For most of the past decade, Irving S. Shapiro has been one of the leading spokesmen for American business. As chairman of the Du Pont Co. since 1974 -- and head of the prestigious Business Roundtable, and organization of major U.S. industrial firms, from 1976 to 198 -- he has played a major party in thrusting business into the public policy arena.
A government antitrust lawyer during the 1940s, Shapiro was President Carter's first choice to become Treasury secretary in 1979, but he turned the job down to continue in his role at Du Pont.
This spring, after a 40-year career in government and business, Shapiro, now 64, is proparing to retire, effective in April, to practice law on his own and continue "to work with" Du Pont. He will be suceeded as the company's chairman by Edward G. Jefferson, now president of the Wilmington, Del.-based corporation.
Last week, in his first major interview since announcing his retirement, Shapiro talked at length on his many years in business, offering some surprising observations -- and solutions -- for some of the nation's problems. Here are excerpts from that 1 1/2-hour session:
Q. Mr. Shapiro, there's been a lot of complaining, both in and out of the business community in recent years, that American industry has fallen behind and lost its competitive edge. How much is there to that notion?
A. It's an overstated proposition. In some industries, there probably is some truth to it, and in other industries there isn't. For example, take the chemical industry, that I know something about. I don't think that we've lost our edge versus our competitors in Japan or Germany or Great Britain, where the major chemical companies operate. If you look at it in terms of sales or profitability or R&D [research and development] expenditures or new inventions, the American chemical industry still leads the pack.
So, one can make a fair case that not enough capital is being generated to permit the kind of investment that we need to stay healthy. But that doesn't say that we're running behind the pack as a nation. It does say that we've got pockets in industry where that's happening. Steel is obviously one. Short term, the automobile industry is another like that. But you have to take it in terms of specific industries and what's happening in those businesses.
Q. Well, in those particular industries where the U.S. has slipped behind, what do you think the major reason has been?
A. Well, let's take automotive, which is crucial to the nation. The simple fact is that for a long time the country refused to believe that we had an energy problem. And so, people continued to want large cars. They were unwilling to be concerned about gas mileage.
I can remember when General Motors started to produce the Chevette. It had trouble giving those cars away. That shows the market wasn't ready for a small car.
Then, when the crisis started to move very vigorously, the country finally decided we really did have an energy crisis, and everybody wanted a small car overnight. The industry couldn't produce that many small cars in a hurry. And so there was an obvious market opening for the Japanese and the Germans and others. And they very adroitly seized it with good products and good marketing.
Now, the fact is that the Japanese, particularly, have been making small cars for a long time because Japan always knew it had an evergy problem and so their automotive needs were different. They just happened to have the right product at the right time for the American market.
Beyond that, I think it's a fair bet that the American automotive industry has been hobbled by Uncle Sam as a partner in designing cars and marketing cars and all the rest. I can remember the Japanese government taking a similar role versus the Japanese automobile producers.
Q. When you say the auto industry here has been "hobbled" by Uncle Sam, what specifically do you mean -- the effect of the government's decision to postpone decontrol of oil prices in delaying consumers' shifts to smaller cars?
A. I mean getting into issues of design of automobiles. You know, let me just say that I think some of this was brought on the automobile industry by themselves. Government moved in because there was a vacuum, and the industry wound up with partners who were making decisions for them.
Q. Whenever people talk about the health of American industry today, business leaders almost inevitably point to government regulation. How serious is the burden of government regulation on business today, and how much of the complaining simply is rhetoric?
A. One has to be careful about generalizations. Obviously, there are fields in which regulation is a necessity, and only government can do it. On the other hand, government has no self-restraint.Once it has power, it tends to exercise its maximum power without reservation. oThat's the heart of the problem.
No one would argue that the Food and Drug Administration shouldn't control drugs. The issue is really, how do you do it, how much control do you exercise, what tradeoffs do you consider? And government isn't very good at dealing with those kinds of issues, for two reasons.
The first is that the people who undertake the responsibilities are new to them, and when they're new, they tend to use their full poser as the only safe course of action.
