A Window into European Versus US Management

In our inbox, from a long established reader. Although the plural of anecdote is not data, we’ve heard stories from Americans working (not happily) for financiers cut from similar cloth to the US management described below. But the openness of the looting is still striking. Private-equity-style asset stripping looks to be the new vogue against get-rich wannabes.

My client experience in Continental Europe is extremely limited, but I had a tiny project with the owner of a Mittelstand company, a family business which made high energy efficiency heaters and coolers that sold particularly well in emerging economies because they had some advanced technology that allowed them to sell a decent quality product at a price that consumers and businesses in lower-income countries could afford. He had a long-term perspective that stood in stark contrast to American management. He also very much regretted that he’d had to whittle down his German workforce though attrition and locate more of his manufacturing abroad for cost reasons. That sort of attitude would be regarded as a rich man’s eccentricity here.

A friend of mine runs a medium size manufacturer in a not-wealthy part of Europe. It’s foreign owned, by a family office. The family office was looking to buy a part of a struggling US company that my friend believes he can, with his know-how, make viable again (basically, even allowing for different labour costs, he believe he can run the manufacturing more efficiently).

They talked to the US management, who has been brought in not that long ago. And was totally flaberghasted. He told me “I’ve heard that you find more psychopaths in the top management than anywhere else, but never believed it until I met those guys”. Basically (according to him), they see the company as a cow to milk while they can, then sell the carcass and move on to another job telling everyone how great they were at running it and how well they sold it in the end.

My friend is totally out on this. He and his business contacts have seen of the most wild-west privatisations around, but he runs the company very paternalistically. Few years back there was workplace accident, where the company supported the families way more than it was legally obliged to. None of this is a public knowledge though. When a girlfriend of one of the debilitated men was trying to damage the company for not giving her anything (they paid other relatives who’d lived with him, this girlfriend was recent and had not moved in), and was doing everything she could to damage his reputation, I said “why don’t you ask the other guys to publicize what you did for them?”, his answer was that those families had already suffered enough, while the company had people who were paid to deal with shit like that.

So he was entirely unable to understand the US guys (he was, on the rational basis, but not on any sort of moral one). But what he really doesn’t get is the shareholders and the banks, as he thinks that if he’s able to see through them, they should be too, and get them out first thing they can.

He had more comments on the US management, He was surprised, and a bit angry, on how much the management cooked the books they gave them (to inflate the value of the company). Because all of it was extremely obvious (basically he said, all of it would be disputed, and they would have to drop it – it would just take a lot of time). I don’t doubt that people do cook the books, but he was commenting on how obvious (and, while he didn’t say it, I think he though it, amateurish, or maybe contempt for non-US?) it was.

I’m not saying he’s a good average example of a manager in the Europe, but he happens to have a lo of business relationships with senior managers in central Europe. By his reaction, this was so much out of what he’d expect that I doubt he ever saw anything like that.

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  1. Bob

    This is a classic example of US business financialization. This is what we sell the world now – endless slight of hand.

    We don’t make stuff anymore, we supply raw materials to the world and buy finished goods.

    And all the while cooking the books,

    The shift to overseas production is to open the door for psychopathic looting.

  2. Ignacio

    Although there must be cultural differences I believe the example musn’t be taken as purely or exemplary european and there may be similar examples all around the world, even in the US. For contrast, some or many examples of manufacturing companies exploiting migrants are quite common in Europe. Anyway, it is good to see not everyone moves through pure greed or “rational expectations” as economists put it.

    1. vlade

      An example of the exploitation in Central Europe.

      A friend of my brother lives in Eastern Slovakia, one of the most deprived EU regions (compare and contrast with Bratislava, the Slovak capital and one of the richest, on purchasing-power-parity measure, regions in the EU). He was a musician until he started working for a Korean car manufacturer there, which destroyed his hands.
      The Slovak government dropped social security taxes for the manufacturer for first 12 months for every new worker assuming they stayed with the company for at least 18 months.

      The manufacturer fires people after 18 months.

