
##223859 @!SANDER-VANOCUR : Welcome to Business World . I 'm Sander Vanocur and here 's what 's on this week 's agenda . voice over Taxes : you do n't need to be a lip reader to hear the talk of new taxes , on cigarettes , gasoline , even a European-style , value-added tax . From Hot Springs , Virginia , this week 's Business World guest , Business Roundtable Chairman Edmund Pratt . And this Mother 's Day , a look a family business , one flushed with success , another with a healthy waistline and bottom line . Also this week , Sandy Weill , successful at Shearson and Primerica . Could he be a force to be reckoned with on Wall Street once again ? And restaurants , trimming prices to beef up lean profits @!ANNOUNCER From ABC News , this is Business World , with Sander Vanocur and Stephen Aug . Now from New York , here 's Sander Vanocur @!VANOCUR The T ' word is out of the closet . The word that President Bush told us we would n't have to fear @ @ @ @ @ @ @ @ @ @ word echoing from Capitol Hill to the White House , amplified by estimates as the federal budget deficit for 1991 is galloping toward $100 billion - $36 billion above the Gramm-Rudman Budget Deficit Reduction targets . And as business editor Stephen Aug reports , that 's why the subject is one almost everyone 's lips . STEPHEN AUG : voice-over In Washington these days , the subject is taxes . But that does not always mean income taxes . Sen. ALAN SIMPSON , ( R ) Wyoming : May 8th That 's what people generally think of when they think of taxes . A value-added tax is being discussed , it was n't before . These are the things , there are all sorts of user fees , revenue enhancers , the whole works @!AUG voice-over But the economy has been sluggish for months . Retail sales have fallen for two months in a row . Corporate profits have fallen for the past two quarters . Is it right to raise taxes if it 's true the economy is in a slump ? NORMAN TURE , Economist : If that 's @ @ @ @ @ @ @ @ @ @ should want to put on now is additional taxes . There are no taxes that I can think of that can be raised or newly created that wo n't have an adverse affect on the aggregate volume of economic activity . HENRY AARON , Economist , Brookings Institute : The purpose of raising taxes is to reduce private demands in order to make room - typically , private consumption demands - in order to make room either for added government spending , or , as I think in the current situation , to make room for increased private investment @!AUG voice-over Among the taxes being discussed is a value-added tax , a tax imposed in each stage of production . It could raise more than $310 billion over a five-year period , or a one-percent national sales tax . It could raise $15 billion if it 's imposed just on retail sales , or $30 billion if it 's imposed on a wider variety of goods and services . But some economists say either a sales tax or a value-added tax would be the worst approach . Mr. AARON : The @ @ @ @ @ @ @ @ @ @ sales tax , will entail additional administrative apparatus , a new tax collection mechanism . That just is n't worth doing unless you bring it in at a rate sufficient to collect a very sizable amount of revenue , perhaps more than we need now . Mr. TURE : It would be bad news in economic terms , would be very bad news in terms of the politics , or fiscal policy and budget policy @!AUG voice-over So-called sin taxes , those on cigarettes and alcohol : doubling the cigarette tax could raise about $3 billion a year . Raising the tax on beer and wine could raise an additional $5 billion a year . Raising the gasoline tax might bring the government $1 billion for every additional penny a gallon . Recent proposals would raise the tax a total of 50 cents . That might raise $50 billion a year . If the gasoline tax were structured to reach a total of 50 cents a gallon , Ture says the effects on the economy could be staggering . Mr. TURE : That tax would be absolutely disastrous at this juncture @ @ @ @ @ @ @ @ @ @ in costs for everybody , and notice , you 'd be doing it at a time when the economy is not behaving in a very sturdy way @!AUG voice-over A $5-a-barrel tax on imported oil , this might raise about $8 billion a year . Taxing alcohol , cigarettes and energy might have socially redeeming values as well . Mr. AARON : Taxes on alcohol and tobacco would bring health benefits . Taxes on energy would reduce our use of a wasting diminishing resource , and also in some measure , reduce our dependence on foreign sources of energy . GAIL FOSLER , Chief Economist , The Conference Board : There are serious flaws with each one of those proposals . The sin taxes not only hit certain industries , but they also are tremendously regressive , and they 're very much like the consumption taxes , sales taxes , value-added taxes that people talk about , the burden of which falls very heavily on the consumer and the poor consumer @!AUG voice-over For income taxes , one proposal is to raise to 33 percent the top rate for those who @ @ @ @ @ @ @ @ @ @ as much as $10 billion a year . The income tax appears to be the approach economists think is fairest . This , even though most politicians seem unwilling to tinker with it . Mr. AARON : All things considered , however , I think that remains today the fairest place to go hunting for additional revenues , if we decide that we want to raise taxes @!AUG Some economists contend there are really no good options for raising taxes . One result could be that after a couple of months of talks , both the White House and Congress may reach the same conclusion , though some political economists figure it will be the White House that reaches it first . Sandy ? VANOCUR : Thanks , Steve . In just a minute , the business view of the prospect of new taxes from Business Roundtable Chairman Edmund Pratt . Commercial break VANOCUR : This week 's Business World guest was one of a select few CEOs to be invited to the recent annual trade retreat held by the House of Representatives tax panel , the Ways and Means Committee @ @ @ @ @ @ @ @ @ @ nation 's largest pharmaceutical makers . He 's also chairman of the Business Roundtable , a group of CEOs of the nation 's largest corporations . Edmund Pratt joins us from the meeting of another business organization , The Business Council , at the Homestead Hotel in Hot Springs , Virginia . Mr. Pratt , in the present debate about a change in the tax code , what does business want ? EDMUND PRATT , CEO , Pfizer : Well , Sandy , I guess I have to say first that for the last five years , business in general , and the Roundtable in particular , have been emphasizing to our Congress and to our government that what we believe is by far the most important challenge of problems facing this nation , is the deficit - indeed , the twin deficits , the trade deficit and the budget deficit . So we believe it is absolutely critical that actions be taken to address this , and we 're much encouraged by the fact that it looks like they 're starting to get down to work on it . As @ @ @ @ @ @ @ @ @ @ American , and certainly , particularly businessmen , really believe that the problem is not a question of taxes ; it 's a problem of the fact that we spend too much , and that we must address the budget problem by reducing expenditures . That 's been our position for a long time , it 's true in general about the people in the country . Unfortunately , Americans really do n't have confidence that if we just give more money to Congress they 'll use it to reduce the deficit , but they 'll just spend it for other things @!VANOCUR But the issue before the American people and the Congress and business right now is a need to raise revenue to reduce the deficit . If you raised revenue where there 's a possibility of a recession coming - you 've got high interest rates - does n't this , in the long run , hurt business ? Mr. PRATT : Well , we do believe that increased taxes are not the thing that the nation needs now . We must reduce the deficit . And it 's @ @ @ @ @ @ @ @ @ @ raise revenue . As I said before , reducing expenditures is the most important thing . Reducing the deficit , of course , would help business , it would tend to reduce interest rates and make investment , cheaper for investment , for business , and make us more competitive on a world-wide basis @!VANOCUR One of the issues that business has been for , of course , is a cut in capital gains . Well , when William Steiger , the late representative from Wisconsin , introduced this in 1972 at the Republican Convention in Miami , it was passed in ' 78 . So from ' 78 to ' 86 , you had a reduction in capital gains . Yet at the same time , this country experienced a great growth in its deficit . Are you concerned that pushing for capital gains now is the wrong way to attack this problem ? Mr. PRATT : Well , my own personal view , and I think in general , business 's , of course , a lowest possible tax on capital gains is a plus for business . But @ @ @ @ @ @ @ @ @ @ balance , and we do not consider that - the business community - to be a critical issue for us now . We believe it 's much more important that we do something to reduce the deficit . If there are to be taxes - and , as I said , we do n't believe that should be the right answer - but if there are to be taxes , I think it is very important that the kind of taxes that the kind of taxes that are chosen are not those that affect the competitiveness of industry , and reduce its ability to be profitable , because if that happens , we will have more people out of work and we 'll be less competitive internationally , and also , as you know , most economists are much concerned that increasing taxes could lead to a recession , which is certainly something we do n't want @!VANOCUR Thank you very much , Mr. Pratt . Thanks for joining us here on Business World . Mr. PRATT : Thank you @!VANOCUR When we come back , a look at Sandy Weill @ @ @ @ @ @ @ @ @ @ name looking to make a name for himself all over again ? Commercial break VANOCUR : Turning to the week on Wall Street , at Friday 's closing bell the Dow Jones Industrials finished the week up by more than 91 points . Last week , our panel of stock market experts from around the country were split . Our panel 's consensus is for an up week ahead . Some of our panelists say Friday 's bond rally could push the market upward . Panelist Al Frank , a Santa Monica-based newsletter publisher , noted the breadth of Friday 's stock market rally . AL FRANK , Investment Adviser : Friday 's market was extremely positive . There were over 20 to 1 , up to down volume , over 1,200 advances , and well over 200 million shares , which would signal a bullish market for the next three to four months , perhaps gaining 15 to 20 percent . We could see Dow 3,200 . Of course , there will be corrections along the way , but people who have been staying out of this market , or @ @ @ @ @ @ @ @ @ @ voice- over One name on Wall Street whose stock has been rising is that of Sanford Weill . The man who turned Shearson into a Wall Street powerhouse is at it again , this time targeting not just Wall Street , but the whole financial services industry @!ANNOUNCER A.L . Williams Video President , chairman and chief executive officer of Primerica , Sandy and Joan Weill @!VANOCUR voice-over Thirty five thousand persons , mostly Southern employees and spouses at term insurer A.L . Williams , made their own way to New Orleans ' Superdome in March to hear New York born and bred Sandy Weill . SANDY WEILL , Chairman , Primerica : When A.L . Williams and Primerica merged in ' 89 to create a new financial services company , I think it set out a new mission , and that mission is to be the leading financial services company in the world by the year 2000 , just 10 years away @!VANOCUR voice- over To achieve that , Weill would be competing against such household name companies as Sears , Prudential and American Express . Now competitors , Weill @ @ @ @ @ @ @ @ @ @ American Express bought Shearson in 1981 . A couple of years later , Weill resigned. interviewing But you left . Why ? Mr. WEILL : We just had a disagreement on philosophy @!VANOCUR voice-over But Robinson 's influence on Weill was unmistakable . Both men have made their mark on the business and cultural horizon . Today , there 's a recital hall named after the Weills at Carnegie Hall , because he raised the $60 million needed to restore the New York City landmark in 1986 . When Weill left Shearson , Peter Cohen , who was considered his protege , took over . But Cohen moved the firm into riskier businesses that culminated in his role , with Robinson 's blessing and help , as Ross Johnson 's investment banker in his failed $25 billion RJR Nabisco LBO bid. interviewing I take it that you do n't believe in RJR Nabisco deals . Why ? Mr. WEILL : I just have n't believed in borrowing so much money that you have no room for margin for error . I think that- our philosophy , really , is to plan @ @ @ @ @ @ @ @ @ @ vice versa @!VANOCUR voice-over As a result , Shearson 's problems became front-page news . Cohen got fired and American Express had to pump in nearly a billion dollars . Then the exquisite irony of Weill looking to buy back the firm he once assembled . ARTHUR LEVITT , former Chairman , American Stock Exchange : It was kind of an emotional appeal for him to go back and show everybody that he could do it once more @!VANOCUR voice-over The deal did n't pan out . But to a group of his own Smith Barney analysts , Weill explained his motivation . Mr. WEILL : And when you see all the competitors around you stumbling , it could have been a fantastic opportunity @!VANOCUR voice-over Weill has cultivated a style that is approachable and informal . No palatial suites of offices , or limos to lunch or business meetings , an atmosphere where people say they can speak their minds , among them legendary trader Lew Glucksman . LEWIS GLUCKSMAN , Vice Chairman , Smith Barney : He knows he will get it from me just the way I think @ @ @ @ @ @ @ @ @ @ shy about telling me things that I do n't want to hear sometimes . JAY CUSHMAN , Managing Director , Morgan Stanley : He likes to talk to people , he likes to talk to people inside his business organization as well as on the outside , and there 's no question about that . But there is , I think , at the same time , a degree of reserve and old-fashioned conservatism that stands in the good stead @!VANOCUR F. Scott Fitzgerald is supposed to have said there are no second acts in American life . Is Sandy Weill about to prove Fitzgerald wrong ? FRANK ZARB , Chairman , Smith Barney : You and I have seen people who are either very intelligent and not very smart , or very smart and not very intelligent . He 's got both of those characteristics . Put that all together and you 've got one exception to Mr. Fitzgerald 's axiom . Mr. WEILL : I think I 'm still a young person . I think I 've learned a lot from what I 've done , and I think @ @ @ @ @ @ @ @ @ @ build a great company @!VANOCUR When we return , when mommy is a CEO and being mommy 's favorite could mean millions . Commercial break VANOCUR : Today , of course , is Mother 's Day , the day we honor the job our mother 's do all year round . But currying favor with mom takes on extra special meaning when mom is n't only running the house but your company as well . voice-over Manufacturing toilets is not exactly a glamour business . But the Gerber Plumbing Fixture Corporation is a good example of how a family business can survive for generations , despite the fact that most family businesses have a life expectancy of less than 25 years . Founded in 1919 , the company is now run by the founder 's daughter , Harriet Gerber Lewis , age 70 , although she was n't exactly the heir apparent . HARRIET LEWIS , Gerber Plumbing Fixtures : I had never really been in this business . In fact , my father was so strict , no women were allowed in the office until after office hours @!VANOCUR voice-over @ @ @ @ @ @ @ @ @ @ then 33 , her husband , and her 28-year-old brother Oscar , were left to carry on the business . Ms. LEWIS : When he passed away , it was overwhelming , and I think - I was a quick study @!VANOCUR voice-over Sheila Cluff , trim 54-year-old , faced another kind of trauma , starting a health spa business in Southern California from scratch . SHEILA CLUFF , Founder , Fitness Incorporated : We got together and I mortgaged the house , I think , the kids , the cars . My husband even took a loan against his retirement , and we decided that we would indeed start The Oaks at Ojai . That was about 15 years ago @!VANOCUR voice-over Nor was the Oaks , located in a resort town two hours north of Los Angeles , an overnight success . Ms. CLUFF : We got down to our last $10,000 , and I went down to 83 pounds . I was teaching every fitness class at the Oaks because I needed to save the money @!VANOCUR voice-over Sheila endured with the help of her family , added @ @ @ @ @ @ @ @ @ @ business with 200 employees and a gross of $9 million a year . Harriet , the president of Gerber since 1983 , has also been successful . The Chicago-based company has four factories , 1,000 employees and grosses $80 million a year selling a full-line of plumbing fixtures . But both women now face the classic problem of a family business - how to make a smooth transition of control to the next generation . The experts say that requires the offspring be groomed to take over . PETER DAVIS , Wharton Family Business Institute : When they get into their middle-late 30s , the succession process becomes very serious and the need for them to have some real power and take over the business becomes part of an urgent agenda in the family 's planning . Ms. LEWIS : About two years ago , I had spoken to my son about succession and would he be interested in assuming this role . He was n't ready then , and we talked about it , and I said to him , " When you 're ready , we 'll talk about @ @ @ @ @ @ @ @ @ @ , her son Alan said he was ready . Now he 's the president . ALAN LEWIS , Son : We 've gotten along . We 've had battles , but we get along , and we each seem to do our own business a little differently . Ms. LEWIS : My son is a good administrator , and he never knew much about manufacturing but he 's learning now @!VANOCUR voice-over Out in California , it 's the daughters who are learning the business . Joslyn , 39 , is chief financial officer . Cathy , 23 , is director of human resources . As part of the training , they had to apply for the jobs . CATHY CLUFF , Daughter : I had to go through interviews with the general manager , we had to work on a job description . And so it was n't just walking through the door and having an instant job @!VANOCUR voice- over But can such hard-driving businesswomen - Sheila Cluff , Harriet Lewis - ever give up their control easily ? Ms. LEWIS : I 'm not retiring , but my @ @ @ @ @ @ @ @ @ @ get tired but I 'm not going to retire . Ms. CLUFF : I plan to never retire , and turn the logistics of the pool filters breaking down , and all the electricity going off , and the employee manuals having to be put on computers , all of that , I plan to turn over to my children @!VANOCUR In a minute , restaurants try to fatten up their bottom lines by putting their prices on a diet . Commercial break VANOCUR : Mother 's Day is the biggest single day for restaurant eating , as families try to give mom a break from the kitchen . Restaurants probably wish it was Mother 's Day every day . Many are still feeling the impact of both the stock market crash in 1987 and the change in the tax law , which limited the benefit of the expense account lunch . In New York , business at the famous Four Seasons was down six percent ; at other restaurants , even more , forcing some trendy eateries to tighten their belts . LEE FRIEDMAN , Restaurant Owner : They would @ @ @ @ @ @ @ @ @ @ portions and they 're very expensive . " VANOCUR : voice-over They also remembered not to come back , and after business dropped 60 percent , owner Lee Friedman re-named the once-trendy Melrose . The neighborhood restaurant is now called the Barrow Street Bistro . Mr. FRIEDMAN : Now it 's just not a big deal . You could come in here today and buy a two-course meal for $10 . You could buy a two-course meal for $15 @!VANOCUR voice-over Friedman 's experience has been repeated at other , once very trendy , high-priced restaurants around the country , where owners are finding that lower prices can mean higher profits . MICHAEL McCARTY , Restaurant Owner : When you cut the prices in the beginning , if nobody knows about it , you continue to do your same population of clientele every evening . Once the word got out that I did that , then we had a lot more people coming up @!VANOCUR voice-over Entrees at McCarty 's Santa Monica restaurant used to cost from $26 to $32 . Today , just $16 to $24 . In Washington , @ @ @ @ @ @ @ @ @ @ Pavillon has cut prices 10 to 20 percent . JANET CAM , Director , Le Pavillon : For the local clientele , to stimulate business there have been special dinners that are almost introductory prices at 55 pre fix with multiple choice @!VANOCUR voice-over At Chicago 's Claim Company , located in a shopping mall , the new trend is casual . The restaurant changed to a casual , cowboy motif , helping it to recover lost business . CLARK WOLF , Food and Restaurant Consultant : These days , after the crash , things are a little bit calmer . So to be trendy today , you have to be a little bit old fashioned @!VANOCUR That 's it for this week . Whatever business you 're in , we hope the week ahead is a prosperous one . I 'm Sander Vanocur . On behalf of everyone here at Business World , thanks for being with us. 
