[Mb-civic] Why U.S. Business Is Winning - Sebastian Mallaby - Washington Post Op-Ed

[William Swiggard]

Why U.S. Business Is Winning
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By Sebastian Mallaby
The Washington Post
Monday, March 27, 2006; A15

Newspapers bring us the dark stories about American business. The Enron 
trial serves up tales of lies and looting. The General Motors 
restructuring dramatizes the death of traditional U.S. manufacturing. 
Commentators from left and right agree that a growing swath of the 
economy, from accounting services to non-emergency health care, may one 
day move offshore. And yet something is going dramatically right inside 
American corporations. Despite all the nostalgia for the era when GM 
dominated the world's car industry, the heyday of American business may 
actually be now.

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.

Whence this American superiority? The first answer is that competition 
is fiercer. The United States has relatively few trade and regulatory 
barriers for firms to hide behind, so bad companies either shape up 
quickly or go bust. In retailing, for example, firms such as Wal-Mart 
and Target have been able to spread their super-efficient logistics 
systems all across the country -- at least until lately, when a perverse 
anti-Wal-Mart campaign has sprung up. In Europe and Japan, by contrast, 
a web of zoning laws entangles efficient retailers, sheltering 
unproductive companies that overcharge consumers.

The next explanation for American superiority is a healthy indifference 
to first sons. Bloom and Van Reenen report that the practice of handing 
a family firm down from father to oldest son is five times more common 
in France and Britain than in the United States. Not surprisingly, this 
anti-meritocratic practice does not always produce good managers. So 
even though the best European companies are managed roughly as well as 
the best American ones, there's a fat tail of second-rate firms in 
Europe that's absent in the United States.

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. But you could be forgiven for missing this, because 
other forces spoil what ought to be a celebration. In the midst of this 
American moment, hatred of President Bush has simultaneously created an 
anti-American moment. And in the midst of American prosperity, rising 
inequality has prevented American workers from sharing in the success of 
American firms.

http://www.washingtonpost.com/wp-dyn/content/article/2006/03/26/AR2006032600878.html?nav=hcmodule
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