/31) units
75,996
70,691r#
2.2
INDUSTRIAL MATERIALS PRICES (8/30)
97.0
96.6
-7.9
ELECTRIC POWER (8/31) millions of kilowatt-hours
65,905
62,667#
1.0
BUSINESS FAILURES (8/23)
339
355
16.1
CRUDE-OIL REFINING (8/31) thous. of bbl./day
14,099
13,873#
-0.5
REAL ESTATE LOANS (8/21) billions
$398.2
$399.7
3.9
COAL (8/24) thous. of net tons
20,837#
20,388
-0.2
MONEY SUPPLY, M2 (8/19) billions
$3,407.0
$3,400.4r
2.9
PAPERBOARD (8/24) thous. of tons
820.1#
789.0r
10.8
INITIAL CLAIMS, UNEMPLOYMENT (8/17) thous.
421
430
10.2
PAPER (8/24) thous. of tons
771.0#
771.0r
0.0
Sources: Standard & Poor's, Moodys, Journal of Commerce (index: 1980=100), Dun &
Bradstreet (failures of large companies), Federal Reserve Board, Labor Dept. CIBCR seasonally ad-
LUMBER (8/24) millions of ft.
515.3#
488.7
7.4
justs data on business failures and real estate loans.
RAIL FREIGHT (8/24) billions of ton-miles
20.2#
19.9
-3.8
Sources: American Iron & Steel Institute, Ward's Automotive Reports, Edison Electric Institute,
MONTHLY ECONOMIC INDICATORS
American Petroleum Institute, Energy Dept., American Paper Institute, WWPA', SFPA², Association
of American Railroads.
Latest
Month
% Change
month
ago
year ago
FOREIGN EXCHANGE
CONSTR. SPENDING (July) annual rate, billions
$404.9
$398.7r
-10.6
Latest
Week
Year
PERSONAL INCOME (July) annual rate, billions
$4,807.7
$4,813.3r
3.1
week
ago
ago
12 LEADING INDICATORS COMPOSITE (July) index
145.4
143.7
-0.5
JAPANESE YEN (9/4)
135
137
141
NEW HOME SALES (July) annual rate. thous.
472
516r
-12.8
GERMAN MARK (9/4)
1.74
1.74
1.56
Sources: Census Bureau, Commerce Dept.
BRITISH POUND (9/4)
1.69
1.69
1.89
FRENCH FRANC (9/4)
5.90
5.90
5.23
MONETARY INDICATORS
CANADIAN DOLLAR (9/4)
1.14
1.14
1.16
Latest
Week
% Change
SWISS FRANC (9/4)
1.52
1.52
1.30
week
ago
year ago
MEXICAN PESO (9/4)3
3,034
3,034
2,892
MONEY SUPPLY, M1 (8/19)
$864.9
$862.8r
5.7
Sources: Major New York banks. Currencies expressed in units per U.S. dollar, except for British
BANKS' BUSINESS LOANS (8/21)
299.8
299.9
-6.9
pound expressed in dollars.
FREE RESERVES (8/21)
656r
171r
NM
NONFINANCIAL COMMERCIAL PAPER (8/21)
139.7
140.7
-3.7
PRICES
Sources: Federal Reserve Board (in billions, except for free reserves, which are expressed for a
two-week period in millions).
Latest
Week
% Change
week
ago
year ago
GOLD (9/4) $/troy oz.
MONEY MARKET RATES
348.700
354.500
-9.0
STEEL SCRAP (9/3) #1 heavy, $/ton
97.00
94.00
-16.0
Latest
Week
Year
week
ago
ago
FOODSTUFFS (8/30) index, 1967=100
202.5
204.9
-4.8
FEDERAL FUNDS (9/3)
5.82%
5.59%
8.25%
COPPER (8/31) c/lb.
107.5
104.8
-19.5
PRIME (9/4)
8.50
8.50
10.00
ALUMINUM (8/31) c/lb.
58.1
57.9
-29.1
COMMERCIAL PAPER 3-MONTH (9/3)
5.76
5.74
7.85
WHEAT (8/31) #2 hard, $/bu.
3.21
3.07
12.6
CERTIFICATES OF DEPOSIT 3-MONTH (9/4)
5.60
5.66
7.94
COTTON (8/31) strict low middling 1-1/16 in., c/lb.
65.19
65.36
-13.0
EURODOLLAR 3-MONTH (8/31)
5.64
5.58
8.08
Sources: London Wednesday final setting, Chicago market, Commodity Research Bureau, Metals
Week, Kansas City market, Memphis market.
Sources: Federal Reserve Board, First Boston
#Raw data in the production indicators are seasonally adjusted in computing the BW index (chart); other components (estimated and not listed) include machinery and defense equipment.
=Western Wood Products Assn. 2=Southern Forest Products Assn. 3=Free market value NA=Not available r=revised NM=Not meaningful
4 BUSINESS WEEK/SEPTEMBER 16, 1991
ROWING~BOAT
MacKinnon survived the dungeon and so did bis reward:
FOR A LIQUEUR.
the recipe for Prince Charles Edward Stuart's personal liqueur.
The drink that became Drambuie.
(POSSIBLY
To this day, only one MacKinnon in each generation
THE BEST SWAP
knows the formula.
He will confess to the use of rare 15 year old malt whiskies.
IN HISTORY.)
He will reveal that Drambuie is sweet and
A red-faced English officer burst into the little but.
mellow on its own, slightly drier over ice and a
"We have found your boat, MacKinnon! You will rot
match for most mixers.
I
prison!" There was no fear in the old clan chief's
But ask about a certain secret herbal
only pride. And in bis plaid, a strange gift from the
essence and be'll be rather more forthcoming.
DRAMBUIE
rebel be had spirited to safety.
He'll tell you to go and jump in a loch.
THE STORY OF
THE CLAY MODEL AND
THE SEVEN
MICROPHONES.
bluod?
Before one of the first clay
where aerodynamics and aesthetics,
models entered the wind tunnel for
often seen as antagonists, were united
testing, they placed seven micro-
in uncompromising and remarkable
phones in strategic locations.
harmony.
This enabled them to study and
monitor those areas particularly
INSPIRED TO PERFECTION.
susceptible to wind noise.
In every detail, great and small,
When it came time to develop the
Lexus is a new automobile. From
first LS400 prototypes, the engineers
its 4.0-litre 32-valve V8 engine to
made modifications in design accord-
its world-first liquid crystal display
ing to the results of their experiments.
rearview mirror. What isn't new,
As a result, the LS400 not only has
however, is the 50 years of auto-
the lowest coefficient of drag (Cd)
motive experience that went into
of any car in its class, it also has
the making of Lexus. A result
Prevention is always better than a
one of the world's quietest cabins.
which has turned another page in
cure. That is why Lexus engineers
the history of the automobile.
didn't wait until the LS400 was a
THE SOUND OF SILENCE.
reality to start thinking about the
Lexus was able to achieve its
problem of wind noise. Unlike
extraordinary quietness and
LEXUS
other carmakers, they began at the
Cd figure of 0.29 as a result
earliest stages of its development.
of an extraordinary design;
A New Division of Toyota
LEAS
Lexus LS400
Models may vary according to market
Should a computer dictate the
0530
braw
erms of your corporate merger?
MERGERS. Strategic alliances. Joint ventures. All over
the world, companies are joining forces to better meet
the changing demands of a changing world.
And even though computers won't dictate the terms
of the final agreement, they'll probably have a lot to
say in the final analysis. They have to work together,
just like everyone else, if the venture is to be a suc-
cess. Alas, computer incompatibility can sour the
sweetest deal.
That's where ScaNet comes in- the intelligent
network that can connect over 85% of all computer
hardware regardless of age or intelligence. Including a
lot of so-called "incompatible" equipment like IBM and
DEC.
Think of ScaNet as a highway for computers. It's the
road information takes as it travels from computer to
computer. We supply the pavement and the road signs
SO that everything runs smoothly- the infrastructure.
And we didn't invent yet another set of "rules of the
road" either. ScaNet's based on ISO/OSI- an interna-
tionally recognized standard. Like red means stop.
We've designed special gateways, communication
servers and terminal servers that convert information
With its ability to connect over 85% of all
computer hardware-regardless of age or
to and from ISO/OSI so that different equipment- and
intelligence-ScaNet can help you establish
even different networks- - can work together. About
the key link in your new alliance.
the only thing we don't build is computers. After all,
would you ask a car manufacturer to build you a road?
ScaNet helps you get important information to the
people who need it- when they need it. To improve
marketing efforts. To keep R&D projects on the right
track. To coordinate sales and production. To establish
a natural flow of information so that you get the most
out of your resources and make the most of your
capacity.
In short, if you're linking up with a company
halfway around the world - or just want to link up
SCANET®
two departments on the floor below, give us a call.
This just might be the deal you've been waiting for.
Dowty Network Systems A/S
Smedeholm 12-14
ScaNet is a registered trademark of Dowty Network Systems.
DOW TY
DK-2730 Herlev
IBM is a registered trademark of International Business
Tel. +45 44 53 01 00
Machines Corporation. Other brand and product names are
service marks, trademarks or registered trademarks of their
Telex 21398 dowty dk
respective manufacturers. © 1991 Dowty Network Systems.
Fax +45 44 53 14 15
4E-E
RANK XEROX
The real question
isn't where ideas
come from.
It's where they go
and how
they get there.
Everyone is capable of having a good idea. But every
solving customer problems from casual conversations
company isn't capable of taking advantage of the ideas
with each other as they were from their manuals. But that
people come up with. All too often, there are barriers
knowledge was never captured or distributed. So we
between people and departments that keep ideas from
instituted regular sessions where "war stories" were
being explored, debated, nurtured and communicated.
encouraged, shared; and then put into documents and sent
It doesn't have to happen that way.
throughout the company. That meant better service for our
Still, breaking those barriers down is no easy matter. The
customers, as well as improved product design.
first step is to recognize that ideas themselves are the
Of course, none of that knowledge could be captured,
true products of people who work in offices. And that all
shared, presented, or distributed without the document or
the initiatives and innovations these "knowledge workers"
the copiers, fax machines, printers, scanners, workstations
generate, create what you might call the "intellectual capital"
and publishing systems that are the communications life-
of a company.
line of any company. It's just one way Rank Xerox technology
The second step is to recognize that the full value of those
can help people work together to create and orchestrate the
ideas can only be appreciated if they are effectively
most valuable asset any company can ever enjoy.
communicated. At Rank Xerox, for example, an idea about
The ideas that will make it prosper.
capturing information to help improve customer service
wasn't fully realized until it found its way into a document.
The idea amounted to a simple observation. Rank Xerox
RANK XEROX
service representatives were learning as much about
The Document Company
XEROX & RANK XEROX ARE REGISTERED TRADE MARKS OF RANK XEROX LIMITED
BusinessWeek
Readers Report
EDITOR-IN-CHIEF: Stephen B. Shepard
MANAGING EDITOR: John A. Dierdorff
TWENTYSOMETHINGS: WHO'S TO
CORRECTIONS & CLARIFICATIONS
CHIEF ECONOMIST: William Wolman
ASSISTANT MANAGING EDITORS:
BLAME FOR THEIR PROBLEMS?
In the story "A power surge in home
Robert J. Dowling, Mark Morrison, Anthony J. Parisi
ART DIRECTOR: Malcolm Frouman
he article "What happened to the
PCS" (Information Processing, Aug.
SENIOR EDITORS: Bob Arnold, Frank J. Comes, Geoff Lewis,
T
American dream?" (Cover Story,
26), we misstated market researcher
Sally Powell, Ciro Scotti, Lee Walczak (Washington), G. David
Link Resources Inc.'s estimate for
Wallace, Chris Welles, Seymour Zucker
Aug. 19) on the plight of the under-30
EDITORIAL PAGE EDITOR: John E. Pluenneke
generation hit on something my wife
worldwide home-computer sales in
CHIEF OF CORRESPONDENTS: Keith G. Felcyn
1990. The correct number is $4.29
and I have been sensing for some time.
INTERNATIONAL EDITION EDITOR: William J. Holstein
SENIOR WRITERS: Anthony Bianco, John A. Byrne, Judith H.
After two years as a New York banker,
billion.
Dobrzynski, Gene G. Marcial, Bruce Nussbaum, John Pearson,
I earn more than my father did after 20
Karen Pennar, Otis Port
ASSOCIATE EDITORS: Duane E. Anderson, Robert Barker, Amy
years as a civil servant. Yet, we feel like
unions, which allowed unskilled, un-
Dunkin, Marc Frons, Jeffrey M. Laderman, William D. Marbach,
we are worse off than he was at the
trained, and unambitious people to make
Mark N. Vamos, Elizabeth Weiner
DIRECTOR, EDITORIAL OPERATIONS: Thomas J. Reed
same stage in life. The twentysomething
obscene amounts of money. These jobs
PICTURE EDITOR: Lawrence Lippmann
crowd is shut out of the single-family
have been moving to other countries
SENIOR ART DIRECTOR: Laura Baer
home market unless it has near-six-digit
that have a more cost-competitive labor
DIRECTOR OF SYSTEMS: Claire Conte Worley
ECONOMICS: James C. Cooper (Sr. Economist/Business Outlook edi-
incomes or gets help from relatives.
force. The prosperity of today's young
tor), Kathleen Madigan (Assoc.). Christopher Farrell, Michael J. Mandel
Perhaps more important is the ever-
families should be compared with those
(Assoc. Economics editors). Gene Koretz (Economic Trends editor).
William Glasgall (International)
increasing tax burden. Twenty-five
of other countries. It isn't our economy
DEPARTMENT EDITORS: Books: Denise Demong. Corporate Fi-
nance: Larry Light. Corporate Strategies: Brian Bremner. In-
years ago, our parents paid about 18% of
that has eroded, it is our work ethic.
dustries: Thane Peterson. Information Processing: John W. Verity.
International Edition: Joyce Barnathan. International News: Peter
their wages and salaries to the three
Kevin P. O'Flynn
Galuszka, Stanley Reed. Labor: Aaron Bernstein. Legal Affairs:
Michele Galen. Marketing: Christopher Power, Mark Landler (Assoc.).
levels of government. Today, we pay
Canton, Mich.
Markets & Investments: Gary Weiss. Money & Banking: John
Meehan. News: Harris Collingwood. People: Peter Finch. Personal
about 25% for what is probably a lower
Business: Donald H. Dunn, Joan Warner. Personal Computers:
level of government services. If our poli-
Deidre A. Depke. Science: Emily T. Smith. Scoreboards: Robert
AN AGENCY PUTS ITS MONEY
Mims. Social Issues: Troy Segal. Technology: Robert Buderi.
cymakers really want to increase nation-
Telecommunications: Peter Coy. Transportation: Michael Oneal
WHERE ITS ACCOUNTS ARE
STAFF EDITORS: Naomi Freundlich, Bruce Hager, Fred F. Jespersen,
al savings and help young, middle-in-
Monica Roman, Andrea Rothman, Evan 1. Schwartz, Leah Nathans
come Americans surveyed in your
was quoted out of context in a recent
Spiro, Suzanne Woolley, Laura Zinn
COPY EDITORS: Harry Maurer (Deputy chief), Michael Mercurio (Asst.
article, they should cut taxes and spend-
piece ("JWT: Fraying carpets and
chief); Tim Belknap, Prudence Crowther, Marc Miller, Jack Robbins,
Jim Taibi (Sr. copy editors), Pam Black, Carl Desens, Hardy Green,
ing now.
frayed nerves," Marketing, Aug. 19). I
Aleta Kaufman, Cynthia McClean, David Pengilly, Malka Percal, Doug
C. Ross
said about the budgeting process, "The
Royalty; Rebecca Stead (Asst. copy editor); Gail Fowler, Dalia
Kandiyoti, Aida Rosario, Eva Stettner (Researchers)
Katonah, N.Y.
philosophy on their side is 'demand the
PRODUCTION COPY EDITORS: Donald Halsband (Chief), Hallberg
Hallmundsson, Celine Keating, Robert S. Norman; Alice Dark, Stephan
outrageous,' on our side, it is 'give the
M. Romanoff
ee, what a surprise! After a decade
least.' Out of the resulting compromise
ART: Steven Taylor (Deputy director), Cynthia Friedman, Eric
Rosenberg (Assoc. directors), Jessie Nathans, Craig Socia (Asst.
of hollowing out the economy,
comes what's best for both." The last
directors). Graphics: Arthur Eves (Director), Joan Danaher (Deputy
director), Rob Doyle (Sr. Illustrator), Laurel Daunis, Ray Vella
there's no money, medical care, or de-
sentence was left out of the quotation.
(Illustrators). Production: Stephen J. Romeo (Asst. mgr.)
cent jobs for our kids. We overpay in-
To me, this epitomizes the exaggerat-
PHOTOS: Sue Bloom (Deputy Picture editor); Scott Mlyn (Assoc. Pic-
ture editor), Todd James, Anne Murray, Ronnie Weil (Asst. editors).
competent executives, shyster lawyers,
ed emphasis on WPP's role, which the
Kathleen Daly (Researcher). Bettina Baudoin (Researcher Paris).
Joan Clark (Traffic), Lawrence Crowe (Librarian)
and greedy elderly. We give our best
entire article exhibits. I don't know a
EDITORIAL OPERATIONS: Richard Balestrino, A. Peter Clem, Yvonne
Rodriguez, Mary Lee Schneider (Production managers). Thomas R.
jobs to the Japanese, Koreans, Mexi-
single agency that has not taken steps in
Dowd, Sharon L. Eng, Ina L. Kichen, Fidel Lee, Jose L. Martin, Jane
cans, et al. and lay off our own people.
this recessionary period to contain costs.
M. Perkinson, Craig Sturgis, Karen Turok, Ilse V. Walton, Nicholas
White (Makeup editors), Dale I. Arnold, Felix Lindicy, Edgardo Torres
The last Depression was about the im-
We certainly have, yet J. Walter
(Asst. makeup editors). Donald C. Pearson (Traffic manager), Bruce M.
Arnold, Leo Corbie (Production assts.)
poverished working class, and the next
Thompson has added $190 million in new
CORRESPONDENTS: Bonn: John Templeman (Mgr.), Gail Schares.
Brussels: Jonathan Kapstein (Mgr.). Hong Kong: Dinah Lee (Mgr.),
one will be, too. A Third World economy
billings in the first six months of 1991,
Pete Engardio. London: Richard A. Melcher (Mgr.), Mark Maremont.
can't support a First World living for
not including the Northwest Airlines as-
Mexico City: Stephen Baker (Mgr.). Moscow: Rose Brady (Mgr.).
Paris: Stewart Toy (Mgr.), Jonathan B. Levine, Blanca Riemer. Rome:
anyone-working or retired. If the So-
signment. It's true: We're not spending
John Rossant (Mgr.). Tokyo: Robert Neff (Mgr.), Neil Gross, Ted
Holden, Karen Lowry Miller. Toronto: William C. Symonds (Mgr.).
cial Security generation and the execu-
money on carpets. We are spending it on
Atlanta: Chuck Hawkins (Mgr.), Walecia Konrad. Boston: Keith H.
Hammonds (Mgr.), Gary McWilliams, Geoffrey Smith. Chicago: James
tive class want to keep collecting those
giving our clients better work.
E. Ellis (Mgr.), David Greising, Kevin Kelly, Julia Flynn Siler, Lois
Therrien. Cleveland: Zachary Schiller (Mgr.). Connecticut: Todd
fat checks, they had better get con-
Burt Manning
Vogel (Mgr.), Lisa Driscoll. Dallas: Wendy Zellner (Mgr.), Stephanie
cerned about the welfare of the young
Chairman/CEO
Anderson Forest. Detroit: James B. Treece (Mgr.), David Woodruff.
Houston: Mark Ivey (Mgr.). Los Angeles: Ronald Grover (Mgr.),
workers who support the system.
J. Walter Thompson Co.
Larry Armstrong (Sr. Correspondent), Kathleen Kerwin, Eric Schine.
Miami: Gail DeGeorge (Mgr.). Philadelphia: Joseph Weber (Mgr.).
Daniel H. Houck
New York
Pittsburgh: Michael Schroeder (Mgr.). San Francisco: Russell
Mitchell (Mgr.), Richard Brandt, Barbara Buell, Joan O'C. Hamilton,
Silver Spring, Md.
Letters to the Editor should be sent to Readers
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t is not fair to compare the prosperity
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of today's young families with those
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BUSINESS WEEK/SEPTEMBER 16, 1991 5
Ericsson Transport Network Architecture
Laying the foundations
of a responsive public
network
DOOL
0.00001
00000
7000,
000001
00000
111111
7000,
000001
00000
ПООООГ
00000
1000
0000012
00000
000
0002000000
11
11
4
Ericsson Transport Network Architecture. A new
With the Ericsson Transport Network
concept from Ericsson that provides a stable,
Architecture, network operators achieve faster
integrated platform for the entire digital public
provision of transmission services, faster response to
network - and offers users new levels of reliability,
changing customer needs, more efficient use of
availability and flexibility.
network capacity, and a smooth evolution to the next-
Within the public network, the transport
generation SDH (Synchronous Digital Hierarchy)
network provides the infrastructure. It includes not
networks of the '90s.
simply the transmission links in the network, but
The results are greater satisfaction for users, and
the switching, routing and control facilities which
opportunities for operators to save costs in operation and
provide bandwidth where the network needs it,
maintenance - increased competitiveness for users and
when the network needs it.
operators in an increasingly competitive world.
The transport network -
Two significant transport
From Ericsson: advanced new
wideband transmission
network facilities:
transport network products
capacity where it's needed
command-controlled routing
As the world's networks approach full
automated traffic management
The backbone is a high-capacity
synchronous network of optical
digitalisation with optical fibre links,
Ericsson's transport network systems
transmission links.
network operators are focussing on network
optimise performance in the transport
The network incorporates bandwidth
structure, network services, and network
network in two significant areas.
switching through digital cross-connects
management beyond the digital per-call
Its capability in command-controlled
(DXCs) - semi-permanent switches with
switch.
routing offers users dramatic improvements
holding times of hours, days or weeks,
A new Ericsson model offers a rational
in flexibility. Network operators can set up
under software control.
logic for network structure and development.
or rearrange routes very quickly without
And in the complete transport network
It clusters network functions and the systems
manual site work - to meet customer
architecture, an external control system,
which provide them on a series of levels.
requirements immediately and make
interfaced with the transmission links,
dramatic savings in the cost of network
offers operators full control.
operation and maintenance. And because
Ericsson is developing products in
the Ericsson Transport Network Architecture
all three areas:
allows operators to monitor networks
constantly, they can introduce advanced
- DXC switches for 2 Mb/s, 34 Mb/s,
new services with confidence.
and 140 Mb/s plesiochronous trans-
ACCESS
FEATURE
Similarly, its automatic traffic
mission channels, as well as 155 Mb/s
management improves availability and
synchronous transmission channels;
SWITCHING
OPERATIONS
SUPPORT
reliability. Traffic restoration when faults
- transmission systems which conform
occur is largely automated; new connections
to the emerging Synchronous Digital
are facilitated; and network fill factors of
Hierarchy (SDH) standards, with
70% can be routinely achieved.
transport capacity for 155 Mb/s,
TRANSPORT
620 Mb/s, and 2.5 Gb/s;
- FMAS Facility Management System
- a package within Ericsson's TMOS
total network management system
which offers transport network control
and increases network utilisation to
At the sides of the model are the access
70% and above.
systems; and an integrated set of operations
DXC
AXE
support systems to manage and control all
- Series 7000 Plus transmission systems
DXC
the layers of the network model.
- plesiochronous transmission systems
Re -route
Within the model, features and customer
upgraded with TMN (Telecommuni-
services on the upper level are supported by
cations Management Network)
DXC
AXE
the network intelligence located in the per-
interfaces to FMAS to provide a smooth
call switches on the switching level.
evolution to the true SDH.
And at the transport level, supporting
ADM
ADM
the switching, is the Ericsson Transport
For more information on Ericsson's Transport
Network - no longer merely transmission
Network Architecture, post the coupon for your
ADM
and transmission systems, but a network
copy of Go with the stream - a new brochure
layer with its own coherent logic.
which describes the systems, their applications,
and the benefits they offer.
Ericsson Telecom AB,
TMOS is an Ericsson trademark for its Telecommunications
Management and Operations Support system.
S-126 25 Stockholm, Sweden.
To: Ericsson Telecom AB, Dept ETX/I/X, S-126 25, Stockholm, Sweden.
Please send me a copy of Go with the stream.
Name
Title (Dr, Mr, Ms)
Job Function
Department
Organisation/Company
Address
City
State/Country
Postcode
BW 109007
My organisation is a (please tick one box only)
network operator
service provider
end user/subscriber
member of the political community
member of the financial community
Ericsson supplier/business partner
telecoms consultant
media publisher
member of the academic community
TELE
Geneva
7-15 Oct
1991
ERICSSON
Meet Ericsson at Hall 5, Stand 5.400.
Books
J. EDGAR HOOVER: THE MAN AND THE SECRETS
sexual, and SO forth) that, if made pub-
By Curt Gentry
lic, can bring down even the most power-
Norton
846pp
$29.95
ful. In 1972, when news of Hoover's
death spread around the capital, nearly
everyone's first reaction was: Where are
THE LAWMAN WHO
his files? By then, his longtime secretary
was busy destroying them, along with
TRAMPLED ON THE LAW
his appointment books dating from
1924-a job that took two months. Gen-
try reports that a lot of people believe
J
ohn Edgar Hoover was born in 1895
ging energy and calculated ruthlessness,
some of Hoover's files survived, includ-
in the shadow of the nation's Capi-
he cleaned house and introduced profes-
ing a compromising one on Senator Sam
tol, died at the age of 77 in his
sional standards. He also shaped the bu-
J. Ervin that protected the bureau dur-
Washington bedroom, and is buried 13
reau into an instrument for expressing
ing the Watergate hearings.
blocks from his birthplace. He left
his values, foibles, and prejudices.
Hoover held extremely narrow politi-
Washington only occasionally, never
Over the years, many people wanted
cal and social views, which ossified as he
traveled abroad, never married, did not
his job or wanted him out of it. Yet he
aged. He launched his career during
read books, did not go to plays or con-
outlasted 17 Attorneys General and ev-
World War I with a battle against sub-
certs, and did not express any new or
ery President from Woodrow Wilson to
versives-flexibly defined-that contin-
startling ideas. He was to the marrow of
Lyndon B. Johnson. John F. Kennedy
ued through World War II and the
his bones the quintessential Washington
and Richard M. Nixon tried to get rid of
McCarthyite hysteria and found its final
bureaucrat.
him, but only death succeeded.
expression in his hatred of the civil
Why, then, read 846 pages about such
Hoover knew how to survive and
rights upheavals of the 1960s.
a colorless man? Simple. The Federal
thrive in the Washington jungle by mak-
Obsessed with the dangers of subver-
Bureau of Investigation,
sion, Hoover ignored a
the agency to which Hoo-
problem many Americans
ver devoted 55 years of
came to feel was even
his life-48 as director-is
more serious: organized
our national police force.
I.EDGAR
crime. For 30 years, he
And as author Curt Gen-
denied the existence of a
try describes in J. Edgar
on,
HOOVER
nationwide crime net-
Hoover: The Man and the
work. The Mafia, he in-
Secrets, on almost every
THEMAN
Hoover understood
sisted, was something
day of those years, the
ANDTHESECRETS
dreamed up by journal-
FBI broke the law.
ists. Theories to explain
Under Hoover's direc-
the terror that
his blindness abounded.
tion, its agents opened
Former Attorney General
people's mail, tapped
the secret dossier
Ramsey Clark thought he
phones, and broke into
worried that proximity to
houses and offices. They
used listening devices,
GENTRY
organized crime would
can inspire
corrupt his agents. Others
blackmail, and paid infor-
speculated that he wanted
mants. They spread dam-
to protect those of his
aging-often false-infor-
friends, such as Stork
mation about individuals
Club owner Sherman Bil-
and organizations. And while their tar-
ing himself useful-by digging up dirt
lingsley, who were on the fringes of
gets included many known or suspected
on the incumbent President's political
the mob.
criminals, they included even more elect-
enemies, for example. Presidents as di-
In November, 1947, when a gathering
ed and appointed officials, foreign diplo-
verse as Franklin D. Roosevelt, Dwight
of the country's mob leaders at Apala-
mats, executives, labor and civil rights
D. Eisenhower, and Lyndon Johnson re-
chin, N. Y., burst into the headlines, the
leaders, and private citizens whose exer-
warded him with special favors, and he
FBI was caught flat-footed. Critics of the
cise of their First Amendment rights of-
became virtually independent of the At-
bureau, including a brash young Senate
fended Hoover.
torney General. More important, Hoover
investigator named Robert F. Kennedy,
Gentry, who with Vincent Bugliosi
knew how to make himself feared. By
leveled withering attacks. Hoover then
wrote Helter Skelter: The True Story of
midcareer, he had become a kind of sa-
authorized the Top Hoodlum Program,
the Manson Murders, labored 15 years
cred monster, admired by some, hated
one of the FBI's largest wiretapping op-
on this fact-crammed biography. What
by many, but feared by everyone-sena-
erations. Over some five years, it yielded
he has given us is a blistering portrayal
tors, representatives, White House
extensive information about the scope of
of the bureaucrat run amok.
aides, and, yes, Presidents.
mob operations, including political tie-ins
Nominally, Hoover was never more
Early on, he understood the terror
Hoover could use against his enemies.
than a second-tier official, one of many
that the dossier-that indispensable tool
Hoover's enemies list, inaugurated in
who worked for the Attorney General.
of every secret policeman-can inspire.
1919, lengthened steadily to include hun-
But as soon as the 29-year-old night-
As the years passed, his agents fattened
dreds of people: bureaucratic rivals,
school lawyer became FBI director in
the files at headquarters with reports on
such as Central Intelligence Agency
May, 1924, he set about transforming
everything they could unearth about
head William J. Donovan; government
the fumbling, corrupt back office of the
thousands of people-words and deeds,
officials who opposed him in one way or
Justice Dept. into the country's most
facts, conjectures and rumors, and most
another, such as Supreme Court Justice
powerful domestic agency. With unflag-
useful, the dirty little secrets (financial,
Felix Frankfurter; and people whose
8 BUSINESS WEEK/SEPTEMBER 16, 1991
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Books
politics or conduct he disapproved of,
such as Martin Luther King Jr. Almost
inevitably, Hoover's enemies became tar-
gets of surveillance.
Hoover had no compunctions about
leaking files where they would do the
BREITLING
most harm. He frequently trafficked in
rumors of homosexuality, using them, for
example, against Eleanor Roosevelt and
1884
Adlai E. Stevenson. Oddly enough-or
perhaps not-he was pursued throughout
his career by rumors that he himself was
homosexual. Gentry reports the rumors
but adds nothing, probably because there
is nothing to add. For 44 years, Hoover
worked with, dined with, and went on va-
cations with Clyde A. Tolson, the 's as-
sociate director. The relationship was
clearly the emotional centerpiece of Hoo-
ver's life, but no conclusive evidence ever
surfaced that he was actively homo-
sexual.
Handling his material with a compel-
ling sense of drama, Gentry has written a
fascinating cautionary tale. His explora-
100
tion of how Hoover and the ran out of
control reaches beyond the character of
one man to the nature of secret police and
the dilemma they pose in a democracy:
06
How can we make sure that the agents of
the law themselves remain within the law
and accountable to elected officials?
When the office that would become the
was proposed in 1908, Gentry notes,
many thoughtful people worried aloud
about the potential threat to civil liber-
ties. More practical members of Congress
objected that a secret police would be
used by the Administration in office to
spy on them. Congress refused to autho-
rize the bureau, but it was set up any-
way, more or less clandestinely, and im-
CHRONOMAT,
mediately set about confirming its critics'
self-winding chronograph.
fears. A few years later, Attorney Gener-
18 ct yellow or white gold,
al (later Supreme Court Chief Justice)
steel and 18 ct gold, bicolor, steel.
Leather strap or metal bracelet.
Harlan Fiske Stone issued prophetic
guidelines to prevent possible
"abuses of power." Most important, he in-
sisted that the agency be limited to inves-
INSTRUMENTS FOR PROFESSIONALS
tigating only illegal conduct, not political
or other opinions. "When a police system
passes beyond these limits," he warned,
"it is dangerous to the proper administra-
tion of justice and to human liberty."
Ironically, it later fell to Fiske to name an
director, and he chose Hoover.
After Hoover's death, some reforms
were initiated. Yet in 1988, it came to
light that, in the early 1980s, under Direc-
tor William H. Webster, who now heads
the , the "reformed" had aggres-
sively investigated critics of the Reagan
BREITLING MONTRES SA
Administration's Central American poli-
P.O. Box 1132
SWITZERLAND - 2540 GRENCHEN
cy. At the , old habits, like old direc-
Tel.: 65/51 11 31
tors, die hard.
Fax: 65/53 10
BY JACK PATTERSON
Patterson, now retired, was previously
BUSINESS WEEK's editorial page editor.
10 BUSINESS WEEK/SEPTEMBER 16, 1991
BOOKS
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Letter From Eastern Arizona
GLOBE'S BESH-BA-GOWAH: FEEL FREE TO ROAM THE RUINS-BUT NO DIGGING, PLEASE
SERVICE.
TWO TOWNS THAT HAVE
THE
GONE TO RUINS-HAPPILY
ULTIMATE
T
he deep blue sky takes on a hint of
parks represent a feisty effort by the two
pink over the mountains to the west,
communities to stave off the same fate as
then turns violet as the first evening
their ruins and become ghost towns-of
stars appear. I'm standing on the roof of a
which Arizona has no shortage, alas.