##223860 @!SANDER-VANOCUR : Welcome to Business World . I 'm Sander Vanocur , and here 's what 's on this week 's agenda . voice-over DARPA , from high tech weapons to computers , the Pentagon 's research arm is funding new technology . Why has it become a political hot potato ? From Austin , Texas , this week 's Business World guest , Dr. Robert Noyce , CEO of the semiconductor consortion , Sematech . Also this week , paying the price for research and development . Companies like Amgen devote plenty to R&amp;D , why does Wall Street look askance ? And a profile of an R&amp;D scientist . Intel 's Justin Ratner thinks inventing computers is just ducky @!ANNOUNCER From ABC News , this is Business World , with Sander Vanocur and Stephen Aug . Now from New York , here 's Sander Vanocur @!VANOCUR One of the major disputes likely to arise during the White House congressional budget talks is the over $295 billion proposed for defense . Yet one item in the defense budget has prompted a sort of role reversal . Some @ @ @ @ @ @ @ @ @ @ or increased funding of the Pentagon 's main research arm , the Defense Advance Research Projects Agency , DARPA , while the administration tries to hold the line overall , but wants to see a DARPA cut . While corporate research and development , over the past decade , has grown by 50 percent , defense R&amp;D is up by 92 percent . Why has the Pentagon R&amp;D become a political hot potato ? In part , it 's a matter of , whose policy is this anyway ? JAMES ROTTSOLK , CEO , Tera Computer : We have been funded by DARPA for the last year and a half . And without DARPA 's support , we would not have made nearly the progress we 've been able to make @!VANOCUR voice-over Tera Computer is designing a new supercomputer . By the time it gets off the drawing board , Tera hopes it will be the fastest of its type , by using chips made from a substance faster and more efficient than the silicon used in today 's computers . Called gallium arsenide , it 's the backbone of @ @ @ @ @ @ @ @ @ @ Chairman , Gazelle Microcircuits : Recently , DARPA put $4 million of new capital in for the development of new technologies , primarily for data communication circuits , fiber optic communication circuits @!VANOCUR voice-over DARPA 's investment in Gazelle was the first under a new program authorized by Congress , which may actually let the Pentagon get a dollar return on its investment if the company is financially successful . But it was the last made by Dr. Craig Fields before he was transferred out of his job as director of DARPA to a less visible Pentagon post . Sen. ALBERT GORE , ( D ) , Tennessee : His superiors in the Bush administration had just been so committed to not letting the government get involved in this in any way , that they just decided to fire him , to make an example out of him @!VANOCUR voice-over It 's not only computers and chips that benefit from DARPA 's $1.2 billion budget . The agency funds a wide range of projects , from those with primarily defense applications , like anti- submarine warfare and advanced fighters , to @ @ @ @ @ @ @ @ @ @ system , and among it 's most controversial , high- definition television . Rep. GEORGE BROWN , ( D ) , California : I do n't think we can ever catch up with the Japanese unless we make major changes of the sort that Greg Fields was trying to make over there @!VANOCUR voice-over DARPA 's policies of promoting new technologies have become the center of a dispute between members of Congress - who favor a government role for encouraging specific industries to keep the US competitive - and conservatives - both in and out of the administration - who do n't . WILLIAM NISKANEN , Chairman , CATO Institute : I do not want the government promoting particular technologies on the assumption that these technologies are going to be the ones in which we 're going to be good at 15 , 20 years from now . Sen. GORE : Some people have a commitment to a laissez-faire ideology that 's almost a religious commitment . They do n't want the federal government to do anything , even in an area like national defense , where we need to be @ @ @ @ @ @ @ @ @ @ be important in the future @!VANOCUR voice-over The debate is particularly heated , because the Pentagon , while proposing to boost overall defense spending next year , by almost $4 billion , wants to cut $100 million out of DARPA 's budget . Dr. GEORGE HEILMEIER , former Director , DARPA : The systems that we do procure must be superior in their quality to those of any potential adversary . So I think high technology- The kind of high technology that 's fostered by DARPA will become increasingly important , even in a declining defense budget environment @!VANOCUR voice-over The debate focuses on whether DARPA is the right place to support new technologies , or if government should be in that business at all . Rep. BROWN : DARPA has focused on those areas vital to defense , and also those areas which are described as dual use areas , vital to both defense and the civilian economy . We now need to have an agency which looks at those which may not have a defense application . Mr. NISKANEN : The issue is whether a policy is likely , @ @ @ @ @ @ @ @ @ @ more likely to produce successes than failures . Now the overall record of American government support of technology has really been rather bleak @!VANOCUR voice-over Still , DARPA has sponsored a number of technologies with commercial promise , among them , the national aerospace plane and parallel processing computers . Gazelle 's Jerry Crowley feels that DARPA 's money can also make the promise of gallium arsenide devices into a commercial success . Mr. CROWLEY : There 's a whole host of applications that are using our products , both for military and commercial value @!VANOCUR Business World asked representatives of the administration and the Pentagon to appear in this report , but they declined . Dr. Craig Field said he would appear if his Pentagon superiors approved . They did not . In just a minute , the head of one company hoping R&amp;D will keep an entire industry in the chips . Sematech CEO , Dr. Robert Noyce . Commercial break VANOCUR : This week 's Business World guest is a legend . The co-inventor of the device which sparked the computer revolution , the microchip , he founded @ @ @ @ @ @ @ @ @ @ the industry consortion designed to advance semiconductor manufacturing . Sematech CEO , Dr. Robert Noyce , joins me and my colleague , Stephen Aug , from ABC affiliate , KVUE , in Austin , Texas . Dr. Noyce , at the bottom of this dispute about whether the private sector or the government should invest in high tech , is n't the real issue that we have n't got enough capital in this country to invest ? Dr. ROBERT NOYCE , CEO , Sematech : That 's certainly one of them . Our savings rate is so low that it 's a lot more attractive for other countries to invest in American high tech than it is for Americans @!VANOCUR Is the government a better judge of what 's required , in terms of economic national interest , than the private sector ? Dr. NOYCE : Well , I think the private sector is going to pick what they should work on . On the other hand , I think the government should be interested in who wins , whether it 's the Americans or the foreigners . After all , @ @ @ @ @ @ @ @ @ @ than having them overseas . STEPHEN AUG , ABC News : The Defense Advance- DARPA , the Defense Advance Research Project Agency , part of the defense department , they have been criticized in some areas for wanting to look into high definition TV . To what extent should this agency be allowed to investigate or do research in areas that could have primarily civilian applications ? Dr. NOYCE : Well , I think that the military obviously is now dependent , totally , on dual-use technologies . If a basic commercial technology is n't available , it wo n't be available for the defense department to use , either . The semiconductor industry is a good example of that . The defense department uses nine percent of the output in the industry . So most of the R&amp;D in the industry is supported by the commercial market . Therefore , the industry has to be strong in the commercial market , in order to make the defense needs available @!AUG So , in effect , your answer is , yes , they should be involved in research that may have @ @ @ @ @ @ @ @ @ @ think in order for them to carry out their mission , which is to be sure that the technology is available for our military , they 're going to have to get involved in the general question of the defense industrial base and the strength of that manufacturing sector and that technological sector @!AUG Let me ask you one question about Sematech . It 's almost two years old . Aside from getting everything set up and getting everybody working together , have there been any major scientific advances so far ? Dr. NOYCE : Remember , Sematech is a manufacturing consortion . Our science has been good in the semiconductor area . But the Japanese , in particular , have targeted this area and taken away the high-volume production . That 's the commercial base on which R&amp;D rests . So the answer to our problem in semiconductors is to get manufacturing back in the U.S. So we 've been working on that technology . Yes , we have made several advances significant in terms of the through put efficiency and reliability of our production equipment @!VANOCUR When you say @ @ @ @ @ @ @ @ @ @ private sector , or are you talking about the Ministry of International Trade and Industry ? Dr. NOYCE : It 's obviously a combination of the two . The private sector gets together , decides what should be done . Media endorses that and promotes the consortion in Japan to promote that particular industry that the private sector has agreed upon @!VANOCUR It is said in the White House , John Sununu , the chief of staff , Darman , the budget director , and Michael Boskin , the Chairman of the Council of Economic Advisers , opposes DARPA . Do you know why they oppose government help to the private sector , in high tech ? Dr. NOYCE : I do n't think they oppose DARPA . They have had a problem with doing commercial activities . But I think that what we need to emphasize again is that our defense capabilities depend upon the commercial success of the private sector . We 're in a battle here , which is now largely economic , not military . And we need to support and be sure that the American industry @ @ @ @ @ @ @ @ @ @ to @!VANOCUR Thank you very much , Dr. Noyce . Thanks for joining us here on Business World . Dr. NOYCE : Thank you for allowing us @!VANOCUR When we come back , the stock market and corporate R&amp;D . Sometimes a healthy research budget is no prescription for a stock 's success . Commercial break VANOCUR : Research and development , R&amp;D , the things corporations do to create new products and get them into market . But all too often , R&amp;D is considered expendable to help improve the short-term bottom line , a trend that 's starting to show . In the twenty-year period from 1967 to 1987 , R&amp;D , as a percentage of gross national product , dropped in the U.S. , while growing significantly in Japan and West Germany . But as business editor , Stephen Aug reports , sometimes bucking that trend line pays off @!AUG voice-over When Grant Bennett was 15 years old , his kidneys failed . A year later , he underwent a transplant from his mother . That worked for six and a half years . Now he 's 25 @ @ @ @ @ @ @ @ @ @ he 's been back on kidney dialysis , five hours a day , three days a week . It was discouraging , at least until he began taking a new drug called Ephigan , which helps produce red blood cells . GRANT BENNETT , Kidney Disease Victim : It 's meant a great improvement in my lifestyle . And this will be the first summer that I 've really been feeling the effects of the epagin . And I plan to get out and really enjoy the summer , as opposed to the past few summers that I really have n't felt like doing anything @!AUG voice-over Epagin came on the market just one year ago . It was developed by Amgen , one of a growing number of biotechnology firms . To develop epagin and other pharmaceuticals , Amgen spends almost 90 percent of sales dollars on research , the highest percentage of any American corporation , according to the most recent Business Week survey . GORDON BINDER , CEO , Amgen Corporation : The lesson is that well conceived , well executed R&amp;D pays off very , very handsomely @ @ @ @ @ @ @ @ @ @ doctors , nurses and pharmacists , our customers . It pays off for employees ; it creates jobs . And it pays off for the investors who provide the money in the first place @!AUG voice-over When Amgen needed money for research , like other small new companies , it sought out a partner . It found Johnson &amp; Johnson . In return for money , Amgen gave Johnson &amp; Johnson distribution rights . IRA LOSS , Vice President , Washington Analysis Corporation : What happened later down the line was that Amgen discovered they had a blockbuster of a product . And suddenly the deal that looked good to them when they needed the money for the research and development , did n't look like such a good deal now , when all they were going to get was a royalty from the Johnson &amp; Johnson sales @!AUG voice-over Amgen may also be an advertisement for those who say Wall Street rewards heavy spending on R&amp;D . Recently , it 's been trading around its record high . Mr. BINDER : Equity investors have put in about $200 million into @ @ @ @ @ @ @ @ @ @ now worth $1.2 billion , at the current stock price . So , in our case , at least , R&amp;D has certainly rewarded those investors who gave us the money to do the R&amp;D in the first place @!AUG voice- over But that does not always happen . Take the case of Merck and company , the huge pharmaceutical firm . Last November , Merck announced a big increase in research and development , up 14 percent to $855 million . That would hurt near term profits . The result : the stock price plunged nearly $4 a share the same day . And that was not the first time R&amp;D expenses hurt Merck 's stock performance . Another was back in the 1970s . Mr. LOSS : Merck sacrificed short-term earnings for several years , and put tremendous amounts of money into research and development . The stock was out of favor for a very long time . And then , suddenly , the pipeline started to fill up and products started burping out @!AUG voice-over The result : by the mid- ' 80s , Merck stock took off @ @ @ @ @ @ @ @ @ @ For most of American industry , outside of pharmaceuticals and some high technology firms , research and development expense averages less than 3.5 percent of sales . But America 's foreign competition is spending about a third more . One reason is a short-term outlook at many American firms , says Congressman Mel Levine , who 's active in high technology causes . He 's called for tax changes . Rep. MEL LEVINE , ( D ) , California : And if you have actually held a productive asset for five years or more , you should have a very low tax , which will encourage long- term holdings . But if you are involved in short-term , speculative investments , we might consider taxing those profits at an even higher rate than we currently do @!AUG Levine has also introduced legislation to create a Technology Corporation of America , sort of a U.S. version of Japan 's influential Ministry of International Trade and Industry . But do n't look for support from the Bush administration ; it opposes virtually any government attempt to single out any industry for special help @ @ @ @ @ @ @ @ @ @ to the record week on Wall Street , at Friday 's closing bell , the Dow Jones Industrials finished the week up by more than 18 points , hitting new highs on three out of five trading days . Last week , our panel of stock market experts from around the country predicted an up week . Our panelists consensus is for a down week ahead . Some of our panelists expect the market to consolidate before moving up . Panelist Lou Holland , a Chicago-based money manager is particularly bullish about bonds . LOUIS HOLLAND , Investment Adviser : Well , I like bonds . On a shorter-term basis , I think it 's possible that the long government bond will move back above 9 percent . But I think if we look out over the next 6 to 18 months , I think bonds will generate a higher rate of return than common stocks @!VANOCUR When we return , one R&amp;D scientist who does n't monkey around with his formula for success . Commercial break VANOCUR : At the front lines of research and development are the R&amp;D scientists @ @ @ @ @ @ @ @ @ @ and short nerds . That 's not always true . Take the case of one successful computer engineer who does n't even own a pocket protector , much less , a white lab coat . JUSTIN RATNER , Director , Technology Intel : If you 're seeking new answers to scientific problems , you 've got to get your hands on the fastest computer available . And I think it 's now clear that the fastest computers being built are parallel supercomputers @!VANOCUR voice-over When chip and computer maker , Intel , introduced its newest supercomputer , the big pitch came not from its marketing director , but from its director of technology , Justin Ratner . He 's considered one of the founders of a new generation of computers that take large , complex problems - like the way molecules fit together - then breaks them down into smaller problems , solves them , and then delivers the solution . GARY SMABY , Supercomputer Analyst : Its not unlike Tom Sawyer , you know , getting all of his friends to help paint the fence . It gets the job @ @ @ @ @ @ @ @ @ @ job apart @!VANOCUR voice-over In recognition of his contributions , Research and Development magazine named Ratner R&amp;D scientist of the year . And Intel made him an Intel Fellow , it 's highest technical position . GORDON MOORE , Chairman , Intel : He 's influenced Intel to go in some major technical directions , and really has had a major impact on a lot of our products @!VANOCUR voice-over When he 's not on the road or being a visionary at Intel 's Scientific Computer Group in Beaverton , Oregon , Ratner tries to squeeze in as much time as possible with his wife and three children . That means frequent outings , and no computer in the house to monkey around with , for himself or the kids . Not every project he 's worked on has been ducky . A computer based on this microprocessor , the IX-432 was , by some estimates , a $20 million flop . Mr. MOORE : It was a case of a project that Justin guided , where we were really working on the new frontiers of knowledge . You do n't @ @ @ @ @ @ @ @ @ @ voice-over Justin Ratner 's latest computer is capable of outperforming some supercomputers many times its size and its price . The machine is part of a project partially funded by DARPA . Mr. RATNER : DARPA is interested in accelerating the rate at which high-performance computers become available , not only for the aerospace defense markets , but also in the commercial markets @!VANOCUR voice-over Working toward the next generation machine , Ratner keeps his engineering and marketing team up to speed , with the latest developments in technology , which , in turn , helps Intel speed the next generation of fast computers to market . Those many supercomputers are already being used by pharmaceutical firms to help develop new drugs . They 're being used to help design freighters to better withstand the high seas . And they 're even developing new financial instruments for Prudential-Bache . Mr. RATNER : We 're just starting to see supercomputers come to Wall Street . And I think that , again , is going to have a significant effect on people who normally do n't think of computers as being part of @ @ @ @ @ @ @ @ @ @ improve airline crew and equipment scheduling . Mr. SMABY : What that means to the non-computer person , if you will , is that there are going to be more on time flights , there 's going to be quicker response in the event of equipment failures @!VANOCUR voice-over And if , as he believes , Ratner 's machines can make the airlines run on time , that might make him a techno-hero . Mr. SMABY : There are probably a half dozen names- recognizable names from Steve Jobs to Seymour Cray to Jean Amdol that have kind of taken on that folk hero status . And I think Justin is earning that . Mr. RATNER : Whether I 'm a hero or not , I guess the success of our business and of parallel computing in general , will have to determine @!VANOCUR We 'll be right back . Commercial break VANOCUR : And finally , proof that the first effort to save the savings and loans did n't save the investors . The Resolution Trust Corporation says it 's taking over Southwest Savings Association , owned by Caroline Rose @ @ @ @ @ @ @ @ @ @ money into failing Texas S&amp;Ls , a plan which may have cost the government $2 billion and Hunt , a hefty $25 million . That 's it for this week . Whatever business you 're in , we hope the week ahead is a prosperous one . I 'm Sander Vanocur . On behalf of everyone here at Business World , thanks for being with us. 
