William M. Agee, 42, chairman and president of the Bendix Corp., is often cited both as one of the nation's brightest young businessmen and as a key campaign backer for President-elect Ronald Reagan.
A graduate of the Harvard Business School, Agee got his start with the Boise Cascade Corp., which he joined in 1963, and rose quickly to become its chief financial officer and senior vice president.
He joined Bendix in May 1972 as that firm's executive vice president and became chairman in early 1977 when he succeeded W. Michael Blumenthal, who was chosen as President Carter's first Treasury Secretary.
Last week, Agee interrupted a busy travel schedule to talk about business and political issues in a 90-minute interview in his well-appointed office in Bendix' Southfield, Mich., headquarters.
Here are some excerpts from those discussions:
Q: Mr. Agee, we hear a lot today about American business being in trouble, and that U.S. industry has lost its competitive edge in the world. Do you agree?
A: That we've lost our competitive edge I believe certainly is the case. Can we no longer compete? I don't accept that. But we have a tremendous amount of work that we must do to catch up where we're behind, and to accelerate the learning process where we still do have a competitive edge. It's a very complicated situation, but if we take the appropriate action at all tiers of society, we can certainly regain our No. 1 position.
Q: How do you think the U.S. slipped so far behind?
A: There are many reasons.First, technology fell out of favor in the late '60s, and the mentality that "less is more" crept in. The very adversarial relationship between business and government in the 60s and the 70s -- I think that contributed to it. The whole idea that R&D [research and development] was not as important [anymore]. And, in the business community, the emphasis on short-term profitability -- I think that clearly contributed.
I think we went through a period where people's time-horizons were dramatically shortened. The here-and-now seemed to be more important, as opposed to the long term. Planning -- strategic planning -- at the government level hasn't existed to the degree it should. Even in the business community, we haven't been as visionary, and as futuristic, and as strategically oriented. We've been, as a nation, too tactical in reacting to short-term directions.
Q: Whenever people talk about business's problems these days, the question of productivity always comes up. Is that really the villain, or has the problem too often been as much a matter of bad management decisions, timidity or, perhaps -- as you just suggested -- that businessmen are playing to the short-term, with too much of an eye on dividends and so forth?
A: Well, I think all of those points are contributing forces. And I should add another one -- that we have had a regressive tax policy, which has contributed to [the] short-term mentality and lack of incentives. That clearly has been inherent. Our policies have emphasized consumption at the expense of the supply side. There's been a lack of either vision or strength of conviction for the long term on the part of management. It has really been the convergence of all these events, over an extended period of time, so a negative state of mind has developed -- at management level as well as at the governmental level.
Q: How about government regulations? It's fashionable to blame them for business' troubles. How much of a problem are they? Specifically, where and how are government regulations a burden?
A: Well, there's no question in my mind that a lot of the government regulations that have been imposed in the last 10 or 15 years have been very constructive. So, I'm not against government regulation per se. I think, however, that regulations have cost the country -- consumers and our society -- quite a bit.
Whether it be in the automobile industry, the steel industry, some of our basic mining industries, and other heavy industries, there's no questions that regulations were needed. But I have the feeling that we went too far, that took money away from other areas, whether it be capital investment, capacity, cost improvement, whatever.
You see studies which say $100 billion went into unnecessary government regulation. I don't know if that's an accurate number, but even if you, say, cut it in half, that's an awful lot of money that the consumer is paying today. We're paying in two aspects: One, the fact that we've had to raise our prices to cover some of those costs. And we've paid also because the money hasn't been able to go into R&D or more efficient plants, which would help keep costs down. So, it's almost a double whammy, if you will.
Q: You're not suggesting, then, that we need to roll back things like the Employe Retirement Income Security Act, the Environmental Protection Agency, Occupational Safety and Health Administration, or cut them out entirely?
A: I don't know of any major area, whether it be EPA, OSHA, whatever, where we need to eliminate it. I'm not suggesting that. I'm suggesting that the rule of reason and efficiency and effectiveness and total social cost and social benefit be looked at. Not just one half of the equation.
I think we've spent too much time looking just at 'we must reduce this to zero,' or 'we must reduce this very close to zero.' We need to examine more, 'what above zero that's economic -- cost-effective and all these other matters -- will accomplish our social needs, but at the same time not have the economic consequences. We should look at them and say, 'do we really need that much?" and if we don't, can we rachet back a bit, so that it won't cost us as much and yet we'll still accomplish the same area?
Q: There are a number of proposals around to encourage investment -- faster depreciation write-offs, an additional investment tax credit, and so forth.Some economists argue that none of these is necessary -- that business will invest on its own whenever it sees a market out there. On that basis, do you think a straight cut in the corporate tax rate would help business more?
A: Accelerated depreciation and investment incentives of all kinds will do as much to help some of these things we've been talking about than anything else. I wouldn't be against a reduction in the corporate tax rate, but if I had to choose between one or the other, I would take accelerated depreciation and investment incentives before I would take across-the-board cuts.