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two-story pueblo where, seven centuries
When copper was king in Globe and tim-
ago, Salado Indians no doubt took in sun-
ber ruled Springerville, the ruins were ig-
sets just as beautiful.
nored by just about everyone except a few
The pueblo is a showpiece of the Besh-
lowlifes who would plunder the sites for
Ba-Gowah Archaeological Park that
relics. But in the late 1970s, copper prices
opened in 1988 outside the mining town of
plunged, and so did the economy of Globe,
Globe, Ariz. Such an attraction in tourist-
whose 6,900 residents directly or indirectly
thin eastern Arizona was too good an idea
depended on the gaping open-pit mines
to be wasted on just Globe. So Springer-
that pock the town's outskirts. Springer-
ville, about 100 miles away, borrowed it.
ville thrived a little longer on its pine for-
Last spring, the town opened the state's
est, which for more than 30 years support-
second municipally owned and operated ar-
ed the town's single sawmill and 1,850
chaeological park, Casa Malpais. Both
residents-most of them Mormons. But a
year ago, when the construction business
UTAH
nose-dived, the mill closed-nobody knew
NEV.
for how long. A new power plant provided
ARIZONA
some jobs, but not enough: Some 300
houses ended up vacant.
PHOTOGRAPH BY DON STEVENSON; MAP BY ALBERTO MENA/BW
Globe, "the city the world was named af-
FLAGSTAFF
ter," is an unpretentious place, nondescript
N.M.
except for its holes-some two miles wide
CALIF.
SPRINGERVILLE
and 1,000 feet deep-which could swallow
20 Globes and still leave room for a Sprin-
WHITE MTS.
gerville or two. Not much seems to happen,
PHOENIX
GLOBE
except that every now and then, someone
SUPERSTITION MTS.
will pop up on the local news declaring that
he stumbled onto the Lost Dutchman gold
mine up in the Superstition Mountains, but
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when he got back it was gone.
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Letter From Eastern Arizona
Indians. Besh-Ba-Gowah was occupied
a park out of an old Indian ruin they had
from about 1225 to 1400 by the Salado.
been crawling around on and stealing pots
Their direct supply lines were somewhat
from for a hundred years."
450,000
superior to those of modern-day Globe,
The archaeologist in charge, John Hoh-
where, if you want to do any serious shop-
mann, was a crucial element in building
ping, you have to go to Phoenix. The ruins
support. His flamboyant style-leaning to-
people were
have given up metal and macaw feathers
ward Indiana Jones-apparently didn't
from what is now Mexico and Guatemala,
hurt: When he's in the field, Hohmann is
seashells from the Pacific and the Gulf of
crippled by
known for carrying a .357 Magnum and a
Mexico, and pottery from all over, includ-
knife as long as your forearm-the weap-
ing Utah and Colorado. Salado artisans set
onry needed "for snakes." He gave tours
sharks
to work on these materials, and jewelry,
of the site to locals and taught them a bit
sandals, and other finished goods were
about archaeology.
shipped out.
Now, Casa Malpais, too, is drawing its
in the streets
Theories about why the settlement was
share of tourists visiting the Grand Canyon
abandoned range from drought to conflicts
of Lima
with neighbors. Distant tribes, including
the Pima and Hopi, claim the Salado as an-
cestors, but the local Apache do not (even
At Casa Malpais, near
last year.
though they contributed the name Besh-
Springerville, volunteers help
Ba-Gowah: "place of metal").
SNAKE MEDICINE. For travelers who are
with everything from
Loan sharks. Each year,
used to being separated from archaeologi-
hundreds of thousands of
cal relics by glass or rope, this site is a
excavating to guiding tours
treat. Globe dug deep into its civic kitty
small family business
and, with the help of state funds, hired pro-
operators in the Americas
fessionals to excavate the ruins. Some of
and such well-traveled trails as Interstates
are financially crippled by
the original walls still stand, while others
10 and 17 to Springerville, a straitlaced
them. That's why we created
have been rebuilt using mud and river
Mormon town 7,000 feet up in the moun-
stones, just as the Salado did. Pathways
ACCION International.
tains. Some 700 visitors a week pay $3 a
wind around reconstructed walls and
head for an experience very different from
Since 1961, we've been
through T-shaped doorways.
Besh-Ba-Gowah. Casa Malpais, Spanish for
providing hard-working men
Since its 1988 opening, the park has at-
"house of the badlands," has no plans for
and women with otherwise
tracted up to 15,000 visitors a year. Nomi-
reconstruction and, so far, no interpretive
unattainable fair-rate small
nal admission fees don't cover operating
signs. Visitors get a lecture as they watch
costs, which are subsidized by the town.
the site being excavated and stabilized. The
business loans. Without these
City Manager John Wise says Globe kicked
archaeologists are either digging with
loans, thousands of shoe-
in $54,600 last year, but he's pleased: He
trowels or standing at a screen sifting
makers, bakers, artisans and
figures the tourist trade more than makes
through dirt. They are looking for pot-
street vendors would be
up for the loss, sprinkling money through-
sherds and other minute items that may be
unable to make a living.
out the local economy. I certainly did my
seeing the light of day for the first time
share-willingly. I'm an archaeologist, but
since the 14th century, when the Mogollon
You can help low-income
I came as a tourist and thoroughly enjoyed
Indians abandoned the 70-room pueblo.
families improve their own
each day that rolled by under bright blue
Springerville made the news in April,
lives. Please send ACCION a
skies and fluffy white clouds. But the one
when Hohmann announced that the only
contribution today.
thing that's more fun than looking at relics
known catacombs in North America had
is troweling them out, and that you can't
ACCION International,
been discovered nearby. These are off-lim-
do at Besh-Ba-Gowah.
its to everyone, however, since tribes else-
1385 Cambridge St.,
At Casa Malpais, however, after filling
where in Arizona regard the Mogollon
Cambridge, MA 02139
out a bit of paperwork, one can be in dig
farmers, hunters, and potters as their an-
617-492-4930.
heaven. A massive volunteer force has ris-
cestors and believe that disrupting a grave
en up to run the project. Evoking Tom
disturbs the spirit of the occupant.
Sawyer's ploy in getting Aunt Polly's fence
Things are looking up for both towns
whitewashed by convincing all his friends
now. In Globe, the copper business is reviv-
that doing the chore would be a privilege,
ing, thanks in large part to a smelter that
Springerville has kept the number of paid
is being modernized by Denver's Cyprus
employees to a minimum and depends on
Minerals Co. In Springerville, the sawmill
help from what is now, after Phoenix, the
reopened in April, although with only one-
second-largest chapter of the Arizona
third of the previous work force. And in
Archaeological & Historical Society. The lo-
the fall, the town plans to open Arizona's
cal chapter's 130 members help with every
first domed high-school stadium, paid for
aspect of the park, from excavating to
by a special school tax. That's a record for
guiding tours.
Springerville: two big deals in one year.
But the project took a bit of selling.
CHRISTINA ELNORA GARZA
Folks in town regarded the site as just a
Former BW Intern Garza has returned to
ACCION
"pile of rocks," says Gordon Howe, Sprin-
INTERNATIONAL
Northern Arizona University in Flagstaff,
gerville's director of economic develop-
where she is a master's candidate in applied
ment. "They thought it was stupid to make
archaeology.
10 F-E BUSINESS WEEK/SEPTEMBER 16, 1991
LETTER
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Economic Viewpoint
IF CONNECTICUT
COULD DO IT, WHY NOT
BY ROBERT KUTTNER
ne of the most remarkable and in-
called LEAP-the Legislative Electoral Action
structive events of late summer was
Program. LEAP has managed to do what con-
Connecticut's enactment of an income
servatives did SO well throughout the 1980s-
tax-remarkable because Connecticut was one
get serious about both first principles and pol-
of the diehard anti-income-tax states; instruc-
itics. With the backing of labor, citizen-action,
tive because the state's liberals showed what
environmental, and civil rights groups, LEAP
clarity of purpose, organization, and resolve
mobilized volunteers and targeted and won
can accomplish. For a decade, these political
legislative seats. They built a caucus, which
virtues have been almost wholly absent on
has emerged as the swing bloc in the state
the liberal left.
legislature. As Connecticut's fiscal crisis deep-
Connecticut's tax system has long been a
ened in 1989 and 1990, liberals refused to sup-
fiscal calamity, with a highly regressive tax
port any budget that achieved balance either
code, heavy dependence on property and sales
through steep spending cuts in social services
taxes, high taxes on investment income, and
programs or through new regressive taxes.
no taxes on wages and salaries-a dismal blend
By the current session, the progressive group
of unfairness and bad economics. A recent
was the best organized bloc in the Assembly
study by Citizens for Tax Justice ranked the
and became Weicker's key ally.
state among the six worst in the regressive-
In contrast, a rump of conservative
ness of its overall tax system. An average
Democrats associated with the Democratic
The state's new
household in the lowest 20% of income paid
Leadership Council pursued an opposite strat-
16.3% of its earnings in state and local taxes; a
egy of deferring to Republicans. They decided
income tax allows a
household in the top 1% paid only 5.5%.
that Democrats needed above all to shed the
lower sales-tax rate,
Besides its plain inequity, this system had
"tax-and-spend" image. This meant letting Re-
several economic disadvantages. Heavy re-
publicans design the three successive tax pack-
gives tax relief to
liance on sales taxes (at a rate of 8%, one of
ages Weicker vetoed. The idea was that the
the highest in the country) meant extreme
budget should bear Republican fingerprints,
corporations and
fiscal volatility. Retail sales, and hence sales-
which would then allow Democrats to play
tax receipts, tend to rise faster than incomes
the role of antitax party. But as this bipartisan
investors, buys a
during booms, and fall faster in recessions.
coalition was held responsible for the unpopu-
With no personal income tax, Connecticut was
lar and regressive budgets that Weicker kept
balanced budget-
forced to levy stiff taxes both on corporate
refusing to sign, the strategy backfired. In
and it's progressive.
profits and on dividend and capital-gains in-
the end, the liberals worked closely with both
come. Along with retail sales, profits and cap-
Weicker and business leaders, and the even-
Congress, take note
ital gains are more vulnerable to recessions
tual tax package was stunningly progressive.
than wages and salaries. This structural
Under its new system, Connecticut gets a
volatility caused tax receipts to nose-dive in
nominally flat income tax of 4.5%. But thanks
the 1990-91 recession and gave Connecticut
to exemptions and credits, the tax is steeply
the worst budget imbalance in the nation.
progressive. A household with $24,000 income
BITING THE BULLET. Four factors made it possi-
pays no taxes. One with $40,000 pays about
ble for the Nutmeg State to overcome its his-
1%. One with $100,000 pays about 3%, and
torical antipathy to income taxes. First, the
thanks to the deductibility of state income
sheer enormity of the fiscal crisis demanded
taxes against the federal income tax, nobody
basic reform. Second, new Governor Lowell P.
pays more than an effective 3.3%. The tax al-
Weicker Jr., a former liberal Republican U.S.
lows Connecticut to reduce its sales-tax rate
senator elected as an independent, was willing
from 8% to 6%, gives tax relief to corporations
to take the necessary political heat. Weicker
and investors, and buys a balanced budget.
vetoed three budgets before finally signing
As part of the package, the state trims spend-
the one he wanted on Aug. 22. Third, major
ing by over $1 billion and finances economic
elements of Connecticut's business community
development through new bond issues.
swallowed their ideological reservations about
We will know in November, 1992, whether
progressive taxation and decided that an in-
Connecticut's voters will punish legislators
come tax was the lesser evil. With an income
who voted for a more progressive tax sys-
tax, Connecticut would finally enjoy fiscal sta-
tem. I suspect that this reform will prove to
bility, and the state's exorbitant taxes on cor-
be sound politics as well as sensible fiscal pol-
porate profits and investment income could
icy. The story has implications far beyond
be reduced to more normal levels.
Connecticut, for it suggests that when liberals
But the most intriguing factor was the key
recover their souls and their wits, they can
ROBERT KUTTNER IS ECONOMICS
role played by Connecticut's progressives.
make politics a lot more interesting and even
CORRESPONDENT FOR THE NEW
REPUBLIC AND AUTHOR OF
Since 1980, Connecticut liberals have joined
win enactment of good policies. Would that
THE END OF LAISSEZ-FAIRE
forces in an increasingly effective coalition
Congress got the message.
SETH RESNICK
ECONOMIC VIEWPOINT
BUSINESS WEEK/SEPTEMBER 16, 1991 11
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Economic Trends
BY GENE KORETZ
because their plant or company closed
Robert E. Mellman of Morgan Guaranty
down or moved, and only 60% had ad-
Trust Co. expects Canadian growth to
vance warning that their jobs were in
stay strong through 1991-"assuming that
WHAT HAPPENS TO THE
jeopardy. Four-fifths of those laid off
the U.S. economy, which takes 75% of
JOBLESS? MANY
were 25 to 54 years old.
Canada's exports, picks up some steam."
Predictably, workers displaced from
DON'T BOUNCE BACK
1985 to 1989 had an easier time finding
new jobs than those displaced earlier in
A
lthough unemployment insurance
the decade. By January, 1990, some 72%
BIG UPTICKS AREN'T
claims are down a bit from the
were back at work, compared with just
ALWAYS THE START
heady pace they hit earlier this year,
60% in January, 1984. But half of these
they're still disturbingly high-and the
OF SOMETHING BIG
were employed in different industries,
drumbeat of announcements of staff cut-
and 45% actually had to change occupa-
backs by major corporations continues
tions. And it took reemployed workers
T
ake July's 21.5% surge in nondefense
capital goods orders with a grain of
unabated. Indeed, according to Dan
an average of 8.2 weeks to find work.
salt, advise economists at Donaldson,
Lacey, editor of the Workplace Trends
Meanwhile, 14% of job losers were
Lufkin & Jenrette Securities Corp. They
newsletter, who has kept tabs on per-
still unemployed in early 1990, and 14%
note that such orders soared by at least
manent cuts by big companies since
had left the labor force. And of the 60%
20% only two times since 1969. One was
1988, the third quarter of 1991 will al-
who received unemployment insurance,
last December, when a 24.9% rise was
most certainly break the previous record
44% had exhausted their benefits.
followed by five straight monthly de-
of 110,000 job reductions announced in
Perhaps the most striking aspect of
clines. The other was in July, 1974, eight
the first quarter of this year.
the latest survey results is the down-
long months before the 1973-75 reces-
What happens to laid-off workers?
ward mobility of SO many workers. The
sion ended.
How long are they likely to stay unem-
median nominal wage of reemployed
ployed? What are their chances of find-
workers declined by 11.8%. Over 40%
of workers back at full-time jobs were
earning less than they had on their old
THE MODEST EFFECT
HOW JOB-LOSERS FARE
ones, and more than 25% suffered pay
OF A FAREWELL
AFTER BEING LAID OFF
cuts of 20% or more. An additional 11%
TO ARMSMAKING
of previous full-timers were either self-
4.3 MILLION PEOPLE LOST PERMANENT
employed, working part-time, or working
JOBS FROM 1985 THROUGH 1989
for no pay in a family business. And
A
nother industry experiencing job
displacement is defense. But despite
IN JANUARY, 1990:
some 25% of workers who lost a job
howls of pain from some affected re-
with health insurance still had no private
gions, cutbacks in defense spending
72% Were reemployed
coverage-at work or otherwise-in 1990.
won't make much of a dent in U.S. em-
Bad as these statistics appear, job
14% Were still looking for work
ployment or the overall economy, pre-
losers affected by the 1990-91 recession
dicts the Defense Budget Project, a
14% Had left the labor force
are undoubtedly faring a lot worse. And
Washington nonprofit research group.
the pain seems to be spreading to new
Defense outlays have already fallen
OF FULL-TIMERS BACK AT WORK:
areas, as the restructuring trend that
22% in real terms in the past five years
wrenched the manufacturing sector some
and could decline an additional 13% by
43.2% Were earning less than their
years ago accelerates in service indus-
1996. As a result, says the group, some
original pay
tries such as banking, airlines, commu-
2.8% of America's gross national product
27.5% Were earning 0% to 19% more
nications, advertising, and retailing.
will shift from defense to nondefense
output in that 10-year period. That's far
29.3% Were earning at least 20%
less than the 5.4% and 4.8% shifts in
more
TO SEE WHAT A REAL
GNP that occurred in the 10 years fol-
DATA: BUREAU OF LABOR STATISTICS
lowing the Korean and Vietnam wars.
RECOVERY LOOKS LIKE,
The DBP predicts that 814,228 defense-
ing similar work? How will their new
LOOK NORTHWARD
sector private jobs-25% of such jobs,
pay compare with former earnings?
but less than 1% of total private em-
Struck by the turmoil in labor mar-
T
he news that economic activity ac-
ployment-will disappear between fiscal
kets in the 1980s, the Bureau of Labor
tually declined in the second quar-
1990 and 1996. Total job cuts-including
Statistics began conducting biannual sur-
ter has raised fears that the recovery
military, civilian, and private-sector po-
veys of displaced workers in 1984 to an-
may prove evanescent. But no such
sitions-will peak in 1993, when defense
swer such questions. The first survey
doubts are being entertained about
spending is set to drop 10%. But even in
covered workers laid off in the five
growth north of the border. Canada,
that year, the combined cuts will amount
years ending in 1983, a period marked
which entered recessionary territory
to only 0.3% of total U.S. employment
by two recessions. The latest covers
earlier than the U.S. and stayed there a
as of 1990 and less than 1% of job rolls
workers displaced from 1985 through
full year, has bounced back smartly.
in the hardest-hit states-Virginia, Con-
1989, years of continuing expansion.
Canada's government estimates that
necticut, Hawaii, California, Alaska-and
Although employment rose at a rela-
the economy rose at a healthy 4.9% an-
in the District of Columbia.
tively rapid clip in the second half of
nual pace in the second quarter. Resi-
The research group adds that many
the 1980s, the BLS still found that about
dential investment has led the way, with
of the job cuts won't translate into high-
ERIC HOFFMANN/BW
4.3 million workers over 20 years old
housing starts up 12% in July and more
er unemployment, since they will be
lost permanent jobs (held for at least
than 100% since January. Meanwhile,
achieved through normal attrition or
three years)-only 14% less than in 1979-
auto sales and manufacturing have risen
early retirement.
83. Some 59% of job losers were let go
for four consecutive months. Economist
With Amy Borrus in Washington
14 BUSINESS WEEK/SEPTEMBER 16, 1991
ECONOMIC TRENDS
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Business Outlook
SEPTEMBER 16, 1991
BY JAMES C. COOPER AND KATHLEEN MADIGAN
CONSUMERS ARE WILLING,
BUT THEIR WALLETS ARE WEAK
F
or a recovery that most economists believe is four
local taxes will cut into earnings in coming months.
or five months old, you would expect the data to
Even before those hikes, the economy was already
look a lot more reassuring. Instead, some of the
carrying a record tax burden. During the year ended last
latest numbers are starting to raise doubts. Manufactur-
quarter, receipts at the federal, state, and local levels—
ing looks upbeat, but the data from consumers are
excluding federal grants to states-stood at 32.7% of
downright worrisome. That's an important split. It was a
gross national product. That's the highest four-quarter
postwar burst of consumer spending that sparked the
burden in the postwar era. The tax bite typically falls
factory rebound, and consumers hold the key to the
during recessions, but this time, it rose.
recovery's longevity.
After hitting bottom in January, real disposable in-
So far, shoppers have done their part. Consumer
come has since increased by an annual rate of 2.2%. But
spending has risen for three consecutive months. In
consumer spending has grown by more than twice that,
July, real outlays began the third quarter at a 3.7%
with a 4.9% gain. This split is eroding savings, which, as
annual rate above their average of the second quarter,
a percent of disposable income, sank to 3.7% in July,
when they rose at a 2.8% pace. Since consumer spending
from 4.1% in June, and from 4.7% a year ago.
is two-thirds of gross national product, the July level of
Consumers often draw down
outlays virtually assures the first advance in real GNP
their savings in a recession, but
A RECORD LOSS
IN INTEREST INCOME
since the third quarter of 1990.
they already had sparse nest
20
But can shoppers continue to
eggs heading into the 1990-91
15
A WOBBLY
ANNUAL
spend at such a heady pace?
downturn. The savings rate now
GROWTH
HOUSING RECOVERY
The signs are not favorable. In-
is far lower than in the early
10
RATE
550
SALES OF NEW
525
SINGLE-FAMILY HOMES
come growth remains far below
months of any past recovery.
5
500
the pace of spending. The sav-
The decline in savings-along
0
475
ings cushion is skimpy. And the
with the drop in interest rates—
5
450
rebound in housing is showing
has caused a sharp fall in inter-
JULY 89
JULY 91
PERCENT CHANGE FROM A YEAR AGO
425
signs of fatigue (chart).
est income. Such earnings have
DATA: COMMERCE DEPT., BW
400
In addition, consumers re-
dropped for seven consecutive
0
JULY 90
JULY '91
main worried about job securi-
months and are 1.2% below their level of last July
THOUSANDS OF UNITS AT ANNUAL RATES
ty. And rightfully so. The Con-
(chart). That's the biggest decline in the postwar era, and
DATA: COMMERCE DEPT.
ference Board's index of help-
only the second time that interest-income growth has
wanted advertising fell to an eight-year low in July.
been negative. With interest rates headed even lower,
Unless job and income growth show more pep, consum-
such earnings are likely to shrink further.
ers will not be in a very festive mood as the important
Lower interest income will combine with higher taxes
holiday shopping season gets under way.
and slower job growth to hold down gains in personal
In July, shoppers spent a fair amount of time in
income for the rest of the year. And less cash will cause
stores. Consumer spending increased by 0.4%, after ad-
a further squeeze on household balance sheets.
justing for inflation. Real outlays for durable goods rose
a strong 1.1%, with big advances in cars, appliances, and
NEW HOMES Shaky consumer finances already have
furniture. Spending for nondurable goods surged by
MAY
rattled the housing rebound. Sales of new
0.7%, as clothing and food sales were up. Outlays for
STAND
single-family homes fell a steep 8.5% in
services slipped by 0.1% in July. But that was the result
EMPTY
July, to an annual rate of 472,000. Despite
of a fall in energy use. Demand for services remains on
lower mortgage rates, buyers are holding back because
a solid upward track.
of job worries and affordability problems.
Unless demand picks up, builders will find themselves
TAXES
But while shoppers seem willing, their
with an oversupply of homes. Construction picked up
TAKE A
wallets are weak. Personal income
this summer on the strength of the spring rebound in
BIGGER
slipped by 0.1% in July, with a 0.3% de-
housing. In July, total construction spending jumped by
BITE
cline in wages and salaries. After adjust-
1.6%. The gain was led by outlays for single-family hous-
ing for inflation and taxes, real disposable income is 0.7%
ing, which surged by 5.1%.
below its level of a year earlier. And take-home pay may
Even with the July jump, construction began the third
shrink further, because the record hikes in state and
quarter little changed from its pace of the second quar-
PAUL GRANGE/BW
BUSINESS WEEK/SEPTEMBER 16, 1991 19
Business Outlook
ter. Moreover, homebuilders reported fewer buyers in
In addition, manufacturers' inventories now appear to
August, as well, so construction activity may have fallen
be in a comfortable balance with demand. Manufactur-
back last month. If so, the building sector could be a
ers' stockpiles declined 0.6% in July, the seventh drop in
drag on economic growth this quarter.
the past eight months (chart). Because shipments have
been rising, the ratio of inventories to sales fell to 1.57 in
INDUSTRIAL New questions about the housing recov-
July. The ratio had jumped sharply during the recession
ACTIVITY
ery, combined with the August dropoff in
as demand fell, indicating that stock levels were higher
IS BRISK,
car sales and the poor state of consumer
than desired. But in July, the ratio was about where it
FOR NOW
fundamentals, threaten to put a damper
was in June of last year, before the recession began.
on the rebound in manufacturing. To be sure, factories
By this measure, inventories
are faring O. K. at the end of summer, but if consumers
are not excessively low, such
FACTORIES KEEP
CUTTING STOCKPILES
start pulling back, autumn may be a tougher go.
that manufacturers would need
395
The Commerce Dept. reported that factory orders
to rev up production for fear of
390
jumped 6.2% in July, the largest gain in 20 years, and the
not having the goods to meet
National Association of Purchasing Management says
demand. Instead, the current
385
that bookings remained strong in August.
rate of output is sufficient for
380
MANUFACTURING
INVENTORIES
Order strength helped to
the pace of shipments. And un-
375
LEADING INDICATORS
boost the purchasing managers'
less demand picks up, output is
HEAD HIGHER
0
148
index, a composite gauge of
not likely to grow much faster
JAN. '90
JULY 91
146
manufacturing activity, to 54.8%
this fall than it grew during the
BILLIONS OF DOLLARS
DATA: COMMERCE DEPT.
144
in August. That reading was
summer. Conversely, however,
142
the highest since December,
if demand sputters, output may slow down as well.
140
1988, and the index has now
Detroit may already be offering a case in point. Auto
138
surpassed 50%, the dividing line
production for the third quarter was scheduled at an
between expansion and contrac-
0
annual rate of 6.5 million. That would have been a surge
JAN. '90
JULY 91
tion in the factory sector, for
from 5.3 million in the second quarter. Now, after the
INDEX: 1982=100
the third consecutive month.
DATA: COMMERCE DEPT.
August slump in car sales, Detroit says it has pared this
The gain in factory orders fil-
quarter's production to only about 5.9 million. Econo-
tered into the July index of leading indicators in a big
mists had expected the boost from car output to add as
way. Orders for consumer goods, bookings for capital
much as 2 percentage points to this quarter's growth in
goods, and unfilled orders are three of the 11 indicators
real GNP. Now, the potential impact has been cut in half.
in the index, and they contributed virtually all of July's
Still, a positive third quarter for GNP growth seems in
1.2% jump. It was the sixth consecutive increase (chart).
the bag. Production of cars and other goods will add to
The continued rise in the leading index bodes well for
GNP, even if the output ends up in inventory. And if
the recovery, but orders are almost certain to retrace
consumers pull back a little in August and September,
some of their July gains in August. An oversized in-
the high level of spending in July assures a quarterly
crease in aircraft bookings and quirks in Commerce's
gain in outlays. However, keeping GNP in plus territory
seasonal adjustment helped to lift the July numbers.
in the fourth quarter could be a tougher challenge.
THE WEEK AHEAD
by 0.3% in August. Higher fuel costs will
INSTALLMENT CREDIT
nonfood, nonenergy consumer prices by
lead the gain. Producer prices fell 0.3%
0.4% in July. The expected August in-
Monday, Sept. 9
in June and 0.2% in July, as the reces-
crease would place the total CPI less
Consumers probably reduced their in-
sion cut any upward pressures on mate-
than 4% above its level of a year ago, a
stallment debt levels by about $280 mil-
rials prices. Producer prices have risen
sharp improvement from its 5.6% pace in
lion in July, say economists surveyed by
just 2.9% in the past year. Excluding
the 12 months before that. The inflation
MMS International, a unit of McGraw-Hill
food and energy, prices probably rose by
rate at the consumer level hasn't fallen
Inc. Credit has fallen in seven of the last
0.2% in August, the same modest gain as
below 4% since early 1988.
nine months, including a $1.8 billion drop
in July.
RETAIL SALES
in June. Declines in auto financing and
CONSUMER PRICE INDEX
personal bank loans will offset a gain in
Friday, Sept. 13, 8:30 a.m.
revolving debt. A modest rise in credit-
Friday, Sept. 13, 8:30 a.m.
The MMS economists are looking for little
card use is suggested by an increase in
Consumer prices likely advanced by 0.3%
change in retail sales for August. That's
nonauto retail sales in July.
in August, after edging up 0.2% in July.
suggested by slumping new-car sales.
Excluding food and energy, prices also
However, sales outside of autos are ex-
PRODUCER PRICE INDEX
are expected to rise by 0.3%. Higher
pected to rise by just 0.3% in August,
PAUL GRANGE/BW
Thursday, Sept. 12, 8:30 a.m.
sales taxes on some items will offset a
the same modest gain as in July. That
The MMS consensus expects that produc-
fallback in apparel prices, which surged
would be a weak showing for the back-
er prices of finished goods likely grew
0.9% in July. That jump helped to lift
to-school shopping season.
20 BUSINESS WEEK/SEPTEMBER 16, 1991
W
HEN you first handle a Patek Philippe, you
become aware that this watch has the presence
of an object of rare perfection.
We know the feeling well. We experience it every time
a Patek Philippe leaves the hands of our craftsmen.
You can call it pride. For us it lasts a moment; for you,
a lifetime.
We made this watch for
you - to be part of your
life - simply because this
is the way we've always
made watches.
And if we may draw a con-
clusion from five genera-
XII
tions of experience, it will
PATER PHILIPPE
be this: choose once but
choose well.
IIIA
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na
IA
A Patek Philippe -
because it's for a lifetime.
PATEK PHILIPPE
GENEVE
Patek Philippe S.A.
41, rue du Rhône - 1211 Geneva 3 - Switzerland
Cover Story
SEPTEMBER 16, 1991
FOREIGN INVESTORS
MIAMI
ARE FLOCKING TO
ONE OF NORTH
AMERICA'S HOTTEST
BUSINESS CITIES
T
he image of Miami as the cocaine-snorting, Uzi-
dubbed Korean. The next morning, Ferguson learned
toting Gomorrah of America, is a well-traveled
that a Korean manufacturer of cigarette lighters had
one. When Thomas Ferguson, former president
bypassed Miami when he had scouted plant locations
of the Beacon Council, an economic development
in Florida. Why? "Oh, Miami Vice, Miami Vice, not
body, was in South Korea thumping Miami business
safe, not safe," the manufacturer said.
not long ago, he flipped on his hotel television set.
Maybe that was Miami's image in the 1980s. But
There, clad in his trademark pastels, was Don Johnson
like the popular TV show, that view is no longer prime-
blasting through a Miami Vice episode-and speaking
time. Miami still has its unique set of problems. Arms
22 BUSINESS WEEK/SEPTEMBER 16, 1991
INTERNATIONAL BUSINESS
and drugs are still pillars of its underground economy.
ly's sewing machine maker Rimoldi are opening opera-
And its battered image received a new blow recently
tions in Miami. Edward Bolden, president of the U.S.
with a highly publicized shooting of two British tour-
unit of French aerospace company Sextant Avionique,
ists. But such flaws aren't preventing the emergence
dined at Café Des Arts in Miami Beach last January
of a thriving and sophisticated mecca for inter-
and heard a different language at each table. "It
national trade. Building on its deep Hispanic
was like having a mini-U. N. there," he says.
roots and proximity to promising markets in
What also marks Miami's emergence as
Mexico, the Caribbean, and South America,
more than a hub for drugs, guns, and fast
Miami is attracting a surprising new wave
money is the arrival of big American compa-
of blue-chip investors and traders from the
nies. Both American Telephone & Telegraph
U.S., Europe, and Asia.
Co. and Texaco Inc. are expanding their Miami
When ground is broken for the 40-story Bristol
offices, gearing up for new opportunities in the tele-
Tower condominium overlooking Biscayne Bay this
phone and oil industries of Latin America. General
fall, about one-third of its 147 units will be owned by
Motors Corp. recently decided to relocate its Latin
Germans, French, and Italians. One reason is that
American strategists from São Paulo to Miami, and
companies ranging from France's Aerospatiale to Ita-
Eastman Kodak Co. is moving its Latin American head-
PHOTOGRAPH BY RANDY TAYLOR/GAMMA-LIAISON
INTERNATIONAL BUSINESS
BUSINESS WEEK/SEPTEMBER 16, 1991 23
12
Cover Story
10
MIAMI:
quarters to Miami from Rochester, N.Y.
U.S. trade, and Seattle
8
Hewlett-Packard Co. relocated its Latin
and Los Angeles serve
American headquarters to Miami from
the Pacific Rim. Cities
6
Mexico City because it offered a more
need the global economy
TOTAL
diverse Spanish-speaking labor pool and
as much as the domestic
EXPORTS
better telephone and airline connections
economy to develop these
0
throughout the region.
days, says Panayotis Sol-
85
'86
87
88
89
90
91
As a result of its expanding interna-
datos, who studies inter-
BILLIONS OF DOLLARS
tional links, economist Manuel Lasaga
national cities at the Uni-
DATA: WORLD TRADE CENTER MIAMI,
COMMERCE DEPT., BW
estimates that at least 25% of Miami's
versity of Montreal.
economy is directly tied to international
Indeed, the old local economy is a
commerce and tourism. Only New
shambles. The city watched helplessly as
MIAMI SHIPS MORE
York's John F. Kennedy International
its largest corporation, Eastern Air
CARGO TO LATIN
Airport today moves more foreign pas-
Lines Inc., died a slow death. Its biggest
AMERICA THAN ANY
sengers and cargo than Miami Interna-
bank, Southeast Banking Corp., is now
other U.S. PORT
tional Airport. Miami's and a few small
on the ropes. The largest savings and
neighboring ports move more container-
loan, CenTrust Bank, flamed out along
ized cargo to Latin America than any
with its free-spending chairman, David
other U.S. harbor (chart).
Paul. Since the 1980s, as many as 10
LOOKING NORTH. Several watershed
federally chartered international bank
events underlie Miami's new internation-
offices and 15 state-chartered agencies
al reach. Latin America is rapidly shed-
in Miami have closed. A construction
ding its anti-Yanqui policies
bust and a glut of office
and learning how to manage
space compound local eco-
its pile of debt. One by one,
nomic woes, as high unem-
countries such as Brazil, Ar-
ployment, at nearly 9%, fuels
gentina, and Venezuela are
racial tensions and crime.
turning away from state-run
With its key industries gone
C
economies, looking north for
belly-up, Miami's gamble on
partners and capital. By vir-
international trade to gener-
tue of its location and deep
ate jobs and growth is begin-
trade links southward, Miami
ning to pay off just in time.
is the headquarters of choice for big-
Says Soldatos: "To compete with such
league Americans, Asians, and Europe-
major players as Charlotte, Tampa, and
ans eager to crack this long-dormant
Atlanta, Miami needs international alli-
market. "Some say you can learn more
ances. That in turn will enhance its do-
about Buenos Aires or São Paulo in Mi-
mestic position."