##223861 @!SANDER-VANOCUR : Welcome to Business World . I 'm Sander Vanocur and here 's what 's on this week 's agenda . voice over Doing business with the Soviet Union . Despite perestroika , profits from joint ventures can still wind up in red tape . From Boston , this week 's Business World guest , one winner of the ruble prize , economist Franklyn Holzman . Will the Soviets convert to his currency theory ? And Hungary , Eastern Europe 's success story - while western businesses jump in , some Americans have cold feet . Also , Apples for Students , a supermarket promotion gets computers into schools . And audio books - having someone read a not at bedtime ' story goes big time @!ANNOUNCER From ABC News , this is Business World , with Sander Vanocur and Stephen Aug . Now , from New York , here 's Sander Vanocur @!VANOCUR Even as Soviet leader Mikail Gorbachev met with President Bush , back at home , Moscovites have been lining up to buy goods in nearly empty stores , fearing that new goods will @ @ @ @ @ @ @ @ @ @ economy , the new trade agreement with the U.S. American firms have primarily been doing business in the Soviet Union through joint ventures , but , as business editor Stephen Aug reports , Americans are learning that not all joint ventures are created equal . STEPHEN AUG , ABC News : voice-over When McDonald 's opened its Moscow restaurant , its first in the Soviet Union , this past January , the crowds mobbed the place . It 's part of a joint venture that 's planning to open 20 McDonald 's , eventually . Just getting the first one open took 12 years of effort . And while just about everybody says it 's a big success , not every joint venture is . Consider the Satra Corporation , a trading company in New York whose founder and President , Ara Oztemel has been operating in the Soviet Union for nearly 40 years . He remembers the board of directors ' meetings . ARA OZTEMEL , Chairman , Satra Corporation : The resolutions were made and agreements were made , but quickly we found out that these were never recorded @ @ @ @ @ @ @ @ @ @ , because we 'd agree on something , and things would happen totally contrary , and we 'd talk about this , they 'd say , " Yeah , we discussed it , but subsequent events changed our minds . " AUG : voice- over Lesson number one , in a joint venture , make sure all sides know the ground rules early . But even more basic for any venture in the Soviet Union is how to get your profits out . The ruble is not convertible into any hard currency , and even a Soviet customer may have no control over payments . Mr. OZTEMEL : The customer not only would agree , but the customer would also deposit the money with the bank , but that , nowadays , does n't necessarily mean that the bank will pay out @!AUG voice-over Lesson number two , make sure any arrangement clearly lays out how to take your profits out , even though that might not be in cash . WILLIAM FORRESTER , U.S.-U.S.S.R . Trade and Economic Council : If you 're in a joint venture , perhaps you @ @ @ @ @ @ @ @ @ @ currency market to a third country . Perhaps you would take back product that you could sell @!AUG voice-over Pepsico is one major example of this . In return for shipping in concentrate for Soviet-owned Pepsi-Cola bottling plants , Pepsi has the exclusive U.S. distribution rights for Stolichnaya vodka . It 's been a successful arrangement that 's been operating since 1974 . An alternative is to open a business , like a hotel , that deals in hard currency . The Radisson Hotel chain , part of the Carlson Companies of Minneapolis , will open the first U.S.- managed hotel in the Soviet Union later this year . It will be in Moscow , and they expect immediate profits . JUERGEN BARTELS , President , Carlson Hospitality Group : This is one of the highest occupancy cities in the world . Average room rates are high , so we are- and we are an infrastructure item of the future @!AUG voice-over Lesson number three , expect to spend lots of money . DENNIS ORWIG , ABB U.S.S.R. Business Development : It 's very hard to make a trip from here @ @ @ @ @ @ @ @ @ @ less than $10,000 or $15,000 . And that 's not living extravagantly @!AUG voice-over And the level of service in some Soviet hotels is not all that good . Mr. ORWIG : You have to have guaranteed reservations on top of guarantees , and then , nine times out of 10 , when you literally walk up to the reservation desk , they say , " We 've never heard of you . " AUG : voice-over Once in the Soviet Union , a businessman certainly will need information . One way to get it is through a new weekly newspaper called Commersant . It 's printed both in Russian and in English . It offers tips on who 's visiting Moscow , current exchange rates and upcoming trade fairs . It 's part of a joint venture between Refco , the American commodity trading firm , and a group led by Vladimir Yakovlev . What he says is tantamount to lesson number four , know your market . VLADIMIR YAKOVLEV , Editor-In-Chief , " Commersant " : If I would try to sell Russian clothing in New York , right- @ @ @ @ @ @ @ @ @ @ well- when we go- the American businessman whose idea was to sell in the Soviet Union sausages without meat thought he was sure that it is great commercial idea , and you have to tell him that , you know , all the sausages which we have here is without meat @!AUG voce-over Lesson number five , be prepared for surprises - like Combustion Engineering , now a unit of ABB Brown Boveri of Switzerland . For three years , they 've had a joint venture making automation controls for the petrochemical industry , said to be the most profitable joint venture in the U.S.S.R. But not long ago , they shipped some personal computers , like this , to the Soviet Union . But they disappeared , only to wind up in a hospital in another city . Mr. ORWIG : And when we asked the president of the joint venture , who was a Soviet citizen , why , his answer was , " Well , the hospital needed them , and this hospital is in a city where we might want to work some day . So , @ @ @ @ @ @ @ @ @ @ " AUG : voice- over Lesson number six , almost everything American may have a market in the Soviet Union , even that most American of businesses , advertising . For instance , in Moscow , where they have 14,000 buses and trams , there 's now a joint venture with TDI , a transit advertising firm in New York . HOWARD ZIFF , International Managing Director , TDI : When you go there , as I was , you see that wherever you look is a bus , a trolley or a tram . It 's that important to them . Therefore , to put advertising on these vehicles is going to be overwhelmingly impacting @!AUG Most businessmen who 've been there say doing business in the Soviet Union is complicated ; it take a lot of time . And with the Soviet economy and government in chaos , it 's becoming even more difficult . Well , the upside , of course , is a potential market of 300 million consumers , most of whom will like all the American products and services they can get . Sandy ? @ @ @ @ @ @ @ @ @ @ , we 'll talk to economist Franklyn Holzman , who thinks he may have one solution to the Soviet economic crisis . Commercial break VANOCUR : One of the major problems facing the Soviet economy is its currency . The government-established value of the ruble and its true worth are so far out of alignment as to make it useless in international trade . To help find a solution , an American multimillionare named Fred Furth offered more than $40,000 in a so-called ruble prize . This past week , the first prize was awarded to two Soviets and this week 's Business World guest , economist Franklyn Holzman of Tufts University , who joins us from the ABC News Bureau in Boston . Professor Holzman , given the nature of the problem , and the time constraints on Gorbachev , has he already missed the boat in terms of economic reform ? FRANKLYN HOLZMAN , Ruble Prize Winner : Well , I guess he's- the door is- I do n't think the door is quite closed , but it 's certainly pushing hard on him now , largely for political @ @ @ @ @ @ @ @ @ @ 's got Lithuania and the other Baltic states trying to get away from the Soviet Union . But he also has a number of economic problems and , to some extent , these economic problems are political . For example , one of the things that he should do is stop subsidizing consumers goods . The largest expenditure of the state budget is for subsidies to keep the prices of food products low . They spend approximately 100 billion rubles a year now on subsidies to consumer goods . That 's actually larger than their defense budget @!AUG Mr. Holzman , in Poland , they faced a similar problem , obviously on a smaller scale - it 's a much smaller country . They had a massive inflation when they tried to move away from subsidies . Would that sort of inflation also cause deeper political problems in the Soviet Union ? Prof. HOLZMAN : Well , I think it would . The only reason that the Polish government was able to do what it did was because they had Solidarity backing them , that is , they were Solidarity , @ @ @ @ @ @ @ @ @ @ tried to raise prices to get rid of the subsidies to consumer goods , and the government fell . In 1976 , again , an attempt was made to raise prices of consumer goods and , again , the government fell . And I think that it 's very possible that if Gorbachev tried to do it- well , it would be a very risky procedure . But I think he almost has to try it very , very shortly @!AUG With the Soviet economy in such bad shape , is there anything that the United States should be doing to help the Soviet economy or help the Soviets over this hurdle , lest the Soviet Union break up ? Is there something we should be doing , or should we just stay out of it ? Prof. HOLZMAN : Well , I do n't think there 's much that we can do . I think we should give them Most Favored Nation treatment , and I think it 's ridiculous that the Congress and some of the other people in the government want to withhold it over Lithuania . I @ @ @ @ @ @ @ @ @ @ . We are in the process of making more technology available to them . But , basically , they have to do their own job . I mean , Gorbachev , I think , has got to bite the bullet very soon or he 's going to be finished @!VANOCUR All right , now that you 're a very wealthy capitalist , given your prize money , would you invest your money in the Soviet Union unless they accomplish convertibility ? Prof. HOLZMAN : Well , I don't- well , I suppose , if I were- I do n't know what I would do , because I 'm a very conservative man , financially , never having had enough money to be radical about it . But I can see that if I were someone attempting to start a joint venture there , I would worry very much about the fact that I might not be able to get my money out @!VANOCUR Thank you very much , Professor . Thanks for joining us here on Business World . When we come back , a look at the most westward looking @ @ @ @ @ @ @ @ @ @ Europe , the rapid transition from controlled economy to free market has been most successful in the nation which was probably best prepared for it . ABC News Correspondent Jim Bitterman reports Hungary 's slide toward a western-style economy has turned into an avalanche . JIM BITTERMAN , ABC News : voice- over Another brisk sales day at a western retail outlet doing business in Eastern Europe , specifically , in the Hungarian capital of Budapest . IKEA , the Swedish home furnishing outift , has become an overnight success here . But how can the company ever hope to turn a hard currency profit by ringing up soft currency sales ? Well , it 's not that complicated , because IKEA buys about a quarter of the products it sells worldwide from East European suppliers . So the soft currency it collects in sales goes , in part , to pay for its product line , like the sheets and curtains printed up at this Hungarian textile plant . And , too , IKEA , like the businessmen who crowd the hotels here , figures that the investment risk in @ @ @ @ @ @ @ @ @ @ the door which could lead to large , new markets . But with some exceptions , American businessmen have not left the impression they are so ready to invest . They seem more content just to turn over what sales they can . That , according to a U.S. Ambassador who led a task force through Hungary , Czechoslovakia , East Germany and Rumania , could be a mistake . Amb . DIANA LADY DOUGAN , U.S. State Department Task Force : And they made a big point - they 're not looking for assistance . They want investment ; they want expertise ; they want know-how ; and they want Americans in there @!BITTERMAN voice-over American tardiness may be costly . There are signs that it may become tougher to do business here . The French bought this state-of-the-art research lab from a Hungarian collective farm a year ago . Today , the farm 's management is much more leery of such deals , more afraid their workers , who earn just 50 cents an hour , may be exploited , and more inclined to search harder for their own @ @ @ @ @ @ @ @ @ @ who are moving in here know there will be difficulties , but they 're confident nonetheless . BRYAN GERRISH , Vice President , Fusion Corporation : We 're in a situation right now where , you know- we 're looking at two or three years down the road , and we think being here now is very exciting , to be here now , and we think in two or three years , it 's going to pay off for us @!BITTERMAN voice-over Not all of capitalism 's explorers who 've headed east will discover riches in the old world , but those who come seem convinced it 's better to be here now than not to be . Jim Bitterman , ABC News , Budapest @!VANOCUR When we return , supermarkets pushing Apples , the computer variety . Commercial break VANOCUR : Turning to the record week on Wall Street , at Friday 's closing bell , the Dow Jones Industrials finished the week up by more than 80 points , breaking the 2,900 barrier for the first time . Our panel of stock market experts from around the country @ @ @ @ @ @ @ @ @ @ expect the strength of the bond market to continue pushing stocks up . But panelist Peter Eliades , a Los Angeles-based market timer , is concerned because the secondary stocks are not benefitting from the current rally . PETER ELIADES , Market Timer : I think if we do go further , it 's going to be , basically , a Dow Jones Industrial Average rally and , if that 's the case , then one has to be very , very selective in terms of their stock picking . So the next three to five months in the market , I believe , will continue to see the formation of a very major stock market drop , and people should be very careful in terms of any stocks that they wish to purchase @!VANOCUR Among the hot performers in the current rally have been computer stocks . IBM announced at the end of the week a new contract with the Soviet Union for 13,000 personal computers . The deal is the largest ever between IBM and the Soviets , worth an estimated $20 million to $30 million . The joint @ @ @ @ @ @ @ @ @ @ IBM assembly operation in the U.S.S.R. The PCs are targeted for Soviet schools . ABC News Correspondent Greg Dobbs reports it 's the U.S. schools that are the target of a promotion by IBM and Apple which appears to be a win/win/win situation for the schools , computer makers , and some supermarkets . GREG DOBBS , ABC News : voice-over Sonya Bond went down to the local Safeway to buy some cheese , some bread , some apples , and , by saving her receipt , another computer for her daughter 's elementary school . Centennial Elementary is one of 50,000 public and private schools - that 's nearly half of all schools in the country - that have participated in the nationwide program " Apples for Students . " on camera Here 's how the system works . Once a school has accumulated enough receipts , it turns them into the supermarket and through a middleman , who gets a substantial educational discount , the Apple Company , the supermarket chain buys the computer for the school . If it collects , say , $70,000 worth of receipts , @ @ @ @ @ @ @ @ @ @ here at Centennial Elementary . Everyone involved with this calls it a win/win situation . COLIN CONWAY , Principal , Centennial School : This is so simple a process , and that 's why it was easy for us to buy in . BOB GREENE , Vice President , Safeway : It 's really done better than some of our past promotions and , yet , it 's a way to help the schools . JOHN CONNELLY , J. Edward Connelly Associates : It 's a goose laying a golden egg . It just does n't stop @!DOBBS voice-over Marketing mogul John Connelly is the middleman . The golden egg was hatched in his firm . He has had 39 supermarket chains in 43 states take part in the program and its profits . Mr. CONNELLY : We have all- results all the way from 3 percent to 15 percent gain and in a supermarket chain , a one percent increase in sales is considered phenomenal . BARRY SCHER , Vice President , Public Affairs , Giant Food : What 's the best food store in Bowie ? KIDS : Giant @ @ @ @ @ @ @ @ @ @ customer loyalty among its profits , too . Recently , it awarded three Apple 2C color system computers to Rockledge Elementary in Bowie , Maryland , which redeemed a quarter million dollars worth of Giant Food receipts . Each computer , plus the software that automatically comes with it , could have cost the school more than $1,300 . Instead , to Rockledge , they were free . And to Giant , worth the cost . Mr. SCHER : Like any promotional program , it certainly is an expense . We have staff , we have advertisements on radio and television and in the newspaper to help promote the program @!DOBBS voice-over And , of course , there 's the cost of computers themselves . It 's projected that , this year , participating supermarket chains nationwide will give away $40 million in various kinds of Apple computers and accessories . The payoff ? Not just profit , but PR . Mr. GREENE : Any time you can get your name in the public 's eye and start creating interest in your stores , it 's a good situation for us @ @ @ @ @ @ @ @ @ @ keep buying at participating sotres , these programs will go on indefinitely . Receipts for computers . That 's food for thought . Greg Dobbs , ABC News , Denver @!VANOCUR In a minute , we 'll tell you a story about books for people with no time to read . Commercial break VANOCUR : And , finally , a look and listen to a new industry for life in the fast lane , or for commuters spending rush hour in the not so fast lane @!ACTRESS " thirtysomething " Bedford Falls , MGM And he just sat down quietly and smelled @!VANOCUR voice-over If you pine for the days of being read to aloud , now hear this . JAMES DOOHAN , Records Books : We have lost all power , and we have many casualties ! VANOCUR : voice-over Or , if you prefer , you can hear this . DARRIN McGAVIN , Records Books : A marriage that grotesque would have been as bad for her as for him @!VANOCUR voice- over This mass market audio book in the making will be one of the 1,000 or so @ @ @ @ @ @ @ @ @ @ We do about 180 pages a day . It 's very hard , tough , concentrated work . And it 's not easy , I must tell you . DAN ROTH , Publisher , Simon &amp; Schuster : This is an electronic greatgrandchild , if you will , of the campfire , and I think there 's something very primitive about it @!VANOCUR voice-over But while listening was once a full-time activity , today , it 's just another way to do more than one thing at a time . LYNN GILBERT , Photographer : It 's very boring doing laps , and this way , your mind is focused on something that 's very entertaining . It 's opened a new way of life for me . JENNY FROST , Publisher , Bantam Audio Books : It turns , you know , commuting time , which is usually considered down time , either into entertainment time or a chance to learn something new . AUDIO BOOK : A submarine belongs at sea , Eva- ED LOMBARD , Computer Trainer : When I reach my destination , I 'm right in @ @ @ @ @ @ @ @ @ @ I 'll simply sit in the car for a little while with the motor running until a particular sequence is played out @!VANOCUR voice-over And there are some admitted problems for commuters . JANE FRIEDMAN , Publisher , Random House : This doctor wrote to us to say he of course knew that Lincoln had been assassinated , but when he heard it on tape , he also nearly went off the road . We do suggest that you pay attention to the road while you 're listening to the tapes in cars @!VANOCUR voice-over With an average three-hour tape retailing for about $15 , the industry expects sales to be upwards of a quarter billion dollars this year . Mr. ROTH : The hardware was in place and a demand for software came about , so certainly , the last five years have seen a very dramatic growth in the whole spoken word marketplace @!VANOCUR voice- over And publishers agree the current challenge is to expand beyond the bookstore . JAMES BRANNIGAN , Director of Sales , Rivertown : We 're going after the gift trade , the record trade @ @ @ @ @ @ @ @ @ @ going @!VANOCUR voice-over That 's why you can now find books on tape in places like the Iowa 80 truck stop . Ms. FROST : Truckers are on the road , and they have a lot of disposable income and truck stops are being used more and more by business and vacationers as well @!VANOCUR voice-over Many no doubt business travelers listening to some sound advice , but keeping an ear to the grindstone. on camera That 's it for this week . Whatever business you 're in , we hope the week ahead is a prosperous one . I 'm Sander Vanocur , on behalf of everyone here at Business World , thanks for being with us. 