      The region unemployment is running in mid 20% IIRC, and people lose their benefits if they do not take an offered job within a certain time. Which also means the manufacturer pays just-above-minimal wages (to qualify for the various government subsidies), but very often, for people it means they make in the end less than when on benefits. Because when you have to commute 60 miles each way daily on just-above-minumum wage, benefits leave you with way more cash in your pocket (just taking into consideration the costs of running/replacing a car).

      That said, a lot of medium sized companies I know in Europe tend to have a more caring approach than “get what money we can and run”. For large companies, the difference often disappears.

      1. Peter

        What you describe is what happens here in Portugal (Azores) quite often as well. Workers usually get between 6 month and 1 year contracts, and have to re-apply after the contract expires.
        This means there is nothing like seniority, workplace safety etc.
        The Social Securance payments however are levied from day one, so there is some protection and holidays are usually taken at the end of the contract.
        The rule is minimum payment at about 700€/month, even as a start up wage for jobs requiring education like accountants.

        This policy is pervasive even extending to ancillary services to local government like firefighters. Many are volunteers in an area with about 15000 people, and those that are “employed” and eligible for training to various positions are so by a scheme financed by unemployment insurance/regional govt. working for two years at minimum wage, receiving training and after that are hired on as hourly workers on an on call basis, which does not bode well for income security.

        My friend and Portuguese teacher works contract as a biochemist for marine research projects that pay about 1000€/month – and those are EU funded.
        The only more secured but equally low paying jobs (in the beginning) are in Government jobs – that still know the concept of seniority – and companies like the local energy company.

  3. folbec

    I do not think this is a recent trend. The science fiction book “When HARLIE was One” describes exactly this kind of looting of a company by financial operatives.
    The book was published in 1972, which means that it was probably written in the late sixties based on experiences lived by the author in the sixties.
    The only SciFi part of the book is that the looted asset is an AI that fights backs and wins.

    see : https://en.wikipedia.org/wiki/When_HARLIE_Was_One

  4. makedoanmend

    With regard to my rural location in Ireland, there are a few notable exceptions to the psychopathic Liberaltarian management practices that have become so common place in industry, but they are few and far between. Many of the more tractable workplaces are often owned by non-natives from the European mainland. So there might be something quite tangible in the article’s premise. Ireland largely reflects US/UK management attidudes and practices, and they aint’t nice.

    In non-manufacturing employment in rural areas, like retail, there is a more salubrious atmosphere. However, when recently home, I noticed that many owners have taken a sort of paternalistic attitude. It’s all about “my” workers and how “I” take care of them. As if worker’s labour doesn’t contribute directly into owner profit. Still, better than out-right hostility and contempt. Today, industrialists treat both natives and immigrant labour with equal contempt.

    On a note of great irony, there was a business owner in Monaghan whose greatest claim to fame before the economic crash of 2008* is that he did’t hire Irish people!

    The skimmers and scammers (FIRE sector) however are doing really well and often treat their employees pretty well – until they reach a certain age.

    *pre 2008, Ireland was known as the Celtic Tiger. What a paper tiger that turned out to be.

    1. makedoanmend

      I should also add that the “responsible/compassionate” mainland European industrial owners in Monaghan/Cavan are all from the previous, pre-liberaltarian generation.

  5. PlutoniumKun

    I think it can be highly variable. Years ago I had dealings with a number of German/Austrian private manufacturing companies (i.e. still owned by the families that founded them, no shareholders) who maintain a very high reputation for quality products in the construction industry – I was impressed by how genuine their commitment to local manufacturing and looking after their workforce was. They took quite a financial hit during a downturn to keep as many of their staff employed – they said it was worth it in the long run as their staff returned the loyalty. But that said, there could occasionally be a slightly creepy cultish element to the way the companies were run and the secrecy surrounding the families.

    There are ‘duos’ in German business that can be interesting to compare. Aldi and Lidl supermarkets for example have almost identical business models (it can be hard to tell the shops apart when you are inside, they mirror each others products), but Aldi has a reputation for being more ‘German’ in their dealings with staff, suppliers, and government agencies – they pay better, agree longer term deals with suppliers, and have a bit more of an ethical approach to product lines and building within towns instead of trying to get sites on local highways. Lidl on the other hand tends to copy Aldi while being more aggressive and ‘anglo’ style in their approach to staff and suppliers. Both seem very successful, although perhaps Lidl survives by being privately owned so immune to the worst elements of short termism.