About the time they begin to learn their jobs and understand the industry they're dealing with, they leave government and a new crew comes in and starts all over again.
The other problem you have has to deal with the press. Government officials build a reputation and gain credit with the public at large by having good press coverage. You don't get good press coverage by not issuing regulations, by not controlling industries -- you get it by taking dramatic action that attracts attention.
So, there's a natural bait out there that encourages regulators to play to the media, to play to the public, without having to worry too much about whether this is the wisest course of action. Now, again, that's a generalization, and one has to be careful -- because not all regulators, not all agencies proceed that way. But enough do so that it is a fundamental problem.
Q. What you seem to be saying, then, is that regulation is a problem, but that it's not really all that inhibiting. Is that correct?
A. It's a contributing factor.It diverts capital. It diverts manpower. If I may take a simple illustration to make my point: In many cases, the water that comes out of our plants after use is purer than the water that came from the river before we used it. Now, if under those circumstances, the Environmental Protection Agency says, "We want you to add more equipment to make the river even purer," that's possible. But it's going to take a lot of capital.
And the issue you have is, is that a better use of capital, or are you wiser to use that capital to build plants that produce goods and provide jobs?
To know where to draw that line is an act of wisdom. I'm not sure that government always is that wise in doing these things -- not because it wants to be a burden, but simply because people don't know any better.
Q. What would you have the government do to resolve these difficulties that you see here? Roll back all regulation?
A. It seems to me the starting point is to recognize that the administrator and the industry need not be adversaries. They ought to have a common objective.
Most businessmen are sensible and rational people. They recognize that they've got to meet the needs of our society or they're not going to be successful.
I don't know anybody who really believes in dirty air or dirty water. I don't know anybody who believes that you ought not to have safety in your plants -- that you ought to be indifferent to accidents or death and so on.
And so I would make the case that if you get rid of the adversary approach and simply say we have a common objective -- one as a representative of the public sector, the other as a representative of the private sector -- we ought to sit down and talk about how to get from here to there. You very often would wind up with good answers. Once the objectives resourceful than government could be in finding the routes to get from here to there in the most efficient way.
We do have a lot of talent. A lot of those people are very expert in their fields, and once they've put their minds onto it, they can come up with answers. That doesn't happen very often. Instead, the system says we must be adversaries.
Q. How would you go about changing that?
A. I would change it, I think, by going back to the drawing board. When you deal with basic economic policy, whether it's with the secretary of the Treasury of Commerce or elsewhere, you can sit down and talk. When you deal with the administrative agencies, you've got a whole set of ground rules that attempts to avoid corruption of the system.
Q. Are you suggesting, then, that the current regulatory procedure is too cluttered?
A. It's absolutely too cluttered up. It's got too many barriers to communications.It's got people tied up in knots.
What it is today, really, is an adversary procedure in which you've got single-issue groups on one side pressing the agency, you've got people in the agency pressing for their own viewpoint, and then you've got people in the industry pressing for their viewpoints, and each one is shooting at the other.
Ultimately, you wind up in court and then work out the compromises afterward. And it seems to me perfectly wasteful and silly to say that you have to go through all that agony to do something that you should have been able to do at the beginning.
Q. And what about the problem of government officials tending to play to the headlines?
A. That is not a problem that is going to be solved. That's inherent in public service. If one accepts the First Amendment premise, the price you pay for that is that people are going to seek favorable press coverage. And we can live with that. I think one simply has to recognize that it's there.
Q. We've talked a lot about government's faults here, but what about corporate managers? Some critics say business executives today are too timid, too unwilling to take risks, much too interested in short-run gains. Are they a part of the problem, too?
A. That's another one of these generalizations that is getting a lot of currency now, which is subject to a lot of qualifications. It is true that we've pushed by quarterly financial reports into judgments that measure you on today's results rather than building for the future.
But on the other hand, if you look at the chemical industry in terms of how it functions, it takes us 3 1/2 to 4 years to build a plant, because of the complexity of the chemistry and so on.