##223862 @!SANDER-VANOCUR : Welcome to Business World . I 'm Sander Vanocur and here 's what 's on this week 's agenda . voice-over Democrats open fire on the Bush administration 's handling of the S&amp;L bailout . Is the government hiring the wrong people and paying them too much to manage the crisis ? From Washington , this week 's Business World guest , the chairman of the House task force on the bailout , Congressman Bruce Vento . Also , some high-tech companies find a low- tech way to reduce chemical damage to the ozone layer . Was the Penn Central bankruptcy the best medicine for the railroad industry ? And a success story that really suits Father 's Day : a family business passed on from father to sons to grandsons @!ANNOUNCER From ABC News , this is Business World , with Sander Vanocur and Stephen Aug . Now , from New York , here 's Sander Vanocur @!VANOCUR Treasury Secretary Nicholas Brady went before the House Banking Committee this week to talk about the need for up to $50 billion more to finance the S&amp;L @ @ @ @ @ @ @ @ @ @ attack on the administration 's handling of the S&amp;L crisis . The critics were Democrats , among them Congressman Bruce Vento of Minnesota , who chairs a special task force on the bailout . From the ABC News bureau in Washington , Congressman Vento joins me and my colleague , business editor Stephen Aug . Congressman Vento , the RTC is not working . Why ? Rep. BRUCE VENTO , ( D ) , Minnesota : Well , the RTC is floundering , frankly . They 're not accomplishing what they have to do , they 're not selling the assets . They 're hesitating . We 're out doing a high-wire act , and frankly , we 're not getting the concentration that 's necessary . The appointments have n't been made to the oversight board in a timely manner . We 've had three different presidents of the oversight board . There is infighting in the administration , an unwillingness to face up to the problems that exist . Frankly , he- the treasury secretary complained about a failing real estate market , but this is a year old @ @ @ @ @ @ @ @ @ @ of these institutions have been sitting there static in the FDIC , RTC for 16 months . It 's become a junkyard of S&amp;Ls . Frankly , what could have been sold as year-old Chevrolets are being turned into junk . STEPHEN AUG , ABC News : Congressman , before we get to talk about one other subject , I want to clarify one matter . There 's been a lot of talk about preventing this again by lowering the insurance limit on deposits . To what extent is there a growing consensus among Democrats that that ought to be done ? Rep. VENTO : I think there 's concern about that , in terms of undermining the ability of any of the financial institutions to still find a safe place to save . Who are we going to hurt if we do that ? The fact is , you 've got 110 million savers in the S&amp;Ls . The way to save the S&amp;Ls is not by hurting the people that have savings in financial institutions . I think that clearly the problem here was not one of the amount @ @ @ @ @ @ @ @ @ @ powers of S&amp;Ls ; those were powers that banks had had for years . It 's a failure of regulation and of courage . So we put in place some new requirements , a 1,000-page bill last year that gave the administration all the dollars that they asked for , gave them all the powers and the structure that they wanted , plus , of course , a lot of other things that we thought were important @!AUG Yeah , but briefly , are you likely to press for lower insurance limits than the $100,000 ? Rep. VENTO : Oh , you know , I think we can look at that in terms of risk-sharing , but I think we want to be very careful so that we do n't undermine the basic confidence that the American people have that their savings are insured . That 's what this is all about , after all . I 'm not- we 're supposed to be protecting the deposits . Today , we have , for instance , foreign deposits which are uninsured which are being covered . We have banks that are @ @ @ @ @ @ @ @ @ @ over $100,000 , your savings are protected . So I think there are a lot of other problems here that need to be addressed . You have the FDIC , including all sorts of exotic types of investments , into the insurance scheme . There are other ways to approach this than that , but I am certainly willing to look at that in terms of limiting liability . But there 's no effort to do that . In Continental Illinois , for many other institutions , we could cut the insurance off at some point . The basic question comes back , Stephen and Sander , is , what is the effect on the economy ? In Europe , there is no deposit insurance , but yet we do n't see the banks failing , because the effect would be , of course , catastrophic on their economies @!VANOCUR Look , Congressman , Congress has the responsibility , you drew up the legislation , you 've got an oversight function . Is there any way Congress can crack the whip over the administration to get the kind of satisfaction I @ @ @ @ @ @ @ @ @ @ : Well , I agree with you . I think that there 's a volcano of public opinion abuilding against the actions and the way that the RTC is moving into or not moving into eliminating the assets , and the growing cost of this particular problem . The fact is that we are trying to do that . We have to obviously be temperate and work with the administration , and that 's what we 're trying to do . We have been , of course , trying to point out some of the practices that are not working . We 've tried to be reasonable . We 've tried to give them the tools . If they need additional tools , we want to work with them , but we ca n't basically administer the law . That 's the job of the Reagan administration and the Bush administration today @!VANOCUR Thank you very much , Congressman . Thanks for joining us here on Business World . Rep. VENTO : You 're welcome @!VANOCUR When we come back , one industry 's efforts to clear the air of dangerous @ @ @ @ @ @ @ @ @ @ conference opens in London on Wednesday . The White House announced this week that it would support a new international fund to help poor countries phase out chemicals that damage the ozone layer , which protects us from the sun 's harmful rays . In this country , industries which have been part of the problem are working to become part of the solution . voice-over When University of California scientists measure the ozone-depleting chlorofluorocarbons in air samples from around the world , they routinely find high concentrations in Silicon Valley . One major culprit : cleaning solvents commonly used by the electronics industry . Prof. F. SHERWOOD ROWLAND , University of California : Public opinion polls show that 85 percent of the people knew that CFCs caused ozone depletion , but the electronics industry was apparently in the other 15 percent . They did n't seem to know that they were part of the problem @!VANOCUR voice-over Shortly after Rowland first reported on CFCs 16 years ago , they were phased out of U.S. aerosols , but they remained in solvents . As the electronics industry expanded , so did @ @ @ @ @ @ @ @ @ @ 2.25 million pounds in the last three years . JUNE ANDERSON , Environmental Manager , IBM : They 're almost non-toxic , they 're nonflammable , they 're non-explosive , and they were highly effective for cleaning and drying the parts @!VANOCUR voice-over Nevertheless , IBM joined a growing list of major corporations that recently announced plans to totally eliminate CFCs over the next few years . And this spring , it unveiled its substitute , a sort of elaborate dishwasher using water-based detergents . Ms. ANDERSON : There was a large investment in development and engineering , and then a large initial capital investment , but over the long run , there will be a payback in aqueous cleaning @!VANOCUR voice-over The AT&amp;T alternatives include terpines , organic citrus derivatives . Dupont , a major supplier of CFCs , says it will cease production by the year 2000 , not soon enough for Greenpeace activists , who attempted to hamper the current output by blocking trains . DuPont is one of many companies with chemical alternatives in the works , a trend that 's causing some alarm . KATY WOLF @ @ @ @ @ @ @ @ @ @ another mistake , as we have in the past , moving from one chemical substance to another , without trying to figure out what the consequences of adopting these substances are before we precipitously adopt them @!VANOCUR voice-over And rapid change can be especially tough on small businesses , as restrictions tighten . TONY COLLAZZO , Director of Quality , Vantronics : Our machine life right now , as we see it , is less than two years . Payback , of course , is not there . We 're looking at other machines in the near future to replace the equipment that we purchased only several months ago @!VANOCUR voice-over Surprisingly , the best solution might be no solution . This component maker says 70 percent of its products are cleaned for customer-demanded cosmetic appearances . Mr. COLLAZZO : The life of most of the products that we 're talking about in our environment , that we call high-tech , is usually only five to 10 years . In that type of environment , there 's no necessity to have the cleanliness level that we 're talking about @!VANOCUR voice-over @ @ @ @ @ @ @ @ @ @ way that the cleaning step is eliminated altogether . But this no-clean method is not appropriate for all products . DAVID CHITTICK , Vice President Environmental Safety , AT&amp;T : We know how to get so far , but we do n't know precisely how we 're going to get all of the processes free of CFCs yet . It 'll require some technological breakthroughs @!VANOCUR voice-over Some products must adhere to military specifications that demand CFC use . While the Pentagon claims they " will be revised to allow for suitable alternatives , " the industry counters : " Service directives to consider CFC alternatives appear to be having negligible impact on DOD officials , the procurement officers who buy our products . " The pressure to change is mounting . The 1987 international agreement calling for 50 percent emissions reduction by 1998 will be modified in London next week . It 's expected to be toughened . The Clean Air Bill that passed the Senate in April calls for total elimination by the year 2000 , and may restrict industry even more . Sen. JOHN CHAFEE , ( R @ @ @ @ @ @ @ @ @ @ they leapt up and down cheering when we were working on this , and did it in committee , but they 've been very responsible @!VANOCUR voice-over But , can industry commitment really make a difference ? Prof. ROWLAND : As soon as they switch over , yes , it has a very positive effect , and in fact , that these large companies have found apparently good solutions so quickly says that finding alternatives was n't a really difficult problem , it 's just was- you had to start to look @!VANOCUR In a minute , tracking the railroad industry two decades after a giant railroad bankruptcy . Commercial break VANOCUR : Twenty years ago this week , a giant railroad , the Penn Central , declared bankruptcy . As Stephen Aug reports , it was the beginning of a hopeful new chapter for the railroad business , as well as the end of a glorious old chapter @!AUG voice-over Back in the 1940s , the old Pennsylvania Railroad was run with such precision , it was often considered the standard railroad of the world . But by the 1960s @ @ @ @ @ @ @ @ @ @ sharply cut into its business . A merger with the rival New York Central in 1968 failed to revive the two companies . Two years later , they plunged into what was then the biggest bankruptcy in American history . In the government , there were genuine fears about what would happen if the Penn Central actually shut down . Former Senator Vance Hartke , ( D ) , Indiana : 1970 There would be a shortage of sufficient coal to keep the utilities going , so you 'd have blackouts , you 'd have no heat , you 'd have actual shortages of food and the rest of the United States would come toppling down and you 'd have a depression bigger than the depression of the 1930s @!AUG voice- over Robert Blanchette was one of the trustees who ran the Penn Central in bankruptcy . Now a Washington transportation lawyer , Blanchette blames Interstate Commerce Commission delay for the failure . ROBERT BLANCHETTE , former Penn Central Trustee : It took the ICC six years to get the approval to merge the Penn and the Central , longer than @ @ @ @ @ @ @ @ @ @ @!AUG voice-over But the government kept the bankrupt railroad running , mainly through hundreds of millions of dollars of subsidies . By the mid- ' 70s , it was literally falling apart . Mr. BLANCHETTE : Good management could n't help it and bad management could n't hurt it . It was- the railroad was not operated , it was observed . And because there was nothing- you could n't turn left , you could n't turn right , you could n't do anything , you had to go to the ICC , you had to go to the Congress , you had to go to the government . And all you could do was watch it @!AUG voice-over In 1976 , the government combined Penn Central with several smaller bankrupt railroads and created Conrail as a vast government-owned freight railroad in the Northeast and Midwest . Total cost to the taxpayers : about $7 billion . But Congress decided that if the railroads were to survive , they 'd have to be deregulated . To the railroads , that meant learning to compete . ANTHONY HATCH , Analyst , Paine @ @ @ @ @ @ @ @ @ @ the labor numbers come down from a high of about just 500,000 workers at the beginning of the 1980s down to about 230,000 right now . That 's been forced on them by the marketplace . They are becoming market-sensitive . They are slowly - dragging their heels and kicking and screaming - but becoming price-sensitive . They are becoming less like armies and more like companies @!AUG voice-over Deregulation has given the railroads freedom to price most of their services as they wish , and made it easier to abandon or sell unprofitable branch lines . And that 's created a lot of new smaller regional railroads , like the Iowa Interstate . PAUL BANNER , CEO , Iowa Interstate Railroad : As a new railroad , under the deregulation , we could buy the railroad , get Interstate Commerce approval in less than a month @!AUG voice-over Iowa Interstate uses the latest rail technology , the same as the bigger railroads , like this loader that stacks 40-foot containers . This container is carrying goods made in Chicago and bound for Korea . Banner says on long hauls he @ @ @ @ @ @ @ @ @ @ truck has to go from the West Coast to Chicago . That 's a distance of roughly 2,500 miles . He 's not competitive on the long haul , whereas we , with one engine pulling all these containers , can be very competitive @!AUG voice-over But it 's the trucks , especially like these triple trailers , that have some railroad executives worried about the future , like James Hagen , who runs Conrail . JAMES HAGEN , CEO , Conrail : I think it 's a significant danger that you could probably lose 15 to 20 percent of your current freight , and better than half of your profitability if they were allowed to run nationwide @!AUG voice-over Hagen was head of the government agency that created Conrail , so he helped plan the system he 's now running . Hagen says it turned out about as expected , but he has some questions about the future of the railroad industry in general . Mr. HAGEN : Use a yellow light . I guess I would say that it 's not going to boom , I do n't think @ @ @ @ @ @ @ @ @ @ can compete @!AUG I began covering the Penn Central story in 1966 . It turned out to be an unusually long story , but the end finally came in 1987 , when the government sold its Conrail stock to the public . The result ? The Penn Central bankruptcy encouraged deregulation , which turned around the entire industry . Sandy @!VANOCUR Thanks , Steve . When we come back , idea-sharing helps some high-tech executives get their businesses into high gear . Commercial break VANOCUR : Turning to the week on Wall Street , at Friday 's closing bell the Dow Jones Industrial average finished the week up 73.5 points , just beating its previous all-time high . Last week , our panel of stock market experts from around the country predicted an up week . For the week ahead , our panel is split . For the long term , panelist Elaine Garzarelli , a market strategist with Shearson Lehman Hutton , is optimistic . ELAINE GARZARELLI , Market Strategist : Well , I think over the next nine to 12 months the stock market should be in a rising @ @ @ @ @ @ @ @ @ @ slightly better than the blue chips , the S&amp;P and the Dow . Where in the Dow Jones and S&amp;P you could probably get a return of 15 to 20 percent in an index fund , but if you buy small stocks , the return could be 20 to 25 percent . So I think the next nine to 12 months , you should be 100 percent invested in the stock market , and at that point we 'll have to see where we are , because if everybody becomes bullish in 12 months , then that 'll be the time to sell @!VANOCUR In business , the cutting edge can be a two-edged sword , especially if your products and ideas are so new that the traditional business community has trouble understanding them and their potential . When that happens , one way out of your bind might be to turn to past pioneers who do speak your language . CRAIG HILL , Chairman , Cortex Corporation : Each time we would double , it would put a great strain on our systems and procedures , it would cause people @ @ @ @ @ @ @ @ @ @ great strain on our cash @!VANOCUR voice-over When Craig Hill , chairman of Cortex , the software maker near Boston that designs software to make other software , found his company was expanding beyond its ability its cope , he needed help , and found it at a group which might almost be called Entrepreneurs Anonymous . But its formal title is the Technology Executives Roundtable . Mr. HILL : And they were a group of entrepreneurs who had gathered together under DEC 's guidance , and we just shared problems and gave away- let 's say , shared secrets with one another @!VANOCUR voice-over With help from his friends at the Roundtable , Hill was able to keep his creditors satisfied and put the company on track to a more stable cash flow . The Cortex story is fairly typical of the Roundtable . Started by the folks at computermaker Digital Equipment Corporation as a means of growing their own industry . JOAN JACOBS , Manager , Technology Executives Roundtable : Early on , they really found that these emerging companies play a very important role in both the overall @ @ @ @ @ @ @ @ @ @ success Digital sees as a vendor . And we 've established probably over 2,000 business relationships with partners and resellers , OEMs and independent software developers @!VANOCUR voice- over Each of the eight Roundtables across the country meets once a month . And each meeting , like this one in Dallas , provides time for executives to network as well as to focus on a particular topic , often money . STEVE CALL , Partner , TA Associates : If those firms were looking for financing because they 're growing very rapidly and doing very well , that 's an easy decision for firms like ourselves to make . If they 're looking for help because they 're running into some problems , it 's easier for them to raise money if they solve those problems first . And I think that 's the contribution that TER can make to those processes @!VANOCUR voice-over But TER 's managers and participants stress that finance is only one problem area . Often it 's personnel , operations and managing . ROBERT WEISMAN , Manager , Technology Executives Roundtable : Really , the only @ @ @ @ @ @ @ @ @ @ provide that type of feedback are people who have been there and done it . And you find , when you talk to entrepreneurs , that they have very large egos , and that they really- they do n't like people to tell them how to do things @!VANOCUR In a minute , business the old-fashioned way : one family 's success story . Commercial break VANOCUR : Getting a family business off the ground is n't easy , and neither is nurturing it , keeping it growing through three generations . That 's why the story of a store called Barneys New York is a fitting one for this Father 's Day . voice-over It 's opulent , upscale and one of the most successful family businesses today , but it had humble beginnings back in 1923 when Barney Pressman opened a men 's discount clothing store . FRED PRESSMAN , President , Barneys New York : Wooden floors and very simple chairs , small store , crowded with lots of suits , big signs all over the store , my father 's picture @!VANOCUR voice-over Barney 's son 's @ @ @ @ @ @ @ @ @ @ his guidance , it was upgraded in image and size . Today , there 's a variety of merchandise and $130 million in gross revenues . And Fred 's sons are at the helm , while five Pressman women are in the company . Mr. PRESSMAN : We do n't have to have board meetings and we do n't have to get the okay from the banks . We can make decisions next to a clothing rack , or in a cafe over a cup of coffee . GENE PRESSMAN , Executive Vice President , Barneys New York : The key to working with your family is that everybody has to do something different . If there 's a tremendous amount of overlap , there can be conflicts @!VANOCUR voice- over So while Bob takes care of finances , Gene 's in charge of marketing , keeping up the creative spirit of bygone ads like this one from the ' 60s . The current campaign is too stylish to include the merchandise . And there are new ventures , notably satellite stores financed in part by a Japanese firm . But @ @ @ @ @ @ @ @ @ @ Vice President , Barneys New York : We were together with our friends and partners last March in Hawaii , and I had to go on the golf course because they love golf , and they complimented me for a course record of 120 in nine holes @!VANOCUR voice-over The Pressmans insist that service , like personal shoppers and in-office fittings for business executives , keeps customers happy , even if things can be a little pricey . Barney still keeps a watchful eye from Florida , but what about the future ? Well , Gene has a 14-month-old son who's- Mr. GENE PRESSMAN : Always going around touching fabric , and he 's always like rubbing his lips on my wife 's dress , you know , making cooing kind of- making noises , so- that makes me a little nervous , that he 's getting into it that early @!VANOCUR That 's it for this week . Whatever business you 're in , we hope the week ahead is a prosperous one . I 'm Sander Vanocur . On behalf of everyone here at Business World , thanks for @ @ @ 
