Thursday, 23 February 2012

Why the US Economy Grows Faster Than Ours?

Ah, those ‘green shoots’. Early indications are that, putting aside Eurozone meltdown which has been delayed not slayed by the latest bailout of Greece, things are perhaps beginning to turn around for Boy George. Forecasters are being more positive, inflation is coming down as promised and the FTSE has been on an upward trend. We’re not out of the woods by any stretch. There will be more ups and downs for sure. But the strategic trend is that one by one, key long term indicators are looking decidedly better.

Mr Yvette Cooper will of course doom and gloom away because he has to. That’s what Oppositions do. But despite these long term indicators looking better, growth is still anaemic and may well technically show us in recession shortly. God, that ‘growth’ thing is hard to come by! Meanwhile, with way more debt - the next big problem for the global economy after the Presidential election is over - the good old US of A is doing growth much better than us and always seems to. Why so?

Now, before all you Lefties out there say it’s because Obama’s stimulus is working better than Boy George’s ‘too far, too fast’ austerity - which isn’t true by the way - let’s look at why the US always does growth better than us.

First, let’s get the easy answer to the question out of the way. The US economy is big. Almost as big as the 27 countries that make up the EU. So who would bet against that enormous engine of an economy; once it's motoring, it powers along. Check.

Then we get to the second answer, which is tricky because no UK government can do anything about it. The USA has a very 'can do' business culture. Now that's a very glib statement but having recently worked for an American company for six years I can vouch for the fact that Americans have the absolute opposite attitude to us on all matters business. We see all the problems, take refuge in lawyers ironing out all the wrinkles before we do anything and then behave cautiously thereafter. Call it British ‘reserve’. Americans only see opportunity, don’t worry about the downside and charge at every deal foregoing heavy lawyering safe in the knowledge that they’ll sue each other to death if the downside arrives. Call it ‘pioneering spirit’. Now that’s just a cultural difference. Bugger all anyone can do about it.

But number three on the list is something our Government can tackle with the right political resolve: the dead hand of employment law. (Calm down, Lefties, calm down). You see, for Lefties, suggesting that we reduce employment rights is the most heinous right wing Tory sin second only to saying we should reorganise the NHS.

But here’s the rub: higher unemployment and slower private sector growth is the price for all those employment rights we have. Here’s why…

When I worked for my Americans, I was always mesmerised by how keen they were to recruit more staff. Before the income was in place, they were off recruiting more staff. Conversely, when the shit looked like it was going to hit the fan, they just ‘let people go’. And US staff were much more sanguine about being ‘let go’. Running the European operation, I always resisted my part of their empire taking on staff until we were drowning in income and then held off redundancies until we really had no alternative when the income went down.

As the only European and non-American at the top of the company, it took a while for me to spot this and for the penny to drop.

You see all US staff are employed ‘at will’. And I mean all staff, from the CEO downwards. They have virtually no employment rights. No notice periods. No verbal warnings. No written warnings. No industrial tribunals. No such thing as redundancy. (The redundancy word does not exist in American English in the way we use it. In fact, my Americans used to laugh and joke about redundancy - ‘Melvin, what’s that thing you guys have over there called? Ha, ha, ha!’ And if I wanted to give a room full of Americans hysterics, I would then explain ‘gardening leave’).

So US companies can hire and fire with ease. And do. Which means that when businesses grow, they grow fast and load up on staff. Good for growth. By contrast, we Brits are really cautious, putting off the cost of hiring and employing new staff with all the attendant long term cost of getting rid of them until we really, really have to.

So Lefties, don’t compare US fast growth with UK and wider European slow growth, and realise that all your much treasured employment rights have a cost. More power to Steve Hilton and his agenda for starting to attack this.

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