GOOD TIMING?
ami because everyone's there," says Pe-
OUTDOOR CAFES. Miami's growing inter-
HONG KONG'S WU
MOVED HIS EXPORT
ter K. Kresl, an economist at Bucknell
national flavor is also drawing back
BUSINESS TO MIAMI
University.
tourists who steered clear of the bad old
What's more, expectations are high
city in the early 1980s. Now, Europeans
these days that Fidel Castro will soon
in particular are charmed by the 1930s
(CLOCKWISE FROM TOP) PHOTOGRAPHS BY ACEY HARPER; RICHARD HOBBS/SILVER IMAGE; GERALD CHARTS BY ALBERTO MENA/BW
fall from power in Cuba. The ongoing
Art Deco district in Miami Beach. The
turmoil in the Soviet Union means dwin-
strip of freshly painted pastel hotels,
dling support for the island (page 33).
restaurants, and clubs lures the Europe-
Only a 30-minute airplane ride away and
an jet set. A once-small enclave of pho-
full of expatriate Cubans eager to rees-
tographers and artists is growing into a
tablish ties, Miami will be first to reap
lively fashion and advertising industry,
the rewards of a reopened Cuba.
using the blue, pink, and lime-green
And as Mexico negotiates a bold new
buildings as backdrops. Devastated by
free-trade agreement with the U.S.,
Walt Disney World and other Orlando-
north-south business along the entire
area theme parks, which siphoned off
southern border of the U.S. is percolat-
American tourists beginning in the
ing. Miami is not attracting manufactur-
1970s, Miami is rebounding.
ing investment as much as it is emerg-
More Europeans also are living in Mi-
ing as the administrative and managerial
ami either on assignment for their com-
hub, a point of access where companies
panies or for U.S. companies. There are
are moving decision-making for the re-
now 70 French companies in the Miami
gion. Trade is also building between Mi-
area, double the number five years ago,
chose Miami as its U.S. base for its
ami and Caribbean islands as well as
from Aerospatiale, which is locating an
Hispanic flavor and entrepreneurial spir-
Central American countries that have
Airbus servicing center here, to ship-
it. Iberia Air Lines, the Spanish carrier,
preferential trade rights with the U.S.
builder GEC Alsthom International Inc.
just won rights to service four flights to
Indeed, as trade winds blow in from
(page 26).
Mexico and South America from Miami.
all directions, Miami is securing its sta-
With some natural affinity, Spaniards
Even Aeroflot, the Soviet airline, is by-
tus as what urban experts call a "gate-
are coming in droves. There are more
passing Havana and switching its refuel-
way" city, going beyond its role as a
Spanish banks than any other foreign
ing center for the Latin America area to
purely Latin hub. In much the same
group. MAPFRE, a Madrid-based insur-
Miami.
way, Buffalo is a center for Canada-
ance company operating in 26 countries,
Asians, too-mostly Taiwanese, Hong
24 BUSINESS WEEK/SEPTEMBER 16, 1991
INTERNATIONAL BUSINESS
12
WHY ITS PORTS ARE BUSTLING
10
8
watches to Latin Ameri-
ca, did likewise.
6
The Japanese have
TOTAL
long been reticent to ex-
4
IMPORTS
pand their stakes in Mi-
ami, partly because of its
0
85
86
87
88
'89
'90
'91
swashbuckling image.
BILLIONS OF DOLLARS
But there are signs that
DATA: WORLD TRADE CENTER MIAMI,
COMMERCE DEPT., BW
they, too, are nibbling.
One company is Mitsui &
Co., the big Japanese trader, which is
half-owner of Caribbean Cutting Ser-
vices, employer of 200 people in Miami.
Taking advantage of trade preference
laws, the company buys U.S. cloth, cuts
it in Miami, and ships it to Haiti, where
it is sewn into children's clothes that are
then returned to Miami for sale in the
U.S.
PAN-AMERICAN MOSAIC. Miami's strong
Latin character has for so long been de-
termined by its large Cuban population
that few realize how many other groups
call the city home. Even among Hispan-
ics, the demographics are changing.
Since 1970, the Hispanic population has
tripled, and in 1990, it accounted for
nearly half of the metropolitan area's
population of 1.9 million. Cubans make
up two-thirds of the Hispanics, but the
numbers of Nicaraguans, Colombians,
and Venezuelans are growing at a faster
rate. Brazilian shopkeepers are moving
into downtown Flagler Street stores.
More than 150 Brazilian restaurants,
shops, and trading houses are now part
ART DECO PARADISE:
of Miami's mosaic.
MIAMI'S FASHION
Indeed, Latin culture is now in the
AND ADVERTISING
very fiber of the city. Spanish isn't
INDUSTRIES ARE
BOOMING
heard just in the kitchens or barber
shops but in banks and boardrooms. It's
also read in newspapers, billboards, and
junk mail. Bilingual phone messages and
business cards are commonplace. And
visitors to corporate and law offices are
offered a choice of coffee-Americano
HOTE
or Cubano, the thick dark concoction
WEBS
from Cuba.
Miami's dramatic demographic
changes haven't suited everyone. As the
Hispanic population grew, the white pop-
ulation dropped 20% in the 1980s. Al-
though the city's internationalization
provides opportunities for some people,
the administrative and managerial jobs
it creates do little to help Miami's large
working class.
And Miami in 1991 is still very much a
Kong Chinese, and South Koreans-are
bly lines in Miami, where thousands of
segregated community. Without Span-
arriving in greater numbers, drawn to
machines will be made for sale in the
ish, language can be a barrier to employ-
the markets in the Caribbean and south-
U.S. and Latin America.
ment. Black attorney Gary Siplin says
ward. Taiwanese computer maker Acer
Other Asian traders have also set up
blacks are shut out of the workforce-
Inc. decided to locate in Coral Gables,
shop. The Hong Kong Trade Develop-
particularly in tourism-by the Spanish-
following its chief competitor, DTK Com-
ment Council moved its Panama offices
speaking majority. Complains Siplin:
puter Inc. Taiwan-based DTK set up shop
to Miami in 1988 because of political in-
"Why do you need to speak Spanish to
in 1988 to tap Latin America, particular-
stability. Samson Wu, vice-president of
make a bed, park a car, or wash dish-
ly Venezuela. Now, DTK has decided to
Marsan Trading Corp., which exports
es?" That brand of discrimination neces-
install one of two U.S. computer assem-
luxury items such as Bulova and Gucci
sarily creates friction-and that friction
INTERNATIONAL BUSINESS
BUSINESS WEEK/SEPTEMBER 16, 1991 25
Cover Story
occasionally erupts in violent outbursts.
riodic droughts and continued population
people to its Miami office over the past
Miami has its share of other chronic
growth on the fringes of the Ever-
two years. Last fall, the same office
big-city troubles as well. Sunny skies
glades. And the woes will be exacerbat-
landed 60% of a fiber-optics contract,
and blue water aside, schools are crowd-
ed if another huge wave of Cuban refu-
valued at $330 million, to upgrade Mexi-
ed, and traffic snarls are common. Wor-
gees arrives. So far this year, nearly
co's telecommunications infrastructure.
ried about Los Angeles-like smog, Dade
1,200 Cubans have landed in Miami, al-
Further solidifying Miami's role as a
County, which encompasses Miami and
most triple the total last year.
communications hub, AT&T also has laid
neighboring cities, is getting tough with
But the opportunities seem to out-
the first undersea fiber-optic cable to
auto-exhaust pollution. Future supplies
weigh these worries, at least in the eyes
South America, connecting southern
of drinking water are threatened by pe-
of the business world. AT&T has added 70
Florida to Puerto Rico, Jamaica, the Do-
minican Republic, and Colombia. And it's
working with Spain, Italy, and Mexico to
build another fiber-optic link between
A DASH OF FRENCH SPICE
those countries, the Caribbean, and Flor-
ida. "People think all business in Miami
IN MIAMI'S ETHNIC STEW
is focused exclusively on Latin America,
but that's not true," says AT&T regional
French companies in
spokesman Vincent Salas. "A lot of our
RIBEIRAUD AND
Miami, up from 30 in
customers are getting data-transmission
FRIEND ON
1985, and the number
BISCAYNE BAY: He
and other services that are going to Eu-
HAS LOVED MIAMI
is growing. Outinord
rope and Canada."
SINCE CHILDHOOD
Universal Inc., a
Likewise, Texaco's Miami office,
French maker of con-
which is responsible for Latin America
struction materials,
and the Caribbean, has increased its
opened offices in New
staff by 33%, to 240 employees, since
York and Miami nine
1987 to pursue new ventures in Colom-
years ago to expand in
bia and Venezuela. Hewlett-Packard
the Western Hemi-
moved regional administrative functions
sphere. Then, two
to Miami from Mexico this past March,
years ago, the New
largely because of Miami's broader con-
York office closed, and
nections. "Miami provides a more Latin
operations were con-
American environment than Mexico be-
solidated in Miami.
cause it has people from other coun-
Says Comptroller Don-
tries," explains Rui Da Costa, regional
ald Callaman: "Miami
general manager for HP.
is just an easier place
U.S. SPRINGBOARD. Conversely, some
to do business."
Latin American companies are using Mi-
FLYING HIGH. Servicing
ami as a springboard to the U.S. With a
W
hen Christian Ribeiraud fin-
Miami's traditional cruise-ship business
trade agreement on the horizon, Mexi-
ished his business studies in
has long been a draw for the French,
can steelmaker Alceros Galpin has set
France at the Collège La-
but now, Miami's air connections seem
up a U.S. office in Miami to purchase
martinière in Lyons, he had no doubt
to be a major attraction. Airbus, the
cheaper and better quality U.S. steel.
where he would settle. The 26-year-old
European aircraft consortium, operates
The free-trade deal could eliminate 15%
had visited Miami with his family as a
its North American flight training cen-
in duties the company pays to import
boy and liked its style. Now, he puts
ter in Miami, and that has helped cre-
U.S. steel into Mexico and eliminate bor-
his skills to work for Prudential Securi-
ate a French aerospace presence.
der delays, says manager Vita Samuels.
ties Group as a broker for European
French giant Aerospatiale, one of the
She has also talked with a German steel
and Latin American clients and spends
members of the Airbus consortium, ar-
company in Miami about importing both
weekends boating on Biscayne Bay.
rived in 1988 when it bought an inter-
steel and technology into Mexico.
"Miami has big businesses, internation-
est in Barfield Corp., an instrument-
Miami will always be a unique place,
al banks, and numerous daily flights,"
repair business that services Airbus
part seedy, part elegant, with a pen-
says Ribeiraud. "But it's also a very
planes. Sextant Avionique chose Miami
chant for flash. Great dramas play out
pleasant place to live."
over Atlanta and Dallas for its U.S.
in the sun-baked city, from the tragedy
Ribeiraud and many French compa-
headquarters.
of fleeing Haitians washing up on its
triots are part of Miami's new interna-
The French display sangfroid when
shores to the farce of Panama strong-
tional milieu. The city's Latin flavor is
it comes to Miami's rough-and-tumble
man Manuel Noriega on trial. It may
well-established. But the French popu-
ways. Barfield CEO Phillippe Dubrun
never lose all of its Miami Vice notori-
lation tripled in the 1980s, to 10,000.
has had his home and car burglarized,
ety, but Miamians no longer feel the
The expatriates gather for French cul-
but he says crime is to be expected in
need to apologize for their city. It's even
tural events, concerts, dinners, and
all major U.S. cities. It is simply part
home to the Florida Marlins, one of two
meetings. Le Provençal, a French res-
of the cost of doing a burgeoning busi-
new major league baseball teams. The
taurant in neighboring Coral Gables, is
ness. "The reality of Miami is very dif-
city's social ills notwithstanding, a new
a favorite Friday night gathering spot.
ferent than the perception in Europe,"
population mix and set of business con-
Some French are drawn to Miami's
says Dubrun. For the transplanted
nections are turning Miami into one of
sun-sea lifestyle and come by them-
French, Miami is a new City of Light.
North America's most dynamic cities for
selves. Most, however, relocate with
By Irene Recio with Gail DeGeorge in
business.
ACEY HARPER
their companies. There are now 70
Miami
By Gail De George and Antonio N. Fins,
with Irene Recio, in Miami
26 BUSINESS WEEK/SEPTEMBER 16, 1991
INTERNATIONAL BUSINESS
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International Business
EASTERN EUROPE
WHY EASTERN EUROPE IS GETTING
A WARM EMBRACE FROM THE EC
The community fears that imploding economies could send swarms of immigrants westward
astern Europeans had
want to tie any Soviet aid from
much to cheer about
the EC to a pledge that a por-
when the Soviet power
OLD PRODUCTION
tion of the money will be used
structure flew apart just days
METHODS HAMPER
STEEL MILLS IN
to buy East European goods.
after an abortive coup in mid-
KATOWICE, POLAND
Foreign investment also
August. Czechs and Hungar-
could get a boost. Western
ians hailed the Soviet collapse
companies eager to size up
by singing in Wenceslas
vast new markets in Russia
Square and bidding up shares
and adjoining republics are
on the Budapest Stock Ex-
likely to plunk down their capi-
change. Playing to a prime-
tal first in Eastern Europe,
time television audience in Po-
where reforms are further
land, President Lech Walesa
along and knowledge of the
phoned and quipped about life
Soviet market is deep. Al-
in jail with another former po-
ready, a bidding war is brew-
litical prisoner: Soviet leader
ing among General Motors,
Mikhail Gorbachev.
Fiat, and Citroën for a stake in
But that's not the biggest
Polish auto maker FSO as gate-
reason to celebrate. As the So-
way to the Soviet market.
viet Union unravels, Eastern
"There should be more of a
Europe suddenly finds itself in
chance for concrete projects to
the warm embrace of Western
attract Western money," says
Europe. Behind the change are
Gerard Bloch-Morhange, a
fears that an imploding Soviet
vice-president for French com-
economy could send swarms of
STOP
puter maker Groupe Bull.
immigrants westward. To se-
GATEWAY. A reconfigured So-
cure the East's safe transition
viet Union may ultimately
to a market economy, the EC is
prove a powerful trading part-
now willing to set aside its
ner for the East Europeans.
worries about floods of cheap
But for the next few years,
products from the East. It's
most analysts expect a turbu-
likely to offer associate status
lent transition period for the
to Poland, Hungary, and
Soviet economy, marked by
Czechoslovakia before year-
soaring inflation, shortages,
end. Romania and Bulgaria
and a wave of bankruptcies.
could follow later. "For West-
Yet the impact of much of this
ern Europe, the dilemma is
turmoil on Eastern Europe has
simple. Either we increase aid and open
could prove a bonanza. It will pave the
already been felt. Trade dropped off
our markets or we open our borders to
way for a gradual lifting of quotas on
sharply earlier this year when the Sovi-
immigrants," says Pierre Tailbot, senior
agricultural products, textiles, and steel
ets demanded that payments be made in
vice-president for Eastern Europe at the
from Eastern Europe. "That could bring
scarce dollars. It won't increase any time
Banque Nationale de Paris.
stability to whole sectors of industry,"
soon, since the Soviet republics don't yet
BONANZA? By casting a lifeline to the
says Andrzej Kozakiewicz, a Polish eco-
have the banks or convertible currencies
East, the EC is laying the foundations of
nomic adviser. At the same time, leaders
needed for foreign trade. "Without
a post-cold-war Europe. A much bigger
such as German Chancellor Helmut Kohl
banks authorized to engage in foreign
free trade zone is emerging on the eve
trade, it's impossible to begin selling to
of 1992. "It's possible we will end up
the republics," says Janos Lendvai, head
with a community of 24 or more," says
The EC is now likely to
of international economic relations at
CHRISTOPHER PILLITZ/NETWORK/MATRIX
EC Foreign Commisioner Frans Andries-
Hungary's Industry Ministry.
sen. To meet this new challenge, the EC
offer associate status
In the most optimistic case, the Soviet
will have to rethink its plans for econom-
to Poland, Hungary, and
republics will need two years to lay the
ic and political union. Its December
foundations for a market economy.
deadlines for new political and monetary
Czechoslovakia by yearend
That's why the EC is moving fast. If the
treaties may have to be pushed back.
worst happens, a collapsing Soviet econ-
Gaining associate-member status
omy or civil war could send millions of
28 BUSINESS WEEK/SEPTEMBER 16, 1991
INTERNATIONAL BUSINESS
JAPAN
immigrants streaming into the wobbly
economies of Eastern Europe. The added
strain could topple the region's first
post-communist governments if the pov-
erty-stricken clamor for an end to the
Jeep
painful transition to a market economy.
NOTT
That danger became clear last fall dur-
ing Poland's presidential elections,
when dark-horse nationalist candidate
Stanislaw Tyminski took a stunning 23%
of the vote in a race against Lech
Walesa.
There's no question that Poland,
Czechoslovakia, and Hungary need
Western help fast. "All these countries
must weather a deep recession for the
next one to two years, losing 10% to 14%
of GNP a year," says Andreas Gummich,
a Deutsche Bank economist and Eastern
Europe expert.
STUMBLING GIANTS. Facing bankruptcy
are hundreds of huge state enterprises.
Their demise threatens many ambitious
privatization schemes. Even some com-
KICKING TIRES: SALES ARE so SLOW THAT HONDA IS THROWING IN FREE OPTION PACKAGES
panies with Western joint-venture part-
ners have gone under, including the
Hungarian telecommunications giant Vi-
deoton, which went into bankruptcy last
LOWER SALES, SLOWER FACTORIES
week. Groupe Bull is now scaling down
its joint venture with Videoton. "It's a
WHERE?
warning for countries where the situa-
tion is even tougher," laments Groupe
Japan is still healthy, of course-but downbeat signs are popping up
Bull's Bloch-Morhange.
The crisis is most severe in Poland,
he monthly report from Japan's
Mar. 31. If so, that would be the first
where industry is weakest. Giant tractor
Economic Planning Agency
time Japan has had back-to-back nega-
maker Ursus, with 23,000 employees,
seemed routine. In August, the
tive quarters since the 1974-75 oil shock.
collapsed this July and is being liquidat-
economy once again marched smartly
Even with a weak second half, growth
ed. In the textile region around Lódź,
ahead, notching its 57th straight month
for the full year will come in around 3%.
unemployment has already hit 18%,
of expansion. But beyond the glowing
But that's half of last year's pace-and
while antiquated production methods
EPA report, private economists see trou-
a radical slowdown by Japanese stan-
hamper steel factories in Katowice. The
ble ahead. Says Russell
dards (table). It may spell
economic crisis is the hottest issue in
B. Jones at UBS Phillips &
AS JAPAN'S GROWTH
trouble for the West, too.
the runup to parliamentary elections on
Drew International in To-
SLOWS DOWN
As the economy stalls,
Oct. 27.
kyo: "The economy is not
Japan is importing less
8
Big economic and legal reforms adopt-
as robust as the EPA
INCREASE IN GNP
while its exports keep
ed over the past two years should
thinks."
steaming ahead. In this
smooth the way for Western help. Ev-
After nearly five years
4
year's first seven
erything from stock markets to new
of powerful growth, Ja-
months, Japan's trade
courts are starting to take shape, and
pan's fleet-footed econo-
surplus jumped 54%.
currencies are already partially convert-
my is showing its first
0
CURB SERVICE. The cool-
88
'89
'90
'91
'92
ible. PlanEcon Inc., a Washington con-
real signs of fatigue.
PERCENT
EST.
ing in consumer demand
sulting firm, predicts that new invest-
Consumers, troubled by
has put auto sales in a
ment in the East will total $7.8 billion
high interest rates and
CAPITAL SPENDING
skid. Off 12 months in a
next year. That's a 53% increase over
prices, are leaving slick
TAKES A BIG HIT
row, passenger car pur-
the $5.1 billion invested this year.
new cars and wide-screen
16
chases slipped an addi-
Eastern Europe's infrastructure is im-
televisions to collect dust
12
tional 6% in August. To
proving steadily as well. Satellite and
in quiet showrooms. Ris-
8
stem the decline, dealers
mobile phone services are coming on line
ing inventories are forc-
4
are making more house
in Poland and Hungary. The changes
ing manufacturers to cut
0
calls and offering dis-
haven't gone unnoticed. "Nine months
production. Battered by
-4
counts. Honda Motor Co.
ago, the investors coming here were one-
high interest rates, com-
'88
'89
'90
91
'92
EST.
tossed in a package of
man operations," says William D. Kirst,
PERCENT CHANGE
panies are scaling back
DATA: SALOMON BROTHERS ASIA LTD.
pricey options for free to
managing partner at Price Waterhouse
capital spending (table).
boost sales of one model
in Warsaw. "Now, there's a shift to in-
As a result, Japan's economy may be
it was phasing out. As auto sales fall,
vesting capital." That's the best indica-
in for a shock. "An industrial recession
suppliers from steel producers to glass-
tion yet that Eastern Europe's strug-
has already begun," says Robert A.
makers are preparing for leaner times.
gling democracies are ready to join the
Feldman, an economist at Salomon
"Orders are definitely falling," says
PHOTOGRAPH BY SHIGERU KUNITA; CHART BY ERIC HOFFMANN/BW
new Europe.
Brothers Asia Ltd. He predicts that Ja-
Asahi Glass Co. director Osamu Wada.
By Gail E. Schares in Warsaw, with
pan's economy will shrink 0.4% in the
"The year ahead will be tough."
Stewart Toy in Paris
last half of the fiscal year ending next
High interest rates have triggered a
INTERNATIONAL BUSINESS
BUSINESS WEEK/SEPTEMBER 16, 1991 29
International Business
recession in homebuilding as well. New
JAPAN
starts are down 21% for the year, with
no sign of an upturn. Likewise, a drop in
contracts for small office buildings is
paring earnings at some steel manufac-
REST IN PEACE
WITH LASERS,
turers. Tokyo Steel Manufacturing Co.
predicts that weak demand for steel
SMOKE, AND SYNTHESIZER MUSIC
girders will slash its profits by 14% this
year. Retail sales have also gone soft:
JVC Co. is predicting a 63% drop in prof-
Japan's $7 billion mortuary industry has a new hit: High-tech funerals
its, in part because of weaker video cam-
in the cities," says Ma-
era sales.
sao Fujii, professor of
The profit plunge comes at a time
religious sociology at
when cash balances at Japanese compa-
Taisho University. For
nies are at their lowest levels since 1987.
a generation bred on
Unable to tap the sour stock market to
computers and TV, he
raise cash, companies are loading up on
says, technology helps
debt. Nissan Motor Corp. borrowed $5.4
communicate.
billion in 1990 to cover its investment
'BEAM ME UP.' Other
plans. The cost: $285 million in interest,
entrepreneurs are dis-
soaking up roughly one-fifth of the com-
covering the same
pany's operating profits. This year, Nis-
thing. One funeral
san has reduced its capital investment
parlor in Yokohama is
by 13% and may make another cut. Com-
building an audiovisu-
panies such as NEC Corp. and Mitsubishi
al wonderland that in-
Electric Corp. are in similar binds.
cludes a planetarium
HOLDING THE LINE. The squeeze may get
projector. Several oth-
much worse, particularly for companies
ers are starting to
that issued convertible bonds in the late
show videos of the
1980s. Investors snapped up the bonds,
A FUNERAL IN
dearly departed or
assuming they would be able to convert
OSAKA: ELEVATED
play tapes of his ka-
them to stock at a comfortable profit
THROUGH A TUNNEL
TO HEAVEN
raoke singing-a far
once the underlying share price rose
cry from somber Bud-
above the conversion price. But because
dhist sutras.
of the stock market crash, many issuers
will have to buy back their bonds when
A
tearful widow places a final
Then there's the corporate send-off,
chrysanthemum in her husband's
held by big companies for senior execu-
they mature. Some $250 billion in con-
casket, then climbs onto a plat-
tives. Mitsui & Co. recently joined with
vertible bonds will come due between
form behind the coffin while a Buddhist
religious-goods supplier Maruki to
now and 1994. That's roughly what Japa-
monk recites prayers up front. Suddenly,
launch a corporate-funeral satellite net-
nese companies raise in the capital mar-
the funeral-hall lights dim, synthesized
work. Three cameras beaming a one-
kets in a typical year. "A lot of compa-
music blares, and pink and green laser
hour transmission to employees at five
nies are going to have to refinance that
lights pierce billowing dry-ice smoke to
sites costs $36,000. "Satellite funerals
debt at much higher cost," says Jones at
form the outline of a tunnel tilting heav-
will be a huge new business," predicts
UBS. "It's going to be a big problem."
enward. Trailed by family members, the
Hajime Himonya, editor of funeral-in-
High interest rates and tightfisted
platform is wheeled 50 yards before dis-
dustry trade journal Gekkan Sogi.
bank lending are pushing more compa-
appearing in clouds and a blinding flash
Leaving this world Japanese-style is
nies over the edge. On Aug. 26, leading
of orange light. "This is very strange,"
already an expensive proposition. Ser-
condominium developer Maruko Inc.
mutters one mourner. "Wonderful!"
vices in Tokyo average $20,000, but
went bankrupt with $2 billion in debt. So
breathes another.
many easily run to $75,000. That in-
far this year, bankruptcies-mainly real
Such spectacular sayonaras are the
cludes mortician and temple fees, flow-
estate speculators-have left behind
new rage in Japan. Gyokusenin funeral
ers, rented altars, and food and drink for
about six times as much debt as during
hall in Osaka, which unveiled the ethere-
the guests.
all of 1990. Even so, Bank of Japan offi-
al tunnel last March, choreographs five
Real estate is a growing problem, too.
cials, worried by 3.5% inflation, are hold-
high-tech obsequies a day. And nearly
Although 95% of all Japanese are cre-
ing the line on interest rates.
everyone opts for the three-minute pro-
mated, keeping grave-site space needs
Some analysts do not expect Japan to
cession that adds $370 to Gyokusenin's
small, the scarcity of land means that
slow down much more. Economist Paul
customary $7,000 fee. "We capture old
costs are exorbitant-$28,000 or more
A. Summerville at Jardine Fleming Secu-
rituals with modern techniques," says
for a tiny private temple plot. As a re-
rities Ltd. in Tokyo argues that huge
Nobuyoshi Tomikawa, a Gyokusenin
sult, multistory underground mausole-
state-sponsored construction projects
manager. "The era of dark, somber fu-
ums, condominium plots, and even tem-
and the growing demand for more auto-
nerals is past." And Japan's rapidly
porary pay-locker urn holders are
mation to overcome labor shortages will
graying population ensures that the $7
cropping up.
sustain capital spending. Says Summer-
billion funeral business will remain a
Still, not everyone is crazy about mod-
ville: "This will pave the road for a new
growth industry.
ern tinkering and high-tech displays.
period of balanced growth." Until those
Large multistoried funeral halls, some
"It's a show," grumbles Yasuko Kiyoda,
forces are fully at work, though, Japan
doubling as wedding halls, are replacing
who came to Gyokusenin for her neigh-
will move a lot slower.
homes or local temples as the site of last
bor's funeral. "There's no time to cry."
By Ted Holden in Tokyo
rites. "The quality of grief is changing
By Karen Lowry Miller in Osaka
30 BUSINESS WEEK/SEPTEMBER 16, 1991
INTERNATIONAL BUSINESS
EUROPE
THEY'RE ALL
SCREAMING FOR
HAAGEN-DAZS
Häagen-Dazs
ancesco smalto
Haagen-Dazs
Europe and Japan are wild about
LE
FIGARO
the rich Bronx-born ice cream
t has been a steamy late summer in
London. But that only partly explains
an SIMS
BRITAIN
why on some evenings lines of ice
cream-crazed consumers stretch around
ERVER
the corner of the big Häagen-Dazs shop
in Leicester Square, London's tourist
hub. Opened in April, 1990, the shop
MPA
served nearly a million people in its first
portiva
year and pulled in more than $2.5 million
in sales. "It's easily the largest-selling
FRENCH SENSATION: LINING UP AT ONE OF FOUR HAAGEN-DAZS SHOPS IN PARIS
ice cream shop in the world under a
Suntory International Corp., Häagen-
factory in Arras, France, is scheduled to
trademark name," says John Riccitiello,
Dazs sales in Japan have doubled, to
open late next year, replacing ice cream
Häagen-Dazs Co.'s senior vice-president
$120 million, since 1989. In Europe, its
exports from the U.S.
for international sales.
sales have zoomed in just two years
Founded 30 years ago in the Bronx,
World, watch your waistline. Häagen-
from $2 million to $30 million, nearly all
N.Y., the brand was bought in 1983 by
Dazs, the hyper-rich U.S. ice cream with
in Britain, France, and Germany, and
Pillsbury Co. Ignoring international op-
the ersatz Scandinavian name, is the lat-
Riccitiello expects them to more than tri-
portunities, the Minneapolis-based com-
est hot American export. Powered main-
ple in the next 12 months. The compa-
pany concentrated on keeping Häagen-
THOMAS
ly by a successful joint venture with
ny's first European plant, a $70 million
Dazs atop the booming U.S. market for
At the
Heartbeat of
Communications
Dedicated to Preserving the Connections Between People
The amazing speed and capacity of today's
telecommunications systems require flawless
accuracy in operation.
Anritsu products from public telephones
to digital test equipment for advanced systems
provide dependable support to ensure optimum
network performance.
Anritsu solves challenges with superior
measurement technologies to set new standards
for speed, precision and reliability.
/inritsu
ANRITSU CORPORATION 10-27, Minamiazabu 5-chome, Minato-ku, Tokyo 106, Japan Phone: Tokyo 03-3446-1111, Telex: J34372
BUSINESS WEEK/SEPTEMBER 16, 1991 31
Beg,
superpremium ice cream. But after Brit-
brand is likely to account for 20% of all
ain's Grand Metropolitan PLC gobbled up
ice cream sales this year. So jammed are
borrow,
Pillsbury, in 1989, Häagen-Dazs was
the four Häagen-Dazs stores in Paris
brought from the back of the freezer
that nearby kiosks are staying open lat-
and pushed overseas. Grand Met
er to catch the spillover. In some French
steal
brought in executives with experience in
supermarkets, which are grabbing more
international consumer brands, including
and more business from traditional
Riccitiello, from PepsiCo Inc., and Häa-
mom-and-pop outlets, freestanding freez-
no more!
gen-Dazs Chief Executive Officer Ove
er cases stocking only Häagen-Dazs are
Sorensen, formerly of Mars Inc. and
showing up in high-traffic areas. This
PepsiCo. By 1995, Häagen-Dazs execu-
fall in Japan, Häagen-Dazs will launch
tives figure consumers will be licking up
its lower-fat frozen yogurt, and it'll be-
Now be among the first
$1 billion worth of their product annual-
gin test-marketing in Europe next year.
in your company to get
ly, double the volume expected this year.
Häagen-Dazs' success abroad is begin-
Business Week International
By then, just over half of total sales
ning to draw competitors. Boston-based
are expected to come from internation-
Steve's Homemade Ice Cream Inc.,
by getting your own
al markets, VS. 30% now.
owned by Andal Corp., jumped into Ja-
air-delivered subscription.
To whet foreign appe-
tites, the strategy was
BusinessWeek
simple: First, introduce
WHAT
the brand at a few high-
HATH THATCHER
end retailers, follow
WROUGHT?
by building company-
FOUR YEARS OF RESTRICTIVE ECONOMIC POLICIES
owned stores in high-
LATE TO SAVE BRITISH INDUSTRY?
traffic areas, and then
roll out in convenience
stores and supermar-
kets. Free tastings-5
million in Europe alone
this year-rather than
advertising have been
As.a Business Week International subscriber,
the order of the day,
you get the facts, figures and forecasts you
need first-not after one of the office copies
until recently. Now,
filters down to you.
sexy and controversial
ads are popping up in
You receive each issue promptly. And at a
substantial saving off the cover price.
Europe and Japan. In
Britain, print ads fea-
But at any price, Business Week Interna-
tional makes a smart investment. It provides
ture seminude couples
a unique inside view of the way U.S. busi-
feeding the ice cream to
ness works. Plus special reports on the
each other. A billboard
world business scene.
campaign in Japan uses
Business Week International tells you, in
a black-and-white photo
concrete and absorbing detail, what you
of a young couple kiss-
SENSUOUS PITCH: A PRINT AD FROM THE BRITISH CAMPAIGN
need to know about 25 major areas of
ing in public, a near-taboo. Nonetheless,
pan two years after Häagen-Dazs. Two
business activity, ranging from research and
the poster is SO popular that many have
months ago, it started showing up in
development to production and distribution
been ripped off as collector items:
London-area stores. "Häagen-Dazs has
from data processing and finance to mar-
FEEDING FRENZY. Häagen-Dazs has
shown that the U. K. public is ready for
keting and transportation
quickly broken through cultural barri-
ice cream of this quality," says Gary
Business Week International puts together
ers. In Britain, ice cream consumption is
Laird, owner of Dairy Pride Ltd., the
the fragments of information you find in the
just seven liters per capita a year, or
London distributor of Steve's.
daily papers, weekly newsletters and
one-third the U.S. level. Moreover, the
monthly journals. Our editors add material
Back home in the U.S., Häagen-Dazs
from their own private sources. Then they
British have traditionally purchased
remains popular, despite increased com-
interpret and organize it all to give you
mostly low-grade local brands of. ice
petition and health consciousness. In a
quick, selective reading. Rewarding reading
cream, some versions not even contain-
flat market for ice cream last year, Häa-
that you can't afford to miss!
ing dairy products. Now, they are shell-
gen-Dazs supermarket sales of $115 mil-
ing out $5 a pint, double or triple the
lion were up 20%, and in a down market
Satisfaction guaranteed.
price of homegrown brands. Europa
through the first quarter of 1991, they
If Business Week International does not
Foods Ltd., a 45-shop London conve-
jumped 31%, according to Information
continue to meet your needs, you may can-
nience-store chain, only began stocking
Resources Inc. Its nearest competitor,
cel your subscription and get a full refund
Häagen-Dazs this summer-yet the
Ben & Jerry's Homemade Inc., racks up
for all unmailed copies.
about half of Häagen-Dazs' sales in su-
BusinessWeek
permarkets. But overseas offers the big-
A pint of Häagen-Dazs fetches
gest growth. And wherever Häagen-
The International
Dazs goes, it's discovering that tastes in
Newsweekly
$5 in Britain-two or three
ice cream are remarkably similar.
of Business
times the price of
Whether it's the U.S., Europe, or Asia,
those with a sweet tooth tend to crave
For subscription rates, air delivered to you, see the
subscription order card in this issue or write to:
competitors' brands
the longtime favorites-vanilla, choco-
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By Mark Maremont in London
32 BUSINESS WEEK/SEPTEMBER 16, 1991
INTERNATIONAL BUSINESS
International Outlook
EDITED BY JOHN PEARSON
NOW FIDEL REALLY
HAS TO TOUGH IT OUT ALONE
S
top helping Fidel Castro. That message to Moscow has
still supplying military aid worth $1.5 billion annually.
been popping up in almost every press conference by
Wayne S. Smith, a Cuba expert at Johns Hopkins Universi-
President Bush since the failed Soviet coup. Bush's urg-
ty, expects the Soviet military presence to shrink but not
ing is superfluous, however, because Soviet-Cuban ties are
disappear. Soviet forces on the island include military advisers,
certain to shrink drastically, with or without U.S. prodding.
