March 27, 2006

MAKIN' HEYDAYS:

Why U.S. Business Is Winning (Sebastian Mallaby, March 27, 2006, Washington Post)

The dawn of this heyday came in 1995. In the two preceding decades, the productivity of American workers had grown more slowly than that of Japanese and European competitors. But in the decade since 1995, U.S. labor productivity growth has outstripped foreign rivals'. Meanwhile U.S. firms' return on equity -- that is, the efficiency with which they manage the capital entrusted to them -- has pulled away from that of Japan, France and Germany, according to data provided by Standard & Poor's Compustat.

Other measures tell a similar story. Up until the 1990s, management books were crammed with Japanese buzzwords, and the early Clinton administration was in awe of Germany's apprenticeship system. But today the United States provides most of the business role models, from Starbucks to Procter & Gamble, from Apple to Cisco. The (British) Financial Times publishes an annual list of the world's most respected companies. In 2004 and again in 2005, no fewer than 12 of the top 15 slots were occupied by American firms.

Or consider the database on management quality constructed by Nick Bloom and John Van Reenen of Stanford University and the London School of Economics. This duo organized a survey of 732 medium-sized American and European companies and measured their management procedures against benchmarks of best practice. The result: American firms, including the subsidiaries of American firms in Europe, are simply better managed than European rivals. In fact, superior American management accounts for more than half of the productivity gap between American and European firms. [...]

Competition and meritocracy cannot explain all of America's superiority, however. The U.S. economy has always had these advantages but hasn't always trounced overseas rivals. Nor is it enough to say that Americans work harder than Europeans, since the productivity numbers show that Americans are boosting what they achieve per hour. And anyone who explains America's superiority by saying that the country is more "dynamic" or "creative" is merely relabeling the mystery we're trying to solve.

The best guess about the "X factor" is that America's business culture is peculiarly well-suited to contemporary challenges. American business is not especially good at coaxing productivity out of factory workers: The era when this was all-important was the heyday of Germany and Japan. But American business excels at managing service workers and knowledge workers: at equipping these people with technology, empowering them with the right level of independence and paying for performance. So the era of decentralized "network" businesses is the American era.

Moreover, America's business culture is perfectly matched to globalization. American executive suites and MBA courses are full of talented immigrants, so American managers think nothing of working in multicultural firms. The immigrants have links to their home countries, so Americans have an advantage in establishing global supply chains. The elites of Asia and Latin America compete to attend U.S. universities; when they return to their countries, they are keener to join the local operation of a U.S. company than of a German or Japanese one.

So the shift from manufacturing to services; the gallop of globalization; and the rise of information technology that flattens corporate hierarchies: All these forces come together to create an American moment.


Mr. Mallaby proposes a false dichotomy--we just keep moving from one heyday to the next and have for quite some time now.

Posted by Orrin Judd at March 27, 2006 11:45 PM
Comments

How about this analogy: We are in a Chinese game of Mah-jong with four players. To start the game one of the players roll two dice and the players collect the tiles according to specific rules. Like poka, if your hand of cards, in this case your collection of tiles,are really bad, there is not much you can do to escape a loss. But if your tiles are half-way decent,and you are a good player, the chances of your winning are pretty good, or at least as good as the other guys. The game is a game of luck and skill. The US creates her own luck, writes her own rules; and she has the skill. She knocks down Japan, then the EU. Next one down will be China. Mah-jon parlance:a three-way big kill.

Posted by: ic at March 28, 2006 6:10 AM

Academics have lost credibility.

Posted by: erp at March 28, 2006 8:39 AM

What's interesting is that all Americans are completely sure that their own employers are completely mismanaged.

Posted by: David Cohen at March 28, 2006 9:09 AM

Not to mention the country itself....

Posted by: oj at March 28, 2006 9:15 AM

Most american companies are mismanaged. Waste and ineffciency are tremendous and this goes for companies of all sizes. Thing is, on a relative basis, they are better than the competition.

This bodes well for the future as there is still much productivity increase out there to be had.

How we distribute the wealth without corrupting people and turning them into lazy indignant slobs is the question.

Posted by: Perry at March 28, 2006 9:56 AM

As Perry notes, in war all make mistakes. Just make sure you make fewer.

Posted by: Mikey at March 28, 2006 2:03 PM
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