On excellence: Value for us and them

'YOU REALLY scared them. Most head family-run manufacturing businesses, and are pretty darn conservative.' That was the feedback from a talk I recently gave.

Funny, I didn't think I'd said anything that dramatic. I'd just returned from India, and had commented on that country's new-found strength in industries such as software. I added that every nation I've visited this past year - including Malaysia, Argentina, India - is aiming to create 'a value-added, knowledge-based, export-led economy'.

'Look,' I told the sea of greybeards, 'the bottom line is that the world doesn't owe us a living. We'll have to hustle like hell to maintain anything like our current living standards.'

Inscrutable textbooks aside, international economics ain't that tough to fathom. The Economist summed it up brilliantly in an editorial aptly entitled, 'He Wants Your Job'. 'For as long as there have been rich countries and poor ones,' the piece began, 'the poor have tried to catch up and the rich have tried to stay ahead. . . . Poor countries can copy the methods and technologies of their rich-country counterparts at relatively low cost; to continue to grow, the rich countries need to devise new methods and techniques for themselves. So, other things being equal, you would expect the poor countries to catch up. For the (most developed countries), that is the same as 'relative economic decline'. (But) as the gap closes, the follower countries lose their advantage. . . . With greater wealth comes demands for longer holidays, better pensions and health care, cleaner streets and factories.'

There's good news and bad news in those words. The good: relative decline for the likes of 'us' is normal, healthy and perhaps not happening fast enough, as economist Donald McCloskey points out in Second Thoughts: Myths and Morals of US Economic History. 'The tragedy of the past century,' he writes, 'is not the relatively minor jostling (within) the lead pack of industrial nations. It is the appalling distance between the leaders at the front and the followers at the rear. . . . Economists appear to have mixed up the question of why Britain's income per head is now six times that of the Philippines and 13 times that of India . . . (with) the much less important questions of why British income in 1987 was 3 per cent less than the French or 5 per cent more than the Belgian.'

The bad news: We do need to sweat blood. While we should focus more on the alarming gap between 'us' and 'them', we must also cope with a global economy where employment gravitates quickly to the most talented workforces. Within the United States, the distance between haves and have-nots is already a chasm; while we spawn a school of millionaires at Microsoft, most American workers feel like fish out of water these days.

Moreover, the nation that perceives itself to be in decline turns inward. Witness the increase in ugly, dangerous and ultimately self-defeating protectionist blather and immigrant bashing. The surest way to give decline a hand is to leave the most fertile playing fields, such as red-hot Asia, to the likes of Japan and Korea. In fact, America's recent and almost unprecedented reversal of relative decline is a direct product of a lingering willingness to allow feisty upstarts on to our field. Not only has that led us towards what we're best equipped to do (create more high-value services), but we've also roared back in autos and semi-conductors thanks to our exposure at home to direct external pressure (the likes of Honda, Toyota, Toshiba).

In an Industry Week article, the Ross Operating Valve Co CEO, Henry Duignan, said we needed 'new forms of wealth creation'. Ross Valve's answer to high-volume, good-quality, low-cost challengers from the likes of China is a revolutionary approach to applying workers' imaginations to customer problems - creating so much productivity improvement for customers, so fast, that even an dollars 18 difference in hourly labour costs becomes immaterial.

Ross Valve is a perfect illustration of The Economist's message: everybody can win. Less demanding customers will settle for quality commodity goods and buy Chinese. More demanding customers will buy 'old-fashioned' valves from a revitalised Ross Valve. The relatively high American tide continues to rise, though still not as rapidly as China's, where the extra nickel an hour in workers' pay that comes from selling a quality commodity product amounts to a great leap forward.

The magic of open markets notwithstanding, my seminar participants had reason to quiver. For companies or individuals not willing (or able) to engage in perpetual revolution in an increasingly connected world, absolute decline is a distinct possibility. No, make that a near-certainty.

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