Q: Do we need -- or is there any sense to -- a program to "reindustrialize" America, as the Carter administration has proposed? Indeed, is it even worth trying to revive heavy industry here? Wouldn't we be better off simply to concentrate on things we do well, such as aircraft and computerware?
A: Well, I know that word "reindustrialization" has become very much in vogue. I'd rather call it a war on innovation and technology and productivity. But I think regardless of what we call it, we need to develop a state of mind and an attitude and a fierce dedication toward solving many of these root problems we have in this country, and it starts at the very top -- the top of government, the top of business, the top of labor.
First, we have to agree, as I think we have, that we do have serious competitive problem in this country. We need a comprehensive policy that is strategic in nature, and we hold on course, on path. You don't just do it in one or two years -- you do it over an extended period of time.
One of the vehicles that I think was helpful to us in the '60s was the space program. I don't know whether we should go back to a space program to the degree we did before, but [we need] some national resolve that has tremendous outfall from it. In addition to just accomplishing a mission -- getting to the moon or getting to whatever it might be -- the technological spill off that can come from that, where we get working toward the resolution of some of these things, is what we absolutely need.
Q: A sort of national mission?
A: A national mission, national purpose.
Q: Is President Carter's proposal for a crash synthetic fuels development program a candidate for that?
A: It's one, but it's a limited one. I think what we need to be doing is spending our time on the technologies of the 1980s and the year 2000 and have programs -- a major national program or programs -- that are geared toward accelerating, getting us to those new technologies.
Q: Are you suggesting federal financing of some sort?
A: Of some sort.
Q: What are you talking about -- say, $5 billion?
A: I don't know what the number is, but the federal government has to set the tone, and private industry has to step in behind it and say, 'we want to be ready for the late '80s and the '90s.'
Q: Suppose we were to embark on the kind of crash synfuels program that the Congress already has mandated, and we also want to beef up our defense spending sharply? Does the U.S. have the industrial base now to accommodate both those goals?
A: I don't know for certain. My reaction is there will have to be give somewhere because obviously the base is neither big enough nor our resources great enough to allow us to do all of these. I had the feeling that the synfuels program, while the direction was correct, the magnitude was not necessary. So I believe we must remain on the path of becoming energy independent, but it may mean a scaled back synfuels program, because the pie is quite small.
Q: A year ago the Federal Reserve Board shifted to a new policy of keeping an eye on the growth in bank reserves, rather than on interest rates, in setting money and credit policies. The board said then it made the change to get a better grip on inflation. But the new policy also has resulted in more volatile interest rates. From a business point of view, is the Fed's new approach worth the trouble?
A: Well, the volatility is not pleasant, and the high interest rates are not that pleasant, but I think we still have to go behind that and get to the root causes. I think inflation must be stabilized or brought more under control. It must be.
The alternative is to say, okay, let's go for lower interest rates, let's inflate more and see if we can do it that way. Now, whether we need to have as much volatility or not, I'm not an expert. But given the kind of spending level and what we must do to fund our deficit, I think it's inevitable that we have higher rates just because that's reflective of what kind of inflation rate we have in the country.
Q: A growing number of American executives have been looking more closely at what Japanese firms have done -- both when the Japanese have taken over American businesses, and when U.S. teams have visited Japan. What are Japanese firms doing that seems to make them so much more efficient than ours, and how much of this can be adapted to the American system?
A: I've spent some time examining that and the observations I have would be that the Japanese have had a greater emphasis and a greater management resolve toward quality and productivity and have had some very inventive ways to cause that to take place. Their whole existence since the war has been to have a competitive edge and to upgrade their quality because of where they were 25, 30 years ago. They've lived for export, and they've had to have a cost and quality edge to increase their export position. The whole mentality of that country is international- and export-minded.
In the United States, we have not in general been in that position over the years. We've been pretty much a self-sufficient kind of market, and I think that we in management -- not all managements -- but we in managament have not had the emphasis or the dedication to quality, nor have we been as fiercely dedicated to our costs and productivity.
We were lulled into a false sense of security that we could continue to have very large labor increases, and that in cases where we could'nt pay for them through increased productivity, we could pass those costs on to the consumer. Well, when you didn't have the competition -- worldwide competition that we've had in the last five or 10 years -- it was easier to do that. Of course, we have worldwide competition now.
I think that the Japanese, on a general management sense, have maybe a generational jump on us in terms of looking at things differently. At this stage, they show some qualities and some methods that we must learn from.Whether they're better managers and all this, time will only judge.
Q: For all the lip-service American business pays to free markets, there have been numerous times in recent years when it seemed to go the other way. In the past few months, for example, we've had calls for import quotas, a steel "trigger-price" protection scheme, the Chrysler request for a bailout, and so forth. How do you feel about all these things? Should business be seeking these protections?