    Customer support is important – I like bike touring, and all bike tourers adore Ortlieb products – German made and designed bags. They are very expensive as you’d expect, but you get the quality you’d expect also. But there are a number of ‘copycat’ companies – such as German owned Vaude – which make very similar bags, but churned out in China and sold for maybe half the price. There is, in truth, very little difference in quality to the naked eye, but Ortlieb thrive because I think customers (especially in Germany) are willing to pay the premium. You could argue that US companies like Patagonia also thrive because they’ve identified customers willing to pay the premium for a deeper form of ‘quality’ that extends beyond the product itself.

    1. makedoanmend

      That’s funny. In my post above regarding the 3 industrial businesses I had in mind, two come from Germany and one from the Netherlands. They are sole ownership businesses. It’s their Irish management teams that really differentiate them from the norm. They are both people managers as well as process managers. They treat labour as people, as do many locally owned Irish retail businesses up our way. [Or “down your way” if your from Dublin ;-) ]

      1. PlutoniumKun

        Yes, for various historical reasons Ireland has a surprising number of different ‘models’ at work due to all the foreign companies here. Unfortunately most Irish companies are thoroughly MBA-ed, although there are exceptions. I once worked for a company formed from a partnership between a US, UK, UK/Danish and French construction companies – it was fascinating to see the different work cultures and approach to staff.

        Your comment above is interesting about the company that refused to hire Irish people – I can remember in the boom years there were a few restaurants who similarly took that approach – one insisted on only hiring Australians. It was understandable at the time, as there were so many jobs the only Irish willing to work in retail/food were those unemployable elsewhere, so far inferior to bright, hardworking immigrants, but I was surprised at how sanguine many people were about that attitude.

    2. johnf

      A friend was the logistics manager for a firm that supplies frozen desserts to the German supermarkets. He said that Aldi were straightforward business people. Lidl, on the other hand, were constantly pushing the limits of what was legally and sociably acceptable, to gain a financial advantage.

      1. PlutoniumKun

        From what I’ve heard second hand, Aldi are very good at working with smaller food suppliers – even helping with financing and providing long term guaranteed contracts, in contrast to most Anglo supermarkets which take a very ruthless approach to driving down costs. I’m told that one Irish supermarket company, which used to be notorious for nailing down suppliers – often driving them into bankruptcy – has taken the Aldi approach for some of its supplies because they’ve seen it works better in the long term. Unless you are a very dominant buyer, there comes a time when you find that nobody will want to deal with you if you push things too far.

      2. Off The Street

        Aldi Nord owns Trader Joe’s, and I count myself among the loyal patrons. I know people who have prospered in the grocery chain as it is pretty employee-friendly compared to the typical American employer. No Aldi stores near me, yet.

        Another management difference example could be CostCo vs. Wal-Mart. I tend to notice the faces and demeanor of employees as that has been one good indicator of their workplace health.

        1. johnf

          Aldi Nord built a store about four minutes walk from my flat, that quickly proved to be too successful. (It is directly on the commute home for a good chunk of the city.) It took them about six months to demolish the year-old structure and build a larger replacement. Instead of firing and rehiring the staff, Aldi temporarily added them to their nearby stores. This was considerate to both the employees and customers, who continued to see familiar faces during construction and after.

        2. rd

          We have Wegmans, Aldi, and Trader Joe’s near us. all of them are excellent to shop in , although they are dramatically different sizes with different product lines. They all have good reputations as employers. Wegmans is routinely the #1 or #2 best employer in the country in the Fortune list. Wegmans and especially, but Trader Joes as well have regional relationships with long-term suppliers.

  6. Fazal Majid

    There is no one European management. British management is indistinguishable from American. French, German and Dutch are quite different from one another. The sociologist Philippe d’Iribarne wrote an interesting monograph “La Logique de l’Honneur” comparing US, Dutch and French corporate cultures (his thesis is that US cultures are centered on contracts, Dutch are on consensus-seeking, and French are based on preserving and defending the honor of the various stakeholders).