##223863 @!STEPHEN-AUG : Welcome to Business World . I 'm Stephen Aug , sitting in for Sander Vanocur . Here 's what 's on this week 's agenda . voice over The credit crunch . How real is it ? A downturn in the economy in the Northeast , the savings and loan crisis , other bank loans going bad . Is it really adding up to the worst credit shortage in recent times ? From Houston , this week 's Business World guest , Comptroller of the Currency Robert Clarke . Also , calling in their marks , East Germany gets ready for the monetary union with the West . Will real money make a difference ? And the Ironman Triathlon . Two amateur athletes hope buying the rights to the grueling event will turn iron into gold @!ANNOUNCER From ABC News , this is Business World , with Sander Vanocur and Stephen Aug . Now , from New York , here 's Stephen Aug @!AUG The tremors from the savings and loan crisis continue to shake the banking industry from one end of the country to the @ @ @ @ @ @ @ @ @ @ to sell the 6,000-acre Stoneridge Ranch to a Japanese industrialist for $61 million , a loss of $270 million which U.S. taxpayers will have to swallow . In Washington , the S&amp;L crisis has become a political hot potato , and President Bush was feeling the heat when he told Justice Department officials to go after anyone responsible for S&amp;L fraud . President BUSH : We will not rest until the cheats and the chislers and the charlatans spend a large chunk of their lives behind the bars of a federal prison @!AUG The House Banking Committee went to Houston , where it heard Texas Treasurer Ann Richards say dumping real estate from failed savings and loans is disastrous for the Texas economy . But bad bank loans are n't just a phenomenon in Texas , and their effects are being felt far beyond the Lone Star State . voice over At Hingham , Massachusetts , work has slowed considerably on converting this old seminary into housing for senior citizens . That 's because the local bankers are unwilling to lend Frank Romano $92 million to complete the project . FRANK @ @ @ @ @ @ @ @ @ @ no question trying to obtain credit today versus a year or two years ago , it 's like day and night . The criteria is different , and on a level of difficulty , let 's say one to 10 , 10 being the highest , we 're clearly at a 10 @!AUG voice over In fact , Romano is not alone . Banks all over New England have been cutting their lending sharply . During the first quarter of this year , lending by large New England banks was down 3.7 percent from the fourth quarter of last year . The second quarter is going to be down seven percent , and by the end of this year , lending may be down 14 percent from a year ago . But it 's not just New England . At the Brenner Paper Products company in the Queens section of New York City , they 've managed to add one new piece of equipment each year to keep up with technology . But all of a sudden , their banker is tougher to deal with . RHODA BRENNER-LEVENSON , President , @ @ @ @ @ @ @ @ @ @ get the loan , and we did not purchase that particular piece of machinery , it just handicaps us in remaining competitive in manufacturing in this industry @!AUG voice over The so-called credit crunch is hitting small and mid-sized business firms across the country . A recent survey by the Federal Reserve has identified credit problems in the New York-New Jersey area , the Fed 's Cleveland district , the San Francisco district , and for the first time , credit problems in the St. Louis district and the Richmond , Virginia , district . ARTHUR LEVITT , CEO , Levitt Communications : I think the United States is in the midst of one of the most severe credit crunches that it has experienced in recent years because the regulatory environment has become so punishing @!AUG voice over The punishment began with the massive failures of savings and loans in Texas , and federal regulators are determined that will not happen again . So bankers as far away as Burlington , Vermont , are experiencing the fallout . JOSEPH BOUTIN , CEO , Howard Bank : Actually , the same examiners @ @ @ @ @ @ @ @ @ @ them as hardened examiners , they 've been through the battleground and they 're seasoned examiners ; they 're looking at credits differently than they did last year @!AUG voice over Like low-rent housing projects . Historically , these projects do not generate enough cash flow from rental income to service their debt . They rely on wealthy investors who put money into them as tax shelters . Mr. BOUTIN : It 's going to be tougher and tougher to fund affordable housing from a developmental standpoint , because a company has got to come up and show a game plan where the project is going to generate enough cash flow to service the debt @!AUG voice over Ed Furash , a banking consultant , has just come back from eight weeks visiting clients all over the country . EDWARD FURASH , Banking Consultant : What 's changed is the vigor and the attitude with which regulators are addressing the problem . It 's very clear that even though they may believe that the rules have n't changed , in many subtle ways , where they 're inside a bank , @ @ @ @ @ @ @ @ @ @ have been tougher in their loans @!AUG voice over That new , tough attitude is generating complaints on Capitol Hill . Rep. JOSEPH KENNEDY , ( D ) Massachusetts : Northeast banks have been treated more harshly than others . When the Southwest 's economy bottomed out a few years ago , regulators were n't nearly as harsh on lenders , even though Texas , in 1986 , was in far worse shape than New England is today . Rep. JOHN LaFALCE , ( D ) New York : Credit is more difficult to come by , and whenever you have credit that 's difficult to come by , you 're going to have a squeeze on economic growth , you 're going to have a squeeze on the ability to expand your business opportunities @!AUG voice over During Senate Banking Committee hearings last week , regulators defended their actions , pointing out that bank examiners consider local market conditions . ALAN GREENSPAN , Chairman , Federal Reserve Board : Our standards in these areas have not been tightened , though they may , because of deteriorating conditions in certain markets @ @ @ @ @ @ @ @ @ @ , this should prove to be a positive force for the economy , by preserving the health of our commercial banking system @!AUG voice over What has bankers worried is that examiners are forcing them to mark loans down to their market value , even if the payments are up to date , basing their views on the possibility of a softer economy . Mr. FURASH : What 's going on is essentially that the regulators are looking at loans and painting a worst-case scenario for many of these loans . What would happen if the world came to an end ? Could you collect this loan ? Mr. BOUTIN : There is a move afoot to look at continuing to mark the market your loan portfolios , which would have a tremendous and devastating impact on bank profitability , it would fluctuate up and down based on those write-downs @!AUG The big worry here is that if the bank examiners are too tough on the bankers for too long , that will set off a chain reaction . Regulators force bankers to write down their loans , each write-down pushes @ @ @ @ @ @ @ @ @ @ too cautious . That starves business of money . Business firms cut back or fail , and before you know it , we are in a recession . In just a minute , the man who is supposed to know where the money goes , Comptroller of the Currency Robert Clarke . Commercial break AUG : This week 's Business World guest wears several regulatory hats , any of which may be enough of a burden for any one person . As Comptroller of the Currency , he has oversight for national banks . He also sits on the board of the Federal Deposit Insurance Corporation . And he 's a member of the board of the Resolution Trust Corporation , which runs the S&amp;L bailout . Robert Clarke joins us from ABC affiliate KTRK in Houston . How are you , Mr. Clarke ? Nice of you to be here . ROBERT CLARKE , Comptroller of the Currency : Fine , Steve . Thank you @!AUG A lot of bankers and a lot of small and mid-sized businessmen are saying that examiners are getting so tough that the bankers are @ @ @ @ @ @ @ @ @ @ , your examiners are saying they 've got to learn how to just say no . That 's causing real problems . What are you telling these examiners ? Mr. CLARKE : Steve , we 're simply telling examiners that you have to do your job in a professional manner , call the shots as you see them and be attentive to what 's really happening in the marketplace , where the bank is located that you 're examining . We 're not telling them anything more than that @!AUG Then why are the bankers and the businessmen getting a different idea ? They say that loans they routinely would get , they 're simply not getting any more . Mr. CLARKE : Well , the borrowers are saying that , and I think in part it 's a recognition of the fact that in some parts of our country , unfortunately , the economies have softened . Lenders are tightening their standards and the demand for loans is down @!AUG Well , you see problems , I guess , certainly in Texas and in Florida , but now the Federal @ @ @ @ @ @ @ @ @ @ , the Cleveland district , the Richmond district , the New York-New Jersey area . It seems to be spreading , and sooner or later , some people say , it 's going to spread itself into a recession . Is that the likely outcome of all of this ? Mr. CLARKE : Steve , we certainly do n't think that it 's going to spread into a recession . I think that what has happened is that in many parts of the country the real estate market has been overdone . There 's been too much real estate built in relation to the demand , and there 's going to be an inevitable correction @!AUG Well , let 's ignore real estate for a minute . Many of these people are in businesses that have nothing to do with real estate . We talked to a person who makes paper products . Somebody else runs a health club , routinely gets a loan to carry him over the summer . Normal businesses are simply not getting money . Why are the bankers so reluctant to lend in situations like this @ @ @ @ @ @ @ @ @ @ they have themselves about weakening in some of these markets . I think the efforts that our examiners have made to try to bring about a sense of reality on the part of bankers has caused bankers to look more carefully at how they lend money , with more emphasis on getting paid back , and that inevitably it 's going to cause some constriction in the availability of credit @!AUG Is this good ? Mr. CLARKE : I think it is definitely good to have bankers concentrating on the fundimentals of good lending policies . We 've seen what can happen when bankers do n't do that , with the savings and loan problem . We 've gone through a period of the 80s where there 's been a lot of credit granted to a lot of people , and I think the taxpayers in this country who are now being asked to pay a substantial part of the cost of some of that are expecting us to be doing our jobs @!AUG Let 's get briefly over the savings and loans . Incidentally , the $100,000 insurance money , @ @ @ @ @ @ @ @ @ @ Mr. CLARKE : I do n't think the amount of the insurance is the real problem , Steve . I think the problem is , what do you do with your insured deposits ? and I think in many cases the insured deposits were not prudently invested in good loans or in other types of investments @!AUG Do you think the insurance limit ought to be lowered in view of the expense that it 's caused in the S&amp;L problem ? Mr. CLARKE : It 's certainly one of the options that has been suggested . It seems to me , though , that the size of the insured deposits is not the problem , it 's what you do with the deposits once you get them @!AUG Well , thank you very much for being with us on Business World today . When we come back , in Germany , they 're getting set on their mark @!ANNOUNCER The multi-billion dollar savings and loan bailout represents only a portion of the programs guaranteed by the government . Uncle Sam 's liabilities for bank deposits total $2.9 trillion . Insurance for @ @ @ @ @ @ @ @ @ @ trillion . Government-backed home mortgages add another $760 billion , while FHA and VA housing loans , student and small business loans account for $590 billion . Add just over $200 billion for agriculture and other direct loans , and that brings the grand total to almost $5.8 trillion of taxpayer liabilities . Commercial break AUG : Turning to the week on Wall Street , just before Friday 's closing bell , the Dow Jones Industrial average took a last-minute nosedive to finish the week down by almost 79 points . Last week , our stock market panel of experts from around the country were split ; our panel 's consensus is for a down week ahead . Some of our panelists feel the rally which started eight weeks ago is due for a pause or a correction . Panelist Robert Farrell , a technical analyst at Merrill Lynch , does not foresee a long bull rally . ROBERT FARRELL , Technical Analyst : Well , right now , we 're at a fairly important juncture because we 're at the end of a quarter and we 've had a very @ @ @ @ @ @ @ @ @ @ out to be the best rise of the year . My expectation is that there is still some more money to come into stocks going into the summer , so I think we will see still some higher highs between now and maybe mid summer . But in the overall scheme of things , I think we 're in the late stages of a market cycle , not at the beginning of a long bull market @!AUG Eastern Europe 's first regulated stock exchange opened this past week in the Baroque Budapest Bank Building , the computers amid the marble columns and brass chandeliers . Although Hungary did have some false starts in securities trading over the past seven years , this new stock market is working with American-style regulation . The economic democratization of Eastern Europe will take a major step forward in just another week , when the two Germanys begin using a single currency . As ABC News correspodent Jerry King reports , it 's a process viewed with both anticipation and some trepidation . JERRY KING , ABC News : voice over Just a year ago , @ @ @ @ @ @ @ @ @ @ . In a way , the little car , with its plastic body and the engine of a motorcycle , may still be a symbol . People used to wait 15 years for the chance to buy one ; now you could hardly give one away . Nobody wants East Germany 's currency , either . That disappears with next weekend 's monetary union that many believe will be the de facto unification of Germany . That 's when the ost mark is replaced by the powerful , West German Deutsch mark . Several East German businesses have already jumped the gun on currency union . For weeks now , they 've been selling Western goods with prices listed in both currencies . East Germans have waited 40 years to get their hands on real money , so what 's a few more hours outside a bank , if it means converting their savings into Deutsch marks . There is a lot of bureaucracy , of course . Every East German has to set up a special account to facilitate the changeover . Under the two-tier system , the first 4,000 @ @ @ @ @ @ @ @ @ @ That 's roughly the equivalent of $2,400 . Anything above that amount gets converted at two-to-one , 50 percent less . Then their own East marks will be officially worthless . So what about pocket money ? Again , there will be more standing in line , this time to make withdrawals . Many economists fear monetary union will produce a buy-it-while-you-can national spending splurge that will fuel inflation . But East Germans we 've talked to say they 'll be conservative . 1st EAST GERMAN : through interpreter We wo n't spend it . We want to save it like we always did . 2nd EAST GERMAN : through interpreter We are going to be careful with the money . We have to be careful with it . 3rd EAST GERMAN : through interpreter First , I will save my money and then I will buy a vacation , maybe Spain and then America , which is where I 'd love to go @!KING voice over Many are worried where they 'll end up is on an unemployment line . There are dire predictions of up to two million unemployed @ @ @ @ @ @ @ @ @ @ economists predict that by year 's end , on average , East Germans will have suffered a 10 percent cut in real wages , and they forecast bankruptcy for many small and medium-sized businesses unable to compete in a free market . on camera But most East Germans realize their economy is a shambles already , and there 's nowhere to go but up . And when they look up at their rich capitalist neighbors , unification looks like a pretty good idea . Jerry King , ABC News , Berlin @!AUG When we return , the thrill of victory , the agony of defeat , and a little alchemy as two entrepreneurs try turning iron into gold . Commercial break AUG : It 's a rare sporting event where amateurs can successfuly run nose-to-nose with the pros . But the triathlon is still relatively new and now as established as , say , marathons , one element of the triathlon . As Sander Vanocur reports , that means opportunities abound for both athletes and entrepreneurs to test their metal . SANDER VANOCUR : voice over The ultimate goal , to @ @ @ @ @ @ @ @ @ @ endurance test of all , consisting of a 2.4-mile ocean swim , 112-mile bike ride , and then a marathon , 26.1-mile run . DAVID VOTH , Co-Owner , Ironman Triathlon : If I could swim and bike and run those distances in that type of environment , I could basically accomplish anything @!VANOCUR voice over The challenge for nearly of 300,000 American triathletes , to split their time between a demanding training schedule and a career . Take Joe Russell , a 57-year-old construction project manager in Monterey , California , whose been competing for over seven years . JOE RUSSELL , Manager , Granite Construction : I think it 's a challenge , it 's a release , it 's a sense of achievement @!VANOCUR voice over Harriet Anderson , also 57 , divides her time between being a school nurse in suburban San Francisco and a competitive triathlete . HARRIETT ANDERSEN , Nurse , Redwood City , California , Schools : I think the Ironman has kind of a mystique that everyone wants to try it once , and I think you want to finish , and that @ @ @ @ @ @ @ @ @ @ Peter Crone . His wife got him started to help cope with the stress . A year ago , he opened a triathlete store franchise and has been juggling his schedule ever since . PETER CRONE , Owner , Fleet Feet , Palo Alto : I generally try to get up around , if possible , 5:30 or 6:00 and get a swim in and a run or a bike ride before I come here . By the time I get here to work , there 's a chance I 'm never going to get out again , so I need to do two sports in the morning @!VANOCUR voice over These weekend warriors , seemingly willing to sweat and strain limitlessly , earn among the highest incomes and are among the best educated of all recreational athletes . The median salary is above $60,000 and nearly 80 percent have college , and post- graduate degrees . TERRY DAVIS , Director , Wildflower Triathlon : This sport is really set up for a lot of professional people , a lot of executives and things like that , and this is the @ @ @ @ @ @ @ @ @ @ they relax @!VANOCUR voice over You can sense their determination as they prepare for the race . It starts at 7:00 am and the temperature is already in the 80s . After the gun sounds , the smiles fade , and the serious business of competing takes over . Triathletes look for every advantage : wet suits designed for them cost around $300 . They could save as much as three minutes in the two-mile swim . But the bicycle is perhaps where technology can save the most and also cost the most . Mr. DAVIS : You can start with a Huffey or a Schwinn bicycle and the next thing you know you 're buying shoes and you 're buying helmets , and what you can do is you can even get up to bicycles now that are $4,000 and $5,000 and $8,000 @!VANOCUR voice over Harriett Anderson is relying on the same technology that helped Greg LeMon in his super-human effort to win last year 's Tour de France bicycle race to help her get to Hawaii again . She 's using the same pedals and shoes and the @ @ @ @ @ @ @ @ @ @ resistance . Ms. ANDERSON : I love the new equipment on bikes . I 'd like to get even a better bike , and to go a little faster . Mr. CRONE : Triathletes are notorious for being yuppies that have a lot of money and no limit to what he 'll buy to improve your performance a smidgeon @!VANOCUR voice over Dr. Jim Gills and David Voth met while competing in triathlons , and recently bought the Ironman name and race for over $2 million . They get a royalty for each of the 800,000 Ironman watches sold world-wide last year , and retailing for $40 each . And both are looking to expand the Ironman , both overseas and here , by adding a new series to get a larger share of the $300 million U.S. triathlon market . DAVID VOTH , Co-Owner , Ironman Triathlon : We anticipate being able to pay off debt within 18 months to two years , but it has a lot to do , not with the fact of the race itself ; it has to do with other ancillary projects that we @ @ @ @ @ @ @ @ @ @ be right back . Commercial break AUG : Next week much of the world 's attention will focus on Eastern Europe , where the Soviet Union begins private ownership of property , and where both Germanys begin using a single currency . We 'll be there , too , as Business World broadcasts from Berlin . That 's it for this week . Whatever business you 're in , we hope the week ahead is a prosperous one . I 'm Stephen Aug . On behalf of Sander Vanocur and everyone here at Business World , thanks for being with us. 