A: Well, I feel that the free-market system must be allowed to continue to operate and when there are temptations, as there were in the case of Chrysler, we shouldn't bend to those temptations. I was not a proponent of the Chrysler bailout and I am still not. I am not a proponent of import quotas.I am, however, of the mind that we must take a much stronger stand in terms of negotiating better trade policies with certain countries where there's more quality on the other side.
Q: Would you favor negotiation of an orderly marketing agreement, in which Japan agrees voluntarily to limit exports of autos here?
A: Perhaps. I would say it this way: If we culd be free of quotas, import quotas, free of trigger-pricing, not having Chrysler bailouts, but at the same time have more freedom on the other side of the mat to be tougher in our negotiations with Japan, in terms of what is allowed in on a free basis there. I'd like to see that.
I don't think we did as well in our approach to the Japanese in the last go-around [of trade negotiations] in terms of what could be sold into their particular market. I don't believe that they have as free a market as we do on this side, and so if we can create some freedom in, let's say, Japan, and greater advantages -- that that should be at the heart of what we're doing.
Q: You were a supporter of Governor Reagan during the campaign. Do you subscribe to the new "supply-side" economics and all that it implies?
A: I believe in the general proposition that reduction in tax rates at the margins on balance net will be a positive in a fairly short period of time -- not instantly, but in a fairly short period of time. I'm not sure that I believe the total curve -- I'm not a trained economist -- but conceptually, I go along with the idea. [Tax cuts also will] put a greater governor on expenditures, and what we have not had in this country is a governor on expenditures.
Q: How about sharp spending cuts?Do these have to accompany the tax reductions, or can they stand on their own?
A: I don't know if it has to be dollar for dollar, but one of my pet hoppy horses is that I do not accept the proposition that the bulk of the budget is uncontrollable. Whether it's dollar for dollar, I can't say that, but directionally, less spending and more wise spending must happen, and the pressure to have more responsible spending is greater if you have less revenue.
Q: One of the theories of supply-side economists is that if you cut income tax rates at the margin it will prod people to work harder. Let me ask you about your own case. Do you think that tax cuts of this sort would make you and other executives work harder?
A: Make me personally? No.
Q: How about a $20,000 a year production worker?
A: Well, I guess we'd have to be psychologists and everything else and do exhaustive studies, but I think societies over time have proved that if people get to keep more of what they earn, they are certainly happier. They probably do work a little harder and the world is better off because of them.
Q: Mr. Agee, we've had all sorts of interpretations about the election. Some have ascribed it to the unpopularity of President Carter. Others contend the results reflected a basic shift toward conservative values. What do you think it means for business?
A: I think it was all the factors that you've just mentioned, plus a couple of others -- and I think the Senate [results] showed that. I guess I would subscribe to the proposition that this country has been moving more toward the conservative and more moderate approach on an economic basis than perhaps some of the analysts and some of the pollsters and others have picked up -- more moderate approaches to economic policies, more moderate approaches to some of the relationships between business and between government. More reasonable, more responsible, more efficient -- whatever word you want to use.
And I think that's very healthy. I think we have an opportunity now to put into place and to solve many of the complaints that responsible business people have had -- resolve those in a way in which we don't roll the clock all the way back or we don't go back to square one, but to solve those problems in those areas that are impinging upon our ability to solve some of those root problems.
But [we must] do it fairly quickly, fairly responsibly, act quite decisively and then do it in a consistent manner. One of the things that has been most disturbing to most business people is the inconsistency, the vacillation and the lack of really strategic direction that we need to have in this country. We have an opportunity to put together a four-, five-, eight-, 10-year master plan, how this country can get back on track again. We have just tinkered at the margin on almost all of our decisions over the last four or eight years. We don't need to do that and I don't think we will do that, if the people who are now in power do what I hope they will do.
Q: What, in your view, should Ronald Reagan do to control inflation?
A: Work toward developing a long-term plan, that's point one.
Point two is to, within the framework, realize that you can increase expenditures in one area, you can decrease expenditures in another area, you can cut taxes but at the same time not necessarily over time increase the deficit. You can look very closely at the entitlement programs -- not doing away with the entitlement programs -- including a real hard look at the indexing system for changes in Social Security benefits -- not eliminating them, but making them more responsible.
Q: The Carter administration is phasing out its voluntary wage-price guidelines, and the Reagan administration shows no signs of reviving them. Should the incoming government consider any sort of involvement in private wage-price decisions? A tax incentive for unions that hold wage-demands down?
A: I'd just as soon not see anything in this area for a period of time.
Q: You think we're stuck with low growth for many, many years because of our cost-push inflation right now?
A: No, we don't have to be. The more we can avoid being protectionist and the more we can help the Third World start to develop and the more we can view the world as our economy and behave that way so that the world pie will increase, we will have -- we can have -- and we bring under control the OPEC monster, we can still in this world have growth rates, maybe not to the degree we saw in the, let's say, the soaring '60s, but we can certainly see them 2, 3, 4 percent.