1,200 regular troops, and 1,000 military personnel at the big
The result for hard-pressed Cubans seems likely to be Option
electronic spy installation at Lourdes, outside Havana. Among
Zero-Castro's term for the deprivation Cuba will face if its
other things, the facility enables the Soviets to monitor U.S.
lifeline to the vanishing Soviet bloc is cut.
arms-control compliance. The Soviets aren't
Many in the Bush Administration believe
likely to cut all military aid, because then "the
Castro's regime won't survive. "Cuba's going
Cubans probably wouldn't let them keep
to solve itself," says a State Dept. official.
Lourdes," Smith says. "Rationally, they should
"We don't have to do anything." Despite the
want to hold on to it to verify compliance with
grim prospects and crumbling economy, how-
arms-control treaties." But in the current con-
ever, Castro is expected to propose modest
fusion, the republics may care less than Mos-
market-oriented reforms at most when the
cow once did about how the U.S. carries out
Communist Party's Fourth Congress meets,
arms accords.
starting on Oct. 10. And his VOW to keep the
ONE-WAY PASSAGE. If the Soviet Union disin-
Communist faith at all costs seems to rule out
tegrates, changes in policy toward Cuba "will
any easing of the party's rigid political grip.
likely be seen very quickly, by the end of the
Moscow has already cut Cuban aid sharply.
year," Kortunov says. He argues that a gradu-
Now, with the Soviet republics facing econom-
al reduction in aid, estimated at up to $2.5
ic turmoil at home, their assistance to Cuba
billion a year, would help avoid creating chaos
and other former satellites "will be stopped
on the island. But he sees time running out for
completely," predicts Andrei Kortunov, a for-
a restructuring of Soviet-Cuban relations, par-
eign policy expert at Moscow's Institute of the
ticularly because Castro seems unwilling to
USA & Canada. Although the big Russian Re-
make significant reforms.
public is more ready than others to pursue an
That prospect suits Miami's powerful exile
independent foreign policy, it will be interested
lobby, the Cuban American National Founda-
mostly in the European Community and East
CASTRO MAY IMPOSE 'OPTION
tion. A delegation from the foundation planned
ZERO': SEVERE BELT-TIGHTENING
Asia, Kortunov says. Relations with Third
to fly to Moscow in early September to urge
World countries such as Cuba, he observes, "were artificial
Soviet and Russian leaders to keep turning the screws on
creatures of the superpower status that is no more."
Cuba. One result is the stream of one-way Cuban tourists
That applies to military as well as economic ties. With the
flying to Miami. So far there's no sign that Castro is losing his
end of the cold war, most of the 3,000 Soviet troops in Cuba
grip. But the refugees fear the hardship of Option Zero-or
are left without a mission. They are a legacy of the deal that
the upheaval if, for lack of a Soviet lifeline, Castro's regime
ended the 1962 missile crisis: The U.S. promised not to attack
eventually founders.
Cuba, and Moscow pledged not to station offensive weapons
By Gail DeGeorge in Miami and Rose Brady in Moscow, with
there-but didn't agree to withdraw all troops. The Soviets are
Amy Borrus in Washington
GLOBAL WRAPUP
pushing Buenos Aires' stock market to
an experienced hand at the U.N. all
ARGENTINA
record highs. San Francisco's G.T.
the more important. Pérez and his dep-
A
fter a number of false starts,
Global Financial Services Inc. and Mer-
uties are involved in sensitive peace-
President Carlos Menem's sell-off
rill Lynch & Co. recently launched in-
making efforts from Cambodia to the
plan is finally whittling down Argenti-
vestment funds to channel money into
Middle East. On Sept. 16, Pérez will
na's huge inventory of official assets,
Argentina and other Latin nations.
confer in New York with El Salvador
large and small. On Aug. 29, bidders
UNITED NATIONS
President Alfredo Cristiani and guerril-
paid $1.3 million for five floors of of-
la chiefs in the U.N.'s effort to end
fice space in downtown Buenos Aires,
T
he U.S. and other leading U.N.
that country's civil war.
and developers are eyeing 2½ acres of
members may urge Secretary Gen-
In 1981, Pérez was the compromise
prime land near the presidential palace
eral Javier Pérez de Cuellar to stay on
choice when China deadlocked the Se-
to be auctioned on Sept. 19. Petrochem-
a year or two beyond his second five-
curity Council by backing Africa's can-
ical and steel plants will go on the
year term, which ends on Dec. 31. The
didate against former Secretary Gener-
block later this year.
Organization of African Unity, arguing
al Kurt Waldheim, supported by the
Getting rid of money-losing opera-
that it is Africa's turn to hold the top
U.S., the Soviet Union, Britain, and
tions and gaining auction income have
U.N. post, has endorsed six African
France. Now, with the Soviets moving
helped Menem trim the budget deficit
candidates to replace him. But the diz-
closer to the West, China may be wary
and brake inflation. Now, investors are
zy pace of global change makes having
of another confrontation at the U.N.
RICHARD VOGEL/GAMMA-LIAISON
INTERNATIONAL OUTLOOK
BUSINESS WEEK/SEPTEMBER 16, 1991 33
American News
RETAILING
THEY'RE
Anne Klein
BA-ACK
Blocking
Made
IT'S NO SPREE, BUT SHOPPERS ARE SHOPPING AGAIN
P
enny-pinching consumers hurting
must lay out cash, they've been buying
retailers? Not if the Bender fam-
cheaper goods. Kay Cardenas, a Burlin-
ily has anything to say about it.
game (Calif.) preschool teacher and
On the Sunday before Labor Day,
mother of a sixth-grader, recently re-
pharmacist Michael Bender took his
fused to shell out $50 for the Guess?
wife, Marcia, and son, Matthew, to Gur-
jeans skirt her daughter coveted. "There
nee Mills, a new, 2 million-square-foot
was only a half-yard of denim in it," she
outlet mall north of Chicago. Matthew,
says. "I explained to her that it wasn't a
14, had already gotten $500 worth of
value."
new clothes for school. Still, his mother
Such frugality may leave some house-
wanted to "pick up some odds and
holds glowing with virtue. But taken to-
ends." So she bought him a trendy-look-
gether, all those tight fists helped last
ing cotton shirt for $20. Is the recession
year to throw the economy-two-thirds
cutting into back-to-school shopping?
of which depends on consumer spend-
"You wouldn't know it here," said Mi-
ing-into recession. With retail sales
chael Bender, surveying the estimated
generally down about 3.5% so far this
100,000 shoppers who crowded the mall.
year, any gains over even 1990's spotty
You wouldn't know it in a lot of
record will be welcome (chart). Nor
places. While hardly booming, back-to-
could the improvement arrive at a better
school sales are up. At Burlington Coat
time: The back-to-school and Christmas
Factory, a discount chain that last year
seasons are pivotal periods when shop-
moved $790 million in apparel, Chairman
pers spend more money than the rest of
Monroe G. Milstein says: "So far, we're
the year combined. That's why econo-
ahead in the high single digits." At casu-
mists were SO heartened recently when
al-wear purveyor Benetton, spokesman
R.H. Macy & Co. said it expects its
Peter Fressola notes: "Within the last
sales to leap some 8% over the next six
two weeks, business has really picked
months.
up. Some of our stores are reporting
Not every retailer is enjoying the
double-digit increases."
surge. A spokesman at J.C. Penney Co.
they go back to school before they make
Even at Abraham & Straus, a division
says back-to-school sales "have been dis-
their purchases. One more warning sign:
(TOP TO BOTTOM) PHOTOGRAPHS BY MARK RICHARDS; MICHAEL L. ABRAMSON; CHART BY ALBERTO MENA/BW
of bankrupt Federated Department
appointing." At Dayton Hudson Corp.,
Until consumers' incomes get growing
Stores Inc. based in Brooklyn, N.Y.,
President Stephen E. Watson reports re-
again, any rebound in retailing necessar-
"back-to-school sales are much better,"
cent sales are up a tad, but less than
ily will be dampened. "You can only
says Senior Vice-President Francesco
expected. He thinks some kids-includ-
draw on savings growth for so long to
Cantarella. He adds: "We haven't seen
ing his own daughter-are waiting until
get spending growth," notes Carl Steidt-
any stuff that people look at
mann, chief economist at re-
and wonder, 'When is that go-
tail consultants Management
ing to be marked down?'
Horizons. "That's a limited
MAKING DO. Reports like
string to push on."
these from the store aisles of-
That said, Steidtmann still
fer comfort and hope that's
expects consumers to start
been a long time coming to
opening their wallets. "There
U.S. retailers. They've spent
is a lot of pent-up demand out
the past year or more cutting
there," he notes. "People
stocks, slashing prices, and
didn't shop for a good 12 to 18
praying for paying customers.
months, and eventually stuff
Consumers, many of whom a
wears out." Plus, a combina-
couple years back shopped
tion of events-easier credit,
just for the sport of it, have
stabilizing home prices, lower
been making do with what
energy bills, and rising
they have-or, when they
stocks-seems to be fostering
JAMMED: THE GURNEE MILLS outlet MALL IN SUBURBAN CHICAGO
34 BUSINESS WEEK/SEPTEMBER 16, 1991
AMERICAN NEWS
"There is a
certain
energy, a
psychological
thing, at the
store level that
hasn 't been
there in a
long time'
SHOE BIZ: A
NORDSTROM'S IN
GLENDALE, CALIF.
optimism. "There is a certain energy, a
results have been very favorable," says
cisco area, is buying fewer $100 Europe-
psychological thing, at the store level
a spokeswoman. "We're well-positioned
an party dresses for infants these days.
that hasn't been there in a long time,"
for the economy."
Instead, she's stocking up on domestical-
observes Benetton's Fressola.
And those that aren't well-positioned
ly made dresses marked at $50 to $60.
Some stores plainly are doing better
are trying to get that way fast. Po Chan,
Big department stores and chains are
than others. Which ones? "The stores
a partner in Yountville Clothes for Chil-
trying to catch consumers with inexpen-
that offer value-oriented merchandise
dren, a four-store chain in the San Fran-
sive-but-trendy items. "What's doing
with really moderate prices
well is less-serious-looking
are going to end up with the
RETAILERS ARE WAITING TILL NEXT YEAR
fashion," says Sarah Davies,
lion's share of the business,"
corporate fashion director at
says Kurt Barnard, a retail
9
Nordstrom Inc. "Anything too
consultant in New York. "The
serious or too basic or too
others will sit there with their
6
classic everyone is leaving be-
tongues hanging out."
hind, because they already
DOTS FINE. That's good news
have it in their closets." At
3
for the so-called off-price re-
Abraham & Straus, shoppers
tailers that take name-brand
92
'91
'92
'91
'92
'91
'92
are grabbing most any gar-
remainders and discount
0
'91
WOMEN'S
FURNITURE
CONSUMER
CONSUMABLES*
ment covered with dots, says
them. At Boston-based T.J.
CLOTHING
ELECTRONICS
Cantarella: "Big dots, small
Maxx, for instance, Hurricane
-3
AND SHOES
dots, there is a lot of excite-
ESTIMATED YEAR-TO-YEAR
Bob briefly dampened East
CHANGE IN TOTAL DOLLAR SALES OF
ment about dots this year."
Coast sales, but executives re-
KEY RETAILING CATEGORIES
Wild colors also remain hot:
-6
main sanguine. "Off-pricers'
At Gurnee Mills, a kiosk
PERCENT
DATA: MANAGEMENT HORIZONS
*HEALTH AND BEAUTY AIDS AND OTHER SMALL ITEMS
AMERICAN NEWS
BUSINESS WEEK/SEPTEMBER 16, 1991 35
American News
called Originals is selling lots of $14.95
colors-glue in neon pink, green, yellow,
Francisco physician Ellen Howse. She
T-shirts. They look like '60s-era tie-dye
orange, and blue. Wal-Mart shoppers are
recently purchased a new refrigerator
shirts, but the colors change when some-
snapping up small coolers, backpacks,
and a Mazda minivan, feeling she got
thing warm-a hand, or hot breath-
and lunch kits in bright colors. Near col-
good deals on both. That's the spirit re-
comes in contact with them.
leges, Wal-Mart is winning with Bed in a
tailers are counting on to carry them
At K mart, "skeggings"-skirts with
Bag, a comforter-and-sheet set.
into 1992.
leggings attached-are going fast. Also
While consumers hold off on those
By Laura Zinn in New York and Julia
big hits at K mart: the Lisa Frank line of
$100 baby dresses, many still are hot for
Flynn Siler in Chicago, with Alice Z.
very feminine-looking school supplies
bargains. "My spending is up 20%, but
Cuneo in San Francisco, and bureau
aimed at little girls, and Elmer's Glu-
I'm buying because I have to," says San
reports
AT $200 A POP, WILL SUPER NINTENDO HAVE LEGS?
W
ith the speed of Super Mario
producing an effect that's close to ar-
manuals on the game and writing up
racing to rescue the prin-
cade quality. "It's the difference be-
his own Nintendo guide on the family
cess, Larson Lee flew into
tween a prop and jet," says Scott Bau-
computer. But Sandra Powers of San
his dad's car without shoes and socks
hofer, merchandise manager for
Francisco does not expect to buy Super
when he heard the news he was wait-
personal electronics with Good Guys
NES for her two boys. "We just had our
ing for. After pestering Nintendo of
Inc., a chain of 32 California and Neva-
talk about no Nintendo during school,"
America's 800-number operator for
da stores. Philips will collaborate with
she says. Cindy Elsbree of Gilroy,
weeks, he had confirmed that the new
Nintendo on a CD-ROM capability to al-
Calif., is also hesitant: "With $200 I
16-bit Super Nintendo Entertainment
low future games to contain actual
would probably find something with
System was being unpacked at his lo-
movie footage.
more educational value."
cal video-game store. Within 15 min-
With 1990 U.S. sales of $3.4 billion,
And Nintendo, which has dominated
utes, the 9-year-old San
the 8-bit market, has
Franciscan got his dad to
been beaten to the punch
plunk down some $200
in 16-bit systems by Sega
for the latest in home
of America's Genesis,
video entertainment. "If
with its hot game featur-
we waited for Christmas,
ing a speedy hedgehog
I didn't know if we
named Sonic. Sega,
would be able to find
which vows to make 16
one," says his father,
bits the undisputed stan-
Larry G. Lee. Besides,
dard for video games,
after six long months of
has been sold out since
hard lobbying from Lar-
July. And Sega's systems
son, "I figured life would
are compatible with older
be a lot easier if I bought
8-bit versions through a
it now."
$35 adapter, giving Sega
One of 32 million U.S.
a software library for
customers already en-
Genesis that is currently
thralled with Nintendo's
seven times that of Nin-
8-bit machine, Larson
tendo's Super NES. Nin-
isn't the only one going
tendo intends to maintain
crazy for the new sys-
SUPER NES AT TOYS 'R' US: THE FIRST BATCHES ARE SELLING FAST
its 8-bit market separate-
tem. "We're very excited about it,"
Nintendo expects the new system to
ly, while promoting Super NES to ad-
says Michael Goldstein, vice-chairman
rack up $700 million. But outsiders still
vanced players. About 18 Super NES
of Toys 'R' Us, which had its cache of
wonder if, after the fanatics finish de-
games will be out by Christmas.
Super NESes flown to the East Coast in
vouring the first few batches, such an
Plenty of people want Nintendo to
late August to get a jump on rivals.
expensive machine will have the stay-
succeed. It accounts for an astounding
The Nintendo Entertainment Center, a
ing power of the cheaper, 8-bit Nin-
16% of the total U.S. toy market, so
shop in Daly City, Calif., reports it sold
tendo, whose suggested retail price has
the success of Super NES will affect toy
out its stock of 60 systems in three
stayed around $99.
retailers deeply. And if Nintendo can't
days. "It's the hottest product on the
Then there are the parents who vow
crank them out fast enough, analyst
market in 1991," said Gary M Jacob-
to resist. Larry Lee says his son bene-
Jacobson figures traditional toymakers
son, a toy analyst at Kidder, Peabody
fits from Nintendo by avidly reading
such as Tyco Toys Inc. and Mattel Inc.
& Co. Nintendo expects to ship up to
will profit by selling their own low-tech
2.5 million units in the next six months.
products to kids and parents who want
STAYING POWER? The early frenzy
Nintendo accounts for
something under the tree but can't get
over the 16-bit machine seems to dispel
their hands on Super NES. Whether for
fears that players would simply shun
16% of the U.S. toy market,
retailers or other toymakers, the Super
the system, which also requires pricey
SO retailers are praying for
Mario Brothers' next big adventure
game cartridges going for $50 a pop.
could be rescuing Christmas.
The 16-bit system provides richer, more
the new machine's success
STEVE WINTER
By Alice Z. Cuneo in San Francisco,
vivid graphics in an array of colors,
with Thane Peterson in New York
36 BUSINESS WEEK/SEPTEMBER 16, 1991
AMERICAN NEWS
STRATEGIES
in the quarter that ended Apr. 30, 1991.
CCE was created in 1986, when Coke
bought and consolidated several bot-
tlers, primarily in the West and South-
east. Coke spun off 51% of the new com-
pany's shares, allowing the soft-drink
giant to push off its balance sheet the
$3.1 billion in acquisition debt.
SUGAR FIX. The dynamics of Coke's busi-
ness are more attractive than those of
its bottler. Coke's primary business is
selling concentrate and syrup to bot-
tlers, and it also provides marketing sup-
port to sell Coke. Bottlers compete on a
scrappier level: They manufacture and
distribute soft drinks to the retail and
fountain outlets and handle most local
promotion. At one time, bottlers held
long-term, fixed-price contracts for Coca-
Cola concentrate and syrup that allowed
for price increases only when sugar
prices rose. But when Coke spun off CCE
and bought stakes in other bottlers, new
contracts called for regular increases
tied to inflation.
A MERGER WOULD GIVE CCE 55% OF U.S. VOLUME BUT MAY DILUTE EARNINGS IN THE SHORT RUN
That was good for Coke but made
things tougher for the bottlers. Thus
CCE, which was formed just as a major
falloff in consumption and fierce price
JOHNSTON MAY BE
wars hit the soft-drink industry, had lit-
tle room to maneuver. Despite aggres-
TH BOTTLER THAT REFRESHES
sive cost reductions, CCE's margins
slipped from 10% in 1987 to 8% in 1990.
A merger could bring CCE badly needed management savvy
And CCE recently said it expected earn-
ings per share for 1991 to be between
S
tockholders at Coca-Cola Co. have
ly with all customers-from national
30¢ and 35¢-half the 65¢ that analysts
plenty to cheer about. Average an-
chains to tiny neighborhood bodegas.
were estimating. Another bearish factor:
nual return on the stock has been
"In the bottling business, you've got
CCE, with $2.8 billion of long-term debt
29% for the past five years. On the other
hundreds of marketing decisions every
already, will inherit Johnston's $1 billion
hand, shareholders of the soft-drink gi-
day," says Prudential Securities Inc. an-
in debt, which could dilute earnings, ana-
ant's 49%-owned Coca-Cola Enterprises
alyst George Thompson. "You can't just
lysts say.
Inc., the largest Coke bottler, are apt to
sit in Atlanta."
The plan calls for Summerfield K.
be groaning. The stock is languishing
That's where Johnston's structure
Johnston, chairman of the smaller bot-
around 14%, slightly below the initial
may serve as a model. It is decentral-
tler, to become CEO of the new company,
offering price of 16 five years ago.
ized, with each of nine operating groups
replacing Dyson, who becomes vice-
CCE's latest move may finally offer
run by a general manager. According to
chairman. In what seems a clear indica-
hope of improvement. On Aug. 30, CCE
Johnston President Henry A. Schimberg,
tion that Coke calls the shots for CCE,
announced it planned to acquire private-
who will keep that title at the combined
Coke conferred with Johnston for weeks
ly owned Johnston Coca-Cola Bottling
company, local management is key to
about an acquisition without input from
Group in Chattanooga, the second-larg-
tailoring promotions with merchants,
CCE, Johnston executives say. "Coca-Co-
est domestic Coke bottler, for about $450
which help
la's recommendation of the
million in CCE stock. The combined com-
move product
deal should not be read as a
pany would give CCE control of 55% of
without slash-
reflection on CCE's man-
Coke's U.S. bottling volume. Equally
ing prices and
important, it would bring CCE a group of
make it easier
to respond to
COKE HAS ALL THE FIZZ
agement," says a Coke
spokeswoman. Dyson de-
veteran bottling managers hoping to re-
clined comment. But
juvenate the acquirer.
competition.
bodega BODIES. Until now, CCE has
Pespi-Cola USA, which
200
CLOSING INDEX OF STOCK PRICES
Johnston's Schimberg
says: "If the deal goes
been run by Brian G. Dyson. The former
owns most of its bot-
180
through, you will see
head of Coca-Cola USA, he played a big
tlers, switched to a re-
COCA-COLA
CCE adopt the same
role in the successful Diet Coke intro-
gional structure for all op-
160
modus operandi that
duction in 1982 and was known as a
erations three years ago.
we have." Eventu-
savvy marketer. But he had little of the
Johnston's results sup-
140
ally, CCE share-
hands-on manufacturing experience
port Schimberg's philoso-
holders may have
good bottlers need. During his five-year
phy. The company has re-
120
reason to cheer-
tenure, he built a centralized manage-
corded losses for the past five
100
ment structure with a large corporate
years because of debts from
COCA-COLASES
AUG. '91
if they stick
around.
PHOTOGRAPH BY ANDY SNOW/SABA; CHART BY ROB DOYLE/BW
staff but few decision-makers at the lo-
acquisition, but it is one of the
80
By Walecia
cal level. Industry consultants call that a
few bottlers to post volume
growth. Case sales were up 8.3%
JAN. INDEX: '90 JANUARY, DATA: BRIDGE 1990=100 INFORMATION SYSTEMS
Konrad
in
mistake, since bottlers must work close-
Atlanta
AMERICAN NEWS
BUSINESS WEEK/SEPTEMBER 16, 1991 37
American News
CIVIL RIGHTS
Compton (Calif.) NAACP Presi-
dent Royce W. Esters (right)
backs Judge Clarence Thomas
because he embodies the self-
help philosophy: 'We need to
move away from the belief
that America owes me some-
thing or else I'm going to steal'
ed to join the high court next month.
The Thomas nomination in particular
has set off a bomb in the civil rights
HAS THE CIVIL RIGHTS MOVEMENT
tent. It exploded tensions that had long
been building between civil rights lead-
GONE 'TERRIBLY WRONG'?
ers and growing numbers of blacks who
believe that self-help efforts work better
The wrangle over Thomas is only one sign of strain in the coalition
than government programs. Nearly ev-
ery civil rights group-with the excep-
n a Saturday afternoon earlier
lion black Americans. "Something has
tion of the National Urban League,
this summer, Cub Scout Pack
gone terribly wrong," says Howard Uni-
which is neutral-opposes Thomas. But
409 of New Ellenton, S.C., ar-
versity political scientist Ronald W. Wal-
he has considerable grass-roots support.
rived at Richardson's Lake in nearby Ai-
ters. "Many blacks are turned off by the
Larkin Campbell, a Columbia (S. C.) law-
ken County for a day of swimming and
civil rights movement."
yer and NAACP member in favor of
picnicking. But the excursion was cut
Civil rights organizations have been
Thomas, says the group's leaders "don't
short. The lake's manager refused to ad-
hit hard financially by the recession.
necessarily represent the opinions of
mit two of the scouts, who were black,
Moreover, the once formidable civil
their own membership."
SO the group turned back rather than
rights coalition-which includes blacks,
NAACP Chairman William F. Gibson
leave two members at the gate.
labor, Hispanics, churches, and women's
concedes his group lost touch with youn-
Enter the National Association for the
groups-is showing signs of strain. It
ger blacks several years ago but insists
Advancement of Colored People. Within
failed to persuade the White House to
things are back on track. "The idea that
hours of learning of the incident, Nelson
continue sanctions against South Africa
we are out of the mainstream is wrong,"
B. Rivers III, director of its South Caro-
or to stop the GOP from calling rights
he says. True, a new BUSINESS WEEK/
lina chapter, won the resignation of the
activists "quota seekers."
IL TO R) PHOTOGRAPHS BY MARTIN SIMON/SABA; EDUARDO CITRINBLUM
Louis Harris & Associates poll shows
lake's manager and got the property's
EXPLOSIVE. The malaise couldn't come at
88% of blacks feel the NAACP is an effec-
owners to adopt a policy of nondiscrimi-
a worse time. When Congress recon-
tive representative. But 56% of those
nation. The next day, Rivers took his
venes on Sept. 10, the movement will be
polled support Thomas' confirmation, de-
family swimming at Richardson's Lake.
fighting two battles at once: to defeat
spite the opposition of civil rights groups
The NAACP made its reputation win-
the nomination of U.S. Court of Appeals
(page 39).
ning fights such as this. But today, as
Judge Clarence Thomas to the Supreme
Civil rights leaders dismiss such polls
the civil rights movement battles the na-
Court and to win approval of a measure
as the views of the uninformed. Says
tion's tilt to the right on economic, so-
that makes winning job-bias suits easier.
William L. Taylor, a civil rights lawyer:
cial, and legal policy, it's a lot harder to
If Congress passes any civil rights legis-
"The pollsters are talking to people who
win in Washington than in places like
lation, it will be far weaker than the
know no more than that Thomas is black
Aiken. Civil rights leaders are having to
measure President Bush vetoed last
and an American success story." But it's
prove their relevance-and their once-
year. And barring any slipups in the
precisely Thomas' up-from-poverty back-
unquestioned right to speak for 30 mil-
confirmation process, Thomas is expect-
ground that makes him attractive to
38 BUSINESS WEEK/SEPTEMBER 16, 1991
AMERICAN NEWS
many blacks. Royce W. Esters, president
of the NAACP chapter in Compton, Calif.,
Business Week/Harris Poll
backs Thomas because he personifies
the self-help philosophy. "We need to
move away from the belief that America
owes me something or else I'm going to
steal," Esters says. The chapter voted to
HOW BLACKS VIEW THOMAS AND THEIR LEADERS
support Thomas, but under pressure
from the parent group, members have
SHOULD THOMAS BE CONFIRMED?
agreed to voice support as individuals.
As you probably know, President Bush has nominated Judge
To some extent, the civil rights move-
Clarence Thomas, who is black, to the U.S. Supreme Court to take
ment is a victim of its own success. The
the place of Justice Thurgood Marshall, who is also black. If you
legislative victories of the 1960s, which
had to decide today, would you favor or oppose Judge Clarence
outlawed discrimination in education,
Thomas for the Supreme Court?
voting, and employment, have helped
thousands of black households to move
Favor
56% Oppose
31%
Not
sure
13%
into the middle class. This group is far
WEIGHING THE NOMINEE'S PROS AND CONS
from monolithic and often challenges
Let me read you some statements about Judge Clarence Thomas and his nomination
civil rights orthodoxy. "Blacks will not
for the Supreme Court. Do you agree or disagree with each?
be pigeonholed anymore," says W. Allan
Agree
Disagree
Not
Bean, a 30-year-old black entrepreneur
sure
from Washington who backs Thomas.
Judge Thomas should be confirmed because it is impor-
SPLITS. The civil rights bill will be anoth-
tant to continue to have a black on the Supreme Court
60%
37%
3%
er big test for the movement. The cohe-
Judge Thomas should be rejected because he is opposed
sion of the Leadership Conference on
to affirmative action for blacks and other minorities
40%
53%
7%
Civil Rights will be challenged this fall
when the Senate takes up the measure.
Judge Thomas should be confirmed because he is the
Women's groups want the right to seek
best-qualified person for the Supreme Court at this time
55%
37%
8%
unlimited damages and jury trials for
Judge Thomas should be rejected because most black or-
job bias. Blacks, who already have these
ganizations are opposed to his nomination
27%
69%
4%
rights, want the bill to focus on provi-
sions that would make it easier to prove
Judge Thomas should be confirmed because he will be a
discrimination. These differences, plus
role model for young blacks because he came from such
White House interference, scuttled a
poor beginnings
62%
35%
3%
compromise on the bill last spring.
Judge Thomas should be rejected because he will stand for
Ralph G. Neas, director of the 185-
the opposite of everything Thurgood Marshall stood for
33%
58%
9%
member coalition, admits some tensions
but disputes that civil rights groups are
Judge Thomas should be confirmed because President
in trouble. "When you have an economy
Bush thinks he is the right choice
45%
53%
2%
going downhill and two branches of gov-
Judge Thomas should be rejected because if he is on the
ernment that are openly hostile to civil
Supreme Court other blacks like him won't get the same
rights, I think the coalition is doing
opportunities he got under affirmative action
33%
61%
6%
well," he says. Neas notes such tri-
umphs as the Americans with Disabil-
DOES BLACK LEADERSHIP REPRESENT YOU?
ities Act, the minimum-wage increase,
How effective do you feel each of the following people or organizations is in represent-
and passage of a child-care bill.
ing black people like you-very effective, somewhat effective, not very effective, or not
But the Leadership Conference has
at all effective?
dubious claims to these "victories."
Very
Some-
Not
Not
Not
Bush supported the disabilities bill. The
what
very
at all
sure
minimum-wage-hike bill was watered
NAACP
54%
34%
5%
3%
4%
down to meet White House demands.
And the movement itself was split on
Urban League
34%
47%
5%
5%
9%
the child care bill because it provided
Leadership Conference on Civil Rights
44%
42%
4%
4%
6%
federal funds to religious organizations.
Black Muslim leaders
19%
34%
17%
21%
9%
Any loss of the movement's political
Southern Christian Leadership Conference
25%
46%
11%
7%
11%
muscle could be a boon for industry. It
may be easier now for business to
Reverend Jesse Jackson
56%
33%
4%
6%
1%
thwart the civil rights bill as well as
Black elected officials, like congressmen,
efforts to raise corporate taxes. There
governors, and mayors
33%
51%
8%
3%
5%
could be a downside, though. If Thomas
Leaders of black militant groups
15%
41%
18%
19%
7%
makes a conservative majority on civil
rights issues, the court may undermine
WHAT ABOUT BLACK GROUPS' OPPOSITION TO THOMAS?
affirmative action and leave employers'
Do you think the opposition of most civil
Serves best interests
56%
hiring practices in disarray.
rights organizations to the Thomas nomination
Does not
36%
That's why the battle over Thomas is
serves the best interests of blacks, or not?
Not sure
8%
more than a fight over a vacant seat on
the Supreme Court. It is a fight for the
Edited by Mark N. Vamos
very soul of the civil rights movement.
By Paula Dwyer and Tim Smart in
Survey of 500 black adults conducted Aug. 29-Sept. 2, 1991, for BUSINESS WEEK by Louis
Washington
Harris & Associates Inc. Results should be accurate to within four percentage points.
RAY VELLA/BW
AMERICAN NEWS
BUSINESS WEEK/SEPTEMBER 16, 1991 39
American News
SOVIET UNION
pearing. Ukraine President Leonid Krav-
chuk complains that the committee head-
ing the negotiations is too dominated by
Russians. Other republican leaders fret
INCHING TOWARD
about a flurry of bankruptcies among
inefficient state enterprises, since the
A DECLARATION OF INTERDEPENDENCE
old system of state orders from the cen-
tral government will be dismantled. That
But any new Soviet economic union will have to weather tough times
could lead to popular unrest or spill over
into ethnic strife if winter brings food
T
he euphoria of a sweeping demo-
transition. A new financial system could
and fuel shortages in some areas.
cratic victory still hangs in the
be set up in which each republic would
WHOSE GOLD? Moreover, many worry
Moscow air. But now, the hard
have its own state bank, but financial
that fights will erupt over the dividing
work has begun. Leaders of 15 former
policy would be coordinated. And a mon-
of gold and other natural resources.
Soviet republics are thrashing out an
etary system modeled after the Europe-
Those reserves could be important for
economic treaty to prevent the total col-
an Community's could be established to
republics, such as the Ukraine, that need
lapse of their trade and an outbreak of
let currencies trade in a fixed range.
financial backing for the convertible cur-
economic warfare. Their aim, says Rus-
Ideally, says Silayev, the union would
rencies they aim to float in the next six
sian Prime Minister Ivan Silayev, is to
include all 15 republics. It would also be
months. The disputes could also affect
create an economic union loosely mod-
open to the Soviet Union's former part-
Russia's ability to make its currency
eled after the European Community.
ners in the now-defunct Council for Mu-
convertible within the year. Other repub-
Events are moving fast. On Sept. 4,
tual Economic Assistance, especially
lics may not go for the tight monetary
the Soviet Parliament gave preliminary
Czechoslovakia, Hungary, and Poland.
policy needed to curb inflation.
approval to a plan to transform the Sovi-
Members would be allowed to choose
If that turns out to be the case, the
et Union from a political
monolith controlled by the
Kremlin into a loose con-
Prices must be
federation of independent
freed, which will
states. Without the Com-
munist Party, the glue to
badly hurt the
hold such a confederation
nearly 50 million
together will have to be
Soviets who live on
new economic agreements.