    The current US business practices are a fairly recent development, part of the coarsening of US society since the 1980s (I am not sure if Reagan was cause or symptom of this). Certainly if you compare the old Hewlett-Packard, Boeing or General Electric against the empty shells they now are, their founders would be horrified at what passes for management today.

  7. Tom

    My cousin leads a Mittelstand company (he married into the owning family) with about 1000 employees worldwide. They make high technology coils which are used in all kinds of industries. A few years ago I had a few drink with him and his sales manager. So I asked about international competition. They said in the 80s there were several competitors in the Midwest. Now there is only a Japanese company left. So I asked what happened? Why are the Americans gone? They said very simple: in manufacturing the greatest cost is capital costs as you need to keep updating the machinery and continue optimising the manufacturing. (Labour costs are negligible in comparison). Updating the machinery is done in cycles. As capital costs are so high you can simply hike the profit immensely by stopping to invest. That will work for a few years until your machinery is so outdated that your unit costs drop below the profit margin. Then you go to your competitor and sell him your customer base and hand over your sales force and maintanance crew. The rest of your workforce you throw out on the streets. The above is a guaranteed recipe for “success” if success is defined as given the owners a quick buck.
    By the way: probably unnoticed by the American public that just happened to a GE unit. Here the link:
    From an ABB engineer I had the following back story: GE industrial solutions makes components for the high voltage backbone of the US grid. Their technology is completed outdated and there hasn´t been any investment for many years. But nobody cared as the grid companies in the US didn´t invest either. The money for replacing and maintaining outdated GE with more outdated GE equipment was for many years good enough.(To explain: if the whole grid is GE legacy you need more stuff from GE to keep band aiding as stuff from other manufacturers won´t fit). Then happened hurricane Sandy, the transformers in Manhattan exploded and Con Ed came under great pressure. Con Ed sensibly decided to finally upgrade their whole grid. As GE still only had oil cooled transformators (very bulky and inefficient) they turned to ABB. So suddenly ABB got a huge contract and a big foothold in the US market. What did GE do? Finally start to modernise their manufacturing? After all they still had a huge customer base in the US and home country advantage. Of course not. Why should they? They basically sold their whole grid business to ABB. ABB now has the contacts,the sales managers and the maintanance crews to service all of the US. A gigantic investment in the future which cost them a bit more than 2 billion Dollars. And of course ABB won´t invest in the US either. They will expand existing plants in Eurooe

    1. EB

      Very interesting story showing the sorry state of US style capitalism. One question though: Because the US market is so big, would it make sense for ABB to set up a factory in the US?

      1. fajensen

        Only as a token, I’d say: The US is regulated by prescriptive legislators, basically there are detailed rules and flow-charts for everything (and if there isn’t then Everything Goes).

        In Europe we are regulated by legislation stating outcomes. Our electrical equipment shall not kill or injure people and livestock, cause damage to property or the equipment itself. Basically. The EU directive on electrical safety is like 16 pages of text!

        How this is done is up to the designers which in fact gives a lot of advantages because it is not written in ‘code’ what everyone must do and build. In the US manufacturing there is little legal room for creativity so everything gravitate towards mitigation of ‘Costs’.

        ABB would find it very difficult to work within the American regulatory system. It is much simpler to design “here” and then get an UL or similar certification.

    2. The Rev Kev

      Man, those stories make sad and depressing reading. I would guess that similar stories apply over other industries in the US. And if GE sold all that you listed to ABB for only 2 billion bucks, then GE is definitely on the way out. Whatever happened to all those stories told back in the 70s and 80 how business people were more smarter and efficient than the government and can run things better?

      1. Tom

        I just remembered two more things this engineer told me: Included in the acquisition is a long-term right to use the GE brand. And yes, they will retain some manufacturing in the US. Not a lot but some.

        As to the US in general: in my view the downfall of the US is the Dollar. Any other country in the world would be in a world of pain if it gutted its manufacturing like that. As the trade defcit increases the currency would inevitably fall and all those shiny foreign toys would become horribly expensive. But as the US is the only country that can print the modern equivalent of gold such pain never happens. And then there´s the defense budget: if the business of America is business and making money and if the easiest way to make money is simply bribing somebody in Washington to allocate funds for some boondoggle weapon that will never even work, why not? Same for Wall Street and financial wizardry. You have to be able to afford such madness.