That means that for most of my administration, I'm taking action that will relate to what happens after I'm retired. Your criticism never addresses those kinds of questions.
Sure, those things are all pressure points, but by definition a good chief executive officer is there because he can handle pressure points, and he ought not to be influenced in basic policymaking by short-term pressure points.
Sure, you want to satisfy the analysts, you want to satisfy investors, you want to satisfy your stockholders and your board.
Q. Mr. Shapiro, there's been a lot of ringing rhetoric from the business community about the virtues of "free enterprise," but it seems that often when an industry gets in trouble the first thing its managers ask for its government handouts: The auto industry now wants import quotas, the steel industry wants trigger prices, and Chrysler wants another bailout. How do you square these two?
A. Well, I think you have to recognize that businessmen are just like everybody else: They sometimes talk out of both sides of their mouths, depending on their self-interest. They sometimes use slogans to mask their real thinking. And "free enterprise" is that kind of thing. It's a slogan. It means different things to different people. You pour your own meaning into it.
The fact is that when the Chrysler issue arose, the Business Roundtable as a matter of principle adopted a resolution opposing the bailout, released it to the press and communicated it to the administration. Nevertheless, one has to recognize that we're human beings, and there isn't always consistency in the positions we take.
Q. Have you perceived any major change over the past few years in the traditional relationship between business and government?
A. Oh, yes. There's been a remarkable change. I think that industry has come to have a new perception of its role in our society and of its role opposite government.
The CEOs have come to be a lot more sophisticated about what government really has to do to function, what it takes to make policy decisions, how business ought to participate in those decisions in terms of producing facts and alternatives -- as distinguished from an earlier period in which they viewed government as a place where you had political muscle.
If you supported a candidate, you expected his vote regardless of the merits. [It was] a period in which you opposed fresh ideas without offering alternatives of your own.
You know, the tradition of the National Association of Manufacturers in the '30s and '40s gives you that kind of a problem that haunted industry for a long time.
You can get the same thing if you go back to the old Liberty League. Businessmen had a narrow concept of their function in our society: They thought it related to producing goods, running good shops, earning profits and leaving the rest of it to government. And in today's world, business leaders recognize that they've got a responsibility to help make the system work better, to help offer solutions to problems.
Q. Do you see any change in the public's perception of business? In the late '60s, it sometimes seemed as though the electorate actually was antibusiness. Is that still the case, in your view?
A. Well, you have two threads here: The public is better informed about the economy now and is beginning to recognize that unless you invest capital and build factories, produce goods, you can't create jobs.
And also, the political demagoguery has stopped. There was a time when particularly liberal politicians thought it was always good for votes to raise hell with industry. And Carter did some of that with the oil industry, in particular in the first two years of his administration. But it was broader in an earlier period.
Q. What do you think it is that has turned these attitudes around?
I think at bottom is the fact that the public has now said government can't solve our problems. We tried that for several decades, and it's now clear that -- despite all the rhetoric -- we've got inflation, we've got all sorts of problems, the pie isn't getting bigger. I think we are at a point in history in which if you level with the American public they'll be very supportive of business.
Q. You were a frequent adviser to the Carter administration and once President Carter's choice to be secretary of the Treasury. How do you assess the Carter administration's performance in its four years in office, and what did it do wrong?
A. Well, let me deal with what went wrong first, and then we'll come to the analysis.
The first two years of the administration are what went wrong, in my judgment. And there were two very fundamental problems. The first was they tried to really make a government tick with people who were pretty good at winning an election but had zero experience with making policy. And those people, while able, had to learn. And their learning experience was a very costly thing for the nation.
Secondly, in that two-year period, economic policy was fundamentally made, in my view, by people who were politically oriented but knew very little about the economy. And it wasn't until Bill Miller came to Washington as chairman of the Federal Reserve Board that he and [Treasury Secretary] Mike Blumenthal together were able to get the president's attention.
And by then, the damage had been done. If you look at the Carter administration as two distinct segments, the performance in the last two years was far superior to the first two years.