But cutting those deals
extremely low
is a daunting task. The re-
fixed incomes. And
publics must decide how
it now falls to the
to divvy up $64 billion in
foreign debt, create a co-
republics to create
herent monetary and
social safety nets
banking system, and man-
age the country's gold and
to ease the pain of
precious-metals reserves.
inflation
Warns economist Yevgeny
Yasin: "If they can't agree
to accept certain rules of
the game and take unpop-
ular sacrifices, the 15 re-
publics will collapse."
full or observer status. Economists say
changing situation in the former Soviet
The obstacles are huge. Before the
it's almost certain that the newly inde-
Union will continue in the near term to
failure of the hardliners' takeover, the
pendent Baltic states would at least opt
stymie Western bankers and financial in-
Kremlin had run up a budget deficit of
for observer status to get such crucial
stitutions. Western bankers no doubt
more than $150 billion. Meanwhile, trade
supplies as Soviet oil and gas.
tremble at the prospect of trying to col-
among the republics had disintegrated
But any new economic union will
lect interest payments from 15 debtors
into haphazard bartering. By yearend,
mean weathering some tough times. Re-
instead of one. But Silayev insists that
output could plunge by 20%, and infla-
publics can no longer depend on huge
"we will maintain all of our international
tion could spiral to Third World levels.
Kremlin subsidies for housing, transpor-
economic obligations."
FREE TRADE. There's no dearth of propos-
tation, or food. Prices must be freed,
So whether and how quickly the for-
als for a new economic union, a concept
which will badly hurt the nearly 50 mil-
mer Soviet republics can negotiate a
first dreamed up two years ago by the
lion Soviets who live on extremely low
workable economic union is just as un-
late dissident Andrei Sakharov. An inter-
fixed incomes-about 16% of the popula-
predictable as the changing Soviet politi-
republic committee, for example, could
tion. It will now be the republics' task to
cal scene. Down the road, an economic
manage common economic policies while
create social safety nets to ease the pain
union could ease free trade among coun-
an arbitration committee settles trade
of higher prices. And some, such as the
tries and republics from Ireland to the
disputes. Trade throughout the former
Ukraine, Moldavia, and the Baltics, will
Far East. But for now, the 15 Soviet
Soviet Union would be free of restraints,
have to dismantle their trade barriers
republics and their trading partners
RIKKI ROSEN/SABA
and customs rules would be uniform.
and customs posts.
must prepare for another hard winter.
Poor republics in Central Asia could tap
Despite widespread support for a new
By Rose Brady, with Patricia Kranz, in
a special development fund to ease their
economic union, cracks are already ap-
Moscow
40 BUSINESS WEEK/SEPTEMBER 16, 1991
AMERICAN NEWS
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Commentary/by Howard Gleckman
HOW THE BUDGET DEAL HAS CHOKED OFF AMERICA'S CHOICES
T
he Soviet Union collapses, taking
only under sharply restrictive rules. It
also gives Bush a powerful campaign
with it the rationale for 40 years
could provide aid to Soviet republics-
tool. GOP strategists know that the
of U.S. diplomatic and military
but only by cutting spending for, say,
President's Achilles' heel is his lack of
strategy. And how does Washington
Israel or Poland. Or the President
a domestic agenda. And they are com-
respond? In the only way it knows-by
could clear the way by declaring an
fortable in the knowledge that Demo-
bickering over the budget process.
emergency, exempting the added cost
crats have been unable to reach a con-
President Bush does not stir the na-
from the caps. Bush did that this year
sensus on an alternative. But fiscal
tion with his vision of a post-Soviet
in order to provide aid to Kurdish refu-
paralysis gives Bush extra insurance.
world. Democrats, including House
gees. But he used the same power to
For even if the Democrats can agree
Majority Leader Richard A. Gephardt
block extra unemployment benefits for
on a domestic alternative, the budget
(D-Mo.) and House Armed Services
unemployed workers-simply by refus-
crunch makes it all but impossible for
Committee Chairman Les
Congress to shift its
Aspin (D-Wis.), do not of-
spending priorities in any
fer blueprints for a new
dramatic way until after
world order. Instead,
the 1992 elections. The
Bush and congressional
1990 budget deal is the
leaders immediately fall
wrapping around the fis-
to squabbling over
cal box that the Demo-
whether the 1990 budget
crats have helped build
rules should be bent to
for themselves over the
shift money from the
past decade.
Pentagon to foreign aid.
BIG CHANCE. Trouble is,
Unfortunately, the
fiscal paralysis is punish-
$300 billion deficit and
ing the nation as well.
the new budget rules it
Former Congressional
has spun have hog-tied
Budget Office Director
U.S. policy. Last year's
Rudolph G. Penner for
fiscal deal may or may
years has argued that
not bring down the defi-
the deficit creates eco-
cit, but it guarantees
nomic problems by cut-
that no matter what hap-
pens in the world, the
U.S. TROOPS DURING NATO MANEUVERS IN EUROPE: STILL NECESSARY?
ting national saving and
the opportunities for pro-
priorities agreed upon last November
ing to declare a budget emergency.
ductive investment. But Penner now
remain fixed through fiscal 1993.
Aspin and Gephardt want to shift a
worries that the bigger cost is not eco-
TIGHT RULES. This is not an unanticipat-
small fraction of military spending to
nomic, but political: "The political pa-
ed consequence of a well-intentioned
provide humanitarian aid to the Sovi-
ralysis, the inability to make decisions
law. The agreement is, rather, working
ets. That would require an easing of
on a common-sense basis may, in fact,
exactly as planned. "The purpose of
budget rules. But the White House
cost us more than the loss of savings."
the budget deal was to make it impos-
stoutly opposes any change in the caps.
The collapse of the Soviet empire of-
sible to do anything new," says Price
CAMPAIGN TOOL. All this is just as
fers Americans a perfect chance to re-
Waterhouse budget analyst Stanley E.
Budget Director Richard G. Darman
assess their national goals. Should
Collender. "In the past 12 months,
had hoped when he dreamed up the
money no longer needed for defense
we've seen some of the most dramatic
spending caps. The scheme gives Bush
against a crumbling enemy be spent on
changes in history, yet we have no abil-
the equivalent of a
education or the en-
ity to change priorities."
line-item veto. Not
vironment? Should
Congress and the President agreed
incidentally, it also
MILITARY SPENDING IS
taxes be cut? Is it
to divide discretionary spending into
gives Darman enor-
FALLING AS FAST AS IT CAN
still necessary to
mous new power
DEFENSE
DOMESTIC
FOREIGN AID
PHOTOGRAPH BY JOHN GIORDANO/SABA; CHART BY LAUREL DAUNIS/BW
three categories: military, foreign poli-
protect Europe from
cy, and domestic (chart). The total
within the Adminis-
LEVELS LOCKED IN BY LAW
the Soviets? Instead
amount spent for each was cast in
tration. In the past,
300
of grappling with
stone until after the 1992 elections. For
the budget director
these basic ques-
example, it was agreed in November,
had tremendous
tions, Bush and the
1990-when Soviet President Mikhail
clout over domestic
200
Congress are wran-
Gorbachev was yielding to right-wing
programs. Now, the
gling over Title XIII
pressure to crack down on the Bal-
spending caps give
of the Omnibus Bud-
tics-that $19.8 billion would be spent
budgetmeister Dar-
100
get Reconciliation
on foreign aid in fiscal 1993 and that
man new influence
Act of 1990 and the
$295 billion would go to the Pentagon.
over foreign aid and
Section 302(a) rules
Congress may spend more on an in-
military spending.
0
1991
1992
1993
of the Congressional
dividual program within a class but
The arrangement
BILLIONS OF DOLLARS
DATA: CONGRESSIONAL BUDGET OFFICE
Budget Act of 1974.
44 BUSINESS WEEK/SEPTEMBER 16, 1991
AMERICAN NEWS
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Washington Outlook
EDITED BY STEPHEN H. WILDSTROM
FOR BUSH, A WEAK RUN IN '92
COULD HOBBLE A SECOND TERM
G
eorge Bush couldn't have hoped for a better August.
media strategy. Chief of Staff John H. Sununu would stay at
He got to enjoy one of his hyperactive Maine vacations,
the White House with little direct role in the campaign, a
leaping from fishing boat to golf tee while events
prospect that doesn't please the combative Sununu.
abroad reminded voters that foreign policy-Bush's strong
But that organization is now in jeopardy. Ailes, for example,
suit-remains vitally important. But to the President's political
is unhappy with White House image-meister Sigmund Rogich,
advisers, this summer has been a season of intense frustra-
who has let it be known that he wants to handle campaign
tion. With less than a year to go before Bush's certain renomi-
media. Ailes has been huffing that he may stay off the team.
nation at the Republican convention in Houston, the President
Other key players privately say they wonder if their commit-
is showing no interest in getting his reelection campaign go-
ment to the reelection effort is worth it when the President
ing. "We're all chomping at the bit, and the President is a total
steadfastly refuses to even talk about the upcoming campaign,
zombie," grumbles a senior strategist.
let alone plan it.
Yet while Bush bides his time, trouble
RELUCTANT WARRIOR. The President did al-
may be brewing. Leaders of the Bush cam-
low the topic of campaign plans to come up
paign-in-waiting, deprived of a chance to
at an August session at Camp David, but
take on the enemy, are bickering among
got annoyed when the discussion reignited a
themselves, squabbling over turf, and mus-
dispute between the backers of Sununu and
ing about pursuing other opportunities if the
Teeter. "That's it. No more," Sununu mut-
race doesn't get started soon. "These are
tered to aides in Kennebunkport, Me., after
people who love politics," explains Stephen
trying to raise the subject with Bush.
Hess of the Brookings Institution. "If they
Bush's diffidence has also put a hold on
don't have anybody else to fight with, they
the development of campaign issues. He in-
fight with each other."
vited domestic advisers to Kennebunkport
So far, the Democrats-still lacking a
but limited their discussion to his paltry
credible, willing candidate-are poorly posi-
plans for the remainder of this term. With
tioned to take advantage of turmoil in the
Bush yet to craft a campaign stance on such
Bush camp. But politics is a treacherous
hot topics as abortion and health care,
business. If issues swing the Democrats'
there's a danger that the White House will
way, or a major scandal erupts within the
AILES: MIFFED over TURF BATTLES
let the Democrats steal a march on 1992.
Administration, or a heavyweight contender emerges, Bush
Republicans are woefully divided on both issues.
could come to regret the slow start of his reelection bid.
Bush, riding high on his latest foreign crisis, wants to enjoy
USUAL SUSPECTS. Normally, the campaign's key players would
the luxury of being a President rather than a Presidential
be in place by now. The script calls for Commerce Secretary
candidate for as long as possible. And, to be sure, once Bush
Robert A. Mosbacher to resign his post to become campaign
decides to throw the campaign into gear, his team can take
chairman, chief fund-raiser, and Bush's best buddy on the
shape almost instantly. But Bush's willingness to let the cam-
campaign staff. Veteran pollster Robert M. Teeter will serve
paign drift may cost him in the end: His reluctance to develop
as chief political strategist. NWA Inc. Vice-Chairman Frederick
an agenda for the next four years could leave him victorious
V. Malek plans to leave the airline to run day-to-day opera-
but lacking a mandate to tackle the nation's problems.
tions, and Roger Ailes is expected to design campaign ads and
By Douglas A. Harbrecht
CAPITAL WRAPUP
REDISTRICTING
strength. And in Illinois, where Chica-
go must lose a seat, the dominant GOP
BENEFITS
N
ew congressional districts being
is pushing a plan that would force vet-
mployers and the health insurance
drawn up by state legislatures
eran Democratic Representatives Dan
industry are getting worried about
show that population loss is causing a
Rostenkowski and Frank Annunzio
a bill that would give workers denied
rapid erosion of big cities' political
into the same district.
benefits the right to sue in state
clout. In Maryland, Democratic Gover-
nor William Donald Schaefer, a former
CANDIDATES
courts. The Supreme Court has held
that the Employee Retirement Income
Baltimore mayor, threatens to veto a
Democratic-backed plan that dramati-
T
he 1992 campaign is young, but
Security Act bars such state suits. But
steel company executive Joe Can-
Senator Howard Metzenbaum (D-Ohio)
cally shifts voting strength from the
non, GOP candidate for a Senate seat
and Representative Howard L. Berman
Baltimore area to the Washington sub-
from Utah, has offered what might be
(D-Calif.) have been picking up support
urbs. California Assembly Speaker Wil-
its most novel proposal. He suggests a
for a measure reversing the high
lie Brown Jr. (D), meanwhile, sees no
$1 million bonus for lawmakers "who
court's decision. Action in state courts
MICHAEL EVANS/SYGMA
way to avoid a big transfer of power
will go into a room and balance the
would leave employers and insurers
from Los Angeles and San Francisco
budget." Cannon is favored to win
vulnerable to punitive damages, barred
to San Diego and the counties around
nomination for the seat being vacated
under ERISA, and force them to cope
L. A.-with a major loss of Democratic
by Republican Jake Garn.
with a hodgepodge of state case law.
46 BUSINESS WEEK/SEPTEMBER 16, 1991
WASHINGTON OUTLOOK
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LITIGATION
SALOMON: HONESTY
IS THE GUTSIEST POLICY
Buffett's candor may give potential litigants more ammo against the firm
t has been a bravura performance.
"The unquestionably substantial steps
ability bill, the logical starting
Since Warren E. Buffett took over as
taken by Salomon inevitably reduce the
point is Drexel. To settle
chief executive of scandal-ridden Sal-
government's need to punish," says
charges of securities fraud,
omon Inc., he has moved aggressively,
Bruce Baird, who prosecuted Drexel.
Drexel paid the federal gov-
and for the most part effectively, to re-
Nevertheless, Buffett's and Salomon's
ernment $650 million in fines
store public confidence in the firm, reas-
admissions could backfire in the civil
and penalties, and it paid $8.2
sure customers, and reassert the firm's
arena. Not only are Salomon's disclo-
million to states. Drexel has
dominance over the massive govern-
sures triggering suits but they could
also spent more than $300 mil-
ment-securities market.
make them easier to win. Plaintiffs' at-
lion in legal bills. And the
But Buffett faces another challenge
torneys such as Arthur Abbey say they
firm has yet to reach a final
that could be just as daunting: the grow-
plan to use what Buffett has said as
settlement with civil litigants,
ing legal assault on Salomon by private
evidence against Salomon in court. As
which could add a few hun-
plaintiffs and government regulators.
Abbey puts it: "When you go on TV and
dred million dollars more, law-
Interviews with analysts and litigants,
say you did it, that's not any different
yers say. Including that set-
as well as BUSINESS WEEK's own early
than the guy who goes down to the po-
tlement, says Drexel
estimates, suggest that the firm's liabil-
lice station, gets videotaped, and makes
spokesman Steven S. An-
ity bill could even reach $1 billion-equal
a confession."
reder, the firm's final litiga-
to almost a third of its $3.3 billion net
Salomon refuses to discuss its expo-
tion bill will likely be "well in
worth.
sure. But in a recent filing with the SEC,
excess of $1 billion."
Treasury investors, Salomon stock-
the firm noted that such legal-liability
RESTRAINT. Legal experts
holders, and competitors have already
estimates are premature until it com-
doubt that the government
filed about 35 civil suits against Salo-
pletes its own review and the various
will hit Salomon that hard.
mon, its former top executives, and its
government agencies take action.
While prosecutors were eager
board of directors, which includes Buf-
In forecasting Salomon's ultimate li-
to punish Drexel, which was
fett. They differ in scope and detail, but
all the suits claim damages from the
firm's admitted misdeeds, which include
THE LEGAL ASSAULT
violating the rules governing Treasury
AGAINST SALOMON
security auctions and bidding on behalf
of customers without their permission.
TREASURY INVESTORS
And evidence released by the firm indi-
cates that it failed to stem further viola-
In civil suits, Treasury securities inves-
tions when the problem came to light.
tors are alleging they were hurt when
Some 25 states are probing Salomon's
Salomon perpetrated a "squeeze" that il-
misbehavior and may levy fines. And the
legally inflated the price of Treasury se-
Justice Dept. and the Securities & Ex-
curities in the secondary market
change Commission are likely to bring
SALOMON SHAREHOLDERS
civil and criminal actions, which could
carry heavy penalties.
Salomon's stockholders, who allegedly
'SUBSTANTIAL STEPS.' Salomon's pros-
were damaged by the decline in its stock,
pects, by most accounts, have been im-
are suing the firm, its directors, and some
proved by Buffett's strategy of coming
executives to recoup their losses and to
clean. In a statement on Sept. 4 before
recover bonuses and other payouts
the House subcommittee on telecom-
munications & finance, Buffett added
COMPETITORS
fresh details of misdeeds. The firm, the
statement said, ended up controlling
Primary dealers that lost money in Trea-
$10.6 billion, or 94% of the May Trea-
sury auctions are planning suits accus-
sury-note auction. That's far higher than
ing Salomon of antitrust violations
its prior admissions.
and securities fraud. Other market
Buffett's stance, which contrasts
players including dealers, hedge
SCOTT MENCHIN
sharply with the stonewalling of now-
funds, and arbitrageurs, are also
bankrupt Drexel Burnham Lambert Inc.,
likely to sue, alleging they were
could score points with prosecutors.
hurt by Salomon's behavior
48 BUSINESS WEEK/SEPTEMBER 16, 1991
regarded as a nox-
ket. All interest rates are set off of this
These stockholders are seeking to re-
ious renegade,
market. The potential is enormous,"
coup their losses. While they don't speci-
there may be a re-
says one official at another dealer,
fy an amount, Salomon's common stock
luctance by the
which is considering legal action against
price in 1991 has plummeted from a high
Federal Reserve
the firm. He adds: "We could easily get
of $37 to around $25, about a $1.3 billion
and the Treasury,
into a $1 billion-plus scenario."
decline in its market capitalization. Law-
as well as some pros-
Given Salomon's active cooperation,
suits by other Salomon shareholders al-
ecutors, to come down
and barring further revelations of
lege that the firm's directors and offi-
too hard on Salomon because
wrongdoing, the gov-
cers breached their
of its still-commanding posi-
ernment's investiga-
fiduciary duties by fail-
tion in government-securities
tions will probably be
ing to detect the illegal
sales. Still, a few Wall Street
concluded relatively
SOME EARLY
conduct, covering up
observers expect Salomon,
promptly with a global
the conduct once it
whose admitted malfeasance
settlement of the vari-
ESTIMATES OF
came to light, and mak-
was broader than Drexel's, to
ous civil and criminal
ing "false and mislead-
be hit with total fines of be-
probes.
SALOMON'S LIABILITY
ing disclosures" in SEC
tween $200 million and $400
'ILLUSION.' The civil liti-
filings and other
million.
gation, however, could
BILL RUN AS HIGH
places. They are de-
Legal fees could be lower
drag on for years and,
manding unspecified
than those of Drexel, which
according to Bruce
AS BILLION
compensatory and pu-
battled the government for
Baird, could potentially
nitive damages.
several years. But damages
be more damaging. So
Treasury-securities
could be far greater. Drexel
far, the pending cases,
investors are likely to
was privately owned, but Sal-
which were filed in New York and Dela-
be active litigants. Such suits filed so
omon was public, and its
ware and some of which make allega-
far, most seeking class-action status,
shareholders lost millions
tions that go beyond Salomon's admis-
generally allege that the plaintiffs were
when the stock plummeted.
sions, break down into several groups.
hurt by the impact of Salomon's mis-
And while Drexel's admitted
Those filed by Salomon's investors ap-
deeds on Treasury prices. One plaintiff,
violations were quite narrow,
pear to be the most straightforward. In
Susan Katz, who claims she is part of a
Salomon's had wide market
a New York case seeking class-action
class of "thousands" of investors, al-
impact and allegedly damaged
status, for instance, shareholders sued
leges that Salomon artificially inflated
many market participants.
Salomon and some of the firm's officials
prices, which forced people who pur-
The total figure could soar if
for failing to disclose illegal Treasury
chased securities, such as Katz, to pay
courts decide to triple the
bids during the period in which they pur-
excessively high prices.
damages under the antitrust
chased their shares. That, according to
BAD PUBLICITY. Although none have
or racketeering laws. "The
the suit, created an "illusion of operat-
been filed so far, lawyers predict that
Treasury market is the
ing performance" that lured them into
numerous Wall Street firms, including
world's largest securities mar-
buying the shares.
primary dealers, hedge funds, and arbi-
trageurs, may sue on the grounds that
they were also damaged. One likely
PROSECUTORS
group would be dealers who took short
positions prior to Treasury auctions. By
The Justice Dept. and the Securities &
buying up most of the auctioned securi-
Exchange Commission are probing
ties, Salomon allegedly "squeezed"
whether Salomon rigged the Treasury
shorts who wanted to cover their posi-
market and committed other securities
violations. Penalties could include crimi-
tions by buying securities at the auction.
This forced the shorts to pay excessive
nal and civil fines of $200 to $400 million,
prices.
and sanctions
Even if the eventual legal tab for Sa-
STATE REGULATORS
lomon's wrongdoing goes as high as $1
billion, the firm should have no trouble
States are probing whether Salomon's
writing the checks, though its balance
actions constituted "dishonest and un-
sheet would shrink seriously. Much
ethical practices" in violation of state
more difficult to estimate, though, is
laws. If so, the states could revoke or
the publicity and image impact of a
suspend Salomon's state broker-dealer
steady barrage of civil lawsuits, settle-
licenses and impose fines
ments, and other actions. As much as
anything, else, it was this that eventual-
FEDERAL REGULATORS
ly sank Drexel.
As an investor, Warren Buffett has
The Treasury Dept., which has barred
often been accorded almost magical
Salomon from bidding at Treasury auc-
powers. To keep everyone focused on
tions for customer accounts, could pre-
Salomon's future prospects instead of its
vent the firm from bidding for its own ac-
past wrongs will likely require all the
counts. The New York Fed is studying
magic he can muster.
whether Salomon's status as a primary
By Michele Galen, with Leah Nathans
dealer should be revoked
Spiro in New York and Tim Smart and
DATA: BW
Dean Foust in Washington
BUSINESS WEEK/SEPTEMBER 16, 1991 49
Finance
CORPORATE FINANCE
to withdraw the offer in April, 1991. Ac-
cording to Kenneth T. Urbaszewski, se-
nior vice-president of Kemper Financial
Services Inc., a major HBJ bondholder,
General Cinema had no idea what terms
creditors wanted. "They should have
made some informal contacts," he says.
Eventually, General Cinema wised up
and began sounding out bondholders. On
Aug. 22, it upped the offer to $1.2 billion
plus an option of receiving equity in the
publisher. The deal went through.
Coddling bondholders doesn't always
work, however. They are often stub-
born-and justifiably so. After all,
they're often asked to accept losses. Vul-
ture investors, who buy a troubled com-
pany's marked-down bonds hoping for a
better price in a swap, have no reason to
be charitable, either.
SAYING NO. Kroger Co., which takes
pains to keep in close touch with credi-
tors, learned this the hard way. Last
November, the grocery chain offered to
buy back $150 million in junk at slightly
GEORGESON'S CRANE AND VAZZA: TREAT THE BONDHOLDERS WELL, OR "YOU'LL BE SORRY"
more than market price, then about 59¢
on the dollar. But boldholders saw little
virtue in trading in their bonds. Because
of its torrential cash flow, a Kroger debt
default was highly unlikely. Bondholders
LOOK WHO'S SUDDENLY
were confident their fat 15.5% interest
payments would keep coming. HBJ, by
CODDLING BONDHOLDERS
contrast, was in much tougher straits.
General Cinema believes the clincher in
that swap was its warning that the pub-
For junk-laden companies, these investors hold the key to survival
lisher faced financial ruin otherwise.
The threat of imminent demise,
ondholders used to be an after-
phone," says Kaye C. Handley, debt ana-
though, doesn't always carry the day. In
thought in corporations' investor
lyst at Sass Lamle Rubin & Co. securi-
September, 1990, as it was sinking deep-
relations: The main focus of IR
ties. "Lately, they seek us out." This
er and deeper into a morass of failed
executives was always the shareholders.
spring, Resorts put on major presenta-
loans, Bank of New England tried to
No more. Bondholders can hold the keys
tions at two junk-bond investors' confer-
engineer a $700 million swap with bond-
to life or death for debt-burdened com-
ences. And the company now routinely
holders. Yet creditors backed away,
panies. To stay alive, these companies
sends out financial filings to bondhold-
thinking the move was too late. They
often have to persuade creditors, for in-
ers and debt analysts.
were right. Regulators seized the bank
stance, to swap high-interest junk bonds
Southland Corp.'s bid to dig out from
three months later, on Jan. 6. "You don't
for cash, stock, or less-valuable paper.
under its $4.9 billion debt even used
go to the bondholders when drawing
That means IR officials are stepping
voice mail. In late 1989, the 7-Eleven con-
your last breath," says Diane J. Vazza,
up efforts to shower on bondholders the
venience-store chain installed a recorded-
senior vice-president at Georgeson,
same attention shareholders get: solicit-
information phone line to give bondhold-
which claims it advised the bank, a cli-
ing their goodwill through meetings and
ers the latest on its exchange proposal,
ent, to move earlier.
mailings that soften them up. According
which won approval after a brief stay in
Perhaps the master at deft dealing
to a recent survey by Institutional In-
bankruptcy court. In 1990, the line
with bondholders is investor Carl C.
vestor, 31% of companies say they are
logged 5,000 calls. "That's 5,000 calls I
Icahn, who combines an ability to project
paying more heed to bondholders than
didn't have to take," says Markeeta L.
urgency with a willingness to offer the
they did three years ago. "Treat the
McNatt, Southland's IR manager.
blandishments that get boldholders to
bondholders like outsiders, and you'll be
Not all corporations are SO adroit.
bite. On July 30, for example, he man-
sorry," says William M. Crane, co-chief
Many still unveil swap offers without
aged to push through a $1 billion ex-
operating officer of Georgeson & Co., an
consulting anyone. This obsession with
change for his ailing Trans World Air-
adviser on creditor relations.
secrecy almost scuttled General Cinema
lines Inc. by giving bondholders majority
5,000 ANSWERS. Resorts International
Corp.'s acquisition of publisher Harcourt
control, among other things, and putting
Inc., the casino operator that emerged
Brace Jovanovich Inc., which was weak-
in a fresh $35 million. Result: TWA is still
from Chapter 11 a year ago, has learned
ened by the $1.8 billion debt it took on to
flying. If the art of bondholder-stroking
that lesson. To survive and prosper, Re-
deter a raider in 1987.
keeps improving, more such swaps may
sorts still needs to restructure its re-
The movie-theater chain initially of-
fly, too.
EDWARD KEATING
maining $456 million debt load. "Before
fered bondholders $1 billion to retire a
By Larry Light in New York, with Lisa
they filed for bankruptcy, you couldn't
large chunk of HBJ'S debt, but creditors
Driscoll in New Haven, Gail DeGeorge in
even get anyone at the company on the
balked, and General Cinema was forced
Miami, and bureau reports
50 BUSINESS WEEK/SEPTEMBER 16, 1991
FINANCE
INVESTING
pay-and punishing bond-fund net as-
set values.
Like bond funds, utility stocks are
also adversely affected by rising inter-
est rates. But the utility equation is
THOSE JUICY UTILITY YIELDS
considerably more perilous, because of
the special circumstances-such as the
MAY LEAD TO A NASTY SHOCK
50 state utility regulators-that influ-
ence the fate of each company. "It's
difficult to get enthusiastic about the
'What worries me is people buying
and ignoring the capital risk'
group as a whole," says Sanford M.
Cohen, who follows electric-utility
W
hen falling interest rates
ably more hazardous than they appear
stocks for Morgan Stanley & Co.
give small investors sleep-
at first blush. To begin with, utility
TIME-TESTED. Analysts argue that there
less nights, many seek the
stocks are becoming victims of their
are considerably better sanctuaries for
comfort of Wall Street's security blan-
own success. As share prices have
investors seeking long-term, high-yield
ket: electric utilities. With their un-
been bid up, yields have eroded, and
investments. With 30-year Treasury
matched dividend yields, power compa-
many utility stocks are changing
bonds carrying a riskless yield of just
nies are drawing investors like moths
hands at as much as 1.7 times book
over 8%, they maintain it makes little
to a light bulb, and utility funds are
value-pricey for such companies.
sense to buy utility stocks yielding a
gaining a new generation of fans. "It's
Also, analysts maintain that, based on
full percentage point less. A better se-
been pretty unrelenting," says Jeffrey
historical patterns, the time for buying
lection, in Cohen's view, would be AA-
W. Ubben, manager of three utility-
electric-company stocks is hardly ripe.
rated utility-company bonds, which
oriented portfolios at Fidelity mutual-
Economists agree that the recession is
now yield more than 9%. Like Treasur-
fund group in Boston. "Every day,
waning-and that may present prob-
ies, their asset values vary. But unlike
there's new money from people who
lems for recent investors. "Typically,
bond funds or utility stocks, they can
wonder: 'Where can I get above-mon-
utilities have done well when we're
be cashed in at par at maturity. For
ey-market returns with growth?'
about to go into a recession"-not
investors who insist on electric-utility
stocks, however, the cupboard is not
entirely bare.
ELECTRIC STOCKS HAVEN'T BEEN SHINING LIGHTS
The trick in buying power-company
120
stocks, for those who feel impelled to
S&P 500 INDEX
do so, is to avoid picking shares strict-
110
ly on the basis of their current divi-
dend yield. A more time-tested method
is to buy lower-yield stocks that have a
100
S&P ELECTRIC
history of consistent dividend in-
UTILITY GROUP
DEC.
SEPT. 3,'91
creases. Notes Ubben at Fidelity: "If I
90
wanted to buy a utility, I'd look at
INDEX: DEC. 30, '90=100
price-to-book values and also make
DATA: BRIDGE INFORMATION SYSTEMS INC.
sure that the companies aren't going
in for rate increases"-lest they find
regulators ratcheting down their per-
BUT SOME COMPANIES MAY TURN ON THE POWER
mitted return on equity. Ubben shuns
Florida and California power compa-
Company
Price 9/3
Yield
Company
Price 9/3
Yield
nies, which face an uncertain regula-
tory climate but are, nevertheless,
AMERICAN ELECTRIC POWER
30
8.0%
NIAGARA MOHAWK
161/4
3.9%
trading at a comparatively rich 1.6
COMMONWEALTH EDISON
395/8
7.5
OHIO EDISON
191/4
7.7
times their book value. The companies
DPL
211/4
7.6
PHILADELPHIA ELECTRIC
211/2
5.6
that he favors are those capable of
DQE
271/4
5.3
SOUTHERN CO.
273/8
7.8
earnings growth without having to de-
HOUSTON INDUSTRIES
37 1/2
7.8
UNION ELECTRIC
311/2
6.8
pend on the largess of regulators. His
favorites include DQE in Pittsburgh,
DATA: BW SURVEY OF ANALYSTS AND MONEY MANAGERS
Philadelphia Electric, and Houston In-
dustries. At Morgan Stanley, Cohen
Investors apparently feel they have
come out of one-observes Suresh L.
likes DPL of Dayton, which boasts
found an answer to that question. And
Bhirud, CEO of Bhirud Associates, an
a 7.6% yield and can be expected to
annual yields averaging 6.8% are unde-
investment-research boutique.
realize annual dividend growth of 3%
niably attractive at a time when short-
Moreover, the very popularity of
to 4%.
term interest rates are hovering a hair
utilities is making some investment
Dividends come in awfully handy
above 5%. But folks who buy electric-
pros queasy. They draw analogies to
when the market is treading water.
utility stocks right now, particularly on
the recent onrush of small-investor
But when the market took off earlier
the basis of yield alone, may be setting
cash into fixed-income mutual funds.
this year, utilities lagged behind, and
themselves up for an unpleasant sur-
Like investors in bond funds-which
growth stocks that don't pay dividends
prise. Ubben, for one, advises caution.
are also bought because of their
led the charge. So if the Dow Jones
"What worries me," he says, "is peo-
yields-utility investors are making an
industrial average defies skeptics and
ple buying my fund as a money-mar-
interest-rate bet. The wager is that
surges well above 3000, power-compa-
ket substitute and ignoring the capital
rates will remain in the doldrums. If
ny investors will wish that they had
risk."
rates rise, the market value of bonds
shown a little more guts.
Power-company stocks are consider-
will decline, offsetting the yields they
By Gary Weiss in New York
RAY VELLA/BW
FINANCE
BUSINESS WEEK/SEPTEMBER 16, 1991 51
Inside Wall Street
BY GENE G. MARCIAL
Moreover, Lifetime expects to be
NIKE IS
smartly in the black this year after
SPRINTING AHEAD
losing money in 1990. One San Francis-
NIKE'S PACE COULD
co fund manager expects earnings to
52
hit $8 million, or $2 a share, this year,
LEAVE NAYSAYERS
and $11 million, or $2.75 a share, in
IN THE DUST
48
1992. He sees sales jumping to $65 mil-
STOCK PRICE
lion in 1992 from $50 million in 1991,
buoyed by strong demand for the com-
W
hen Jimmy Connors came
44
pany's Tripledge wipers at such retail-
out charging in one of his
ers as Sears Roebuck, Wal-Mart, and
most dazzling performances
K mart. And Lifetime's other product,
ever during this year's U.S. Open, the
40
Spectrablade, a single-edged wiper
shoes the tennis superstar wore caught
made of a silicone-based synthetic, is
Frank Podbelsek's eye. On TV, Connors
being tested by auto makers in the
has been pitching Converse sneakers.
36
U.S., Japan, and Europe. Lifetime's
But what shoes did the 39-year-old phe-
blades have a lifetime warranty.
nomenon choose when it really mat-
One investor thinks Lifetime may
tered? Nikes. That was important to
0
JUNE 3
SEPT. 3
sign a contract with at least one of
Podbelsek, an analyst at Gruntal & Co.
DOLLARS
those auto makers to supply Spectra-
in Beverly Hills, who thinks the shorts
DATA: BRIDGE INFORMATION SYSTEMS INC.
blades as standard equipment on some
in Nike shares will take a pounding.
of their cars as early as December. "If
He has been pounding the desk for
growth came from international sales,
Lifetime meets its targets, the stock
clients to buy Nike, the world's largest
where revenues jumped 80%, from $480
could hit 25 in two years," he says.
maker of athletic shoes.
million to $862 million, in part because
Nike officials confirmed that Con-
of booming demand in Europe and
nors told them he'd be wearing their
Asia. Dean Witter Reynolds analyst
shoes at the Open. Nike wouldn't elab-
Willard Brown expects overseas sales
WHAT'S BUBBLING
orate on whether Connors will eventu-
to remain strong. He projects growth
AT UNILAB?
ally endorse its products, but to Pod-
of 30% for fiscal 1992 and an additional
belsek, Connors' move confirms his
20%-to-25% rise in 1993, with sales
view that Nike is the "dominant choice
abroad accounting for 48% of total rev-
enues by 1993, vs. 1990's 33%.