        1. Jerry B

          ==== But as the US is the only country that can print the modern equivalent of gold such pain never happens. And then there´s the defense budget: if the business of America is business and making money and if the easiest way to make money is simply bribing somebody in Washington to allocate funds for some boondoggle weapon that will never even work, why not? Same for Wall Street and financial wizardry. You have to be able to afford such madness.====

          Thanks Tom. Your above comment seems to be the argument many people and progressive economists are making for not worrying too much about government debt as well as the ideas of Modern Monetary Theory, monetary sovereignty, etc. etc.

          ===You have to be able to afford such madness===

          As Stephanie Kelton would say “We can have nice things”. But for now our government and oligarchs spend money on madness (i.e. military industrial complex) instead of nice things (universal healthcare, infrastructure, mass transit, free public college).

          But IMO the shift from spending on madness to spending on “nice things”/universal concrete material benefits” is changing

          1. The Heretic

            Btw, I would include In the list of ‘ nice things’ as also having some sort of useful(social or environmental protection/remediation work or producing/researching/developing goods the people actually need, ) work in a reasonable pleasant environment, with a decent salary… here in Canada we still have decent infrastructure, ok health care, and ok education, but innumerable young people and middle aged people suffer from lack of a decent job while doing something useful. This causes both financial and existential stress, both very bad.

            That is a problem with leaving Government policy to support laissez faire Market economy… important and meaningful things, which are often not inherently profitable, get neglected.

            1. Jerry B

              ===but innumerable young people and middle aged people suffer from lack of a decent job while doing something useful===

              Yes, and that is the reason many people including Yves have been advocating for a Jobs Guarantee instead of or along side Universal Basic Income. In a Jobs Guarantee there are many, many “jobs” that involve civic service, conservation/nature, etc. etc. that would allow people to do something useful and contribute to making a better society.

      2. Off The Street

        Much of the GE damage was self-inflicted through GE Capital. The tail wagged the dog all the way to an outsized share of profit contribution while ignoring the downside risks and dangers of volatility.

        1. Mel

          I imagine that the evolution of U.S. business has been driven by elimination of risk — risk, that is, as seen by legal and finance people. E.g. who needs a business that can be deep-sixed by a stupid ignition switch? Stay right out of that. Things that can catch fire? Way beyond our control; get out.
          Pure financial arrangements are the most calculable, the contractually purest, businesses there are so they’re preferred, and the business mainstream gravitates there.

    3. Kouros

      Steel producing industry in the US has stayed noncompetitive and late to innovate anything, compared with Europeans and the rest of the world.

      US needs a revolution and guillotine stands should be like ATMs…

  8. Jesper

    My experience is that the more a culture is about the winner takes it all the worse the manager/executives will be. The end result is that everyone is only working for themselves, office politics is prevalent, pre-emptive back-stabbing becomes the norm and is it really paranoia if everyone is out to get you?
    Some people see nothing wrong in this and feel good despite acting in ways that might not be so nice. They lie and cheat, they expect others to do the same and are therefore surprised if others do not lie or cheat and are even more surprised if someone is surprised/shocked by their (what they see as normal) behaviour.
    Other people feel bad about treating their fellow people as enemies/competitors every day and avoid such situations.

    When I come across people who has had many promotions in large organisations then I am always wary. They know how to look out for themselves which often means stealing credit and deflecting blame. Their first priority is looking after themselves, the second priority is doing their job. The result might be a concentration of (in my opinion) awful people in the higher ranks as the good can’t stand being in such environments.

    I’ve worked for quite a few US companies, those companies have all been very large (huge) so for me I can’t really tell if US managers are really very different. The better the pay, the worse the colleagues have been.

    The ‘Up or out policy’ (https://www.thebalancecareers.com/up-or-out-policy-1286912) originated in the US (I believe?). In an environment where merit can easily be seen/recognised then that policy might maybe possibly work, in any other kind of environment then I believe it will lead to sociopaths rising to the top.

    1. synoia

      Armed forces work on the up or out system across the world. There are always more Lieutenants than Generals, and more Privates than Sargents.