Q. What do you mean? Who were these people, specifically?
A. What I really mean is that the key calls were being made by [White House domestic adviser] Stu Eizenstat and [Vice President] Fritz Mondale and the president. And all three of them are good friends of mine, but they just were not knowledgeable enough about the economy to call the shots right. They needed help. And they weren't listening to the people who were the experts.
They were approaching everything on a political basis. You remember all the hullaballoo about "tax reform," the "three-martini lunch" and the oil companies. That was all political garbage. It had nothing to do with solving the problems of the economy.
And it took a long time before those folks finally faced up to the reality that things are getting difficult and you better listen to the pros.
Carter had some naive ideas when he started: the idea that he was going to have an energy policy, and he gave the team 90 days to come up with one. And so they did. They took that Ford Foundation work and said, "This is out energy policy." That was a tragic mistake. But all of this came from inexperience.
And I guess the lesson I draw, at least, is when we pick presidents, we don't look at all at whether they're trained by experience to take on the responsibilities. We look at a personality: Do we like him? Do we not like him? That sort of thing. And I think they had a fair amount of difficulty until they got on top of the job. By then the damage was done.
Q. How does President Reagan look to you so far?
A. Well, I saw him for the first time last Saturday night at the Alfalfa Club dinner, and I thought he handled himself well. I thought he was wise to show up and let everybody know that he was there and he gave a damn.
I think he's done a good job of picking the Cabinet. There are a few exceptions that one could quibble about, but the key jobs have gone to people of competence and ability. It remains to be seen whether they can recognize the difference between political rhetoric and a policy program.
The classic Carter mistake in the beginning was that the people who put the campaign together were trying to make policy, and there was a difference -- and they never recognized that difference.
And I think the Reagan people now have the challenge. Because you can make all these great speeches you want, but when it comes down to making policy you have to have much finer judgment, be more discreet and all the rest. And they haven't done it yet, so you can't judge.
Q. What do you think will be the major challenge facing the Reagan administration in its first year in office?
A. The economy. Your simply have to get inflation under control. Otherwise, the nation is in deep distress. You can't have a defense program. oYou can't provide jobs. You can't get growth unless you control inflation. It's just that fundamental.
Q. And how would you get inflation under control?
A. Well, I think you've got to do some things differently than the proverbial best wisdom of the past. Obviously, the heart of the issue is to get rid of inflationary expectations. We've done it in the past. We've had high inflation in our history in the past, and we've gotten rid of it.
I think they're on the right track in saying they've got to deal with taxes.
They've got to leave more capital in the private sector. I think cutting back on deficit spending is obviously a necessity. You can't afford to spend more than you've got without sooner or later getting into trouble. And I suppose I buy it, but I think that freeing up the private sector to do its thing would help.
Q. In what way would you free up the private sector?
A. Simply to turn people loose -- to do, to experiment, to try things. You know, even changing the capital gains rate has led to a lot of financial support for small enterpreneurs -- for things of that kind, which make the difference in the economy. The changes in energy policy have led to all kinds of new gas discoveries. For a while, the thought was we didn't have any more gas in this country. And what that says to you is that if you just turn people loose and let them do their thing and take their own risks with their own capital, you get surprising results.Now, there are limits to that, obviously. But if you look at our history, our periods of great accomplishment were in periods when there were hard-driving people doing all kinds of things on their own and sometimes failing and sometimes succeeding, but there was growth.
Q. President Reagan has endorsed the Kemp-Roth tax-cut package, which would provide for a 10 percent across-the-board cut in federal income taxes in each of the next three years. Some people say it would be inflationary. What do you think of the Kemp-Roth plan?
A. Well, Kemp-Roth is political rhetoric. Neither [Rep. Jack] Kemp nor [Sen. Bill] Roth are economists or students of the economy. They're politicians. And they arrived at a formula that had a ring to it, and it played politically and they've milked it. But it ought to be discarded now.
The worry I have is that the administration will feel that it's a captive of Kemp-Roth and have to offer it because they talked about it.