C
linical laboratories, a thriving
business in the booming medical
in the ultrahigh-performance category
field, are fast developing a fol-
of athletic shoes." Nike also makes
One New York investment pro who
lowing on the Street. Although highly
sports apparel and Cole Haan shoes.
has been accumulating Nike shares
fragmented, the business is dominated
The shorts insist that Nike faces big
says he was encouraged when he saw
by such big names as SmithKline Bio-
inventory problems and write-downs
that Nike's recent introductions-the
science, Roche Biomedical, and Nation-
that will lead to negative earnings sur-
Air Huarache and its extension, the Air
al Health Laboratories. Overall, some
prises. But so far, that isn't panning
Mowabb-created retail excitement in
12,000 labs, most of which are small
out. In Podbelsek's view, the recent
the midst of an otherwise lackluster
and privately held, take in about $20
rise in Nike shares, from 35 in early
sales environment.
billion to $25 billion annually.
July to nearly 50 on Sept. 3, is based
One publicly traded company that
primarily on reduced fears of an inven-
has piqued the interest of smart-money
tory glut. "Nike's recent results are
proving that inventory levels aren't ex-
A WIPER MAKER
players is Unilab. Its stock has already
climbed from 6 in mid-June to 9½ on
cessive," he says.
WIPES OFF DEBT
Sept. 3, but one New York investment
Many analysts believe that hurried
pro thinks it's worth 15 based on the
short-covering by bears has contribut-
L
ifetime Products, a highflier earli-
company's earnings outlook. He ex-
ed to the stock's recent upswing. Short
er this year, has plunged from 15
pects revenues to rise 10% in 1992,
positions in Nike peaked at 2.5 million
in late April to 5. One reason: The
from $189 million in '91, with earnings
shares on July 15-nearly triple April's
Dallas-based company, a major after-
hitting 44¢ a share from 9¢ this year.
level. But by Aug. 15, they had dwin-
market maker of windshield wipers,
Now for the takeover talk: Corning's
dled to 1.8 million, and some analysts
was seen as too debt-laden. Indeed,
MetPath unit still owns some 43% of
think the number may shrink to about
Lifetime Products was spending 55% of
Unilab even after its 1988 spin-off of
1 million in September.
its cash flow to pay down debt.
the company. The curious thing is that
UPSIDE SURPRISE? Podbelsek believes
But some institutional money man-
MetPath has been raising its stake
the stock will climb to 60 this year,
agers who have been buying shares
through open-market purchases.
based on his earnings estimates of
say that worry is overblown. They note
According to one Unilab investor,
$4.15 a share for the year ending May
that debt dropped from $18 million last
Corning now realizes that Unilab is un-
30, 1992, and $4.75 to $5 for 1993, vs.
year to $10 million in July, 1991, and
dervalued considering its rosy pros-
1991's $3.77. And he figures his esti-
insiders expect it to shrink to $2 million
pects. In addition, a European investor
mates are conservative. Judging by the
by yearend. The bulls also cite manage-
group bought the bulk of the 6 million
shrinkage in Nike's inventory and its
ment's plan to swap stock options held
new shares that Unilab sold in July in
improving sales outlook, "Nike could
by three former directors for preferred
Europe through a Swiss underwriter.
ERIC HOFFMANN/BW
pull an upside earnings surprise next
shares. That will reduce the potential
The group's intentions aren't known,
year," says Podbelsek.
shares outstanding to 4 million from
but one investor thinks the stock could
In fiscal 1991, Nike's strongest
about 8 million.
fetch close to 20 in a buyout.
52 BUSINESS WEEK/SEPTEMBER 16, 1991
FINANCE
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Developments to Watch
EDITED BY OTIS PORT
hopes to begin clinical trials of Genta's product on patients
with chronic myelogenous leukemia, a cancer of the white
blood cells. The drug is a strand of synthetic DNA that's a
PAPER THAT KEEPS SECRETS
mirror image of the defective genetic material, called RNA,
FROM PHOTOCOPIERS
found in the leukemia cells. Once the antisense strand gets
inside a cell, it binds to any flawed RNA, inactivating the faulty
F
or three decades,
gene and eventually killing the leukemia cell.
newsletter publishers
Anderson's researchers will extract and treat bone marrow
and government censors
samples. When the leukemia cells have been purged, the pa-
have shared a common
tients will receive radiation therapy and then get a transplant
obsession: thwarting il-
of their own bone marrow. If this approach works, Genta pegs
licit photocopying of
the market for its antisense drug at $60 million a year.
their pricey or secret in-
formation. Using blue
paper was the first solu-
VIDEO GIZMOS DO EVERYTHING
tion, and many other ink
BUT BAG THE GROCERIES
and paper colors have
been tried-only to fall
S
upermarket shopping is on its way to becoming a more
prey to newer copiers.
entertaining chore. Video screens are set to invade stores.
Now, Japan's Kiso
Flat-panel displays on push carts will accompany shoppers,
Chemical Corp. believes
dispensing information on special promotions and, at the push
it has found a lasting answer: a "secrets paper," dubbed KSP,
of a button, dietary tips and recipes. And strategically spotted
that is protected by a very thin film of evaporated aluminum.
TV monitors will carry ads and community bulletins. It all
The metal coating deflects and scatters a copier's light so that
stems from research showing that consumers make most buy-
the machine can't distinguish between type and background.
ing decisions after they're in a store.
Feed the bronze-color sheets into a photocopier, and out will
A fledgling Chicago company, Videocart Inc., already has
come all-black copies. The main drawback is cost: KSP's intro-
shopping carts with video screens in some 40 test stores. Their
ductory price is about $1 per sheet, far more than regular
displays change, responding to sensors in the ceiling or on
paper, though that will drop with volume production. Still, the
shelves, as you move from aisle to aisle. ActMedia Inc. in
Osaka-based company expects to sell $2 million worth of KSP
Norwalk, Conn., is working with Salt Lake City's Klever Kart
the first year and sees demand tripling by 1995.
Inc. on a similar system, with testing scheduled for early 1992.
ActMedia, the current leader in electronic in-store merchandis-
ing, also is collaborating with Turner Broadcasting System
A PATENT LIBRARY ON CD?
Inc. on Checkout Channel, designed to alleviate checkout bore-
YES, BUT THERE'S A HITCH
dom-and give stores one last shot at reminding you of some-
thing you forgot to buy. Its debut is set for October.
F
or the past two years, patent officials in the U.S., Europe,
and Japan have quietly been trying to forge a common
standard for storing patent data on the compact-disk-size plat-
A SIMPLE TECHNIQUE MAY
ters known as CD ROMs. It now appears the effort is headed
MAKE PLASTICS MELT-PROOF
for a showdown in October. That's when U.S. and European
officials expect to settle on their final specification-one that's
olymers are long,
at odds with what Japan wants.
repetitive chains of
An international standard is the kickoff for developing a
molecules, and most can
worldwide patent data base that would be stored and dissemi-
be readily fabricated
nated on CD ROMs. This would greatly facilitate patent search-
into such things as plas-
es by companies hunting for new technology or pondering
tic milk bottles and
whether to license an existing patent or invest in new internal
beach balls. But these
research. The Japanese were the first to broach the idea, but
familiar plastics are sen-
their proposal was based on an earlier scheme that U.S. and
sitive to heat, sagging or
European officials felt was in need of an update. "They are
melting at fairly low
somewhat upset that we haven't gone along," says Thomas P.
temperatures. While
Giammo, an assistant commissioner at the U.S. Patent Office.
there are polymers that
But he still holds out a "50-50" hope that Japan will switch to
can withstand tempera-
the U. S.-Europe standard.
tures of 750 F or more,
they often stubbornly re-
sist processing. Getting them molten enough to flow into a
BIOTECH'S NEWEST WONDERS
mold takes so much heat that the polymer decomposes.
COULD BE CANCER-KILLERS
Samson A. Jenekhe, associate professor of chemical engi-
neering at the University of Rochester, has now found an easy
R
esearchers see so-called antisense drugs as the next wave
way to fabricate several such polymers: Just add gallium
of biotechnology. Unlike biotech clones of natural human
chloride or ferric chloride. These chemicals create "wedges"
antibodies or proteins such as insulin, antisense drugs can
that force the polymer chains apart, so they can be dissolved
actually block the production of disease-causing enzymes by
by common solvents-and flow freely at near room tempera-
abnormal genes. At the end of August, the technology moved
ture. After fabrication, the chemistry is reversed simply by
COHEN
a step closer to practicality when Genta Inc., a tiny San Diego
immersing the shaped polymer in water or methanol. The
biotech company, filed the first application for human testing.
technique works on several polymers with tongue-twisting
Early next year, Houston's M.D. Anderson Cancer Center
names, better known by initials such as PBZT and PTMHT.
56 BUSINESS WEEK/SEPTEMBER 16, 1991
SCIENCE & TECHNOLOGY
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Science & Technology
ENERGY
CONSERVATION
POWER
IT HAS A NEW LOOK THAT'S IGNITING AN ENERGY REVOLUTION
B
ack in the strident year of 1968,
technologies to design homes that can be
gy diet for America. Conventional wisdom
John E. Bryson and a handful of
heated for $1 a day-and commercial build-
once held that all the easy efficiencies were
other students gathered in the pa-
ings that take 50% less energy to light,
realized in the wake of the 1973 Arab oil
per-strewn offices of The Yale Law Jour-
heat, and cool. And a handful of trendset-
embargo: In the subsequent 13 years, high-
nal to discuss their idea for a legal group
ting states have hatched plans to dampen
er mileage standards and other measures
dedicated to environmental protection.
gasoline consumption. They'll do it with in-
slashed energy intensity-the amount of
That notion became the Natural Resources
centives, penalties, and blueprints for de-
energy used to generate $1 of gross nation-
Defense Council, now one of the country's
velopment that focus more on mass transit,
al product-by 27% and cut $160 billion a
most potent such groups. Some 23 years
car pools, and walking.
year from the country's fuel bill.
later, Bryson is still protecting the environ-
In fact, while Washington fiddles over a
It's true these gains have leveled off
ment, but from a very different perspec-
national energy strategy, these eclectic ap-
since the 1986 oil-price crash. Cheap energy
tive: as chairman of Southern California
proaches are evolving into a de facto ener-
short-circuited the drive to use less (chart,
Edison Co., one of the nation's largest elec-
tric utilities.
From his office in Rosemead, just east of
THE BIG BANG FROM ENERGY EFFICIENCY
Los Angeles, Bryson looks out over a
sprawl of tract homes and highways. SoCal
A tide of innovation is sweeping over every
Edison thinks it will need 6,400 more mega-
major sector of energy use. Here is what
watts of power by 2010 to keep all this
humming, and Bryson plans to upgrade
might be achieved with existing technologies
some old plants and buy a bit of energy
in six areas that account for nearly half of
from independent solar and geothermal
America's energy demand
producers. But 4,400 megawatts, or 69% of
the new demand, will be met through con-
AIRPLANES
servation-freeing up electricity that now
LIGHTWEIGHT MATERIALS, MORE EFFICIENT ENGINES,
is used inefficiently. Twenty years ago,
IMPROVED AERODYNAMICS, BETTER ROUTE PLANNING
Bryson says, "we would have relied exclu-
1990 CONSUMPTION
POTENTIAL SAVINGS
sively on new power plants."
QUADRILLION BTUs
ENERGY
CO2 (MILLIONS OF TONS)
TRENDSETTERS. Weaving what were anti-
ELECTRIC MOTORS
Establishment notions into everyday life,
2.1
30-50%
38-52
ADJUSTABLE-SPEED DRIVES, IMPROVED
pioneers such as Bryson are igniting an en-
MOTOR DESIGNS
ergy revolution in the U.S. This year
1990 CONSUMPTION
POTENTIAL SAVINGS
alone, some 200 utilities will pour
QUADRILLION BTUs
ENERGY
CO2 (MILLIONS OF TONS)
$2 billion into 1,300 conservation
CARS & LIGHT TRUCKS
6.6
27-42% 162-255
programs. By the year 2000, these
should "meet" demand for 24,000
ELECTRONIC AUTOMATIC TRANSMISSIONS,
LIGHTWEIGHT MATERIALS, LOWER-RESISTANCE TIRES
megawatts, says the Edison Elec-
tric Institute (EEI), an industry
1990 CONSUMPTION
POTENTIAL SAVINGS
QUADRILLION BTUs
ENERGY
CO2 (MILLIONS OF TONS)
group. That's 24 big power plants'
worth of electricity, or about 7% of
12.8 18-36% 158-268
current peak demand. And that's
just the start.
By 1993, tough new national standards
will require that many refrigerators gulp
LAUREL DAUNIS/BW
20% to 40% less energy. Two years later,
similar rules will apply to washers, dryers,
and other appliances. In the meantime,
builders are using simple but important
58 BUSINESS WEEK/SEPTEMBER 16, 1991
SCIENCE & TECHNOLOGY
page 61). And conservation will remain
frontline defense against global warming,
plant costs went into orbit and as environ-
somewhat impeded as long as Congress
since burning fossil fuels creates carbon di-
mental challenges mounted, adding capaci-
procrastinates on energy policy and the
oxide and other greenhouse gases. In
ty became a much riskier proposition.
White House, no doubt heeding strapped
April, a National Academy of Sciences re-
Conservation was a way out-except that
auto makers, opposes measures such as
port concluded that if the U.S. boosted ef-
reducing electricity demand usually cut
higher mileage standards.
ficiency in buildings, vehicles, and industry
utility profits. That is, until 1989.
But already, such setbacks look only
as much as current technology permits, the
That summer, the National Association
temporary. "There's such a technological
country's green-
of
Regulatory
revolution in the pieces of energy efficien-
house emissions
Utility Commis-
cy and how you put them together that you
could be cut by
HILE THE FEDS
sioners urged its
can save twice as much electricity at a
22% at little or no
third the cost of five years ago," says
net cost. It's the
W
members to find
the cheapest pow-
Amory B. Lovins, an early proponent of
right thing to do,
FIDDLE OVER
er possible. No
the concept (page 62). No doubt about it,
since the U.S.
mystery there: Ex-
adds Hal Harvey, executive director of the
burns 30% of the
POLICY, A DE FACTO ENERGY
perts say it costs a
Energy Foundation in San Francisco, a
world's fossil fuel.
nickel or less per
nonprofit group launched this year by sev-
Efficiency does
kilowatt hour to
eral leading foundations to promote energy
not necessarily
DIET IS EMERGING
implement conser-
efficiency. "We have the wherewithal in
mean using less of
vation programs,
the next decade to duplicate the advances
everything. It may
half the price of
we made between 1973 and 1986." The
mean using more electricity and less fossil
juice from a new plant. So, state commis-
benefits are plain: lower energy bills, less
fuel, or vice versa, depending on which
sions have started to let utilities earn a re-
pollution, less reliance on imported fuels.
does the job at hand most cheaply and with
turn on their investments in programs-
'NEGAWATTS.' Several forces are converg-
the least pollution. In the near term, how-
such as energy audits and rebates on ener-
ing to make all this happen. For example,
ever, the biggest economies will come
gy-saving gadgets-that round up
1990 Clean Air Act amendments that penal-
largely from demand-side management-
"negawatts," or conserved power. "That
ize sulfur-dioxide emissions will raise utili-
persuading or requiring energy consumers
gave us a business opportunity for doing
ty energy costs-and create an incentive to
to waste less, though often they will not be
what previously was a social good deed,"
conserve. For U.S. industry, tough times
aware that they're doing so. Utilities in
says John W. Rowe, president of New En-
plus international competition are making
particular are pursuing this idea, thanks
gland Electric System. Last year, his com-
efficiency not only economically viable but
mainly to regulatory changes. Logically
pany earned $8.3 million, a 12% return, on
essential. And conservation is becoming a
enough, the way to boost utility profits has
conservation programs.
always been to build more plants, then get
So far, 19 states have switched to this
LIGHTING
customers to use more power. But as new-
approach, says Oakland (Calif.) consultants
COMPACT FLUORESCENTS, ADVANCED
Barakat & Chamberlin Inc., and more will
REFLECTORS AND LAMPS
soon. On top of the efficiencies already
1990 CONSUMPTION
POTENTIAL SAVINGS
planned, 18% to 38% could be cut from elec-
QUADRILLION BTUs
ENERGY
CO2 (MILLIONS OF TONS)
tricity demand projected for the year 2000,
says the utility industry's research arm,
7.2
21-40%
131-244
the Electric Power Research Institute
(EPRI) in Palo Alto, Calif. And that's with
existing technologies.
SIMPLE TECH. Among the gluttons taking
the slim-down treatment are residential
and commercial buildings, which scarf up
36% of U.S. energy. A recent Law-
REFRIGERATION
rence Berkeley Laboratory study cal-
culates that energy efficiency in build-
MORE EFFICIENT DESIGNS,
IMPROVED INSULATION
ings can be doubled in the next 20
1990 CONSUMPTION
years. Gregg D. Ander, chief architect
POTENTIAL SAVINGS
QUADRILLION BTUs
ENERGY
CO2 (MILLIONS OF TONS)
at SoCal Edison, has seen a "complete
turnaround" in the attitude of archi-
2.6
21-44%
38-80
tects, builders, and interior designers
in favor of energy efficiency. "And
now," he adds, "clients are demanding it."
A case in point is the new headquarters
of the National Audubon Society. Scaffold-
ing outside the eight-story building in New
York is the giveaway that the 100-year-old
landmark is getting a $14 million face-lift.
But it doesn't reveal the whole story. After
the renovation, the building will use 68%
HEATING, COOLING, VENTILATION
less energy than called for by code and
HEAT PUMPS, HIGH-EFFICIENCY AIR CONDITIONERS,
save its owners $100,000 a year in energy
SUPERWINDOWS, ROOM-BY-ROOM HEATING
costs-all without any earthshaking tech-
1990 CONSUMPTION
POTENTIAL SAVINGS
nologies. "It's the interaction of simple de-
QUADRILLION BTUs
ENERGY
CO2 (MILLIONS OF TONS)
cisions that leads to dramatic gains," says
6.6
26-48% 150-392
architect Randall L. Croxton, of Croxton
Collaborative in New York.
DATA: ELECTRIC POWER RESEARCH INSTITUTE, OAK RIDGE NATIONAL LABORATORY, BW
Fluorescent lights, hung in special con-
SCIENCE & TECHNOLOGY
BUSINESS WEEK/SEPTEMBER 16, 1991 59
Science & Technology
figurations, minimize lighting: The build-
If it works with electricity, why not with
of its carbon dioxide. Dogged by federal
ing will use less than 0.57 watts per square
fossil fuels? Nearly 25% of America's ener-
mileage requirements, carmakers have cut
foot, 75% below the 2.2 watts called effi-
gy is used by planes, trains, trucks, boats,
weight, improved engines, adopted sleeker
cient by New York State code, but still
and automobiles, and they are the next-
designs-and doubled efficiency since
plenty of light to work by. Fewer watts
and toughest-challenge. In some cases,
1974. They aren't through yet. This fall,
generate less heat, making possible a
technology already has paid big rebates.
Honda Motor Co. will introduce a "lean-
smaller, less energy-guzzling air-condition-
Thanks to improved aerodynamics, lighter
-burn" engine in its Civic subcompact that
ing system. New insulation in the walls
materials, and better engines, each new
will get 55 mpg on the highway. And im-
and roof, plus the latest in dou-
provements such as better
ble-pane windows, will keep
spark plugs and lighter materi-
heat in during winter and out
TOMORROW'S OFFICE, TODAY'S
als will cut the appetite of vehi-
in summer. And it will all pay
ENERGY-SAVING TECHNOLOGY
cles of every dimension (box).
for itself in five years.
Still, lite cars are a hard sell
More efficiency is being
A highly efficient cooling and heating system plus a few relatively
when gasoline is cheap. That's
wrung from the stuff inside
simple changes can cut energy-guzzling in offices 50% and more
where demand-side manage-
buildings. The latest desktop
ment comes in. No automobile
computers consume 1/6 the en-
version of the state utility com-
ergy of the minicomputers
2
mission exists to force
they are replacing. New inkjet
changes. But there is last
printers use 1/12 the standby
year's Clean Air Act, which set
power of laser printers. And
strict ozone and carbon-monox-
new electric motors in every-
6
7
ide limits for cities seeking fed-
thing from appliances to indus-
eral highway funds. Now,
trial turbines have electronic
some state and local officials
adjustable speed drives (ASDS),
think the best way to comply is
vs. the one- or two-speed set-
to amend driving habits.
tings on conventional motors.
1
'FEEBATE.' This effort starts
That way, they draw only the
from the perspective that
juice needed for the task. Ar-
5
transportation is heavily subsi-
nold Fickett, vice-president for
dized. Roads are usually free,
EPRI's customer-systems divi-
as is much parking, and gaso-
sion, says ASDS eventually can
line prices don't reflect the full
save 10% of the electricity the
4
environmental costs of the
U.S. uses today.
fuel. Demand-side manage-
NICE PAYBACKS. Such news is
8
ment aims to offset these sub-
an eye-opener for Industrial
sidies, and in some areas it's
00
America, which burns 37% of
being done by law. Legislation
the country's energy. Last
passed last May in Washington
year, Wisconsin Electric Power
state requires that major em-
Co. put up half the $1.5 million
ployers in the eight most popu-
extra cost of a more efficient
lous counties cut their number
melting system for Milwau-
3
of solo rush-hour voyagers by
kee's Charter Manufacturing
2
35% by 1999. They can do any-
Co. The move will cut Char-
thing, from offering mass-
ter's steel costs by $10 a ton,
transit subsidies to charging
save 60 million kilowatt hours
1
Double-paned aluminum windows with insulating films
for parking. But companies
over 10 years, and let the utili-
2
High-performance insulation: Wall and glazed window area
with 100 or more employees
ty avoid $2 million in costs.
must draw up a plan or face
Such stories are becoming
combined equal R-11; ceiling equals R-30
possible civil penalties.
gospel. Bank of America is an
3
Controls for heating in each room
California legislators took a
early beneficiary of Pacific
4
Adjustable lighting in work areas
stab last year at a novel "fee-
Gas & Electric Co.'s conserva-
bate" program. It would have
tion drive, which Chairman
5
Hanging fluorescent lamps with only one tube
charged a fee for new cars
Richard A. Clarke says will
6
Light-colored walls and finishes to diffuse light
with high emissions and given
meet 75% of PG&E's new de-
rebates for low-polluting mod-
mand in the decade ahead. The
7
Controls for air flow in each window office
els. Since higher-mileage cars
bank got a $235,000 PG&E re-
8
Switches that shut off lights when a room is empty
tend to pollute less, the mea-
bate on the $1.1 million retrofit
sure also would have encour-
DATA: CROXTON COLLABORATIVE
of its San Francisco headquar-
aged conservation. It died
ters and is saving $400,000 annually on its
generation of commercial jet has been 15%
when former Governor George Deukme-
energy bill-a 26-month payback on the
more fuel efficient. Boeing Co.'s new 777
jian would not sign it. But the measure has
project. And in this year's first quarter,
will get 100 passenger miles-that's 100
been reintroduced. It's just one of a grow-
New England Electric System got propos-
flyers moved one mile-per gallon of jet
ing number of market-based suggestions
als for $125 million worth of projects-$40
fuel. This is nearly twice the 55 passenger
for reducing pollution and saving energy.
million more than NEES had planned-after
mpg the original 707 got 33 years ago.
For instance, Lodwrick M. Cook, chairman
LAUREL DAUNIS/BW
it offered to pay businesses up to 100% of
But the big focus is on cars. The 180 mil-
of Atlantic Richfield Co., would set a tem-
the cost of more efficient equipment. Over-
lion vehicles on U.S. roads account for 40%
porary 3¢-per-gallon gas tax, then use the
whelmed, the utility froze its program.
of the country's oil habit and produce 20%
money to buy pre-1976 models at $1,300
60 BUSINESS WEEK/SEPTEMBER 16, 1991
SCIENCE & TECHNOLOGY
apiece. "We could get rid
the Puget Sound Council of
of them in five years," says
Governments.
Cook-and just as quickly
Such ideas are not with-
raise U.S. auto mileage by
an average 5 mpg as own-
ers of the clunkers bought
EDISON
out critics. Some complain
that those who benefit
most from demand-side
higher-mileage cars.
management don't pay
If autos are a target,
their fair share. On Cape
highways are, too. In re-
Cod, Mass., for instance,
sponse to a Sierra Club Le-
residential customers of
gal Defense Fund (SCLDF)
Commonwealth Electric
lawsuit, a U.S. in 1989 or-
Co. are paying an average
dered San Francisco Bay
of $5, or 8% to 10% more,
Area highway planners to
on their monthly bill to
adopt a computer model
help pay for conservation
that calculates the long-
programs that mainly ben-
-term impact of adding
efit businesses. A consum-
roads. The fund contends
er group called IRATE has
that while new roads can
forced regulators to reex-
cut pollution by easing bot-
amine the process.
tlenecks, in the long run,
Perhaps the most vocal
they encourage driving and
critic of utility programs is
worsen air quality. In
John Anderson, who heads
March, the court approved
the Washington (D. C.)-
a model that projects emis-
based Electricity Consum-
sions effects of highway
ers Resource Council, an
projects. The Bay Area's
association of large indus-
$6.5 billion plan, with 42
trial customers. Anderson
major projects, passed
says farsighted companies
muster: The model showed
that already are energy ef-
it would do more good than
ficient end up paying,
harm. Still, by forcing a
through electricity rates, to
new set of calculations on
help competitors catch up.
road builders, the case
SOCAL EDISON'S BRYSON: RELYING ON CONSERVATION TO HELP MEET DEMAND
And because utilities often
could set a precedent, says Michael D.
30-year growth plan unveiled in January by
use a generic approach instead of tailoring
Meyer, a transportation expert at the Geor-
57 governments in greater Seattle. Nearly
programs to a given site, he notes, "some
gia Institute of Technology.
half of new development will be concen-
programs are coming in at 25% to 30% of
BIG BENEFITS. Already, in fact, last year's
trated in 15 major centers. But instead of a
the claimed benefits." Such figures prompt
clean air amendments are breathing new
warren of high-rise apartments, the plan
some economists, such as Alfred E. Kahn
life into efforts to better use existing
calls for closely spaced homes built near
of Cornell University, to warn that using
roads. One of the most popular is high-oc-
mass-transit nodes and neighborhood
regulatory power to launch conservation
cupancy-vehicle (HOV) lanes, reserved for
stores-so people can get around without
may "subsidize investments that are not
cars with two or more riders. The idea is
driving.
efficient."
decades old, but it wasn't until the late
The project, which builds on others in
SETTING THE TONE. While that may be, it
1980s, as air quality fell and congestion
California, Florida, Georgia, Minnesota,
doesn't change one fact, says John P. Hol-
mounted, that it hit the streets in a big
and Oregon, also entails a rapid-transit net-
dren, professor of energy and resources at
way. Now, the U.S. has 340 miles of HOV
work, 300 miles of car-pool lanes, and a
the University of California at Berkeley:
lanes in 20 urban areas-with 510 more
web of ferry services. Backers say this
"Energy efficiency is the cleanest, cheap-
miles planned this decade, says the Texas
grand scheme is necessary if the region,
est, fastest way to improve the energy pic-
Transportation Institute (TTI) at Texas A&M
which expects to add 1.5 million people to
ture." Others argue that since oil, natural
University. Such lanes produce big bene-
its current 2.7 million by 2010, is to avoid
gas, and coal get various subsidies, effi-
fits, judging from the 45-mile network that
becoming a quagmire of pollution and con-
ciency should, too. That way, a conserva-
eases Houston's crawling, choking rush-
gestion. "If we do it the low-density way,
tion project with a five-year payoff can
hour crush. The TTI found that a new HOV
the only way to move people is by autos,"
compete at budget-setting time. "Incen-
lane, which can be reversed with the flow
says Ronald D. McCready, an official of
tives are critical to help make what are
of rush-hour traffic, saved 6,200 gal-
marginal investments for companies
lons of gasoline and 13,420 pounds of
worthwhile," says George W. Sarney,
carbon monoxide a day, vs. adding a
THE BIG GAINS IN EFFICIENCY
vice-president for energy services of
lane in each direction. But the Hous-
HAVE LEVELED OFF
Raytheon Co.
ton system offers drivers few extra
140
This is where Washington could set
incentives, and in that sense is dated.
RELATIVE CHANGE IN:
the tone. "We need a comprehensive
In March, by contrast, Seattle area
GROSS NATIONAL
120-
PRODUCT
package of carrots and some sticks
governments adopted a plan to en-
backed up by information and educa-
large the region's 51-mile HOV net-
tion," declares Howard S. Geller, ex-
work to 273 miles by the year 2000.
100
ENERGY USE
ecutive director of the American
To nudge drivers to use it, Seattle will
(IN BTUs)
Council for an Energy-Efficient Econ-
offer preferential parking, special on-
80
omy, a nonprofit advocacy group in
-and-off-ramp lanes, and an HOV net-
PHOTOGRAPH BY DARRYL ESTRINE; CHART BY ALBERTO MENA/BW
work on city streets. This system will
ENERGY INTENSITY (BTU/GNP)
Washington, D.C. One speck of his
play a crucial role in Vision 2020, a
0
wish has been granted. In January,
'73
'90
the Environmental Protection Agency
INDEX: 1982=100
DATA: ENERGY INFORMATION ADMINISTRATION
SCIENCE & TECHNOLOGY
BUSINESS WEEK/SEPTEMBER 16, 1991 61
Science & Technology
launched Green Lights, a
ably oil-rich Arctic Na-
$1.5 million drive to get
AMERICA'S ENERGY
tional Wildlife Refuge, a
business to use more effi-
red flag for environmen-
cient lighting. Still, the
WHAT WE USE
AND HOW WE USE IT
talists. Observers say
U.S. government, the na-
COAL
that it, and most other
tion's largest energy
4%
energy bills, will stall out
NATURAL
user, is no model of vir-
GAS
PETROLEUM
TRANSPORTATION
RESIDENTIAL/
this year. One exception
tue. A recent Office of
20%
40%
27%
COMMERCIAL
might be revisions to the
Technology Assessment
36%
federal highway bill,
report says funding for
ELECTRICITY
1990
INDUSTRY
which expires on Sept.
energy efficiency in fed-
36%
ENERGY
37%
30. Under current law,
eral agencies fell from
USE
Washington pays 90% of
$297 million in 1981 to un-
81.4
new interstate highway
der $50 million last year.
QUADRILLION BTUs*
costs, vs. 75% for most
OUT OF pocket. Some 80
*EXCLUDES 3.6 QUADRILLION BTUs OF RENEWABLE ENERGY
DATA: ENERGY INFORMATION ADMINISTRATION
mass-transit projects.
bills now in Congress aim
New Senate and House
to fill the policy void.
bills call for 80% funding
These propose higher taxes on gas, or on
there's no deduction for a subway pass
for both-and would let states spend feder-
the carbon content of fuel, stricter car-
worth more than $15 a month-and the
al funds on demand-side management.
mileage levels, new standards for appli-
pass is personal income.
That's more than a drop in the bucket.
ances and industrial motors, and efficiency
Big changes aren't likely this year. The
But in a year marked by a war over oil,
mandates for buildings. Other ideas in-
Johnston-Wallop bill, the Senate proposal
new signs of global warming, and lots of
clude spending more money to promote re-
that embodies the Administration's strate-
bluster over a national energy plan, it falls
search on renewable energy sources such
gy, concentrates on increasing energy sup-
about three quarts shy of a gallon.
as solar or wind-and at least evening out
plies, not conservation, notes Eric Hirst, a
By Robert Buderi and Emily T. Smith in
the tax code. Currently, the cost of a park-
corporate fellow studying energy efficien-
New York, with Maria Shao in San
ing space is a corporate deduction and isn't
cy at Oak Ridge National Laboratory. For
Francisco, Geoffrey Smith in Boston, Peter
income for the employee using it. But
one thing, it seeks to exploit the presum-
Hong in Washington, and bureau reports
Such pronouncements may still
sound outrageous, but guess who isn't
AMORY LOVINS' ENERGY IDEAS
laughing now? Clark W. Gellings, di-
rector of the customer-systems division
DON'T SOUND so DIM ANYMORE
at the Electric Power Research Insti-
tute, the utility industry's research
f the gospel of energy efficiency
could reduce the amount of oil the
arm, calls Lovins "ahead of his time."
has an evangelist, it must be
U.S. burns by 80%-for a few bucks
RMI is now a consultant on energy
Amory B. Lovins. In 1976, as an
per barrel saved. The problem of ener-
efficiency for some 70 utilities and 130
obscure consultant, he published an ar-
gy supply "has been conceptually
companies and agencies in 32 coun-
ticle in Foreign Affairs, the presti-
solved" by efficiency, says Lovins, 43.
tries. Since 1986, the institute's reve-
gious quarterly, asserting that it
"All that remains is a lot of details."
nues have nearly doubled, to $1.1 mil-
makes more economic sense
lion, with 48% of the increase
to use energy efficiently
coming from consulting and
than to increase energy sup-
other commercial ventures.
plies. That was heresy, since
It publishes a tome of techni-
the accepted wisdom at the
cal recipes for wringing sav-
time held that growth in the
ings out of everything from
gross national product de-
household appliances to of-
pended on using more ener-
fice equipment and lighting.
gy. The ensuing controversy
Lovins also has helped near-
put Lovins on the map.
ly 30 state utility commis-
He went on to co-found
sions grapple with energy-ef-
the Rocky Mountain Insti-
ficiency issues.
tute in Old Snowmass, Colo.,
He has become "a national
where he is director of re-
resource for [stimulating]
search and resident lightning
discussions of energy effi-
rod. Over the years, audi-
ciency," says Paul Mac-
PHOTOGRAPH BY RAY NG; CHART BY ALBERTO MENA/BW
ences of CEOS, utility execu-
Cready, designer of General
tives, and energy experts
Motors Corp.'s Impact elec-
C
have laughed and catcalled
tric car. Lovins also practices
at Lovins' assertions. Like
what he proselytizes: His
his idea that current cost-ef-
4,000-square-foot, stone-and-
fective technologies could
concrete home is mostly
cut U.S. electricity consump-
warmed by solar heating.
tion by 75%-for only 0.6¢
The monthly electric bill: $5.
per kilowatt-hour saved. Or
By Emily T. Smith in New
that existing technologies
York
LOVINS: "ALL THAT REMAINS IS A LOT OF DETAILS"
62 BUSINESS WEEK/SEPTEMBER 16, 1991
SCIENCE & TECHNOLOGY
Whai really constituies
financial strength in today's
insurance marketplace?