      1. Jesper

        Thanks, I read up on the use and it seems that the US armed forces operate using the ‘Up or out’-policy: https://www.nytimes.com/2009/04/21/opinion/21kane.html

        Any soldier passed over for promotion twice must leave or retire.

        seems insane to me.

        This blog post has describes some of the problems with the policy: https://www.johntreed.com/blogs/john-t-reed-s-blog-about-military-matters/60879683-the-u-s-military-s-marathon-30-year-single-elimination-suck-up-tournament-or-how-america-selects-its-generals?_pos=2&_sid=3baffbacd&_ss=r
        The short of it:

        The race for top general jobs is a Best Sycophant competition.

        Wikipedia does not have many armed forces listed as using the policy: https://en.wikipedia.org/wiki/Up_or_out

        In Sweden then the system is (or at least used to be) that conscripts/privates could and would be moved (flunked) out for substandard performance. The full time military staff had a very very secure employment, I’d say it was almost unheard of that someone was forced out. The full time staff who missed out on three promotion cycles in a row knew they were unlikely to ever be promoted again nor were they likely to be forced out. Some might say that it allows for inefficiency and complacency, but looking at the US armed forces then it seems that the ‘Up and out’-policy cause even more waste and inefficiency.

      2. The Rev Kev

        David H. Hackworth wrote about this in his autobiography “About Face” as he was there when it was brought in after WW2. He said that it was devastating as huge swathes of highly experienced officers and men were forced out of the Army for no good reason at all and in other places in that book he talked about how it did the military no favours.
        In the present US military a young officer has to be a bit of a chameleon in order to please each officer that he serves under in order to get promoted. This is a direct result of that up-or-out system and an example of the sort of man than thrives under this system is former General David Petraeus.

      3. fajensen

        Not in Denmark, they don’t! The Danish military is a pretty sedated affair, where, if you are the kind of person who ‘just’ want to do ‘one job’ one can spend an entire career at the same level of authority, of course gaining in ‘wage brackets’ within the ‘span’ for that level. All very bureaucratic and stable!

        This is entirely on purpose: Denmark lost England, Iceland, Norway, Sweden, Schleswig-Holstein in various wars and unforced stupidities where we believed we had the upper hand. Since we have not much more land left to frivolously lose, we don’t want a great military with great men having ambitious ideas! We want boring people, who will defend against an attacker because it is their job to do so (and while they are doing that, they are happy that they don’t have to do those requisition forms and status updates on the SAP implementation).

        The question you have to ask as the new civilian leader for 5 years of your glorious military is:

        “Do I *really want* to create a highly ambitious military leadership, one that is skilled in the dark arts of bureaucratic infighting and career assassinations, skills that they have honed to peak perfection on their rivals, over about 4 decades?”.

        What could possibly go wrong when ordering these people about!? What could possibly go wrong if ‘combat experience’ is a ‘must-have’ on those peoples CV?? I’d say: A lot of exactly what is happening now with the US military entanglements into almost every tribal conflict there is!!

  9. Pelham

    Before England became a colonial colossus it licensed piracy preying on other countries’ global trade. It appears in the US we something similar but directed inland in the form of officially sanctioned piracy — private equity, hedge funds, even run-of-the-mill management practices — stripping away industrial assets, particularly those built up over the two or three decades following World War Two.

    1. Susan the Other

      The difference would be that the industrial revolution and capitalism turned England away from piracy and into manufacturing for trade and profit. Now we are at the end of that one, so looting is back. Where do we go from here? There is a rule: There is a point in any human event when things (piracy, capitalism, whatever) slow down and the solution is to control it for the benefit of society. If we can’t control it then piracy is inevitable. And social disintegration. Instead of falling full-tilt into the rat race to the bottom, businesses should be allowed to recognize this turning point. It makes me think directly of what Richard Murphy was telling us a while back, that there needs to be a new form of bankruptcy based on the cost of energy, fossil fuels. In his comment, this would allow a business to shut down before they are driven over a cliff. Perhaps reorganize under a more rational model. One that doesn’t demand such aggressive competition and cost cutting; desperate for profit just to stay alive but never enough to recapitalize the business and maintain a good work force. Profits need to be controlled in order to control looting for profit. A too-socialist idea for business as we know it. But it is a solution.