##223864 @!SANDER-VANOCUR : Welcome to Business World . I 'm Sander Vanocur and here 's what 's on this week 's agenda . voice-over A rough ride for the airlines . Already squeezed for operating profits , the combination of higher oil prices and the lower economy could knock some carriers out of the skies . And Boeing . Will it still be flying high if the airlines get hurt by higher fuel costs ? From New York , this week 's Business World guest , Texaco Chief Executive Officer , James Kinnear . Also , this week , the world embargo against Iraq puts some American rice growers between Iraq and a hard place . And oil intelligence . Even a company that keeps track of oil trends can be caught off guard @!ANNOUNCER From ABC News , this is Business World with Sander Vanocur and Stephen Aug . Now from New York , here 's Sander Vanocur @!VANOCUR Week two of the Persian Gulf crisis . A week in which oil prices began to stabilize . Although still high , oil was in a trading range , @ @ @ @ @ @ @ @ @ @ . Rising oil prices and a slowing economy forced corporate managers to take a close look at corporate travel budgets , and usually tighten them . After all , higher oil prices affect us , whether traveling in a four-cylinder car or four-engine jet . The few-cents-a-gallon hike , that may cost an extra couple of dollars at the pump , really adds up when your gas gauge measures gallons by the thousands . ROBERT CRANDALL , Chairman , American Airlines : Very rapid fuel price increases clearly presents some very grave problems . Every time fuel goes up one penny , it costs $25 million a year at American Airlines @!VANOCUR voice-over And it may be worse for carriers with older , gas-guzzling fleets , those already plagued by financial woes , like TWA . CARL ICAHN , Chairman , TWA : April 26th We are at a crossroad . And I agree that we should either grow larger now or shrink . And the real question is , what are our costs going to be . We can not afford the cost that the airline has . My job @ @ @ @ @ @ @ @ @ @ bleed to death @!VANOCUR voice-over And while several airlines do remain healthy , the overall industry is troubled . Last year , it had a first-quarter operating profit of over $190 million . This year saw a staggering $684-million loss . An aviation consulting firm that forecast a $400-$500 million operating profit for this year now projects a post-deregulation record billion-dollar loss . With rising labor costs , especially for pilots , weak domestic demand , the only bright spot is increased international travel . But that accounts for less than 20 percent of revenue . CANDACE BROWNING , Analyst , Wertheim Schroder : Domestic is still the real name of the game . You have to be doing well in domestic in order for the industry to be producing profits . So , it 's nice gravy that international is doing well , but it 's not a savior @!VANOCUR voice-over What might be are the fare increases most carriers have already announced . In fact , the industry trade group held a press conference to explain why they were so quick to act . ROBERT AARONSON , President , @ @ @ @ @ @ @ @ @ @ large fuel supplies on hand - typically no more than a day or so - the cost impact was immediate . Moreover , many airlines have already sold 30 to 40 percent of their seats for the next 60 days , at prices based on lower fuel costs @!VANOCUR voice- over Industry lobbyists are also fighting a bill passed by the House last week that would raise passenger taxes to improve airports . They say there is already $7 billion in the aviation trust fund that the government is using to help offset the deficit . But even if it 's killed and fares go up , it may be too late for the already-bankrupt Eastern , still suffering from labor disputes and charges of falsifying maintenance records . TIM PETTEE , Analyst , Merrill Lynch : The travel agent and the business traveler appear to be reluctant to put people on Eastern . And , as a result , the losses- since the airlines make money off the business traveler , the higher-fare traveler , Eastern 's just having a very difficult time establishing any presence in the marketplace . @ @ @ @ @ @ @ @ @ @ down , retain the cash and liquidate @!VANOCUR voice-over Soaring jet fuel prices may eventually mean more expenses for business . Overnight shippers have not yet raised rates , since their fuel costs are only about four to eight percent of their operating expenses , as opposed to 15 percent for passenger airlines . But the delivery services may not be able to absorb further fuel price hikes . And more passengers may have to pay full fare . Mr. PETTEE : Discounting , on a nationwide basis , is probably a thing of the past . What the industry is resorting to and relying upon are more regional discounting efforts . For instance , right now on the West Coast , there 's a very , very aggressive fare war going on @!VANOCUR voice-over Will hard times lead to consolidation ? Just this week , SAS got control of Continental , and Frank Lorenzo departed from the airline scene . But that does n't necessarily represent a trend . Mr. CRANDALL : It 's very difficult to bring airlines together and treat employees equitably . And a consequence is we @ @ @ @ @ @ @ @ @ @ And while many do expect consolidation , airlines can be resourceful when it comes to survival . Ms. BROWNING : Airlines throw off a lot of depreciation , hence they throw off a lot of cash . That 's why airlines are very hard to kill @!VANOCUR Later , we 'll look at how the airlines ' plight might affect number one aircraft builder , Boeing . But next , a view from one oil executive . Joining us here in New York , Texaco President James Kinnear . Commercial break VANOCUR : The tank tracks were still fresh in the Kuwaiti sands as one oil company after another began to raise prices , even for gasoline from oil that may have been purchased and refined months ago . The outcry at the pumps was heard all the way to Washington , where President Bush eventually asked the oil companies to hold the line . This week 's Business World guest heads one of the nation 's biggest oil companies . Texaco President and CEO James Kinnear joins us here in New York . Mr. Kinnear , we live in a @ @ @ @ @ @ @ @ @ @ , once again , that the oil companies are - forgive me - screwing the American people . True or false ? JAMES KINNEAR , CEO , Texaco : Certainly it 's not true . I understand the feelings of the American public . I sympathize with them . And we at Texaco are and plan to be part of the solution , not part of the problem @!VANOCUR All right . It 's quite easy to beat up on oil companies . But how does the process work ? Do you set the prices ? Do the distributors set the prices ? Does the operator of the station set the prices ? Mr. KINNEAR : Well , there are about three elements in that question . First off , the United States imports some 50 percent of its crude and product . And those crudes and products are priced more or less on the date of delivery into the United States . Now we at Texaco , we purchase about 60 percent of what we provide to the public around the world . We sell to distributors . We sell @ @ @ @ @ @ @ @ @ @ own prices . Three-quarters of what Texaco sells in gasoline is sold by independent businessmen who set their own prices @!VANOCUR Do you have a corporate or a public relations problem in the oil industry ? Mr. KINNEAR : We think that we want to tell the American people just exactly what the facts are here , that certainly we at Texaco have been very responsive ; we have shown restraint . For an example , over the last six weeks , the price of the widely- traded crude in the United States , West Texas Intermediate , has gone up about $9 a barrel . Our selling price of regular gasoline to our re-sellers has gone up about $3 a barrel @!VANOCUR All right . Could a company like Texaco , which is no novice in Middle Eastern affairs , have seen this coming ? Mr. KINNEAR : It was very difficult to see this sort of a situation coming . This is unprecedented . Obviously , oil is volatile . We have many supply sources around the world . But a situation of this magnitude was not predictable @!VANOCUR @ @ @ @ @ @ @ @ @ @ happening again ? What would it take , in the best of all possible worlds , over the next ten years , for Texaco to start pumping a lot of investment into wells in this country that have been capped , or start researching and refining and digging again , in the United States ? Mr. KINNEAR : Certainly we think that additional activity , particularly in the areas of secondary and tertiary recovery in the United States , are very good things to do . We believe that activity in Alaska will be good . We believe that activity in other producing basins around the world to diversify our sources of supply would be good . We couple that with research in the use of coal . We couple that in research in conservation @!VANOCUR All right . Are you for resurrecting that once- dreaded phrase , the oil depletion allowance ? Would that be an inducement to dig , drill , domestically ? Mr. KINNEAR : I would n't call it the oil depletion allowance . I think there are some changes in the tax act that would be @ @ @ @ @ @ @ @ @ @ around the world @!VANOCUR Is there any way this country can be domestically self- sufficient ? Mr. KINNEAR : It is unlikely that we will be self-sufficient in oil . But I do believe that we can diversify our sources from all around the world . I think we can use more coal in the United States . And obviously , I do support conservation @!VANOCUR Is Texaco now in a process of reviewing , maybe shifting its emphasis on Middle East oil to other sources of supply : Venezuela , Mexico , the United States ? Mr. KINNEAR : We have to recognize that some 75 percent of the world 's oil is found in the Middle East . That will be a very , very important source of oil for the world for the foreseeable future . However , in addition , we are , in fact , looking in the other , unexplored basins around the world @!VANOCUR A final question : Who 's a bigger threat to Texaco ? Saddam Hussein or Carl Icahn ? Mr. KINNEAR : I think that Texaco has been able to exist @ @ @ @ @ @ @ @ @ @ And we 're just here today being part of the solution , as opposed to being part of the problem @!VANOCUR Thank you very much . Thanks for joining us here on Business World . And when we come back , the embargo against Iraq leaves some U.S. farmers with a harvest of more pain than grain . Commercial break VANOCUR : Turning to the week on Wall Street . At Friday 's closing bell , the Dow Jones Industrial Average finished down for the week by more than 93 points , even worse than the previous week 's 89-point drop . Our panel of stock market experts from around the country had predicted an up-week . For the week ahead , our panel is split , saying the market 's behavior will depend directly on what happens in the Middle East . Panelist Al Frank , a Santa Monica-based newsletter publisher says if you have n't bailed out of the market , you might as well stay there . AL FRANK , Investment Advisor : We think it 's a little late to sell . And it may be a @ @ @ @ @ @ @ @ @ @ buy . And we look forward to the market rallying later this year , and meeting our expectations of 3200 on the Dow @!VANOCUR This weekend marks the end of a dream for Canadian financier Robert Campeau , the creator of a real estate and retailing empire that became synonymous with junk bonds has been ousted as head of the Canadian holding company which bears his name . Directors of the company , which owns what were once the Federated and Allied store chains , announced , after the market closed Friday , that Campeau was not reappointed as chairman and chief executive . Campeau had already lost control of the retailing empire when it filed for bankruptcy . President Bush is betting that if an embargo against Iraq effectively cuts off that nation 's food supply , then Iraq might lose its appetite for conquest and quit Kuwait . While public opinion polls say roughly three-quarters of Americans support the president 's actions so far , there are some U.S. farmers who might not be applauding . JIM CARDIFF , Rice Farmer : We may lose about 25 percent of @ @ @ @ @ @ @ @ @ @ wiped out right now . Did n't have much market to begin with , the way I look at it . It seems like every time something comes up , they want to use food for a tool @!VANOCUR voice-over For Texas rice grower Jim Cardiff , this is a grim harvest season . Even though most of the world has said it wo n't ship food to Iraq , he 's not happy about the loss of market . And , unlike the rest of the world , U.S. farmers already knew their market in Iraq would shrink . MARK CREED , Rice Broker : This is something that we 've known , really since about May . The U.S. rice industry reconciled itself to the fact that Iraq was not going to receive the credit , and consequently we could n't count on them as a buyer this season @!VANOCUR voice-over The loss of the Iraqi market will also hit U.S. rice millers and shippers , who , in recent years , were accustomed to supply much of Iraq 's imported rice , largely sold under a U.S. government @ @ @ @ @ @ @ @ @ @ May . The exports to Iraq comprised almost a quarter of U.S. rice exports , an eighth of the U.S. rice crop . The embargo on shipments to Iraq could n't come at a worse time for American rice farmers . Production has been high ; prices way down . And with a loss of a 400,000-ton rice market , the outlook is grim . Mr. CARDIFF : It sure is going to be off from what it was last year , which was off already , you know . We 're just hanging on because it 's in our blood , I guess @!VANOCUR When we return , where do you turn for oil intelligence ? To an oil oracle ? Or maybe a slick operator . Commercial break VANOCUR : The price of crude oil finished the week at just over $26 a barrel for West Texas Intermediate . That 's down about $2 since the start of the week , but still up more than 50 percent since early last month . How do you find out what 's going on in the oil industry ? Well , @ @ @ @ @ @ @ @ @ @ and the oil companies got a sobering briefing from the director of the CIA . But if you were n't invited , you could turn to a company where size is not necessarily the measure of savvy. voice-over About half of the oil traded at the New York Mercantile Exchange is by companies that rely , at least in part , on advice purchased from Energy Security Analysis . FOSTER MELLEN , Energy Security Analysis : We provide information and analysis , related to the politics and the economics that affect oil markets . A large part of our service is the providing of just basic information on oil supply and demand stock levels @!VANOCUR voice-over So , where do they get their information ? Employees in Washington and London call all over the world to gather oil statistics which they analyze . The group 's most important publication describes European oil stockpiles , and is distributed via fax . ESA 's 250 clients vary from big oil companies like Exxon and Mobil to small drillers and refiners to foreign oil ministries , even OPEC , clients who pay from $500 @ @ @ @ @ @ @ @ @ @ : Yeah , and I think it makes- You know , the next 48 hours might be fairly critical @!VANOCUR voice- over But , despite its renowned reputation , the crisis caught ESA off guard . Its founder went off to a secluded honeymoon and was first heard from via fax on Thursday , a week after the invasion . Mr. MELLEN : The quote that Hosni Mubarak used yesterday , " Hoped that August would be a quiet month , " was almost the exact same words that Ed Krapels left us with . It 's certainly turned out to be anything but quiet @!VANOCUR voice-over So , amid price gyrations and questions about crude oil production and supply , what is ESA telling its clients about the future ? Mr. MELLEN : There continues to be substantial up-side price risk . $35 , $40 prices are within reason , under certain scenarios . But basically , we 're telling them that we 're seeing prices , over the near term through the end of the year , in the $25 to $30 range @!VANOCUR In just a minute , @ @ @ @ @ @ @ @ @ @ Commercial break VANOCUR : The crisis in the Persian Gulf , with its impact on oil prices and stocks , poses problems for airlines and the travel industry and also holds some potential hazards for aircraft makers . Commercial aircraft are the biggest U.S. industrial export , and Boeing the biggest maker . Boeing is such a dominant factor that , this past Autumn , a strike at Boeing sent the stock market down . And the down turn and its output forced U.S. trade numbers down , as well . voice-over The last time the economy got hit with a double whammy of an oil shock and a recession , back in the early 70s , Boeing was almost knocked out of the skies . The work force nosedived from 100,000 down to 40,000 . But Boeing says , this time , things are different , with workers making planes around the clock , trying to fill $78 billion worth of back orders . JOHN HAYHURST , Vice Pres. , Marketing , Boeing : If the high oil prices are of short-term duration , I think it will have a @ @ @ @ @ @ @ @ @ @ a long period of time , it could reduce the- over the long term , reduce the demand for jetliners @!VANOCUR voice-over Outside of Boeing , some experts say that with the prolonged recession and higher oil prices , even that firm 's $78 billion back-log itself may be the one in the economy . JORDAN GREENE , Analyst , Avmark Services : Boeing is not going to hold any customers ' feet to the fire and lose a customer in the future to a competitor @!VANOCUR voice-over But Boeing says the positive factors far outweigh the negatives . The most important is the continued growth in worldwide air travel . While the rate of growth has dipped twice during the last two recessions , it has , nevertheless , remained positive . New orders , in the meantime , have surged in a continuous upward trend over the past decade , to a record $120 billion . And there 's a new bullish factor . Aging aircraft will soon have to be replaced . PAUL NISBET , Senior Analyst , Prudential Bache : We 've never really replaced aircraft in @ @ @ @ @ @ @ @ @ @ there 's a feeling that about 3,000 of those will be scrapped in the next 10 years @!VANOCUR voice-over Because of a bulge in the deliveries of new jets in the late 1960s , a large number of old aircraft will be reaching retirement age in the next couple of years . And a third factor boosting demand for new planes , they 're more fuel efficient . So higher fuel prices may lead to early retirement of older fuel guzzlers . PETER MUSSER , Analyst , Ragen MacKenzie : You get between 10 and 30 percent less fuel consumption @!VANOCUR voice-over But what if some of the weaker airlines were dragged down by higher fuel prices and a worldwide recession ? Would n't Boeing feel the ripple effect ? Mr. NISBET : The orders will stay pretty much the same , simply because the airlines in question that might be forced out of business , are ones that do not have , for the main , any orders for new aircraft @!VANOCUR voice-over Boeing even plans to launch a brand new wide body to an engine jet , the 777 @ @ @ @ @ @ @ @ @ @ . Mr. HAYHURST : We have every expectation that we will be successful in launching the airplane by December 31st @!VANOCUR voice-over While Airbus and McDonnell Douglas , with its new MD-11 , are ahead of Boeing in launching their new wide bodies into this market niche , some think the 777 , which wo n't be delivered until at least 1995 , has advantages . Mr. MUSSER : With a twin engine aircraft- The MD-11 is a three-engine aircraft . So I think there 's probably a 10 percent cost advantage , on an operating basis , for the 777 , versus the MD-11 @!VANOCUR voice-over And labor conflict at Boeing , which suffered a 48-day strike by the machinist union last October , should be minimal . The machinists settled . And a strike threat by its 27,000 engineering and technical workers no longer exists . CHARLES BOFFERDING , Union President : We 've just settled a contract . We have a period of peace , if you will , for the next two-and-a-half years . We 'll negotiate again in ' 92 @!VANOCUR voice-over So most observers think @ @ @ @ @ @ @ @ @ @ maintain its dominance . The company already has a 54-percent share of the commercial jet market , followed by Europe 's Airbus Industries with 22 percent and McDonnell Douglas with 18 percent . Yet there is at least one dissenter to the view that there will be nothing but blue sky for Boeing and Seattle , the city it dominates . If the world economy turns sour , history could repeat itself , says industry consultant Jordan Greene . Mr. GREENE : There will be cancellations . If things get bad enough , there was a sign at the last recession that said , " When the last man leaves Seattle , will he please turn off the lights . " VANOCUR : That 's it for this week . Whatever business you 're in , we hope the week ahead is a prosperous one . I 'm Sander Vanocur . On behalf of everyone here at Business World , thanks for being with us. 