An impeccable balance sheet.
And profits.
AIG Domestic Bond Portfolio Ratings*
If you're concerned about the financial strength of your
Lower
We also believe underwriting
23%
BAA
insurance organization, here-are some questions you should ask.
6.9%
profits are fundamental to the
AAA
What's the clearest indicator of financial health?
39.1%
long term stability and health
A
of a company. Hence, we are
17.1%
A balance sheet of impeccable quality, conservatively
committed to meeting the
managed. Look at AIG's financial statements. You'll find
AA
34.6%
needs of the public for insur-
$10 billion in capital funds; $15 billion of general insurance
* (6/30/91)
ance products while maintain-
loss reserves; and $1.4 billion in after-tax profits in 1990.
ing strict underwriting discipline.
How important are the designations awarded
For years these beliefs have produced outstanding
by the rating agencies?
results. Including a
(%)
Very important. They provide an impartial, thoroughly
return on equity that
25
Return on Equity
20
researched measure of a company's financial strength. AIG
has consistently
AIG
15
holds the highest ratings awarded by the principal agencies.
S&P
exceeded the industry
10
They are a prized asset, enabling us to capitalize on business
average by a wide
P/C;
Industry
5
opportunities not open to those
margin.
0
without these credentials.
(%)
AIG Ratings:
What other qualities
Are there substantial differences
'80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90
in the way insurance
should I look for?
Industry and S&P 500 source: Conning and Co.
Standard
AAA
organizations are managed?
& Poor's
A strong commitment to its basic business, a diversi-
Yes. Take investment and under-
fied business portfolio and global presence. AIG is the
Moody's
Aaa
writing philosophies. In investing,
nation's largest underwriter of commercial and
AIG has an insignificant exposure
industrial coverages. We also have an international
A.M.Best Co. A+
to high-yield securities and com-
network second to none.
mercial real estate, which have
So if you're looking for financial strength, stability
*Domestic Property-Casualty Companies
lately caused so many problems for
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with new cash flow invested primarily in investment-grade
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fixed-income securities.
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At McGraw-Hill, being first
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The Corporation
STRATEGIES
panies have retrenched by trimming re-
search-and-development budgets, shelv-
ing new-product programs, and ousting
managers, 3M has been readying itself
for the coming rebound. True, the com-
3M RUN SCARED?
pany has scrapped plans to boost capital
spending by 10% this year. But it's still
FORGET ABOUT IT
investing $1.3 billion to modernize its 101
factories worldwide. And there have
been no layoffs among 3M's 89,000-plus
The recession has hurt, but big cutbacks aren't in the cards
employees. Research spending, the well-
spring of the company's product suc-
cesses, hasn't been sacrificed, either: 3M
will ante up some $890 million on R&D
this year. That's 6.6% of total sales-the
same rate as last year and about double
the average of U.S. industry.
WEAK SPOTS. At the same time, Jacob-
son is following through on ambitious
goals set last year to cut manufacturing
costs, while pushing 3M design engi-
neers to speed up product-development
cycles. Nor has Jacobson slackened the
pace of 3M's aggressive move into such
new overseas markets as Eastern Eu-
rope and the Soviet Union.
That's not to say that 3M hasn't been
tightening a few screws to reflect tough-
er times. Like most companies, it's cur-
tailing corporate travel. And it recently
postponed the construction of an office
building addition in Austin, Tex.
But Jacobson isn't easing up on his
effort to get 3M to expand its product
line, since many of the company's more
than 60,000 offerings are still vulnerable
to recession. Consider that about 40% of
3M's revenue stream comes from cus-
tomers in such cyclical manufacturing
fields as autos. The memory-technol-
ogies division is another weak spot: 3M's
computer diskettes business has been hit
by price competition from foreign rivals,
including Sony Corp. While Jacobson in-
sists he doesn't want to diversify away
CEO JACOBSON: HE SLICED MANUFACTURING COSTS BY 35% IN FIVE YEARS
from his core customers, a couple of
or some time now, Minnesota Min-
1991, 3M's net income tumbled 11.5%, to
hits in less recession-prone businesses,
ing & Manufacturing chief Allen F.
$599 million. Operating margins dropped
such as health care, would surely help
Jacobson has been able to survey
to 15.6%, a 14% decline from their 1989
matters.
his domain with a certain measure of
peak. Worse, explains Jacobson, "we
At the same time, 3M's international
satisfaction. After all, few companies
don't see any recovery coming," during
operations haven't offset problems state-
boast the innovative culture of 3M.
the next six months. Profits, he admits,
side, as hoped. Indeed, the stronger dol-
Thanks to the creative zeal Jacobson fos-
will drop in 1991 for the first time in
lar has zapped its business overseas. As
ters, nimble 3M turns out everything
five years. Indeed, earnings are expect-
a result, analysts expect international
from low-tech Post-it notes to futuristic
ed to fall 7.7%, to $1.2
revenues, which account
PHOTOGRAPH BY LAYNE KENNEDY; CHART BY PAUL GRANGE/BW
synthetic ligaments. Look at the results:
billion, on $13.5 billion in
3M FEELS
for 50% of the compa-
Since 1985, 3M's net income has doubled,
revenues, reckons The-
THE PINCH
ny's total, to be flat in
to $1.3 billion last year. And more than
resa M. Gusman, an an-
1.3
the second half, com-
30% of 3M's $13 billion in 1990 revenues
alyst with Salomon
NET
pared with a 22% gain
came from products introduced during
Brothers Inc.
1.2
EARNINGS
during the same period
the past five years.
With that kind of a
1.1
a year ago. Given the
melancholy outlook,
REVENUES
But the recent recession has been a
$13.5 BILLION
downturn, Prudential
humbling experience for the diversified
you'd think Jacobson
1.0
Securities Inc. analyst
manufacturer. Sagging demand for 3M's
would be sharpening his
REVENUES
B. Alex Henderson says
0.9
array of industrial products and stiff
machete for some slash-
$9.4 BILLION
3M should have throt-
price competition abroad have battered
ing. Forget about it.
0
tled back overseas capi-
87
'88
'89
90
'91
the company. During the first half of
While other U.S. com-
BILLIONS OF DOLLARS
EST.
tal spending and acqui-
DATA: COMPANY REPORTS, PRUDENTIAL SECURITIES INC.
66 BUSINESS WEEK/SEPTEMBER 16, 1991
THE CORPORATION
sitions more quickly. Still, 3M economist
engineers use to get new products out
John McDevitt insists the company
the door. He has ordered design, pro-
wasn't caught flat-footed: "We weren't
duction, and marketing teams to work
surprised."
more closely together. Small wonder
Still, Jacobson has managed to limit
why: This approach allowed a team of
the recession's damage by running a
3M designers and production experts to
pretty lean shop. From 1985 through
cut by half-from six to three years—
1990, his J35-that's J as in Jacobson-
the development cycle for a new digital
450,000
cost-cutting program has hit its goal
color proofer, a device used in commer-
of a 35% reduction in labor and manu-
cial printing, which is expected to be
people were
facturing costs, largely by investing
rolled out in September.
in automation, reconfiguring plant lay-
This year alone, 3M will launch more
outs, and using just-in-time inventory
than 200 new offerings. In these austere
crippled by
methods.
times, 3M is more often emphasizing
And 3M isn't letting up now. Last
products that can be marketed as cost-
sharks
year, the company began yet another
saving devices. Last April, the compa-
five-year progam-dubbed Challenge
ny's abrasives division introduced a
'95-to cut unit manu-
computerized chemical-
in the streets
facturing costs 10% and
dispensing machine
manufacturing-cycle
Attention to
that controls and re-
of Lima
time by 50% from 1985
cords the amount of
levels, among other
the smallest of
chemicals-say floor
goals. It all represents
cleaners or solvents-
last year.
a dedicated effort to
details
that are used in manu-
widen 3M's thinning op-
facturing plants. The
erating margins and
has always been
idea, says Group Vice-
Loan sharks. Each year,
win over new custom-
President Robert J.
hundreds of thousands of
ers with better service.
the hallmark of
Hershock, is to give
small family business
Little successes al-
companies a new way
operators in the Americas
ready are adding up to
Jacobson's tenure
to monitor their chemi-
are financially crippled by
some big savings. Earli-
cal costs.
er this year, for in-
as chief executive
Jacobson is also turn-
them. That's why we created
stance, managers at
ing up the heat over-
ACCION International.
one industrial-tape
seas, where he sees
Since 1961, we've been
plant cut the time it
3M's current slowdown
providing hard-working men
takes to switch from making one kind of
as transitory. The company is adding
and women with otherwise
tape to another by 30% and reduced
staff and marketing its array of tele-
waste by 25%, simply by rearranging
communication and highway products in
unattainable fair-rate small
machinery and changing some work
emerging markets such as Poland,
business loans. Without these
practices. The 35 engineers and manag-
Czechoslovakia, and the Soviet Union.
loans, thousands of shoe-
ers 3M assigned to the project used vid-
At the same time, 3M is pumping re-
makers, bakers, artisans and
eo recorders to study the changeover
sources into the Far East, where mar-
process. One revelation was that work-
street vendors would be
kets for its products are still growing
ers often didn't have the correct tools to
by as much as 20%. In Western Europe,
unable to make a living.
perform the job. The simple answer: To
3M is spending $20 million to link its
You can help low-income
slash the time wasted fetching tools, en-
subsidiaries and customers together via
families improve their own
gineers staged tool boxes near change-
computer SO they can process orders
lives. Please send ACCION a
over sites.
more quickly. It also plans to build or
FULL PIPELINE. The changes go well be-
expand four larger, more efficient ware-
contribution today.
yond the plant floor. Service is being
houses in Europe to replace 17 minidis-
ACCION International,
spruced up, too. For example, the medi-
tribution centers.
1385 Cambridge St.,
cal-products division used to take an av-
Attention to the smallest of details
Cambridge, MA 02139
erage of 49 days to process customer
has always been the hallmark of Jacob-
617-492-4930.
complaints-which naturally prompted
son's management tenure. Known sim-
even more complaints. "Some customers
ply as Jake by most 3Mers, he retires on
said 3M was hard to deal with," admits
Oct. 31, after six years as chief execu-
Thomas Redner, manager of quality
tive. He will be replaced by L. D. DeSi-
systems. So, in late 1990, Redner pulled
mone, a veteran of 3M's overseas opera-
together a team from nine departments
tions who speaks four languages and,
to reform the complaints procedure.
like Jacobson, is an engineer by train-
Again, little details made a big differ-
ing. DeSimone will be lucky in one re-
ence. The company's sales reps now car-
spect: He will inherit a pipeline full
ry pre-addressed, postage-paid labels so
of new products and a decidely leaner
they can quickly mail samples of defec-
and more responsive 3M, thanks in
tive products back to 3M labs for analy-
large part to Jacobson's investments
sis. Now, says Redner, processing a
and handiwork during the downturn.
complaint about the division's surgical
Apparently, even a bone-jarring reces-
masks or tapes takes only five days.
sion can be turned to advantage by
ACCION
The process Jacobson most wants to
INTERNATIONAL
smart managers.
make faster and cheaper is the one his
By Kevin Kelly in St. Paul, Minn.
THE CORPORATION
BUSINESS WEEK/SEPTEMBER 16, 1991 67
Marketing
FOOTWEAR
Greenberg and his staff inflated sales by
tens of millions of dollars by improperly
counting as revenues merchandise that
was being stored in L. A. Gear's ware-
houses and docks, or by shipping goods
L.A. GEAR
to customers before they wanted it.
L. A. Gear has denied all allegations
CALLS IN A COBBLER
and filed a motion to dismiss the suit.
But its accounting has also raised eye-
brows at the Securities & Exchange
Stanley Gold may take a shot at resoling the once-hot shoemaker
Commission. In early July, the company
reported a $258,000 profit for the second
R
obert Y: Greenberg has always
make that stake pay off. A few years
quarter-enough to satisfy bank cove-
had a knack for selling. First, it
ago, Greenberg boasted he would push
nants forbidding another loss. But the
was wigs. Later, it was roller
L. A. Gear past Reebok International
profit included future royalty income
skates for the trendy denizens of Venice
Ltd. and Nike Inc. by 1991. And thanks
and future credits from suppliers. Under
Beach, Calif. Then, by 1989, he had
to hot-selling spangled and fringed shoes
pressure from the SEC, L. A. Gear re-
hawked enough sneakers to turn tiny
promoted by such celebrities as Paula
vised the results to show a $4 million
L. A. Gear Inc. into the nation's No. 3
Abdul, Michael Jackson, and Kareem
loss. Ventrudo calls the company's ac-
athletic shoemaker in just four years.
Abdul-Jabbar, sales shot from $11 mil-
counting "defensible" and points out
Says Josie Esquivel, an analyst at Shear-
lion in 1985 to $902 million last year.
that both items were explained in the
son Lehman Brothers Inc.: "He's the
But this spectacular marketing suc-
original statement.
quintessential salesman."
Gold may change L. A.
Greenberg's latest sale
Gear's bookkeeping, but fix-
might be the most crucial of
ing its marketing blunders
all. A deal to sell $100 million
will be trickier. Greenberg ini-
in new L. A. Gear convertible
tially created a clear-cut im-
preferred stock is due to close
age with brightly colored
by Sept. 13, three days after
shoes and sexy ads aimed
shareholders meet to vote on
squarely at teenage girls. But
it. The buyer: Trefoil Capital
to hit his $1 billion sales tar-
Investors LP, whose chief,
get, Greenberg tried to chal-
Stanley Gold, learned how to
lenge Nike and Reebok direct-
cure ailing companies for in-
ly by adding a line of men's
vestor Roy Disney's Sham-
performance shoes.
rock Holdings Inc. And L. A.
FOULED OUT. It was too much,
Gear is ailing now that sales
too fast. The foray blurred
of its once-hot shoes have
L. A. Gear's image. Says John
cooled. Analysts estimate the
Horan, publisher of newslet-
company's losses at $4 million
ter Sporting Goods Intelli-
on volume of some $900 mil-
gence: "If Greenberg hadn't
lion for its fiscal 1991. The
been so focused on doing a
stock, which soared from an
billion, he might still be on a
initial offering price of 23/4 in
roll." Then came bad publicity
1986 to 50 in 1990, is
about L. A. Gear shoes that
now limping along at
A FADING
fell apart on the court when
11. The sneaker maker
has technically violat-
SPRINTER
worn by a Marquette Univer-
sity basketball player. And
ed loan covenants
12
L. A. Gear lost touch with the
three times, prompt-
fickle teen crowd. It paid Mi-
ing its banks to shrink
9
chael Jackson $20 million to
credit from $360 mil-
GOLD: A MR. FIX-IT WHO ACTS FAST
promote a line of black, silver-
lion to $200 million.
cess was also an enor-
buckled shoes, but they bombed.
Gold could still back
6
mous strain. Says Ke-
To unload these nonstarters, L. A.
PHOTOGRAPH BY EDUARDO CITRINBLUM; CHART BY PAUL GRANGE/BW
out, as he did last No-
vin J. Ventrudo, L. A.
Gear has been jettisoning sneakers at
vember on a deal to
L.A. GEAR'S SHARE
Gear's chief financial
3
deep discounts since late last year. Most
OF THE U.S. ATHLETIC
buy 82% of Child
SHOE MARKET
officer: "Everyone has
of the shoes are gone now, the company
World Inc. But Tre-
pushed hard to keep
says. But the effort has squeezed gross
foil's cigar-chomping
0
the systems up with
margins this year to 25%, down from
'86
'87
'88
'89
'90
'91*
boss seems eager to
*THROUGH JUNE 30
the growth." Analysts
37% in 1990's first half. And new orders
PERCENT
take over. He says:
and investment bank-
DATA: SPORTING GOODS INTELLIGENCE
in the second quarter were down 27%
"I'd like to see the
ers say the company's
from the year before.
company better focused, with tighter-
internal controls got out of hand. A
Those numbers won't warm the heart
run operations." The deal will give Tre-
shareholders' class-action lawsuit filed in
of Stanley Gold, who likes to act fast.
foil a controlling stake that's convertible
U.S. District Court in Los Angeles calls
When Shamrock bought Central Soya
to 34% of the common.
those controls "chaotic and virtually
Co. in 1985, Gold stepped in as president
The big question is how Gold will
nonexistent." Worse, the lawsuit alleges
to slash overhead. He sold out in 1987
68 BUSINESS WEEK/SEPTEMBER 16, 1991
MARKETING
Impeccable service, the most up-to- date facilities and the finest locations.
Understanding these, the needs of the discerving traveller, is the Peninsula Group
tradition. As a result, the high standards of hospitality that have become our
trademark continue to hold fast, despite the unceasing passage of time.
THE
PENINSULA
GROUP
SHARE THE EXPERIENCE
The Peninsula Hong Kong The Kowloon Hotel Hong Kong The Manila Peninsula The Palace Hotel Beijing The Peninsula New York
The Peninsula Beverly Hills The Peninsula Bangkok (Opening 1993) The Peninsula Bay Phuket (Opening 1993)
Earn High Interest Rates
Marketing
for a $125 million profit. After scooping
& Tax-Free Dollars
up a 22% stake in oil-driller Enterra
Corp. in 1985, Gold would often fly in to
Houston to give advice.
CERTIFICATES OF DEPOSIT
At L. A. Gear, he's likely to play a
Rated as one of the highest yielding CDs in the Global Market
similar role. Greenberg is expected to
1 YR. CD
2 YR. CD
5YR.CD
stay, but it will be Gold's team calling
the shots. L. A. Gear will pay Trefoil's
10.25%
11.25%
13.25%
investment manager, Shamrock Capital
11.25%*
12.25%*
14.25%*
Advisors Inc., $1.8 million for consulting
12.25%**
services over the next three years. Gold
13.25%**
15.25%**
says he'll bring in a chief operating offi-
Take advantage of the high yields available
cer, probably to oversee marketing. Two
in a safe, international bank, where 100%
For more information mail coupon or send check
weeks after Trefoil agreed to invest,
of the bank's investments are guaranteed or
to: FIRST COMMERCE BANK & TRUST
Sandy Saemann, Greenberg's second-in-
invested in U.S. Securities.
A subsidiary of FCB&T Holdings
ATTN: Accounting Dept.
809-325-0508
command, departed. A flamboyant, gold-
Bank Account Privacy is Assured by Strict
P.O. Box N-10631, Nassau, Bahamas
chain-decked manager, Saemann was the
Secrecy Laws.
Please send additional information
architect of the company's sexy ad cam-
Deposits Held in a F.D.I.C. Insured Bank.
Please invest $
in a C.D.
paigns, which often featured scantily
$5,000 U.S. Minimum Deposit
1 yr.
2 yr.
5 yr.
pd qrterly
comp arterly
clad models-and earned the nickname
Stable Banking Environment
Name
"L. A. Rear."
Tax-Free Interest at the Source
Address
FURIOUS STORES. A staunch fan of
Over 45 Years Investment Experience
City
strong brand names, Gold figures that
Rates Subject to Change
State
Zip.
Country
the L.A. Gear label has enough cachet
*MINI JUMBO - $50,000 TO $100,000
Telephone
*JUMBO $100,000 AND OVER.
left to sell shoes and apparel profitably
to young women. But L. A. Gear's name
First @mmerce
is apparently a liability in performance
shoes. Already, the company has
Bank & Trust
A Subsidiary of FCB&T Holdings
LOCK IN YOUR INTEREST RATE Now!
Challenging Nike and Reebok
with a line of men's
performance shoes blurred
L.A. Gear's image
dropped the L. A. Gear logo from its
Congratulations!
new $110 Catapult sneaker with high-
tech carbon-fiber soles. "Taking the
L. A. Gear logo off Catapult was a very
smart move," says Steve Hayden, chair-
man of BBDO/LA, an ad agency that
briefly handled the Catapult before re-
signing the account. But Hayden warns
At this very moment,
that building credibility in the perfor-
mance market will still take years.
You've got the world
Gold will also have to heal the rift
between L. A. Gear and disenchanted de-
partment stores and mass merchants.
of business in your hands.
These retailers were stung when L.A.
Gear dumped heavily discounted shoes
elsewhere and undercut their prices.
Gold must also make inroads with the
sporting-goods stores that sell most of
the high-price performance sneakers.
These stores have traditionally shunned
L. A. Gear models as trendy fashion
shoes.
Assuming Greenberg pulls off his lat-
BusinessWeek
est big sale, Stanley Gold will have his
work cut out for him. The trick will be to
move fast enough to make sure the com-
pany doesn't live up to another name
once hurled its way: "L. A. Disappear."
By Kathleen Kerwin in Los Angeles
70 BUSINESS WEEK/SEPTEMBER 16, 1991
MARKETING
THE LIGHT Is RIGHT. THE LAMP Is GE.
GE HIGH PERFORMANCE
PRECISE™ DISPLAY LAMPS.
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V
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This new family of lamps provides
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Discover the many reasons why, when
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F
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STATE
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Information Processing
TELECOMMUNICATIONS
HOW DO YOU BUILD
AN INFORMATION HIGHWAY?
The U.S. is largely letting private industry answer the question-and hoping for the best
n 1955, a Democratic senator from
Even if Gore's bill passes, it won't do
bill would go mainly for research on
Tennessee named Albert Gore spear-
much to alter that picture in the near
ways to use and interconnect supercom-
headed legislation to criss-cross the
term. Unlike his father's highway bill,
puters. About 20% would go to upgrade
nation with interstate highways to se-
the High Performance Computing Act
existing networks into a National Re-
cure the nation's defense and build its
does not call for a massive, federally
search & Education Network, linking
economy. Thirty-six years later, his son
funded effort. It simply requests a dol-
schools, libraries, universities, and gov-
is back at it. Senator Albert Gore Jr. (D-
lop of federal dollars-just $2 billion
ernment researchers. Indeed, Gore's bill
Tenn.) wants the nation to build a whole
over five years-to catalyze a much
isn't so different from a White House
new kind of highway system: an "infor-
larger investment by a wide variety of
plan to fund development of high-perfor-
mation superhighway" with lanes made
private companies. The money in Gore's
mance computing, including networking.
of glass fibers and cloverleafs of silicon.
Both efforts would rely on private indus-
Gore, a Presidential candidate in 1988,
envisions this supernetwork as the first
THE SPREAD OF
try to bootstrap research networks into
step in creating a new infrastructure-
FIBER-OPTIC CABLES
commercial ventures.
6
PATCHWORK. Aside from deregulation-
for a new Information Economy. His
minded Britain, most other nations are
bill, the High Performance Computing
pushing into advanced networks through
Act, would fund research in how to man-
4
their national phone carriers. With limit-
age and use superfast computers and
ed competition, they can quickly upgrade
networks. But, with its huge capacity to
2
ANNUAL INSTALLATION
equipment and create new services by
move bits of computer and video data
OF COMMUNICATIONS
nearly instantly across the country, the
FIBER IN U.S.
subsidizing them with guaranteed prof-
its. In the 1980s, that led to impressive
network also will serve as a proving
0
and rapid network upgrades in such
ground for the type of national network
1990
1996
that Gore and other advocates say is
MILLIONS OF KILOMETERS
countries as Germany, Hong Kong, and
Switzerland. France Telecom, for exam-
needed for the U.S. economy to be com-
AND NEW TRANSMISSION
ple, was able to jump-start its popular
petitive. A national data superhighway
would speed all sorts of transactions,
METHODS
Minitel information service by giving
away $400 home computer terminals-
give corporations a better handle on
FRAME RELAY (1991) A networking
an unthinkable gambit in the deregulat-
their businesses, and serve up dazzling
technology that exploits fiber optics' high
ed U.S. market.
entertainment and information services
quality to deliver data up to 10 times
So far, the competitors in the U.S.
for consumers (page 74). "I think it will
faster than today's packet switching.
telecommunications market have created
enable this country to leapfrog the Japa-
Handles data, but not voice or video
a profusion of new network services,
nese," says Gore.
such as WATS, 800, and 900 lines that are
Japan-and other nations-are al-
SWITCHED MULTIMEGABIT DATA
available in such variety nowhere else in
ready investing heavily in the digital
SERVICE (SMDS) (1992/1994)
the world. The question for the 1990s is
switches and optical fiber needed for
A metropolitan-area service that local
whether the industry can create a glob-
such information superhighways. Ja-
phone companies will offer to connect
ally competitive telecommunications in-
pan's Nippon Telegraph & Telephone
office PC networks and the like
frastructure-without a greater govern-
Corp., for instance, hopes to lay fiber-
BROADBAND INTEGRATED SERVICES
ment role.
optic cables to every Japanese home,
DIGITAL NETWORK (2001) Longer
Much depends on the answer. Today's
school, and business by 2015. France has
distance and higher speed than SMDS,
telephone lines, built to handle the thin
swapped nearly all its creaky analog
but requires new network switches
warble of a human voice, are woefully
phone switches for digital ones. Singa-
underpowered for torrents of computer
pore, which once had a laughably an-
WILL PERMIT
data, images, and video. Yet the service
cient phone system, has installed a state-
NEW SERVICES
economy seems to have an insatiable
of-the-art network to attract global
appetite for communications capacity-
investment. One expert, William H. Da-
Rapid access to huge libraries of still
for conducting video teleconferences,
vidson, a professor at the University of
and video images
processing financial and other transac-
Southern California and a phone-compa-
Remote supercomputer simulations
tions, distributing information-based ser-
Links between office PC networks
LAUREL DAUNIS/BW
ny consultant, warns that at this rate,
vices, and moving data from PC to PC.
by 1994 the U.S. could be near the bot-
Videophones in homes and offices
An inferior communications network
tom of his list of the top dozen telecom
Movies on demand
could drive businesses such as stock
powers in the world.
DATA: INTERNATIONAL RESOURCE DEVELOPMENT INC.,
NETRIX CORP., BW
trading and banking offshore-and ham-
72 BUSINESS WEEK/SEPTEMBER 16, 1991
INFORMATION PROCESSING
Q
per those businesses that remain behind.
sus-building process among the Baby
Critics also note that the phone giants
The technological challenges of blan-
Bells and other phone companies. The
have had little to do with creating to-
keting the nation with information su-
result might be "a very elegant net-
day's most complex data networks. Take
perhighways are daunting. At speeds ex-
work," says Lawrence J. Bouman, senior
Internet, a worldwide collection of 3,000
ceeding a billion bits per second, even
vice-president for program management
networks connecting research labs and
fiber-optic cables can become clogged. If
and systems planning at MCI Communi-
universities that was made famous by
a circuit breaks during a long-distance
cations Corp. "But it may be obsolete by
hacker Robert Morris. To its fans, Inter-
transmission at such rates, an entire En-
the time it's deployed."
net's rapid but largely unplanned
cyclopaedia Britannica's worth of infor-
MCI and other long-distance companies
growth shows why information super-
mation could be lost in seconds. Reach-
have proved that competition can speed
highways needn't be centrally managed.
ing such velocity and keeping the data
progress. As late as 1987, AT&T said it
STALEMATE. Now, with the help of pri-
safe are challenges that
vate companies such as
Gore's bill-and other
IBM and MCI, portions
research programs al-
ready under way-
In other countries, nationalized phone systems
of Internet are receiv-
ing major upgrades.
would address.
Such research isn't
are building fiber-optic superhighways. The
NSFNet, one of Inter-
net's backbone net-
enough, argues George
U.S. approach is riskier but may allow more innovation
works, is accelerating
H. Heilmeier, the new
from the 56,000 bits per
president of Bellcore,
second it achieved in
the research arm of the seven Baby Bell
wouldn't convert its entire long-distance
1987 to 45 million bits by yearend.
phone companies. He is advocating a Na-
network to digital switching until 2010.
Speeds of 1 billion bits per second are
tional Information Act, covering every-
But, goaded perhaps by U.S. Sprint
being pursued in five test projects
thing from accelerating the adoption of
Communications Co.'s boasting of an all-
around the country. Funding this is a
new technology standards to deregulat-
digital fiber network that could transmit
$16 million federal grant to the nonprofit
ing the Baby Bells to consolidating con-
the sound of a pin dropping, AT&T suc-
Corporation for National Research Ini-
trol of telecommunications under a sin-
ceeded by 1990. Peter Beck, a former
tiatives. It's getting an estimated $300
gle federal agency. Today, says
MCI executive and now chairman of Digi-
million more from universities and com-
Heilmeier, "everybody's in charge, but
tal Access Corp., a data communications
panies that hope to commercialize the
nobody's in charge.
I'd like to see a
equipment maker, says startups such as
research. Gore's plan would expand
bona fide information infrastructure
his will continue to move faster than the
these efforts.
rather than a fragmented world of dif-
giant telephone companies. "You don't
So far, those initiatives are keeping
ferent systems for everything."
need teams of 50 engineers to design
the U.S. ahead of Japan in high-speed
But, critics say, Heilmeier's top-down
things," says Beck. "That's what the
computer networking-despite NTT's
approach could lead to a lengthy consen-
telephone industry has not yet grasped."
goal of universal fiber by 2015. Why is
PHIL MARDEN
INFORMATION PROCESSING
BUSINESS WEEK/SEPTEMBER 16, 1991 73
Information Processing
this? Partly because of a stalemate be-
of information sciences research at AT&T
has been so preoccupied with grandma's
tween the government agencies respon-
Bell Laboratories. "We may already
telephone service that it threatens to
sible for telecommunications and indus-
have passed the point where we can all
sacrifice her grandchildren's employ-
trial policy, says Raul H. Mendez,
come together."
ment opportunities."
director of Recruit Co.'s Institute for Su-
The biggest bottleneck may be the
That may be crying wolf. But Key-
percomputing Research in Japan.
copper cables and old analog switches
worth has a point: Whether the solution
But keeping ahead of Japan and other
that carry calls locally. The local phone
rests with the free market or is abetted
economic rivals in telecommunications
companies blame their backwardness on
by government, for Americans to com-
may be increasingly difficult. Already, a
state regulators who, to hold down
pete in the Information Age, they're go-
dire lack of standards looms as a huge
rates, are loath to let them rapidly write
ing to have to devote as much energy to
obstacle, complicating buying decisions
off old gear-including $60 billion worth
building the new infrastructure as their
and slowing investment. "Every stan-
of copper cable-and spend heavily on
ancestors spent on the canals, railroads,
dards body seems to be churning out
new equipment. Says George A. Key-
and highways of earlier eras.
protocols left, right, and center," says
worth II, research director at the conser-
By Peter Coy in New York,,. with bureau
A. G. "Sandy" Fraser, executive director
vative Hudson Institute: "Public policy
reports
WHY THE HIGHWAY WON'T REACH THE HOME JUST YET
ack Jakubik didn't die and go to
2015-just when Nippon Telegraph &
every home. We could have fiber to the
couch-potato heaven, although
Telephone Corp. plans to finish string-
library, the school, the town hall."
some days it sure seems that way.
ing Japan with fiber. Says Burns: "I
At this point, phone companies are
No more driving to the video-rental
want to be there before them. I know
holding off from aggressive fiber in-
shop, waiting for pay-per-view, or stay-
that is a big thing to ask. But at least
stallation. They want to be let into the
ing up for the late show. When he
it gives us something to focus on."
well-guarded cable-TV business, first-
wants to see a movie-any of 20, in
State regulators worry about the
something Burns's bill would permit.
fact-he just zaps his remote and it
cost. In July, the National Association
Notwithstanding little scholars who
appears on his TV screen. Every
want to peruse the original Fed-
two weeks, there's a fresh se-
eralist papers before bedtime,
lection. Says Jakubik, 48, a
analysts say that cable TV is the
salesman of heavy equipment
only service that can economi-
who lives in upscale Cerritos,
cally justify a quick switch from
Calif.: "I'm spoiled rotten."
copper to glass.
So why can't the rest of us
ROYAL TREATMENT. Meanwhile,
get our movies that way? We
several phone companies are
could, except for the $100 billion
searching for cheaper ways to
or more it would take to attach
pump information into the
every U.S. home and office to a
home. They talk of laying fiber
fiber-optic network. Then, ev-
only into neighborhoods at first,
eryone could have movies on de-
relying on existing copper wires
mand, high-fidelity videophones,
for the final stretch into the
and other futuristic services. Ja-
home. Bellcore, the research
kubik is getting all that today
arm of the seven Baby Bell
as a participant in a GTE Corp.
phone holding companies, is
test in parts of this Southern
working on a system that can
California town. The question
use existing wires to transmit
is: How urgent is it for GTE and
VCR-quality video. As another
other phone companies to make
money-saver Centel Corp. is
Jack Jakubiks of us all? And if
seeking Federal Communica-
it is urgent, who should pay?
tions Commission permission to
RACING JAPAN. Backers of fiber
test a microwave-to-the-home
to the home say the benefits of
system from Motorola Inc.
its greater information-carrying
No one's out to keep Ameri-
capacity would flow throughout
ca's kids informationally de-
the economy. It's not just choos-
prived, but regulators, like Gail
ing when you want to see A
Garfield Schwartz, say match-
Nightmare on Elm Street. Fi-
"SPOILED ROTTEN": jakubik RELAXING IN FRONT OF THE TUBE
ing Japan strand for fiber-optic
ber, they argue, would let more people
of Regulatory Utility Commissioners
strand isn't the best basis for making
work at home, with videophones and
denounced Burns's bill. Their big fear:
policy, especially if the installation cost
faster computer links, thereby reduc-
Local phone companies would over-
shows up uninvited on customers'
ing traffic congestion and pollution. It
charge their captive customers for in-
phone bills. Should these concerns pre-
could improve education by letting kids
stalling fiber links that most aren't
vail, the royal treatment accorded Jack
tap into, say, the Library of Congress.
even asking for. Says New York State
Jakubik may not be granted to the rest
EDUARDO CITRINBLUM
Senator Conrad Burns (R-Mont.) is co-
Public Service Commissioner Gail Gar-
of us for years to come.
sponsor of a bill calling for construc-
field Schwartz: "Who needs fiber to
By Peter Coy in New York, with
tion of a nationwide fiber network by
the home? I don't think it has to go to
bureau reports
74 BUSINESS WEEK/SEPTEMBER 16, 1991
INFORMATION PROCESSING
With a Ricoh copier, your business will
always look extraordinary on paper.
