Monday, March 27, 2006

Sebastian and Me

Sebastian Mallaby, in a Monday Washington Post editorial, has his finger on the pulse of what makes American business a worldwide success But he paints his diagnostic scenario with too wide a brush for my taste. Mallaby’s a bright guy and I agree with a lot of what he says. But he’s maybe not an old enough guy. We codgers suffer less from enthusiasms of the moment.


SebastianmallabyHe posits that ‘the heyday of American business may actually be now.’ Codgerism (the self-described philosophy of we codgers) makes the case that ‘now’ is not a so much a heyday as a heymoment. We’ll see if it lasts long enough to be called a ‘day.’ Even if it does, heyday smacks of something short-termed and unnaturally effervescent, the peak before a decline.


I certainly agree with Mallaby that American business is seen through individual prisms, each of them throwing only a portion of the spectrum on the wall.


Which may be his point, but he makes it unclearly for me.


Mallaby’s heyday dawned in 1995. He writes,

“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.”

My take on it is that productivity growth is gained against our historic competitors because we are able to shed the sticky parts and hold on to what suits us. It’s called ‘offshoring,’ Seb. We are the undisputed leader in sending sticky labor problems elsewhere and keeping only what is smooth and efficient.


As to return on equity, our business model is supported by a government that, with very few strictures, allows constant reinvention. Merge two companies, lay off 20,000 employees and sell off the nasty little leftover hunks that don’t make money. That’s not possible in France or Germany, certainly not in Japan.


In an acknowledgement of codgerism, I remember how American industry crowed and preened and beat its chest after the 2nd World War, raking in all the chips left on the production table. We misread having the only industry that wasn’t in smoking ruins, for being somehow on top of our game. As the industrial world recovered it began sixty years of kicking our American industrial ass.


Wake up, Seb. It may be the dawn of something, but it’s not management superiority so much as it is managerial opportunism. We pay a price for that. The price is an enormous loss of jobs in the industrial sector and a steady, eroding, exchange of job and wage security for an increasing subsistence economy. It’s not management smarts or ‘best practice,’ it’s our American difference in the value system.


I happen to agree with ruthless dictates within the marketplace, but I never confuse it with being on top of our game. I believe as well in certain Darwinian principles that dictate the long-term survival and success of American business models. Unfortunately, I can't say the same for our economic (lack of) policy. America has shed itself of labor intensive work. Darwin insists that labor, in a free market, gravitate to low wage countries.


GM and Ford are going down the tubes, not because car-building is unprofitable, but because they weren’t able to focus on those truths during a sea-change within the auto industry.


We are


  • Ruthless, which is not the same as being prescient

  • Inventive, which is not the same as productive

  • Free of business constraint, which is not anything even close to socialistic

Thank god for it. We've slipped the handcuffs of Japanese and European union and social contracts, agreements that have set the streets of Paris alight and rocked the complacency of an historically complacent French government.


And yet we are not out of the woods, Sebastian. GM and Ford are unlikely to survive. What has brought them to their knees is part hubris and part social contract. I'll leave the percentaging to others, but we've had a whiff of the same smoke that blows across Paris. Every day we are reminded in our newspapers and by our politicians that Medicare, Medicaid and Social Security are pushing us ever closer to the brink of national (perhaps international) financial collapse.


The difference between us and Europe, perhaps Japan as well, is that we will collapse and, from that collapse, rise again. Our system requires it, reveling in leveling. We’ve done it before and, because we are a free and free-wheeling society, we’ll do it again. But anyone who thinks it’s going to be a cake-walk, just hasn’t a clue.


Mallaby summarizes by writing,

“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.”

And a ruthless era it is.
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See Taking My Country Personally on my personal web site.