##223865 @!SANDER-VANOCUR : Welcome to Business World . I 'm Sander Vanocur , and here 's what 's on this week 's agenda . voice over The silver lining in the Persian Gulf cloud : The Mideast crisis means potential profits for companies as diverse as K-Mart and water bottlers . We 'll look at firms that may have the chemistry to survive adversity . From Washington , this week 's Business World guest , Secretary of Transportation Samuel Skinner . Also this week , bringing fiber optics to the home : it could mean exciting ways to communicate . Critics say it could also mean higher costs for phone service . And Peace Fleece : a yarn about a Maine-to-Moscow venture that pulls the wool over some eyes and hopes to pay a peace dividend @!ANNOUNCER From ABC News , this is Business World , with Sander Vanocur and Stephen Aug . Now , from New York , here 's Sander Vanocur @!VANOCUR The mobilization of the U.S. military in the wake of Iraq 's invasion of Kuwait is the largest since the war in Vietnam . And @ @ @ @ @ @ @ @ @ @ of the so-called peace dividend from the democratization of the Eastern Bloc . Instead , we 're treated to pictures of warships , tanks and troops being loaded onto ships and being deployed in the Saudi desert . All of this activity means more business for those companies supplying the military . As business editor Stephen Aug reports , it 's another case of a cloud with a silver lining , at least for some . STEPHEN AUG : voice-over In the movie Bananas , Woody Allen plays the leader of a band of South American guerrillas . In this scene , he walks into a tiny cafe to get food for his troops . " Bananas " MGM/UA WOODY ALLEN , Actor : Do you have any grilled cheese sandwiches ? ACTOR : Yes , sir . Mr. ALLEN : Well , let me have a thousand . And 300 tuna fish and 200 bacon , lettuce and tomato sandwiches @!ACTOR You want cheese on rye ? AUG : voice-over Far fetched , you say ? Not really . When elements of the 24th Mechanized Infantry at Fort Stewart , @ @ @ @ @ @ @ @ @ @ , the local K-Mart store got an urgent telephone call for special supplies , including 5,550 each of suntan oil , skin lotion , lip balm and foot powder , 2,400 cans of bug repellent , 45 automobile compasses , and 60 white toilet seats . Why go outside routine Army supply channels ? WESLEY BENEFIELD , Manager , K-Mart , Hinesville , Georgia : If it was needed in Saudi Arabia today , why wait three weeks to get it ? Would you want to be in Saudi Arabia without suntan lotion ? AUG : voice-over The huge American deployment in the Middle East , and the fears that go with it , are proving a boon to a lot more business firms than just K-Mart . Like Survival Technologies . At their plant in St. Louis , they make automatic injector kits used to dispense nerve gas antidotes . Survival is the only domestic firm that makes them . And a few days ago , they got an order for 420,000 from the Defense Department . JAMES MILLER , President , Survival Technologies : Our employees are really quite @ @ @ @ @ @ @ @ @ @ to work on the weekends , and so we plan to use overtime and weekends to make up for whatever is needed by our Department of Defense or other military @!AUG voice-over And then there 's the Camel Manufacturing Corporation near Knoxville , Tennessee . They make tents . They also make special suits used to protect people from poison gas . Two months ago , before the Iraqis invaded Kuwait , they got an order for 1.3 million protective hoods . CHRIS ARNOLD , Camel Manufacturing : Since the invasion , we 've kind of stepped up to another gear . We went into overtime , and the atmosphere has changed , there 's a sense of urgency in the air @!AUG voice-over The buildup and higher oil prices mean other businesses may benefit as well . BRUCE STEINBERG , Economist , Merrill Lynch : A list of winners is a pretty short list . It 's mainly companies in the energy complex itself . Obviously , the oil companies are going to do well out of higher oil prices . Natural gas producers are going to be doing better @ @ @ @ @ @ @ @ @ @ Other parts of the oil industry should also do well . But that really depends on prices . The benchmark domestic crude oil , West Texas Intermediate , hit a low of $15 a barrel in late June . Then it began rising . By late July it was $18.50 . On August 2 , the day the Iraqis invaded Kuwait , it was about $22 . Now , it 's trading around $27 . Analysts say a price of around $25 a barrel for at least six months could mean some big changes in the energy industry , especially oil field equipment , drillers and servicing companies . ADAM SIEMINSKI , Washington Analysis Corporation : If prices stay up , there is going to be a greater demand to look for oil in the United States and all over the world , and those companies will end up getting more work . Alternate fuels will also benefit @!AUG voice-over That means firms that make fuels like ethanol , which is made from corn by firms like Archer Daniels Midland , and methanol , which comes from natural gas and coal @ @ @ @ @ @ @ @ @ @ benefits in banking . L. WILLIAM SEIDMAN , Chairman , Federal Deposit Insurance Company : At the moment , I would say that the higher oil prices , under current conditions , will probably help us by helping the Southwest , where we have by far the largest number of failures @!AUG voice-over The Texas economy in general my benefit . For every dollar , the price of oil rises above $20 a barrel , about 15,000 new jobs are created . So if oil remains around $26 , that 's about 90,000 new jobs in Texas , an increase of about 1.2 percent in total employment . STEPHEN BROWN , Economist , Federal Reserve , Dallas : It 's no reason to go out and buy a new Mercedes . I guess I probably should n't say something like that , but it 's good for the Texas economy but it 's just not that good . It helps , but not by very much . It 's not going to return the Texas economy to the boom that it saw in the late 70s and early 80s @!AUG All @ @ @ @ @ @ @ @ @ @ , at least a few may get some benefit . Though on the whole , the economy , most observers consider the higher oil prices and potential problems arising from the Middle East crisis to be overwhelmingly on the down side . Sandy ? VANOCUR : Thanks , Steve . In just a minute , the impact of the Middle East crisis on the cost of getting around from Secretary of Transportation Samuel Skinner . Commercial break VANOCUR : The crisis in the Middle East has once again pointed up American vulnerability because of our dependence on imported oil . Oil is the major fuel for our entire transportation system . From airlines to cars , from locomotives to trucks , all rely on oil . All are being hit by higher oil prices . And the higher prices and fears of shortages have n't been lost on this week 's Business World guest , Secretary of Transportation Samuel Skinner , who joins us from our studios in Washington . Mr. Secretary- SAMUEL SKINNER , Secretary of Transportation : Good morning @!VANOCUR Good morning . Your department has been working with @ @ @ @ @ @ @ @ @ @ by the end of the year . What are the repercussions from the present crisis going to be on that report ? Sec @!SKINNER Well , it 's too early to tell but Jim Watkins , the Secretary of Energy , has been working on the national energy strategy , and the Department of Transportation has been working very closely with him . It 's to be presented in December and I think it 's going to be based on a number of assumptions that probably are no longer valid . It 's pretty clear that they 've been very concerned about the dependence on foreign oil , which as you know has gone over 50 percent , and I think that now they 'll be looking for alternative ways of generating energy , and some of the alternatives may have a higher priority than they 've had in the past @!VANOCUR Can we learn anything from what the Japanese have done in this area ? Sec @!SKINNER Well , obviously the Japanese are dependent even more than this country on foreign oil , and as you know they 've moved @ @ @ @ @ @ @ @ @ @ . We 're kind of at a plateau in the area of nuclear energy . Whether or not nuclear energy will play a bigger role or not I think will be part of the national energy strategy . It 's certainly an option that they 're going to be looking at @!AUG Relatively little of our electric power in this country is generated by oil any more . And you 're right about nuclear ; it 's not only on a plateau as far as new project , there 's nothing , absolutely , on the drawing boards . Do you know if the administration would favor more nuclear plants ? Sec @!SKINNER Well , I think it 's pretty clear that the Secretary of Energy and the administration are going to be looking at all the options . This is really a project being led by the Department of Energy . But I know from my work with them that they are really exploring all options , and they 're leaving no stone unturned in an attempt to find viable options to dependence on foreign oil @!AUG Well , in @ @ @ @ @ @ @ @ @ @ How do you encourage people to use mass transit ? Clearly , you do n't encourage them by taking away operating subsidies and driving the costs up . What are you going to do to get people to use mass transit ? Sec @!SKINNER Well , we of course have got a program that has been gradually dwindling down and putting more reliance on state and local sources of revenue . They 've become too dependent on the federal government . I think as part of our desires in the area of energy conservation and our objectives , it very well may be that mass transit , in next year 's budget , in the out year budgets , may get a bigger share of federal funding as well as an encouragement for greater local funding @!VANOCUR Mr. Secretary , in the last few days the government has requisitioned civilian aircraft . If this continues , and more requisition , what effect will this have on what 's left of summer travel ? Sec @!SKINNER Well , as you know , the summer travel period is probably the biggest , especially @ @ @ @ @ @ @ @ @ @ call up yesterday by the transportation command , they will have access to about 38 different aircraft , many of which have already been used , but they 'll have a little more flexibility . We do n't anticipate at this level of call up that there 'll be any dramatic impact , although travelers will be inconvenienced because airplanes are currently in use , especially the big jets , the DC-10s and the 747s , are going to be diverted from their normal passenger runs , which are in most cases almost full , to a civilian run , and then the passengers are going to have to be picked up later @!VANOCUR Very quickly , in terms of what you just said , that the Energy Department should take the lead , why should n't Transportation take the lead ? After all , about a fifth of our gross national product is based on transportation and services attendant to it . Why should n't you lead rather than energy ? Sec @!SKINNER Well , we 're very involved . It 's a joint effort . But every project of @ @ @ @ @ @ @ @ @ @ Department of Energy has energy responsibilities for not only the transportation sector but all of the sectors , so it 's the logical choice and we supported the effort by Secretary Watkins and we 're very deeply involved . And the decision will be made by the President after listening to everybody . But you have to have a leader , and Jim Watkins , with his experience in the energy field , as well as experience in the military , is the perfect guy to do it @!VANOCUR Thank you very much , sir . Thanks for joining us here on Business World . Turning to the week on Wall Street , at Friday 's closing bell , the Dow Jones Industrial Average finished down for the week by almost 72 points . Last week , our panel of stock market experts from around the country were split . And for the week ahead , it 's split again . Some of our panelists , including Los Angeles-based market timer Peter Eliades , say the trend is down and any rally will be a short one . PETER ELIADES , @ @ @ @ @ @ @ @ @ @ as it 's come down , we can always anticipate some kind of rally . There are always people that are bargain picking . I would say that any rally would have a cap on it in the Dow of around 27.35 to 40 . However , I 'd be very surprised to see the Dow get above that level again on a closing basis @!VANOCUR When we come back , the phone company 's hope that when it comes to new technology , regulators will see the light . Commercial break VANOCUR : For many Americans , long- distance phone calls have been sounding clearer over the past few years , in part because the majority of those calls are traveling on strands of glass instead of wire cable . That glass , known as fiber optic cable , holds out the promise of a host of new communications services , which so far are beyond the reach of the consumer . But as with other new technologies , not everyone sees the future quite so clearly . voice-over In the future , we might get pink slips via fiber-optic-supplied @ @ @ @ @ @ @ @ @ @ The pictures are absolutely phenomenal and the sound on it is terrific also @!VANOCUR voice-over Santo Rocca is one of a handful of Americans who can watch sparkling clear television , though not HD-TV , thanks to fiber optic cable built into his new home in the planned community of Heathrow , Florida . Rocca 's house is one of 50 test homes with fiber optic services built in by Bell South using equipment and services from third parties , including Northern Telecom and AT&amp;T . But for the rest of America , getting fiber and fiber services probably means retrofitting , as in this experiment in Cerritos , California , and it 's become a major policy debate involving telephone companies , cable television , and even the question of whether the U.S. retains its lead over Japan in the photonics industry . GEORGE GILDER , Senior Fellow , Hudson Institute : It 's the single most important development in communications technology . I mean , today you can send 8.6 giggabits of information a second - that 's about 1,000 Bibles a second between Chicago and the East Coast @ @ @ @ @ @ @ @ @ @ Federal Communications Commission : We 're talking about a hair-like fiber being the equivalent of this obvious thick and heavy conduit filled with twisted copper paris , and it 's just amazing that one-quarter pound of this is equal to about 33 tons of this @!VANOCUR voice-over Replacing all the existing copper wire with fiber optics today is estimated at half a trillion dollars . So why do it ? Senator ALBERT GORE , ( D ) Tennessee : I think we 're in the early stages of an information revolution that will make fiber optic cable far more important in the future than it is today @!VANOCUR voice-over Dataquest estimates that eventually there will be a $150 billion a year market for fiber services - everything from this Fujitsu picture phone to televised traffic reports and interactive television , which might let you cull through stories in a newscast . Videoconferencing takes on new dimensions with this device from Belcore . Technologies like these might change not only how we work but where , allowing millions of commuters to get off the roads . Mr. GILDER : It can relieve @ @ @ @ @ @ @ @ @ @ . I mean , it really will be possible to have a birthday party for grandma with kids all around the world assembling at the foot of her bed at the nursing home in Florida @!VANOCUR voice-over Part of the debate centers on what services will come on fiber . While a single fiber optic strand can carry voice and video , it takes different kinds of switches to convert signals from electricity to light and back again . And those for television are far more costly . Fiber optics have been cost effective for long-distance telephone service for years . Since first developed by Corning Glass , fiber has come down to one-seventh its original price , making it now competitive for new local phone service . But the most heated question in the fiber debate centers on the claim by the baby bells that the best way to speed fiber installation is to let them into cable television , an area from which they 're now barred . Mr. SIKES : If the policies that limit what telephone companies can do are not changed , are not altered in @ @ @ @ @ @ @ @ @ @ will begin to have a very chilling effect on network modernization , and the potential for deployment of fiber into the home @!VANOCUR voice-over But there are some fears that it will be the phone user who pays for fiber , wanted or not . GENE KIMMELMAN , Consumer Federation of America : The problem with the phone companies and fiber optics is they want rate payers , who have to pay their local monthly phone bill , to take the risk in their phone rates for a very speculative , possibly promising but extremely high-risk venture @!VANOCUR voice-over But the baby bells say they already have $22 billion a year to invest in new plant and equipment without raising rates . RICHARD SNELLING , Executive Vice President , Southern Bell : If we 're never allowed to do CA-TV , we will still do fiber to the curb and then fiber to the home , because it is cost effective to do it for plain old telephone service @!VANOCUR voice-over How soon will all this happen ? A number of the baby bells say they 'll start providing new phone @ @ @ @ @ @ @ @ @ @ . And for wide ban services like television ? JOHN SODOLSKY , President , U.S. Telephone Association : Right now it is simply not economic for telephone companies to run fiber to a house , at least not at the speed we 'd like to . While we 're talking about speed , I 'd like to talk about how quickly this could be done if we were able to start today , if the restrictions were removed . I would venture that within 10 years a majority of America would be fibered @!VANOCUR voice-over And if those restrictions are not removed , the experts say it could take an extra 10 to 15 years to install fiber across America , long enough to cost the U.S. its lead in fiber optic technologies . Japan is already targeting fiber as well as the kinds of wide ban switches that in the U.S. are only found in some 1,400 telephone central offices and networking centers . Mr. GILDER : And when the Japanese start making millions of something while we 're making 1,400 , you know who 's going to dominate all @ @ @ @ @ @ @ @ @ @ a Soviet-American joint venture out to fleece the public . Commercial break VANOCUR : The crisis in the Middle East has found the United States and the Soviet Union on the same side of a major international incident for the first time in many years . Improved relations between the two superpowers have prompted joint ventures and dreams of convertible currency . But while some firms may be counting their kopeks , one joint venture is counting sheep . voice-over It 's daybreak , a foggy morning in Keyser Falls , Maine . Peter Hagerty is no ordinary sheep farmer . He runs an international business , a joint venture with a Soviet partner . Hagerty imports wool from the Soviet Union , blends it with his own wool , and calls the company Soviet American Woolens . He calls the yarn " peace fleece . " A sweater made from Hagerty 's yarn is for sale at that venerable main institution L.L. Bean . PETER HAGERTY , Soviet American Woolens : The customer that I 'm most excited about getting is the person that comes to us not because it @ @ @ @ @ @ @ @ @ @ @!VANOCUR voice-over The yarn comes in 15 colors with post-Cold War names like Soyuz-Apollo blue and glasnost gold . It 's mostly a mail-order business with 7,000 customers . And Hagerty runs a small retail shop in his barn . Mr. HAGERTY : This design right here was made by a woman in Moscow @!VANOCUR voice-over The business has diversified . Hagerty ships knitting needles and wooden buttons to the Soviet Union , where students paint colorful ethnic designs . Hagerty 's Moscow partner , Victoria Butenko . VICTORIA BUTENKO , Soviet American Woolens : It took a long time for every student to understand that for the United States you have to make the highest quality you could . And you could n't make any defect in any item @!VANOCUR voice-over The co-op churns out 10,000 knitting needles a month , and 10,000 buttons . Students are paid on a piecework basis , one ruble per item . They also make porcelain sheep , 2,000 a month at five rubles apiece . At those rates , students can earn more in a few hours after school than their parents earn @ @ @ @ @ @ @ @ @ @ just 300 students . Ms. BUTENKO : It 's number began to grow like mushrooms after the rain , and soon , in one year , we 've had 20,000 of kids from 43 schools . Mr. HAGERTY : Well , we 're in the fortunate position , basically using our Soviet partners as a manufacturing facility . We send them over the raw materials , they manufacture the product for us , we bring it back to the United States and sell it for dollars . So we never get into rubles @!VANOCUR voice-over Getting profits out is no problem . But there are problems with Soviet thugs . Mr. HAGERTY : Last year , we had one of our co-ops shot up with a gun , the sign out front was shot up with a gun , the van was burned , one of the students was badly beaten , and the message was that " if you do n't pay us protection money , we are going to see that you are hurt , " and the way that my partner responded to that was she picked up @ @ @ @ @ @ @ @ @ @ the city @!VANOCUR We 'll be right back . Commercial break VANOCUR : That 's it for this week . Whatever business you 're in , we hope the week ahead is a prosperous one . I 'm Sander Vanocur . On behalf of everyone here at Business World , thanks for being with us. 