Q. Don't you think it has to? After all, it was the centerplace of Mr. Reagan's economic proposal during the 1980 election campaign.
A. No. I often pleaded with President Carter to forget what he said when he was a candidate and recognize that he was now president and he had to make policy based on how he saw things now rather than what he said before he knew the facts.
There are times when you ought to face reality and not live with something just because you said it. Obviously, there are political repercussions to walking away from everything you say during a campaign.
But on the other hand, the intelligent people have to recognize that you can't really commit the country to 30 percent tax cuts for individuals and believe that the Laffer Curve is going to save you. Once you've got responsibility, you've got to deal with these issues in a different way.
Q. What would your own tax-cut package look like?
A. Well, I'm not close enough to be able to tell you where I'd cut the budget. I think it's an act of irresponsibility to throw the nation into a $100 billion deficit situation just because we're going to cut taxes. And so, I tend to agree with (Federal Reserve Board Chairman Paul) Volcker.
I think you've got to have -- well, you've got to do both. If I had to make the call, I would announce a three-year program of budget cuts to be implemented each year. And I would then have some tax cuts. I won't quantify the amount because I need numbers before I could talk intelligently, but the emphasis would be on capital investment areas. I'd go to savings. I'd go to encouraging investment, job creation.
Q. How much do yo think realistically can be cut from the federal budget -- $10 billion, $20 billion?
A. I think, to take a number out of the air, if I had to make policy on it, I'd go at it the other way and say there is no real prospect that you can get through specific program cuts without being bloodied. And the only way to get from here to there is to do it across the board in terms of the operating budget as distinquished from that which you can't control.
Q. Would you try to cut back the so-called "uncontrollables" by altering the formulas for existing benefits programs?
A.That's the second step. I don't think you can do that short term. The first thing I would do if the call were mine would be to simply say to all the agencies -- which is what I would do in the Du Pont Co. -- conditions being what they are, I expect you to use 2 percent less funds for operating costs than you had last year.
That means you ought to sort out your programs in an order of priority and you ought to think about eliminating those programs that don't have a very high priority because we can't afford them.
Now, there might be a few painful situations, but my hunch is that you'd find a fair number of programs discarded that nobody would miss. That's been my experience here when we call our people and say, "Look, the facts of life are, this is the capital you've got to work with. Now go back and redesign your programs so you can work within these constraints."
We find that they have better programs. We find that they come back with reduced capital requests. They've figured out new ways to get from here to there using less capital. And the world doesn't come to an end.
Q. It's been popular these days for critics to hold Japanese industry up as a model and say American firms ought to copy its techniques. Is there anything the Japanese do that you think can be applied successfully here in the U.S.?
A. First of all, the issue is overstated. But accepting your premise for the moment, the Japanese are very good in managing workers, in getting productivity out of them. They have demonstrated, even coming to the United States and taking over plants in this country, that their techniques for managing their employes work and they're very productive. So, they're entitled to credit for that.
Earlier one would have said, well, that's indigenous to Japan, but you can't transfer it over to the United States. But they've transferred it. And they're doing it with American workers, and they're very successful. And that's something one ought to pay attention to.
Q. What is it they've done to manage people that results in so much higher productivity?
A. What have they done? Well, if you look at the Japanese history, they have built a very close relationship in their business enterprises between their workers and the managements. It's been a lifetime relationship. There is a national ethic that says that work is important. It contributes to the nation.
And so, when you go into a Japanese hotel, even the chambermaid works at her job as though her life depended on it. And Japanese managers have been able to transfer that and transfer it to American workers.
Now, the point I was making is that when we in Du Pont and others like us have done this in this country, we've been accused of being too protective of our people. It's been looked at as though there was something wrong with it.
And the Japanese do the same thing and eveybody says, "My God, they've got some fresh idea that really works."
Now the fact is that many of the things the Japanese are doing in their plants are the things we've been doing in our plants for years. Most of our employes are with us for life. We have been paternal about our employes just as the Japanese have, except we started in 1802. And maybe that's what today's world calls for.
