BEIJING, July 22 -- Signs of the American economy's
perilous condition are everywhere - from yawning fiscal and current-account
deficits to plummeting home prices and a feeble dollar.
But something that shows up in none of the economic
indicators may be driving many of them: the deterioration of American
management, which is undermining not only many of America's great enterprises,
but also its legendary spirit of enterprise.
Paradoxically, one indicator that has been improving
steadily in the United States - productivity - may be the clearest sign of the
problem.
When it comes to productivity, managers either invest
in employee training, more efficient manufacturing processes, and the like, or
they take steps that appear to boost productivity in the short run but that
erode it in the long run.
Productivity is a measure of output per hour worked.
So a company that fires all its workers and then
ships from stock can look very productive - until it runs out of stock.
Of course, no company can do that, but many U.S.
companies have been shedding workers and middle managers in great numbers - the
figures for January 2008 were up 19 percent from a year earlier.
Meanwhile, those employees left behind must work that
much harder, often without increased compensation. Workers' wages, adjusted for
inflation, fell in 2007, continuing a trend throughout this decade.
That, too, is "productive'' - until these overworked
people quit or burn out.
A sustainable company is not a collection of "human
resources.''
It is a community of human beings. Its strength
resides in its people, its culture and the goodwill it has built up among its
customers and suppliers.
So, as workers and middle managers have been
departing these companies, they have taken with them not only much critical
information, but often also the hearts and souls of their enterprises, with
profound effects on American competitiveness.
Consider high technology, where America is supposed
to excel. According to a November 2006 report by The Task Force on the Future of
American Innovation, the high-tech trade deficit widened in 2005, for the third
consecutive year.
This is not clothing or cars, but America's largest,
and most renowned, export sector.
This deficit reflects an underlying research deficit.
Of the 25 companies granted the most US patents in 2006, only eight were
American; 12 were Japanese.
Perhaps this helps to explain why, in a survey of
more than 60,000 people in 29 countries conducted in 2007 by the New York-based
Reputation Institute to rank the "world's most respected companies,'' the first
US company on the list appeared in 15th place; the second was in 25th place.
No one can determine how much of America's
productivity gains in recent years have resulted from squeezing human capital,
because such things are not measured.
But there has clearly been a great deal of reliance
on this strategy, with companies shedding employees not only because they must,
but often because they have not met Wall Street analysts' financial
expectations.
Managers' increased focus on maximizing shareholder
value won many adherents when the idea was introduced in the 1980s: the
impersonal discipline of financial markets would force companies to become more
productive and innovative.
And, in fact, much of the US productivity increase in
the 1980s and 1990s can likely be attributed to large-scale investment in
information and communications technology.
But, as the marginal productivity gains from such
investment began to fall, senior managers' survival and compensation continued
to be tied to stock-market performance.
As a result, many simply learned to manage their
companies' short-term share price at the expense of attention to their products
and customers.
Moreover, because maximizing shareholder value is a
poor incentive for workers and middle managers, companies' boards have
increasingly centralized power around chief executives, thereby encouraging a
"heroic'' form of leadership that is detached from the rest of the enterprise.
Indeed, in many cases, the CEO - frequently a Wall
Street-endorsed "superstar'' parachuted in to "shake things up'' - now is the
company, despite having little knowledge of its products, customers, and
competitors.
This shift to "heroic'' leadership can be seen in
ballooning CEO compensation.
According to a January 2008 report by the Hay Group,
the CEOs of the 50 largest US companies are now paid almost three times what
their European counterparts receive - which is many hundreds of times more than
their own workers.
Until recently, the U.S. asset-price bubble - first
in the stock market, then in real estate - masked the underlying depreciation of
American enterprises.
But the bubble itself resulted from the same
management pathologies as those afflicting the real economy.
After all, managing for the short run encouraged
mortgage lenders to offer artificially low "teaser'' interest rates to lure
potential homeowners.
And then those who bought these mortgages never
bothered to investigate their underlying value - a spectacular abdication of
managerial responsibility.
Now that the bubble has burst, America's current
economic downturn is likely to be far worse than previous ones, because U.S.
enterprises will have to be rebuilt, slowly and carefully.
While American economists, politicians, and business
leaders have for years sought to sell their model of management abroad, many
companies elsewhere have not been buying it.
As a result, other key economies remain healthier
than America's. Make no mistake: this problem was made in America, and that is
where it will have to be solved.
(Source: Shanghai Daily)
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