##223866 @!SANDER-VANOCUR : Welcome to Business World . I 'm Sander Vanocur , and here 's what 's on this week 's agenda . voice over Labor Day weekend , and organized labor is still fighting , now battling companies trying to save money by using contract workers instead of permanent employees . From Washington , this week 's Business World guest , head of AFSCME , the public employees union , Gerald McEntee . And the best companies to work for : a look at some firms where the fruits of your labor can bear even more fruit . Also , back in the USSR : fringe benefits at a big company can help you where you live . And GrandTravel : For a few grand , grandparents and grandchildren travel in grand style @!ANNOUNCER From ABC News , this is Business World , with Sander Vanocur and Stephen Aug . Now , from New York , here 's Sander Vanocur @!VANOCUR This may be an unsettling Labor Day weekend for many American workers . Unemployment is drifting upward , the economy is trending downward , and two @ @ @ @ @ @ @ @ @ @ Auto Workers have begun talks with the Big Three U.S. automakers . And postal workers are bargaining with the Postal Service . As business editor Stephen Aug reports , where once workers aimed at improving their lot , now they 're just trying to hold on to what they 've got . STEPHEN AUG , ABC News : voice over When both sides got together for the start of the year 's biggest labor negotiations last week , covering more than 600,000 postal workers , there were the usual handshakes and pledges that everybody really wanted the same thing . VINCENT SOMBROTTO , President , National Association of Letter Carriers : If you 're sitting on your side of the table and you want to get an agreement , I can assure you on our side of the table , we want to get an agreement @!AUG voice over But behind the smiles and handshakes and the usual issues of wages and benefits , one of the most contentious issues is : 1st POSTAL WORKER : Job security . The money is n't that important if we can just keep up @ @ @ @ @ @ @ @ @ @ 'll start , you know , laying people off , I really do @!AUG voice over What they 're really worried about is machinery like this . This machine handles letters that can not be read by ordinary sorting machines . In this case , it transmits a picture of each envelope to a worker at a remote location , who reads it and punches the address into a computer that sprays a bar code on the envelope . The bar code contains the routing , and off it goes . The problem is that the Postal Service wants to contract out this work to non-Postal Workers . Postal officials say this is only part time work . ANTHONY FRANK , Postmaster General : I do n't want to hire people for 30 years and give 30-year employment to our people for a job that 'll disappear in eight to 10 years , and the rate differential between contracting it out and doing it in house is $12 an hour . Now that 's a lot of money . That 's about $300 million a year . MOE BILLER , President @ @ @ @ @ @ @ @ @ @ , he does n't have to do it here . He can just get a satellite and have it done at Bangladesh for about $1 a day or $1 a week @!AUG voice over Frank says the operation will eliminate about 12,000 jobs over the next four years . But that will happen through attrition ; nobody gets fired . The Postal Service already contracts out about $4 billion a year for services , like mechanical work , maintenance , air transportation and rural delivery . But this , the unions say , is different . Mr. BILLER : But now , in the mail processing , that 's a core activity that 's the heart of the Postal Service as we know it . He contracts that out , then you 've got all over again just delivery and there 's nothing to prevent them from contracting out delivery except the United States Congress @!AUG voice over And outside observers say Biller should be worried about future employment . Prof. DAVID LEWIN , Columbia University Business School : If you were a leader of one of the Postal unions , @ @ @ @ @ @ @ @ @ @ the road and ask yourself , " Are we talking 12,000 a day and 100,000 five years from now ? or are we talking 12,000 a day and that 's about it ? " AUG : voice over In fact , it 's far from just the post office that uses outside contract labor . RICHARD JACOBS , Senior Vice President , AT Kearney Incorporated : Recent surveys showed that more than 90 percent of American companies are now contracting a sufficient portion of their training needs outside . Better than three-quarters of the companies in this country are contracting their information services needs on the outside @!AUG voice over At Norrell , a major supplier of contract employees , they say there 's good reason for the growth in contract workers . GUY MILLNER , President , Norrell Corporation : The reason for that is that it allows them time to spend their own management resources on the re-training and the development of their core employees . We 've got , between now and the year 2000 , we 've got to train 50 million people , either train or @ @ @ @ @ @ @ @ @ @ Hewlett Packard , EI Du Pont , AT&amp;T and IBM . Still , there are concerns . Mr. JACOBS : The quality can suffer . There is a degree of consistency , but as I 've described it before , it 's kind of like getting Pablem : you know what you 're getting but it 's nothing spectacular @!AUG voice over There 's also a question of loyalty : how loyal is a temporary worker likely to be ? But loyalty can cut two ways , especially following the corporate downsizing of the 1980s . Prof. LEWIN : The message that that sends to newer people coming into the work force is , " how loyal do I want to be to a company if at some point down the road , I have invested my loyalty and the company says , ' well , we 've run into difficult business conditions and now your job must be eliminated ? " or " you must go ? ' " AUG : And it 's not just private industry and the federal government that are using contract workers . Even state @ @ @ @ @ @ @ @ @ @ of which is more bad news for American labor unions . Sandy ? VANOCUR : Thanks , Steve . In just a minute , we 'll talk to someone who has a major stake in the matter of contract labor , Gerald McEntee , head of AFSCME , the huge public employee union . Commercial break VANOCUR : Working for the government civil service has generally been considered among the most secure employment there is . But in an era of tight budgets that may be changing . This week 's Business World guest heads the 1.2 million member public employee union AFSCME , the American Federation of State , County and Municipal Employees . Gerald McEntee joins us from our studios in Washington . Mr. McEntee , after the 1988 election , your union paid for a poll taken I believe by a Republican and a Democratic pollster , that showed that the people in this country want more government programs not fewer . One , does that trend still hold ? And two , what does it portend for your union ? GERALD McENTEE , President , AFSCME : @ @ @ @ @ @ @ @ @ @ and it shows time and time again that people want more government services based on the fact that through the decade of the 1980s under the Reagan administration , they lost so many government services , not only at the federal but at the state and local level , and I think that 's a very good sign , I think it 's a very necessary sign , in terms of the future for America , and based on the poll and other developments we look forward to that future @!VANOCUR What 's the single most important element that your workers want ? Is it health care maintenance ? Mr. McENTEE : Well , right now -- well , obviously it 's wages because public sector workers have historically been behind their counterparts in the private sector . But right now , I guess almost equally important is the spiraling health care costs . Every time we go now to the collective bargaining table , the employer is attempting to either take away benefits or make our people , the people that we represent , pay more in terms of those @ @ @ @ @ @ @ @ @ @ problem , right at the top of the list @!AUG With most unions losing members , yours is one of the few that keeps gaining them . What 's the reason ? Why do you people keep gaining members ? Mr. McENTEE : Well , we gained , just in the past year , 41,000 . Through the decade of the Reagan administration , which was tough , difficult and challenging , we grew almost by 200,000 . I think that , first of all , the union is dedicated to organizing the unorganized public sector workers and health care workers in the United States , and we 've put an awful lot of effort into it , and we use an awful lot of different ideas and methods to do just that , whether that 's effective polling , whether that 's the use of television or print media or radio or whatever that happens to be , as well as the standard and reliable one on one organizing drives . But we do a job , we do a job on it @!AUG Evidently , you 're organizing in @ @ @ @ @ @ @ @ @ @ that health service area . But let me ask you one other thing . Something else that 's growing is the trend towards contracting out . Some municipalities and state governments are doing it , too . How much of a threat is that to organized labor ? Mr. McENTEE : Oh , I think it 's a major threat to organized labor , and not just to the public sector . Some people call it contracting out and privatization in terms of the public sector . In the private sector it 's called contracting out and outsourcing . It seriously affects the UAW , it seriously affects a union like The United Steelworkers of America . We find public officials wanting to privatize the delivery of public service into private hands . Where we have seen it happen over the course of the past , and watched it in operation , it has generally been a failure . Not in all cases , but in most cases . We believe , and we think we can prove , that public services are better delivered in a more effective , efficient @ @ @ @ @ @ @ @ @ @ and employers @!VANOCUR Thanks , Mr. McEntee , thanks for joining us here on this Labor Day weekend . And when we come back , a Labor Day weekend view of some of the best places to labor . Commercial break VANOCUR : Most American workers get this weekend off in celebration of Labor Day , a time to wrap up the summer and enjoy the fruits of labor . Business World wondered if there are some places where working may bear more fruit than others . We asked four experts to pick the companies where they think the pickings might be best for employees . voice over Tom Peters , the author of In Search of Excellence and In Pursuit of Excellence , gave us his favorites , based on the guiding premise , that there really is no such thing as a great company to work for . But given that , number one on his list is United Parcel Service . He says it 's not bureaucratic , and it can make you rich . But he says if you love Marine boot camp , you 'll love @ @ @ @ @ @ @ @ @ @ Service : It 's a real personal working atmosphere , they take a personal interest in your life and helping you do things , accomplish things . It 's like a real family atmosphere working here @!VANOCUR voice over The rest of Peters ' list : long distance carrier MCI , personal products chain The Body Shop , Domino 's Pizza , which Peters says really delivers for young people with lots of drive , and Pepsico , which he calls a great place for managers , no doubt the choice for a new generation . The vice chairman of Booz , Allen &amp; Hamilton , Cyrus Friedheim , cites three criteria for his best companies , that employees believe " I matter and can make an impact ? " that there 's an opportunity to earn and learn , and that there 's a pride in the values of the firm , and an identification with its mission . On its list , without any ranking , Amoco , McDonald 's , Milliken and Company , Motorola and a company with a contentious labor history , General Electric . CYRUS @ @ @ @ @ @ @ @ @ @ over the years , has had a vision , and it has taken the tough decisions to focus on that vision , and part of those tough decisions are spinning off operations which do n't necessarily fit @!VANOCUR voice over The woman who brought us The Preppie Handbook and Going to Work , Lisa Birnbach , rated companies on these criteria : first-rate goods and services , longevity of relationships , a merit system and thoughtful perks . Her picks : 3M , management consultants Bain &amp; Company , Levi Strauss , Leo Burnett Advertising and Delta Airlines . CHARLIE BAUTZ , Delta Performance Engineering : There is a firm policy of promotion from within , so when you come into the company you know you 're not going to be exceeded by some outside person , and there is a policy of an open-door policy where you are free to go to management on any level you want to with any kind of a problem that you have @!VANOCUR voice over Delta must be ready when its employees are because it was number one on the list from Paul Hirsch @ @ @ @ @ @ @ @ @ @ for the best companies to work for , a record for smart management , caring about employees and programs for advancement . Following Delta on his list , Motorola , IBM , Federal Express and Fel-Pro , an auto parts maker in Skokie , Illinois , with benefits ranging from recreation facilities to day care , and even a $2,800 scholarship for advanced education for all children of all employees . on camera Fel-Pro 's perks were so broad that in the not too distant future we 'll be profiling the firm , if we 're not all working there first . In just a minute , a look at perks in the Worker 's Paradise . In the Soviet Union , minding your Ps and Qs at the right company can spare you from queuing up . Commercial break VANOCUR : One way companies can distinguish themselves is in the kinds of perks they offer employees . Benefits like first- class air travel or day care , or college tuition can sometimes make the difference in attracting an employee . But they 're still called fringe benefits . As ABC @ @ @ @ @ @ @ @ @ @ the Worker 's Paradise , the fringe benefits that go with working for the right Soviet company can really hit home . SHEILAH KAST , ABC News : voice over The lines are legendary . Soviet citizens queued up for scarce shoes , even in the rain , doing battle over cheese . And the wait for an apartment , especially in Moscow , usually lasts years . But there 's a story behind the lines . Soviet workers can sometimes avoid them , or cut them short , with help from their employer and their trade union . The Slava Watch factory produces 10 million watches a year . It also has set aside enough earnings to build five high-rise apartment buildings near Moscow , just for its workers . Lev Federovitz Akimstvyu has worked at the watch factory 40 years . His wife Tamara retired after 30 . Instead of the seven or eight years most residents wait , the Akimstvyus waited just three years for this big , three-room unit . LEV AKIMSTVYU , Soviet Worker : through interpreter If a plant is constructing a building you can @ @ @ @ @ @ @ @ @ @ is no building or construction at that plant , that means there is no chance of anything @!KAST voice over The huge Vill factory near Moscow is more than a place where 68,000 workers assemble and package refrigerators , tools and trucks , it 's also a spot where once a week or so they can pick up food . Today 's package has no meat , but does include hard to find coffee , as well as milk , butter and canned fish . The price is no different than it would be in a store , but some of these products are n't in the store . And in a store , there would be a line . 1st SOVIET WORKER : through interpreter Instead of spending more time with your children , you waste time in food lines . 2nd SOVIET WORKER : through interpreter The food order used to be much better , but with the present situation -- you know how difficult it is in our country right now , anyway -- this store is a great help @!KAST voice over Orders for food and other @ @ @ @ @ @ @ @ @ @ in the Soviet Union , according to official statistics . Many big factories raise their own produce , cows and sheep . Free medical and dental care is a right for every Soviet citizen . But at the watch factory , as at many workplaces , the lines are shorter and the care is better . The Vill factory runs 58 kindergartens for its workers ' children , and charges the equivalent of pennies a day . on camera Another benefit : many factories give workers a 70 percent discount at vacation resorts owned by the enterprise . But since husbands and wives usually work at different plants , they frequently can not take vacations together . voice over Even this stop-gap system of worker benefits has big holes : only about one out of 20 watch factory employees gets an apartment , and food packages are often limited . Many believe these worker benefits would not survive the switch to a market economy and should not . VLADIMIR POSNER , Soviet Commentator : If we go to a market economy , with all of its benefits , I think we @ @ @ @ @ @ @ @ @ @ going to disappear . People would by far prefer to be able to go and buy what they want without standing in line , just have the choice out there and browse around and buy what they want to buy @!KAST voice over A new focus on profits may also squeeze the other benefits : the kindergartens , the cheap vacations , the medical care . These children will probably never know the system of worker benefits their parents count on . Sheilah Kast , ABC News , Moscow @!VANOCUR Turning to the week on Wall Street , at Friday 's closing bell the Dow Jones Industrial Average finished the week up by more than 81 points . Our panel of stock market experts from around the country correctly predicted the upswing . For the week ahead , our panel 's consensus is again for an up week . Some of our panelists say the market is still oversold . But they 're cautious because of the light volume . Panelist Robert Farrell , technical analyst for Merrill Lynch says the market 's current behavior follows an historical pattern . ROBERT @ @ @ @ @ @ @ @ @ @ that we 've had did have a give-up stage in it a week ago , and we call that a selling climax , and usually the market rebounds after that for a short time , and then goes back and usually it 's a duller period when it goes back down , and that is one of the buy points in a bear market , which is after a climax , as prices recede back toward the previous lows on lower volume @!VANOCUR In just a minute , traveling in grand style with grandma and grandpa . Commercial break VANOCUR : As millions of children begin heading back to school this week , they 'll go through an end of summer ritual , regaling their classmates with stories of " How I spent my summer vacation . " Some took trips that can be simply described as " grand . " HELENA KOENIG , Owner , GrandTravel : Grandparents have always taken grandchildren on vacation , but never in an organized group , and I remembers that when we traveled with our children they had a lot of fun when we @ @ @ @ @ @ @ @ @ @ thought , well , this might be an idea , if children could friends and grandparents had peers , it would make for a great group @!VANOCUR voice over Four years ago , grandma Koenig started GrandTravel in suburban Washington , D.C. , the grand-daddy of Grandparent Tours . It turned out to be a sufficiently profitable venture , but now there 's competition , including a Kansas City-based tour operator that has sent groups to Germany and Holland . Other groups stay closer to home : Disneyland , the Grand Canyon and Washington , D.C. Even the Smithsonian Museum now offers these tours . The tours are n't all set at a geriatric pace . In Alaska , they pan for gold like miners did in the great Gold Rush , and ride past an active glacier and through white water . But while the activities appeal to both age groups , they offer more than just fun . NOEL RICHARDSON , Grandson : We like traveling together , but it 's nice to have some people my age , too . AMANDA KULIKOWSKI , Grandniece : Get away their @ @ @ @ @ @ @ @ @ @ the ones that bug them . DOROTHY BAUMGARTEN , Grandmother : We 're not getting any younger . I 'm getting old very quickly , I 'm sorry to say , and we would like to spend some time with them , and at home they always have their own activities , and this way we trap them @!VANOCUR voice over While the tours include , everything , even an obligatory fast food stop , the grand style does n't come cheap . Alaska costs over $3,000 per person plus airfare . Yet for those paying on the way , it seems like a fulfilling way to spend their money . MARCIA SCHNEDLER , Syndicated Columnist : As one grandmother told me , " I 'd rather have my kids , grandchildren , remember me here alive and kicking and traveling with them and having a good time . " She said , " They 'll never remember you just for the money you gave them . " VANOCUR : That 's it for this week . Whatever business you 're in , we hope the week ahead is a prosperous @ @ @ @ @ @ @ @ @ @ everyone here at Business World , thanks for being with us. 