You've probably never stopped to consider how much
high quality b&w text for more persuasive presentation
your company's image depends on the images produced
materials and reports. At a running cost that's among the
by your copier.
lowest of all colour copiers.
If your copier is producing dismal-looking copies it
Both the DS 320 and NC 100 have also undergone
can give a bad impression.
some of the most exhaustive testing in the business. So
Intelligent copier technology, on the other hand, can
you can count on them to perform dependably.
brush-up your business image.
For more information about Ricoh copiers, start by
Ricoh has been creating intelligent copier technology
communicating with your Ricoh dealer.
for years. Our digital DS 320 Image Processing System,
You can count on him to
for example, reproduces incredibly sharp b&w half-tone
perform dependably, too.
images. It also possesses creative functions such as digital
editing, which lets you re-create images by altering shapes.
Or there's the Ricoh NC 100
The analogue Ricoh NC 100:
Business Colour Copier.
All the colour your office
"Business colour" gives you the
will ever need.
power to merge colour busi-
ness graphics such as charts,
graphs and illustrations with
The digital Ricoh DS 320:
The intelligent black & white
image processing system.
RICOH
Ricoh Europe, Groenelaan 3, 1186 AA Amstelveen, Holland, tel.: (020) 5474111 Austria: Artaker Buroautomation Handelsges. GmbH., tel.: (0222) 58805-0 Belgium: Ricoh Belgium, tel.: (02) 7209782
Denmark: Eskofot A/S, tel.: 04297 4400 Finland: Oy Curt Enstrom AB, tel.: 80-717922 France: Ricoh FranceS. tel.: (1) 47454510 Germany: Ricoh Deutschland GmbH., tel.: 06196-906-0 Greece: Doxiadis Bros.,
tel.: 3226601 Iceland: Aco HF, tel.: 127333 Italy: Repromec S.p.A., tel.: (02) 647 3412 Netherlands: Ricoh Office Systems Nederland B.V., tel.: (033) 670811 Norway: Magne Ore A.S., tel.: (02) 685080
Malta: Office Technology Ltd., tel.: 493483 Portugal: Rima, tel.: (02) 690055 Spain: Ricoh Espana S.A., tel.: 4900960 Sweden: Enstrom Kontordivisionen, tel.: 08-6212800 Switzerland: Cellpack A.G.,
tel.: 057211111 Turkey: Bilar Bilgi Araclan Ticaret A.S., tel.: 1753800 UK & Ireland: Ricoh UK Ltd., tel.: 081-7516611.
NCR's new 3600. Four
biggest mainframe, yet at
OB3OBO
t Intel is a registered trademark of Intel Corporation.
74B-E
times the power of the
1/10 the cost per MIPS.
NCR announce the world's most power-
More than 380 SCSI I/O channels.
ful ever business computer. In its first
At last, this is the affordable power
release, it features up to four times the
you've been waiting for. Power to enable you
processing power of the largest conventional
to integrate systems, create huge databases,
mainframe. And by next year it will be
provide image storage, extract real-time infor-
offering up to twenty times the power (10,000
mation, and make TP possible on distributed
Million Instructions Per Second).
open systems.
But because the 3600 uses standard
The parallel design groups between two
Intel⁺ i486 processors, it can offer each unit of
and eight i486s in an application processor -
power at a tenth of the cost of conventional
with a maximum of 32 APs.
mainframes.
In this "share nothing"
It does so by using hun-
X/Open
design, each application pro-
Member
dreds of i486 processors in
cessor has its own memory, own
a massively parallel design. How many is
storage, and own operating system. Thus
determined by the level of power you need.
avoiding conflicts.
Later, you can add further 'slices of power'
The 3600 can run huge databases of up
(anything from just two i486 processors up
to 300 gigabytes - that's 15 times the size
to the full complement).
that will run on a conventional mainframe.
Further features include:
And because the 3600 searches its
Up to 300 gigabytes of disk storage (over
database in parallel, it can provide results 4
1,000 gigabytes in 1992);
to 10 times faster than a conventional
Transaction processing in excess of 1,200
mainframe!
transactions per second next year;
Not surprisingly, this is the machine our
Total system bandwidth of more than 12
competitors are talking about. But we are
gigabytes per second and I/O bandwidth of
delivering.
3.8 gigabytes per second; and
For more information, contact NCR.
NCR
Open, Cooperative Computing.
The Strategy for Managing Change.
74C-E
"Nowadays everyth
in world
That's tl
The Spirit of '92 is one of openness, under-
of products and services to make 1992, anc
standing and co-operation.
beyond, a success.
A Europe without frontiers will reach out
Already we manufacture in 22 countrie:
and touch the rest of the world as never before.
world-wide and we employ 120,000 experts ir
Improved communications will be vital to
a total of 110 countries.
establish links between Europe and other
Our knowledge is total and encompasse
continents. As Europe's No 1 communications
the full range of communications systems
systems specialist we have the complete range
Network Systems, Radiocommunications -
74D-E
g has to be viewed
terms."
- HILMAR KOPPER, SPOKESMAN AND MEMBER OF
THE BOARD OF MANAGING DIRECTORS, DEUTSCHE BANK
'F irit.
pace and Defense, Business Systems, Cables,
the Olympic Games and Expo '92. Because a
Network Engineering and Installation.
commitment to global communications is the
In the Spirit of '92, Alcatel will be supporting
spirit of Alcatel.
ALCATEL
THE SPIRIT OF '92
Alcatel n.v., World Trade Center, Strawinskylaan 341, NL 1077 XX Amsterdam, The Netherlands.
74E-E
Over 1,600 government agencies elect Unisys to keep ahead
do
016
30
74F-E
n a changing world.
The business of government is to meet the changing needs of
people. And that takes powerful, reliable information systems.
Which is why you'll find Unisys systems at work for government
agencies and departments in countries around the world.
For instance, Unisys systems help the governments of seven
The
European countries to manage Health Care and Social Security
programmes, stretching limited budgets to help the largest
possible number of people.
In law enforcement, our systems provide agencies such as
London's Metropolitan Police and the Swedish Police Force with the
high-speed information networks essential to security.
In the cantons of Switzerland, the arrondissements of France,
in major local government authorities in Great Britain, Italy
and Spain, and in fifty US states, Unisys is supporting local and
regional governments with growing administrative workloads.
In recent months, European agencies, such as the UK Crown
Prosecutors, the Italian Supreme Court, the French National
Railways and the Portuguese Fisheries Protection Agency, have
given Unisys their vote of confidence by placing substantial orders.
They all know they can count on Unisys people worldwide to
keep on providing the world's governments with the mission-
critical support they need.
Call Unisys, and find out how to keep ahead in a changing world.
©
1991 Unisys Corporation. Unisys is a registered trademark of Unisys Corporation.
UNISYS
We make it happen.
74 G-E
Information Processing
BITS & BYTES
EDITED BY PAUL M. ENG
"objects," which link each work file together with the specific
program that created and uses it-a letter with a word pro-
cessing program, for instance. That way, they can manage
'OVER HILL, OVER DALE, WE WILL
information intuitively, without having to know many of the
HIT THE PC TRAIL
system's underlying technicalities. To get the appropriate file
on a computer screen requires just a simple point and click
T
he U.S. Marine
with a computer mouse. What's more, workers can assign
Corps has set up a
objects meaningful file names, without being confined to the
giant electronic li-
eight-character names that DOS uses. Targeted at salespeople,
brary to help its peo-
secretaries, managers, and small-business owners, Way You
ple train and fight
Work lists for $399 a copy. Proteo plans to sell it through
better anywhere in
dealers and resellers as well as to get computer companies to
the world. Based on
package it with their hardware.
six IBM 3090 main-
frame computers and
optical disk drives
NEW ON CD:
3,
from Filetek Inc., the
EVERY ENGLISH POEM EVER WRITTEN
system provides ac-
cess to the equivalent of 234,000 300-page books. Eventually,
the system will contain the entire Marine Corps University's
A
las, there used to be but one way to trace the influences
of, say, Shakespeare's sonnets on all the English poetry
collection of war-fighting texts, including graphical images,
that followed: search through lots and lots of books. But now,
maps, oral histories, speeches, and even reports from the
Chadwyck-Healey Ltd., a Cambridge (England) academic pub-
recent Persian Gulf battles.
lisher, is compiling 4,500 volumes of works by 1,350 English
Whether in a remote battlefield or in Quantico, Va., where
poets onto four CD-ROMs to speed poetic research. The collec-
the system is based, soldiers can use personal computers to
tion, designed to be viewed on IBM PCS or PC-compatibles,
browse through an electronic card catalog to find what they
includes children's verse, pre-1800 hymns, and even obscure
need. Later, linking into the central computers via satellite or
poems, all dating from 600 to 1900 A.D.
telephone line, they'll be able to scan the stacks and access
Fully cross-indexed, the disks may be searched in a variety
data. If a great deal of information is needed-say, to bone up
of ways, including by author, individual words, phrases, or
on a particular geographic region or climate zone-reference
date of publication. Chadwyck-Healey says that should facili-
materials may be copied onto a compact disk and sent out to
tate new scholarship, such as tracing the deployment of specif-
the field.
ic images and metaphors. Traditionally, poetry indexing has
cited only opening lines. The disks also may help schools
improve their libraries' poetry collections and save space. But
HOW FAXED DATA CAN GO
even the most avid poetry fans aren't likely to acquire the
RIGHT INTO YOUR COMPUTER
disks for their home PCS: The introductory price is £22,000, or
about $38,000.
F
ax machines are great for corresponding, but when you're
using them to collect business data-branch-office sales
figures or payroll time sheets, for example-someone eventu-
JUST WHAT THE WARPED
ally has to copy the information into a computer. Now, Cardiff
BUSY EXECUTIVE NEEDS
Software Inc., a Solana Beach (Calif.) startup, has developed a
program called Teleform that reads faxes and converts perti-
W
hile keeping
nent information into standard data files.
track of ap-
The program, which requires an IBM PC equipped with Micro-
pointments is hard-
soft Corp.'s Windows software and a fax board, makes special
ly a source of
forms that have boxes containing 3x3 grids of dots. Each
great amusement,
letter and number must be handprinted by connecting the dots
fans of The Far
to follow set patterns. The letter 0 looks like a square, for
Side cartoon strip
example, but a "0" adds a diagonal slash through the middle.
will soon have rea-
When the completed form is faxed back to the computer, the
son to smirk at
same program that created the form knows where to look for
even the most hec-
data and what kind of information each field contains. Tele-
tic of schedules.
form will come out in October, with a $995 list price. Cardiff
Created by soft-
says it's working on versions that can read free-form hand-
ware maker Amaze Inc., based in Kirkland, Wash., the Far
writing and typewritten text, too.
Side Computer Calendar works with any IBM PC or PC-compati-
ble. Similar to other calendar programs, it provides reminders
of important dates and daily itineraries. But instead of using a
SOFTWARE THAT LETS YOU
bland calendar format, Amaze worked with Far Side creator
MANAGE YOUR FILES INTUITIVELY
Gary Larson to include 365 original drawings never seen in the
more than 1,000 newspapers that print his works. What's
H
ate having to learn all of those hard-to-remember com-
more, reflecting the strip's offbeat humor, animations such as
mands to get your different IBM PC programs to work?
penguins on an ice floe float across the screen at random
Proteo Technologies Corp. in Princeton, N.J., may have what
intervals. Amaze says that not only breaks up the monotony of
MARK MATCHO
you're looking for. Way You Work eliminates the need to
the day but also helps save the screen's phosphor coating,
master all those confusing DOS commands or file names.
from having "ghost images" burned into it. An Apple Macin-
The company claims its product lets customers deal with
tosh version will be out in October.
74 H-E BUSINESS WEEK/SEPTEMBER 16, 1991
INFORMATION PROCESSING
FREE INFORMATION
FOR READERS OF
BusinessWeek
Want more information about advertisers in this issue?
If SO
1. Review the list of advertisers below.
2. Circle the corresponding number on the reader service
card, complete the necessary information, affix postage,
and drop in the mail.
FINANCIAL PRODUCTS
11. Marriott Hotels &
AND SERVICES
Resorts
1. Credit Suisse
12. NASDAQ
2. GREGOR Frankfurt
13. NMB Bank
PRODUCTS/SERVICES
14. Northern Telecom
3. Anritsu Corporation
Europe Ltd.
15. Omnisec
4. BASF
16. Patek Philippe Watches
5. Dowty Network
Systems
17. Peninsula Group
6. Ericsson Telecom
18. Saab Automobile
19. Samsung Company
7. G.E. International
Lighting
20. Siemens AG
8. Gebruder Sulzer
21. Thai International
Airways
9. Holiday Inns
22. The Drambuie Liquor
Co., Ltd.
10. I.M.D. - International
Management School
23. Unisys
People
ENTREPRENEURS
The story of how
Callaway, a newcomer to
CALLAWAY: JUST OFFER
A "DEMONSTRABLY
the golf business, pulled off
SUPERIOR" PRODUCT
such a feat is just the latest
chapter in a career full of
gambles and deft salesman-
ship. "You've got to create a
product that is demonstra-
bly superior to what's avail-
able in significant ways,"
explains Callaway in a
twang left over from his
boyhood days in Georgia.
"And-most important-it
has to be pleasingly differ-
ent. That's all there is to it.
Simple." Callaway har-
nessed that principle while
climbing to the top at Bur-
lington Industries Inc.,
where he became president
at age 48. Later, he applied
it to a risky wine venture
that he wound up selling for
a $10 million profit.
Now, Callaway has hit
upon another huge success with a golf
club that many consider revolutionary.
Big Bertha's big clubhead means it has
a larger sweet spot, so players don't
ELY CALLAWAY:
have to worry as much about off-center
hits. And because designers eliminated a
THE OLD MAN AND THE TEE
weighty part of the shaft known as the
hosel, they could add that weight to the
head without making the club too heavy
At 72, he's dazzling the golf club market with Big Bertha
(diagram). That means golfers can hit
the ball farther.
t's 7:30 on a golden Southern Califor-
Calif., has catapulted from a tiny special-
BUSH WHACK. The combined results are
nia morning in November, and golf
ty outfit selling mostly novelty clubs
eliciting raves from weekend golfers and
club maker Ely Callaway is at it
into the fastest-growing golf club maker
pros alike. "I never got off the tee so
again. Dragging a visiting pro to a local
in the country. At a time when most club
well in my life," George Bush said on
driving range, the 72-year-old former
sales are lagging, Callaway's revenues
national TV after whacking a good one
textile tycoon shoves a prototype of his
are expected to double for the fourth
with his Big Bertha. At $250, the club is
latest club-a driver known as Big Ber-
straight year, to about $40 million. That
more than twice as expensive as a nor-
tha-into the skeptical pro's hands. The
would put the company among the
mal driver. But New York retailer Rich-
range is closed for business, but
world's top 10 club makers.
ard Metz has been selling up to 120 Big
Callaway darts out onto the dewy fair-
Berthas a month this summer and is
way and scoops up a few balls lying in
BIG BERTHA vs. THE COMPETITION
constantly running out of stock. "It's an
the grass. Then, he stands back and
unbelievable club," he says.
smiles as the pro swings approvingly in
Nobody would agree with that more
the early morning mist. "He wanted to
than Callaway. Tremendously proud of
get that club in my hands so badly,"
An oversize
his accomplishments, he doesn't hesitate
recalls pro Tom Bracken of Western
clubface increases
to trumpet them. He is, he boasts, one of
Hills Country Club in Waterbury, Conn.
Big Bertha's
the few truly creative people in the golf
"He is so enthusiastic that you are
sweetspot, for
industry. The rest of the business, he
made to be a believer."
argues, has grown bureaucratic and
PHOTOGRAPH BY ALAN LEVENSON; CHART BY ROB DOYLE/BW
straighter shots
Believers are everywhere these
BIG BERTHA
complacent.
days. With golfers from Chi Chi
Whether that's true or not, there's lit-
Rodriguez to George Bush teeing
CONVENTIONAL
tle chance of anyone calling Callaway
off with the Big Bertha driver,
complacent. Fit and energetic, he darts
Callaway's tireless boosting is paying
around the office with the vitality of a
off as nobody would ever have predict-
Also, Callaway
man half his age, slapping backs and
ed-except Callaway himself. The appeal
eliminated the hosel
cracking jokes. Callaway's personal life
is a new design that is larger, heavier,
connecting the shaft to
has never lacked for change, either.
and more forgiving than most clubs.
the clubhead and shifted
Wife Cindy, 41, is his fourth. "You
That helps explain how eight-year-old
HOSEL
the hosel's weight into
shouldn't focus on the number," says
Callaway Golf Co., based in Carlsbad,
the head itself-resulting
Callaway cheerfully. "I was married to
DATA: BW
in longer shots
76 BUSINESS WEEK/SEPTEMBER 16, 1991
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People
the others for at least eight years
return for a 54% stake in the company.
each."
"Ely's just such an engaging guy, he's
Business Week
These days, he dotes on Big Bertha.
difficult to say no to," says John H.
International now gives
Callaway keeps a close eye on manu-
Myers, executive vice-president of GE
facturing, touring his plant once or
Investments.
the world more space.
twice a day and greeting many of his
Difficult, but not impossible. After
250 workers by name. But his real
working as a procurement officer in
From the amount of space some busi-
forte is in marketing. Each day, he
World War II, Callaway joined Bur-
ness magazines give international
spends hours chatting with golf deal-
lington Industries and quickly rose
ers by phone. He writes much of the
through the ranks to become president
news, you'd think it was a small world.
company's advertising copy, and he is
of the textile company in 1968. But his
But with Business Week International
always on the lookout for ways to
engaging style wasn't enough to win
it's quite the opposite.
squeeze the most out of a tight ad
him the intense contest for the CEO's
We recently expanded our world
budget.
job. So he left in 1973, putting his sav-
coverage with an even more extensive
Earlier this year, as pros converged
ings into building a vineyard on dusty
International Report-adding several
on Orlando for a trade show, he ran a
ranch land outside San Diego.
full-page ad unveiling Big Bertha in
pages devoted to the international de-
It seemed an unlikely spot for a win-
the Southeast edition of The Wall
ery, but Callaway listened to the ex-
velopments most likely to affect your
Street Journal. Callaway had the pa-
perts he hired and gave them a free
business. Profiles on key international
per delivered to every hotel room in
hand. Within five years, they had some
corporations. An inside look at U.S.
the area-with a sticker on the front
winners, and Callaway, with his usual
politics and its influence on world mar-
page pointing to the ad.
panache, started selling the wines to
kets. Detailed information on all the
Not everyone is impressed with Big
top New York restaurants such as the
Four Seasons and the Coach House.
latest technology and emerging social
That move gave his Callaway Vineyard
trends.
Not everyone is impressed:
& Winery instant visibility and credibil-
So don't let a lack of space keep
ity-without spending a dime on ad-
you from staying on top of the world.
Rivals say oversized clubheads
vertising. Romantic as owning a win-
Subscribe to the publication that gives
ery sounds, though, Callaway was
you more international coverage.
have been around for years—
characteristically dry-eyed. When Hi-
Just send in the attached order card
only without Bertha's hype
ram Walker & Sons Inc. offered $14
today. Or, if the card is missing, write to
million for the company in 1981, he
didn't hesitate.
Business Week International, Sub-
INTO THE WOODS. Golf as a business
scriber Service, P.O. Box 506, Hights-
Bertha. Karsten Solheim, the designer
came naturally to Callaway. Passion-
town, New Jersey, 08520, USA.
of the innovative and hugely popular
ate about the sport, he won tourna-
Ping golf equipment, notes that big
ments as a teen, and in the 1960s, he
BusinessWeek
clubheads have been on the market for
was his club's champion. He got into
years. What's propelling Big Bertha,
the business in 1983, first selling pric-
he and other rivals claim, is mainly
ey replicas of old-fashioned hickory-
hype.
shafted clubs. Convinced that modern
Even so, the club does have an im-
golf clubs could be made better, he
pressive technological pedigree.
and Helmstetter started producing a
Callaway Golf President and chief de-
line of irons called S2H2 in 1988, fea-
signer Richard Helmstetter assembled
turing the same hosel-free design as
a team of five aerospace and metallur-
Big Bertha.
gical engineers to design the head.
Gradually, Callaway has moved into
They first came up with a version that
licensing, including a line of golf balls
was too small. A second prototype per-
carrying the name of golfing great
formed much better but was ugly.
Bobby Jones. Marketing is everything:
They scrapped that one, too. A year
Twelve Bobby Jones balls in a com-
ago, the designers shortened the face
memorative mahogany box retail for
and smoothed out the toe to make it
$125, or about eight times the normal
look better, and they made the whole
price of a dozen balls.
thing sturdier by using a different
Next year, Callaway plans to intro-
casting technique. Big Bertha, named
duce a whole line of new irons and
after a World War I German cannon,
woods, hitting the market just as the
was born.
excitement over Big Bertha may be
A VINE ROMANCE. To help pay for devel-
fading. Showing off a prototype in his
opment, Callaway got a friend to ar-
office, he is clearly pleased with the
range a meeting with the General
way things are going.
Electric Pension Fund in 1988. When
But then, with Callaway Golf doing
he first approached GE's investment
so well, it may be time to sell or even
managers, they were doubtful. His
take the company public. When Ely
company was too small and too unre-
Callaway is involved, it's best not to
lated to anything GE does. But
rule out anything.
Callaway persisted-and the pension
By Eric Schine in Carlsbad, Calif., and
fund wound up investing $10 million in
Peter Finch in New York
78 BUSINESS WEEK/SEPTEMBER 16, 1991
PEOPLE
Executive education is
meaningless without vision.
At IMD, executive
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Sports Business
SOCCER
just from American fans: Organizers
project that the 52-game series will at-
tract more than a million foreign visi-
tors. "We expect we're going to sell ev-
ery seat to every game," Cale says.
THIS MAY BE THE KICK
Additional money for the U.S. team will
come from sponsors such as American
AMERICAN SOCCER NEEDS
Airlines Inc., which will place the USA
soccer logo on its planes, and from U.S.
television rights. Negotiations are under
Will hosting the '94 World Cup finally get the U.S. into the game?
way with ABC, CBS, ESPN, Fox, and
Turner. It is expected that about a dozen
t's a sweltering August night at Vet-
teams. And the roster, whose members
key games will be on the networks, with
erans Stadium in Philadelphia, and
forged a dismal 0-3 record in the 1990
the remainder on cable.
13-year-old Kevin Sherry Jr. is
cup in Italy, is undergoing an overhaul.
'FOCAL POINT.' The cup, held every four
pumped. His hair shaved in a soccer-ball
Since the May arrival of colorful new
years, could be a marketing bonanza. In
motif, Sherry stands outside the players'
coach Bora Milutinovic, a Yugoslav with
1990, 26 billion people worldwide viewed
entrance, eager for an autograph from a
international experience, play has im-
the games on television, with more than
member of the U.S. national soccer
proved dramatically. Milutinovic, who
1 billion watching the final between
team. "He eats, drinks, and sleeps soc-
coached the 1986 Mexican and 1990 Cos-
West Germany and Argentina. That's 10
cer," says Kevin Sr., also a big fan.
ta Rican teams, is trying out different
times the size of the Super Bowl audi-
The scene is one that American orga-
lineups to find the magic combo. Only a
ence. "Any company that is directly mar-
nizers of the World Cup, the sporting
4-0 loss in Austria to local power FCS
keting to soccer looks to the World Cup
world's premier event, hope to repeat on
Tirol marred a summer in which crowds
as a focal point," says Paul Milone, pres-
a grand scale as they prepare to host the
of 40,000-plus saw the U.S. manage ties
ident of Intersport Ltd. in Sterling, Va.,
1994 soccer championship-and finally
with Ireland at Foxboro, Mass.; with
maker and distributor of the Lanzera
soccer shoe, which goes on sale
in the U.S. next year.
The rivalry among cities for
the games is ferocious. Twenty-
six communities have already
submitted bids, including six-
Dallas, Los Angeles, Miami,
New York, Tampa, and East
Rutherford, N.J. (home of the
Meadowlands sports complex)-
vying for the final. "The bottom
FAN
line is, if we stage four games,
the economic impact will be $82
million, with tax revenues of $6
million," says Joanie Schirm,
who leads Orlando's effort. Al-
ready, hoteliers there have com-
mitted 28,000 rooms-a quarter
of those normally available dur-
ing the peak summer season.
Walt Disney Co. officials have
expressed interest in staging
SOCCERMANIA IN
the cup's opening ceremonies,
PHILLY: FAN SUPPORT
Schirm says. And a two-minute
IS BUILDING
video featuring kids extolling
the virtues of soccer in Orlando
get soccer soaring in the U.S. In to-
Italian great Juventus in New Haven;
is being shown around the world.
night's exhibition match, the national
and with AC Milan in Chicago. In July,
Luring young soccer fans is part of
team and the 44,261 in attendance do
the U.S. won its first international tro-
the U.S. strategy to use the World Cup
their best to silence critics who say the
phy, beating Honduras 4-3 to win the
to further development of soccer in the
U.S. will never support the game. Two
championship of the U.S., Caribbean,
country. Plans are afoot for a profes-
beautiful second-half goals prove the dif-
and Central America. "Bora has just giv-
sional league that would start after the
ference as the Americans beat a top
en us instant credibility," says midfield-
cup ends in July, 1994. "There's a coordi-
British team, Sheffield Wednesday. By
er Bruce Savage.
nated effort to keep the ball rolling,"
the middle of the second half, fans do
And that should certainly help put
says Cale, "not just for 1994, but for the
the wave and chant: "U. A.! U.S. A.!"
fans in the seats. Charles G. Cale, chief
future of soccer in the U.S."
The Philadelphia game is part of an
executive of World Cup USA 1994, the
Who knows? Maybe the next time Ke-
international marketing road show for
private group organizing the event, says
vin Sherry Jr. watches a soccer match in
the U.S. team. This summer and fall, it's
he will need $250 million to $300 million
Philadelphia, he'll have a local team to
DAVID FIELDS
playing in a series of friendly matches
to host the games. A large chunk of that
cheer on.
here and abroad against top foreign
will come from ticket revenues, and not
By Tim Smart in Philadelphia
SPORTS BUSINESS
80 BUSINESS WEEK/SEPTEMBER 16, 1991
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Editorials
systems scheduled to go into production in the mid-to-late
1990s. Right now, there are too many unknowns, such as
MAKING EVERY GALLON
how the former Soviet republics work out military ar-
rangements among one another and with Moscow and who
OF GAS COUNT
will control Soviet nuclear forces.
Amid the debate over what to cut, there also will be
n the struggle to use energy more efficiently, a quiet
hundreds of suggestions for ways to use the defense savings.
revolution is under way. Using energy-efficient equip-
Representatives Richard A. Gephardt (D-Mo.) and Les Aspin
ment and benefiting from regulatory incentives for util-
(D-Wis.) have already proposed skimming off $1 billion or
ities to save electricity, many companies have discovered
more of the defense budget for aid to the Soviet republics
that minimizing the high economic and environmental costs
and Eastern Europe. But as American fascination with the
of energy by using less makes them more competitive (page
second Russian revolution fades, attention will certainly
58). Indeed, this conservation power has transformed the
turn to urgent domestic priorities, from education to housing
utility industry from purveyors of megawatts into mar-
to health care to AIDS research.
keters of "negawatts," or saved energy.
Even so, the collapse of the Soviet Union is a historic
There is still a lot of room for improvement, however. A
windfall-an unexpected opportunity to slash the huge bud-
fertile area for more dramatic gains is transportation-
get deficit and correct some of the distortions in the U.S.
namely cars. The 180 million vehicles on U.S. roads ac-
economy that resulted, in good part, from 45 years of cold
count for 40% of the country's oil demand and produce 20%
war. Most of the expanded peace dividend should go to
of its carbon dioxide. The need is to get people to drive less,
balance the budget. That will require more than fine-tuning
and burn less fuel in the process. To that end, we've long
the current spending categories. What is urgently needed is
held that a higher gasoline tax-up to 50¢ a gallon, with re-
an overhaul of the basic budget accord. Obviously, the bud-
bates for low-income drivers-makes sense. So do stricter
get pact must not be allowed to lock the country perma-
new-car mileage standards. Many carmakers have argued
nently into unrealistically high defense outlays. The windfall
that raising mileage levels means cutting car weight, size,
must be invested wisely-and there is no sounder investment
and safety. But in July, both Honda and Mitsubishi an-
than curbing the runaway deficit.
nounced new lean-burn engines that could improve fuel
economy by 20%. And steady improvements in aluminum
and plastic composites promise that lighter, higher-mileage
cars will be just as big, safe, and powerful as today's models.
MAY THE BEST
A host of other options-rush-hour tolls, car-pool lanes,
rapid-transit networks-help minimize driving demand. For
FIBER OPTICS WIN
the longer haul, these measures must be merged with new
land use and transportation plans. In Seattle, for instance, lo-
cal governments are trying to concentrate new develop-
B
y the end of the century, telecommunications in most
advanced economies will be radically transformed.
ment into area centers. Car use will be discouraged by
New kinds of switches, transmission gear, and soft-
building the centers around mass-transit hubs and by chang-
ware will make it possible to send colorful, 3-D images just
ing zoning SO that commercial and residential areas can be
by dialing a phone number. Videoconferences will be cheap
melded-allowing people to walk to work or the store.
and frequent. Rivers of bits and bytes will flow across the
In the aggregate, all these options make sense. Driving is
country on fiber-optic lines (page 72).
heavily subsidized: Roads are usually free, likewise parking,
But information superhighways won't appear by them-
and U.S. gas prices don't reflect the full social and envi-
selves. Many nations-notably France, Singapore, and
ronmental costs of the fuel. The policy objective must be to
Japan-have formed national programs to build advanced
offset those subsidies.
networks, with close coordination between the government
and the leading national phone company. The U.S., mean-
while, is counting on competition among profit-minded com-
panies to fill customers' needs. But laissez-faire has a dark
HOW TO INVEST THAT
side in telecommunications: incompatible, competing net-
works and uncertainty that slows down investment.
PEACE DIVIDEND
Some confusion is preordained in free markets, but steps
can be taken to lessen it. Standards-setting bodies such as
W
ith the evaporation of the Soviet military threat
the American National Standards Institute need to stream-
that saddled the U.S. with enormous budgets
line their procedures SO that new technologies can be offered
for 45 years, further spending cuts are inevitable.
in a uniform fashion, and Congress should create a pre-
More than half of the $291 billion military budget is used to
dictable environment for investors by settling some long-run-
meet the NATO commitment to help defend Western Europe
ning debates. For example, investment dollars are being
against attack by Soviet forces. Justifying anything like
held back while potential players wait to see whether the
that level in the future makes no sense. The question facing
Baby Bells will be allowed to own cable TV systems or
the U.S. is what to do with the savings.
make telecommunications equipment. Through such steps,
It will take time to determine how much and where to cut
the U.S. can approach the stability of national policy coor-
defense spending-including a slew of big-ticket weapons
dination while still enjoying the rewards of free markets.
82 BUSINESS WEEK/SEPTEMBER 16, 1991
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select our wide choice of in-
smooth your way. Lufthansa
flight menus and wines.
service can start for you
However, it's not simply our
long before take-off, with a
ground and aircrews'
hotel booking into one of
uncompromising attitude to
12,500 rooms across the
personal service and quality
world. And if you want that
that makes Lufthansa
extra attention to detail, we'll
different. It's our passion for
put you in a hotel with its
perfection in everything that
own Lufthansa service desk.
concerns your well-being.
Of course, if you want a ren-
Have a good trip.
SEA
Lufthansa
Northern Telecom helps bring the world to Hollywood.
000MATTON
These days, anyone can get to Hollywood.
playing a major role on the small screen. In France
One of the quickest ways is via Los Angeles Inter-
Canal +, the leading French Pay TV network, uses
national Airport. (LAX).
a Northern Telecom automatic call distribution
Of course, in such a busy place the need for
system to welcome new subscribers.
effective telecommunications goes without saying.
This advanced telecommunications system
The local phone company that services LAX
handles over 150,000 calls a month, providing
chose Northern Telecom's sophisticated telecom-
services to nearly 3 million existing subscribers
munications switching system.
and communications between Canal + and its
With this they handle everything from airline
nationwide network of retail distributors. It also
scheduling to seat assignment. As well as servicing
supports telemarketing promotions and provides
more than 60 businesses inside the terminal.
a reservation system for live performances.
In fact, the system is ideally suited to a wide
Just two of the ways in which our advanced
range of business and residential needs, having
telecommunications products are helping people
been designed to serve large metropolitan areas.
in more than 100 countries worldwide.
Away from Hollywood you'll also find us
Can we help you?
© 1990 Northern Telecom
And helps bring Hollywood to the world.
nt
northern
telecom
TECHNOLOGY THE WORLD CALLS ON.
Country ABSOLUT of Sweden
VODKA
This superb vodka
on. d from as
inactor
than
400 years of Swedish tradition
andsold under the name Absolut
Since 1879.
80 PROOF
BOTTLED IN SWEDEN 1 LITRE (33,8 FL. OZ.)
IMPORTED
ABSOLUT CLARITY. ABSOLUT