      1. Gordon

        Yes, looting in one form or another has always been an important English business model – from the Normans to Spanish treasure ships to sugar plantations to exploitative manufacturing to colonial extractions to financialisation.

        It’s a deeply cultural thing and so isn’t easily recognised, let alone changed. And, when the only thing left within reach is your own population, it self-destructs. Hence, Brexit.

        We do indeed need a more rational model than dog-eat-dog competition. That puts all the emphasis on price with the inevitable result that everything is cheapened and deception becomes necessary, replacing honest goods and services with ones that look but lack substance. It also means that those best at playing this game eventually drive out competition and become monopolies.

        A more mature approach would establish rules that downgraded price competition and promoted that based on quality. That you can only deliver by valuing employees and constantly investing.

        I think that this is – to an extent a least – how Germany works (caveat: it’s not a country I know well). So, people here in England constantly use low labour costs in China as an excuse for not making things here but then, as often as not, buy German because of the quality. IMO it’s more often the costs of monopoly piled on top of weak investment that are the problem. And labour costs are too high because, while government throws money at training programs, that is mainly to earn bragging rights come election time. There has been no coherent training system since Thatcher accidently broke what there was by marketizing it.

        1. Kouros

          Keep blaming the Anglo-Saxons! Sorry but I truly believe it was the Latinized Normans that should be blamed. The Roman empire was all for looting… Good old Germanic people are quite industrious.

    2. Tom

      Absolutely. That is what I see from Europe. Wall Street is strip mining manufacturing in the US. It is aided in that by the lack of worker protection and how easy it is to fire people. At least in Germany the costs of getting rid of long term employees is so high that you think twice about doing a stunt like GE did. And ABB would also have thought twice if this was a Western European company. I actually don´t see a way out for the US.
      Best would be the Dollar losing its world currency status. That would be the end of the Pentagon and of crazy foreign wars. They would simply become unaffordable. There would be terrible crash and D.C. would empty out. Wall Street would no more be able to play with funny money. There are a lot of good people in the States who would come up with local solutions. I met quite a few such people back in the day. At least that is me the optimist thinking that. But then I haven´t been in the US for ten years.

  10. Matthew G. Saroff

    We need to change bankruptcy law to disincentivize this. (Also pull derivatives from the front of the bankruptcy line, but that is another post)

    As Billy Ray Valentine said, “You know, it occurs to me that the best way you hurt rich people is by turning them into poor people.”

    Here is a study showing this from bank collapse data in the 1800s, which I believe was originally posted here.

    These problems will be mitigated, at least slightly, if firms can claw back bonuses and management fees in bankruptcy.

    1. Ford Prefect

      2008-9 was heading in that direction but they pulled a coup and got themselves insured by the US government and Fed so they wouldn’t become poor.

      If you look at the long-term graphics of recessions/depressions, stock market bull and bear markets, productivity, and inequality it becomes really clear that periods with high inequality have low productivity and also tend to have big stock bear markets. Historically, bankrupting the wealthy was how the system came back to an equilibrium. Unfortunately, it was pretty violent for GDP until after the New Deal with lots of people becoming collateral damage.

      The system stabilized to a fraction of the volatility of the pre-1940s after the New Deal. When the volatility threatened to return after 1990s financial deregulation, the wealthy figured out really fast they needed to get a New Deal for themselves, so we still have high inequality despite a stock market plunge of the magnitude that would normally have leveled out inequality. I suspect they are going to keep doubling down until they can recreate the periodic economic and financial destruction of the late 1800s. At that point, we will likely see inequality drop and productivity rise again.

  11. Olivier

    Yves, the Mittelstand manager was an owner, which certainly tended to give him a different outlook. After all, almost by definition, you cannot loot yourself: that is the province of managers-for-hire.