The other thing that's crucial here, of course, is new machinery, new technology. Now, the Japanese have gone at this by government decision that allocated capital to target industries that they wanted to emphasize. For example, the computer industry is one like that, where they said they wanted to take IBM on head to head across the world. And so they poured their resources into that area, and they're doing a good job.
Q. There's been a long-time debate, as you know, over how much business should have a social conscience -- that is, divert resources to hiring poor people and cleaning up the environment, as well as just to making money. Your own firm is consistently cited as one that has done well in areas such as these. How much of an obligation do you think industry should have in these fields?
A. Well, social conscience is another one of those phrases that contains any meaning you want it to contain. Our philosophy from the beginning has been one that says that you can't conduct a business in isolation. You're a part of the community in which you function. And you'd better be sure that you're helping to make the community a good community.
And that says you've got to be responsible for all the evils that you may bring to the picture. And our track record is pretty good. We've had our mistakes, too, but on the whole it's pretty good.
I don't see the dichotomy. I don't see how anybody can run a business and justify dumping waste on the side of the road or shipping a product that is obviously inappropirate.
If you think about it carefully, the fact is that business is a means to an end, it isn't an end itself. And if you accept that premise, then that defines your social consciousness issue completely. I don't mean to say that we ought to respond to every do-gooder that comes down the pike and say, "Yes, we'll do what you want done."
But on the other hand, it's insane to think you can run plants without being concerned about the safety of your people or their health, or that you can ship defective products and stay in business, or ship dangerous products. These are the kinds of things that are just good business. So that I wouldn't draw a distinction between the bottom line and social consciousness. The two go together.
Q. Mr. Shapiro, you're now wrapping up your term as chairman of Du Pont after seven years in that post. Have you ever run into any conflicts between your role as spokesman for the business community and your job as head of the corporation?
A. Well, that's an interesting question. The role of the spokesman for American industry was, in a sense, thrust on me -- but I didn't turn it away. I saw the need, and I worked with it.
In the early days, there were people in Du Pont who wondered whether I was not selling them out by devoting time to these kinds of matters rather than to devoting my full time to what they regarded as Du Pont business, which meant being in the office at 8 o'clock in the morning and being here when they went home.
As they began to get experience with the role of government opposite industry in today's world, and public policy matters, they began to reconize that good things were happening because of what we were doing. And so many of the Doubting Thomases suddenly found a new wisdom and started applauding what I was doing.
Now, it took time, and it took some pain. But the fact is that there was a transition in the mid-'70s that affected all of industry and a lot of the CEOs, and I was just part of it.
But our people today, I think, have a much finer appreciation for the public responsibilities of a man in my job than they did six or seven years ago. My successor will not face the same kind of questions in this area that some of our people had for me.
Q. Mr. Shapiro, you're about to finish up a 40-year career that has taken you from government to business to public policy roles -- as a lawyer, a corporate manager and an industry spokesman. If you were to leave a single message for those coming up behind you, what would it be?
A. Let me say a couple of things. The first goes to the genius of our system. This has been said hundreds of times by lots of people. Nevertheless, but for the fact that the state of Minnesota provided me a college education at nominal cost, the odds are I'd never get from here to there.
So, the chance in our society for anybody to raise up his status by his own ability is probably the overriding thing that people tend to forget. It's there for anybody who wants to seize it, even in today's inflationary economy.
The second is simply that business is a means to an end, it is not an end. And once you recognize that, all these other things fall into place.
Running the Du Pont Co. isn't worth a damn unless it contributes to the nation, unless it provides jobs for people, unless it does all those things that the nation has a right to expect from business.
Making money is terribly important if you're going to be able to do the things you want to do in running a business. But it's not the end that you're really reaching for. The end is something else.
So, from a business standpoint, I'm really satisfied that we've built into the job description of a CEO now what I've been talking about. The new men who are taking these jobs over are different kinds of men than those who took them over even 10 or 15 years ago. Enough said.