Magazine

Too Lean A Machine?


END OF THE LINE

The Rise and Coming Fall

of the Global Corporation

By Barry C. Lynn

Doubleday; 312pp; $26

(Readers'

Reviews below)

Editor's Review

The Good Makes a case that offshoring and specialization have left the U.S. economy highly vulnerable.

The Bad It's somewhat overstated?and lacks detail about the thinking of corporate chiefs.

The Bottom Line Should stimulate needed reflection about U.S. business' weak spots.

Big American companies have been enormous generators of shareholder wealth over the past three decades, dominating markets, gobbling up competitors, ruthlessly slashing costs -- and workers -- to stay ahead in the game of globalization. But that may be about to change, says Barry C. Lynn in End of the Line: The Rise and Coming Fall of the Global Corporation. These same outfits "have built a system so hyperspecialized and so lean that a relatively small glitch in production on the far side of the world has the potential to devastate large swaths of the American economy," he contends. That system, which involves just-in-time inventory controls, outsourcing of production, and deregulation by Washington, "may prove to be perhaps the single most grave error in the history of the American nation," Lynn says.

This is pretty harsh. But some disturbing evidence of our vulnerability has already appeared in the headlines. As Lynn points out, a 1999 earthquake in Taiwan shut down electronics factories around the world by interrupting supplies of semiconductors manufactured by just two companies in the same industrial park. One explosion at a chemical plant in Japan in 1993 cut off half the world's capacity for a resin used to make computer chips. The next month, the price of memory chips doubled, driving laptop prices up by $100. A 10-day West Coast longshoremen's strike in 2002 cost the U.S. economy $20 billion in lost production when American factories were unable to import components. And the September 11 terrorists succeeded in shutting down air traffic for days and slowing the movement of goods from Mexico and Canada.

Using the examples of U.S. multinationals such as Cisco Systems (), Dell (), FedEx (), General Electric (), General Motors (), and Wal-Mart Stores (), Lynn shows how cost-cutting and outsourcing by industry leaders have fed on themselves, leaving corporations dangerously open to even minor supply-chain interruptions. How has this happened? FedEx has encouraged U.S. manufacturers to depend on daily delivery of global components to their assembly lines. Cisco has shown how a high-tech manufacturing behemoth can be created by assigning in advance most of the work to other companies, leaving little in-house.

Lynn doesn't fault corporate managers as much as post-World War II federal economic policy, especially that of the Clinton Administration. Washington has repeatedly substituted a misguided enthusiasm for globalization and free-trade deals for the pro-manufacturing industrial policy favored by Alexander Hamilton and nearly two centuries of leaders, says Lynn. The U.S. also came to view the scattering of its production facilities around the world as a clever foreign-policy tactic to fight the Cold War, spread democracy, and draw nations together in an interdependent web. Now, America faces "the end of the line," or a precipitous decline in manufacturing capability, thanks to decades of determined offshoring.

Drawing the link between Washington's policy-bungling and corporate shortsightedness is provocative stuff, and Lynn, a longtime business journalist, hammers home his message with apt references to contemporary corporate history. But End of the Line isn't without flaws. We don't get much color or insider detail on the thinking of the corporate chieftains who so radically transformed the business landscape.

In Lynn's solutions chapter -- de rigueur for such books -- he calls for the sort of radical reregulation of our "industrial commons" that we'll never see from the current White House, Congress, and Supreme Court. For example, he'd like to require companies to triple-source components and services from two or more nations and then to make all these contracts public.

This won't happen anytime soon. Nor, in my opinion, are we about to see the fall of the global corporation, as he sketches it out. But when Hollywood remakes this book into a movie -- "Earthquakes! Terrorism! Supply chain disruptions!" -- antiglobalists will probably flock to the theaters.

By Paul Magnusson


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