Felix Salmon asks…

…and I reply. Felix wonders what I think of a study by academics from Stanford and London School of Economics and McKinsey comparing management practices in various countries. It concludes that part of the European “productivity gap” with the United States results from superior management.

Now one of the reasons why Felix is a highly paid professional blogger and I’m not is that my eyes glaze over at this kind of study and his don’t (in fact, Felix seems to particularly relish analyses of obscure financial instruments — one of the joys of reading him is that it means I don’t have to read the originals). So my first reaction to the Vox paper was a sinking heart. My heart sank even further when I looked at the paper providing the technical background. It makes the Vox essay look like Jane Austen.

But on to the serious question. One thing that is welcome about the study is that it appears to avoid the halo effect. The researchers didn’t ask managers vague or leading questions that provide junk data: the halo effect asserts that people in successful companies generally provide positive answers and people in trailing companies negative ones. The questions in this survey are harder to manipulate. Take the questions regarding the introduction of modern manufacturing techniques:

a) Can you describe the production process for me?
b) What kinds of lean (modern) manufacturing processes have you introduced? Can you give me specific examples?
c) How do you manage inventory levels? What is done to balance the line?

Not much room for fudging there. Depending on the answers the firm scores 1, 3 or 5 on very specific criteria. So the methodology of the survey seems sound.

The significance is another question. First, there’s nothing novel about its conclusions. Second, it’s a survey of manufacturing only. I’m not anti-manufacturing, but the reality is that in the world’s advanced economies, manufacturing is a smaller and smaller percentage of economic activity. I’m perfectly prepared to believe that UK manufacturing management is inferior to Italian manufacturing management (although the survey difference is minimal). But the reason the UK has an economy with vastly superior performance over the last decade is that UK services are doing very well, thank you. Italian services are, for the most part, woeful. (I still haven’t figured out why my bank account in Italy, which I left with some $100-odd on deposit, managed to over a few years end up with me owing the bank money even though I never touched anything.)

I’m also surprised that the study doesn’t address one reason for the productivity gap that I have often seen cited: Europeans work fewer hours than Americans, so even in the several cases where there is higher hourly productivity, the annual productivity is lower. In return, there is more leisure time. I challenge you to contact a single Danish executive in July.

2 thoughts on “Felix Salmon asks…

  1. Doug

    The single ones are probably easy to find, if you know the right bars or beaches. The married ones are probably completely unreachable.

    Alternatively, on certain Saturdays a great many of them can be found either on the ring road around Munich or at various passes in Austria. Whether their communication at that point will have mesurable productivity is another matter entirely.


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