in financial services based on a continuing torrent of innovation and the presence of its financial institutions in all the world's major financial markets. Yet the argument above is that the mode of interaction of the financial sector with the industrial sector may have itself impeded the development of U.S. manufacturing.
While this basic relationship between sectors remains in force, there are also some adjustment-related developments now in process that might help to reinvigorate manufacturing, although not necessarily all sectors. One is that the performance of U.S. manufacturing and the unremitting trade deficit have posed problems that corporate management per se could no longer evade. As a result, productivity has been rediscovered as a key issue by management and by the business schools that train managers. 20 Similarly, although the United States has previously trailed Japan and certain European countries in automating its factories, by the mid-1980s U.S. investment in "high-tech" production equipment is estimated to have jumped to more than twice the level of 1980--albeit from a small base--and it is expected to double again by 1990. 21
Another result is the spate of collaboration agreements into which U.S. firms have entered with their more successful foreign competitors, most notably the Japanese, in the U.S. automobile industry. The United States, of course, is a very large economy, so that the overall impact of such trends in the short run is likely to be small, but, mainly through demonstration effects, a further generalized impact may be expected in the future.
It cannot be said a priori whether the new structural adjustment developments will move fast enough by themselves to make an appreciable and timely contribution to a U.S. balance-of-payments adjustment. If they do, one could feel more assured that adjusting the U.S. economy to a balanced international payments situation during the 1990s would not impose a substantial burden on domestic living standards.
The smooth unraveling of the U.S. foreign debt situation can occur. Indeed, it already has begun. But we cannot rule out a loss of confidence by private foreign creditors causing a U.S. debt "crisis." Having to formulate policy to avoid the latter constitutes the U.S. foreign debt problem. The most urgent need is to show continuing progress, even slow progress, toward adjustment of the major internal and external imbalances, as has been discussed here. It probably would not hurt to keep one's fingers crossed as well.