America’s Scorched Earth Management

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 US – 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 outs of stock. Of course, no company can do that, but many US companies have been shedding workers and middle managers in great numbers – the figures for January 2008 were up 19% 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.