  12. Jeremy Grimm

    Some of the comments to this post have a flavor of some nostalgia for an earlier time when U.S. businesses were more paternal and more interested in business as a long-term enterprise, a nostalgia I share [and may be projecting onto the comments of others]. However, this is Christmastime — a time for heartwarming dramas. I watched “Shop Around the Corner” through many Christmases but only recently became aware of the play the movie screenplay was based upon, the Hungarian play “Perfumerie”. After reading this play and finding out more about its author and context in place and time I believe my nostalgia may be overlooking another aspect of the paternal family businesses of former times, which I believe Perfumerie portrays and criticizes with scattered satire. I believe the owner of the shop is an exemplar for the petit bourgeois. The relation between the owner and employees is a class relation emphasized by the owner’s German surname. My nostalgia overlooks and minimizes the arbitrary power the owner has and asserts over his employees — a power enhanced by the bad economic times. All the employees offer fawning deference to the owner which after a brief second look appears demeaning. I suspect my initial nostalgia reflects my American tendency to want to believe I live in a class-free society.

  13. TheHoarseWhisperer

    Here is my anecdotal data point.

    I live in the States and work for a European company. I travel often to Europe (various countries) for work. A few years back a friend of mine in Belgium – who I used to work with closely – took a job with the Dutch equivalent of Costco. The difference is that said equivalent is private.

    I went out to dinner with him a year later and was curious to find out how his new job looked. He told me that the family who runs the company had an approach that is contrary to the management consulting orthodoxy. When a conglomerate comes to a management consulting and hires them to wring efficiency out of their operation, the first advice that they give you is -” focus on your core strength and outsource everything else”.

    The family run business had come to a different conclusion empirically. They figured out that every time they outsource some supporting function, they are paying the profit margin of someone else. And because they are thrifty people, they decided that they might as well collect these few dimes and add them to their bottom line.

    As a result, they had a garage which did the car maintenance for the whole fleet of personal automobiles of their workforce (in Europe, the automobile industry is heavily subsidized – a car is usually part of the compensation package for a lot of jobs and maintenance is included).

    They send out flyers in the mail. A lot of flyers. They have a print shop that produces the flyers. Again, they believe that they can run this profitably – and add this profit to the bottom line.

    Ponder this – the margin on these businesses is small. It is not spectacular and there is no growth. The business schools teach people who go there that you have to maximize profit – shed anything that is not profitable ENOUGH. (read “highly profitable”).

    it is chasing growth at ANY price. Nirvana is achieved via a hockey stick profit graph because this drives valuation – and – voila – high multiple valuation, sell to the greater fool, exit, retire at 30 – and after that, the flood.

    The problem is that this is not sustainable. (I mean – it is an exponential growth curve, after all :) Not only that – I would posit that it is also not resilient. I actually saw that in my own professional life but this is a subject for another post.

    Now off my soap-box.

  14. Felix_47

    I have always felt that much of this could be fixed with robust taxes. I remember that in the 1950s doctors and lawyers took Wednesday afternoon off to play golf or whatever. Now the lawyers are doctors are busy making dynasty creating money and can’t afford to take Wednesday off. If the taxes were what they were the Wall Street lawyers and financiers, the doctors, the lawyers would decide that they just would not work for Uncle Sam and they would take the day off as they did in the past. Making a pile of money was just not worth it if on the margin you had to give 91% back. And this led to honesty as well. Why do unnecessary litigation or unnecessary surgery or sell CDOs that were going to blow up when 91% of the benefit was going to Uncle Sam? Funding the IRA mightily and raising tax rates and sealing loopholes to confiscatory levels above a certain amount would do us a lot of good. Taxing estates with few exemptions at greater than 90% percent would go a long way to eliminating the incentive for rent seeking behavior. It is a lot easier to be ethical if it does not cost a ton of money. You could look at high taxes as an incentive for ethical behavior. Why strip mine a company when Uncle Sam is going to take 91%?

  15. Mark

    My anecdote. Context; foreigner on holiday in the US, meeting up with some american family friends from childhood days.

    One guy runs owns runs a business owned by his father and managed by him. Nice guy, generous fun guy. But he is confused when he asked my sister how she had managed to get some much time for her various holidays. A combination of vacation time and unpaid leave.

    His bafflement was clear. He responded he would never let his employs have unpaid leave like that! It would seem that in the USA for the average worker the company owns you. Expectations of unpaid leave or similar just seem to boggle his mind.

    The thing is he was not at all a psychopathic management type. Apparently he was simply was behaving strictly and firmly as a good boss should.

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