COMPETITIVENESS, WE'RE TOLD, will be the byword of the Reagan administration in its final two years. The theme was expounded first by Richard G. Darman, deputy secretary of the treasury. It was repeated by Malcolm Baldrige, secretary of commerce. It will be the central thought of President Reagan's State of the Union address in January.
The idea is simple. Industry must become more competitive:* If it is to regain a position of pre-eminence in the U.S. economy, and
* If this country ever is to reduce its overwhelming trade deficit and re-establish itself in world markets.
The idea is more than putting a coat of paint on idle plants in the Rust Belt and getting steam up in them once again. It is a matter of rebuilding America's pride. There is a practical political aspect as well. The Republican call for competitiveness - linking together moribund Big Business and intractable Big Labor - is a counter to the Democratic demand for more protection from foreign competition.
It is an attempt on the part of the GOP to label the Democrats as economic troglodytes. The GOP is trying to tag the Democrats with legislation as damning as the Smoot-Hawley Tariff with which the Democrats beat the Republicans over the head for more than 50 years.
It was interesting that Paul Volcker the other day echoed the Republican theme. At about the same time, the Federal Reserve Board, which he chairs, was telling Japan's third largest bank, Sumitomo, to slow down. It limited severely Sumitomo's application to acquire a significant chunk of Goldman Sachs & Co., the big U.S. investment banking house. It denied Sumitomo any influence on Goldman Sachs' investment policy.
The action, it seems to us, runs counter to the call for greater U.S. competitiveness. As one of the few remaining private partnerships in the investment banking business, Goldman had clear need for additional capital and little way of obtaining it domestically. Sumitomo, for its part, was taking the first step toward following the huge wave of Japanese direct investment in the United States - by Honda, Toyota, Mitsubishi and others.
It doesn't make sense to rail against the Japanese for failing to open their capital markets and then do the same thing ourselves.
The Fed, of course, had an easy out. It was only doing what it was required to do under the Bank Holding Company Act, that is, maintaining the barrier between commercial and investment banking. No expression of dismay, however, at what it was required to do. No suggestion that the Glass-Steagall Act, which put the wall between the two kinds of banking, ought to be changed.
It is notable that increases in U.S. competitiveness, where they are occurring, often bear the label Made in Japan.