Berkshire Hathaway
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BusinessWeek: Mega Europe...

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By ChoOyu
November 12, 2002

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IMHO from what I've seen and heard U.S. based businesses are behind the power curve....

Forgive us if we are not quaking in our boots.

The fact is that Europe has grown soft, and it has gone beyond the environment that surrounds them. It has infected their view of life. The people generally feel their society is superior to the U.S. It's more civilized and sophisticated. They have the free time to enjoy the good life. And generally that is true. But the cost has been the creation of a decadent mindset that is unsuited to compete in the global economy.

Some time between industrial revolution and now the wheels came off Europe's economic machine. Recent performance has been abysmal. In 1980 the U.S. had 99 million people employed; in 1996 we had 126 million employed. In 1980 France, West Germany, Italy, and the United Kingdom had 92 million employed. Now you would expect that in 1996 those European countries would have what, 120 million? 115 million? Maybe give us 105 million? Nope, the figure is 96 million. A pitiful 4 million jobs created in fifteen years.

In fact since the seventies the U.S. has created about 45 million new jobs. Europe has created 8 million jobs, and most of those have been in the public sector. European jobs have been fleeing the continent. And it's not just blue-collar factory jobs. The high skill tech and managerial jobs are also going.

In the last few years of the century, the 33 largest French companies created 45,000 jobs in France; they created 1.2 million outside the country. This is not an anomaly. I remember reading the behavior of BMW has been similar; they have reduced employees in Germany and added them in the U.S. It is as if many European companies have decided to keep their headquarters in Europe but direct all their job creation to places outside the EU. And why shouldn't they, return on capital is 50 to 65% of what it is in the U.S.

Some peoples in Europe seem to have given up hope of creating new jobs. The French have pinned their hopes on the policies of loons who hope to increase employment by reducing the hours in the work week in order to share jobs amongst people.

They have to try something, let's look at their unemployment figures (June 2002):

Spain 11.5%
France 9.2%
Italy 9.0%
Germany 8.3%

These are numbers that would cause U.S. politicians to be dragged out of their offices and run out of Washington DC on a rail. While unemployment has gone up in this global economic recession, those figures are considered good for Europe. Set the Wayback Machine for a just few years ago and you would be looking at 12%. The figures for under twenty-five years old unemployment are surreal:

Spain 22.5%
France 22.0%
Italy 27.2%
Germany 9.8%

Even more interesting are the employment participation rates. In the U.S. the number of people who are of employable age and work has risen from 60% in the early sixties to nearly 80% today. In contrast the rates in Europe have fallen from 66% to 60% in the same time frame.

The U.S. has gone forward and Europe has gone backward. Both societies were under pressure during the seventies and the eighties. Japan was on the rise and looked poised to dominate the world. The two societies took very different approaches.

The U.S. got scared and acted; it threw itself into the breach and set about changing itself. Europe took the Maginot Line approach to protecting itself from the global economy, as though the erection of legal barriers would protect them from competition.

U.S. Companies downsized ruthlessly. Millions were laid off. The premises of lifetime employment by a single company were done away with. It was the night of the long knives. In the end America was left with a much more fluid labor market Europe went the opposite direction. Steadily making it more difficult to fire people, increasing the cost to such a level that businesses delay hiring new employees until all other options have been exhausted. Nowhere is there the employment rigidity there is in Europe.

Americans started working longer hours. During the early eighties they viewed the Japanese as workaholics, twenty years later Americans work more hours per year than their Japanese counterparts. The European response? Work less, of course. Thirty-five hour work weeks. Two months of vacation. More holidays than a U.S. postal worker. While the average American works nearly two thousand hours a year, the average German works fifteen hundred. Would you really expect to get promoted if your coworker was putting in 33% more hours than you?

Business books were churned out by the hundreds, about Japanese management styles and structures. Americans snapped these up and set to trying everything, no matter how ill of a fit it was with U.S. workers. If the Japanese were rumored to use it, Americans tried it. The Europeans have clung to their old world mentalities. Just look at car quality. Normally I wouldn't say anything good about the big three U.S. car manufacturers, but they did improve. They improved radically since the seventies. That was due to adopting qualities controls that were pioneered by the Japanese. What do we have in Europe? Fiat, Peugot, Renault, companies that don't even bother trying to sell their cars into the biggest auto market in the world because their quality is a joke.

I don't think Americans need to fear Europe. Capitalist societies rely upon competition. A society like Europe whose people have lost their will to compete is not a danger to those who embrace and thrive on competition.

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