Frankendesign

What Europe can teach Uncle Sam
In the second extract from his eagerly awaited new book, Will Hutton reveals why the American economic miracle is not all it seems

The Guardian | 29 April 2002

(...)American economic success has been dazzling, validating its belief in enshrining liberty at the heart of economic and social organisation. The recent bursting of the stock-market bubble has shaken it, yet the basic message stands: the US has essentially got it right, and British politicians such as Gordon Brown and Tony Blair want its enterprise culture here.

In some respects, it would be surprising if the US was not successful. It is a continent of 280 million people who share the same language, government, unified market and legal system. Throughout the 20th century, its companies have produced on a scale unknown in other countries, taking advantage of the simple rule that the more you make, the lower the unit cost.

Yet in reality the US is no more productive than many European economies. Although little reported, during the past 20 years, output per hour worked in France, the Netherlands, Belgium and the former West Germany has risen so that it is now higher than in the US, because the Europeans have invested more and organised their businesses more effectively. It is only fractionally lower in Ireland, Austria and Denmark. And recent figures show the trend to be continuing. The only European country not to have significantly closed the productivity gap is Britain.

The reason for this is that corporate America now no longer principally seeks to create value by building businesses over time through marshalling human capital, investment and innovation. Instead it tries to extract value by financial engineering and sweating assets in an increasingly feral form of capitalism. Wall Street, always an uneasy ally of US business, has become its master. In the 1960s, 44 cents in every post-tax dollar of profit was distributed as dividends; in the 1990s, the proportion had nearly doubled to 85 cents as companies sought to please the hawkish financial markets and support their share prices to which directors' remuneration, via stock-option packages, was so tightly linked. Around half of directors remuneration now comes from stock options.(...)
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