Washington, Nov. 18 (Bloomberg) -- British-born Chris Robinson said he was astonished when he took over operations in Peoria, Illinois, for 4B Components Ltd., a U.K.-based supplier of grain elevator parts and monitoring devices.
When a customer needed a heavy part delivered over the weekend to deal with an equipment breakdown, Robinson's warehouse manager volunteered to make the 1,600-mile round trip himself in the company pickup, without extra pay.
``I just couldn't believe it,'' Robinson said. ``That wouldn't have happened in Europe. The U.S. is definitely a more switched-on place to get something manufactured.''
Robinson's experience helps explain why U.S. productivity -- hourly worker output -- grew at an average 2 percent annual rate in the last half of the 1990s, according to figures from the Conference Board, an economic research group in New York. In Europe, the increase was an average 1.3 percent. Productivity growth in the U.S. is accelerating: It was 5.3 percent for the 12 months that ended in September, the fastest pace since the first quarter of 1983.
The widening gap may enlarge the disparity in living standards between the regions and heighten American dominance of the global economy, economists and investors said.
``Europe should be concerned about it, because the U.S. will continue to widen that gap,'' said Bill Rutherford, who manages $20 million in investments for Rutherford Capital Management in Portland, Oregon. ``American workers work longer hours and work with fewer holidays. You throw in advanced technology, and it makes productivity here grow much faster.''
Rising Living Standards
Productivity growth is crucial to higher living standards because manufacturing more with the same number of workers enables economies to grow without a parallel acceleration in inflation. As world economies have become more linked, productivity has increased in importance for companies that compete worldwide.
Federal Reserve Chairman Alan Greenspan, who has cited productivity gains throughout his 15-year tenure for the performance of the U.S. economy, said last week that lagging business investment will improve as companies reap the benefits of greater efficiency.
In testimony to Congress following the Fed's decision to lower its benchmark rate a greater-than-expected half point, Greenspan said the increase in productivity ``has not faltered.''
The European Commission confronted the issue in a report last week. Productivity gains for Europe ``are expected to remain low for another year in 2003,'' and that ``puts additional strains on corporate profitability'' and investment, the European Union's executive body said.
Reversal of Fortune
``Productivity growth remains strong in the U.S. and feeble in Europe,'' said Emmanuel Ferry, an economist at Exane, a Paris- based stock brokerage. ``That's the main difference between the two continents.''
It wasn't always that way, according to figures from the European Commission. While U.S. productivity grew an average 1.5 percent from 1961 through 1990, Europe was averaging a 3 percent-a- year rise and Japan posted a 5.1 percent annual gain.
That was reversed between 1996 and 2000, when U.S. productivity grew an average 2 percent a year, Europe's rose 1.3 percent, and Japan's 1.5 percent.
The growth left the EU just below the U.S. in terms of the absolute level of productivity. Germany's productivity is 97 percent that of the U.S. France is the same, according to OECD figures. The higher taxes, greater regulation and shorter workweeks of many European countries induced European companies to buy machinery rather than hire more workers.
Fewer Workers
``Productivity in Europe is respectable because so few people actually work and that boosts the numbers,'' said Dirk Pilat of the OECD. ``In itself, there is nothing to boast about. Productivity growth is a better indicator.''
The U.S. growth rate began to rise in the 1990s as the U.S. deregulated industries from trucking to electric power, while Europe maintained controls. U.S. companies pared their payrolls in the early 1990s. And American companies exploited computer-related technology, including the Internet, to become more efficient.
Dell Computer Corp., for instance, says half of its sales are handled via its Internet system and Web sites, making it one of the largest companies in electronic commerce.
``U.S. companies have jumped into the Internet age with both feet, while the European system doesn't encourage that,'' said Kenneth Goldstein, an economist at the Conference Board. ``The productivity differential isn't going to go away tomorrow.''
``The bottom line is that it means U.S. living standards are growing faster than those overseas,'' said Mark Zandi, chief economist of Economy.com, a West Chester, Pennsylvania, consulting firm.
Costly Cuts
Robinson of 4B Components Ltd. said it took his company 10 years to shut down a plant it bought in Nantes, France, because labor laws made it costly to pare the payroll. ``It was cheaper to keep them on,'' he said.
In 2001, Europeans were producing only 69 percent as much as Americans, according to the Paris-based Organization for Economic Cooperation and Development. In 1991, that figure was 71 percent.
A study by the McKinsey Global Institute found that workers in Germany and France, in particular, are falling behind their American counterparts, a situation it says is threatening to drain Europe's prosperity in years ahead.
``The growing prosperity and improved living standards'' in both countries over the past 50 years ``have been largely dependent on the continued improvement in productivity,'' it said. ``The current situation should be of major concern.''
In France, for example, employers and employees must pay for state medical insurance as well as the national unemployment insurance fund and retirement fund. Pay slips must list entries for money set aside for company training and a ``13th month'' of wages to which all French workers are entitled. Earlier this year, the French government mandated that the maximum workweek would be 35 hours.
Corporate Millstone
Inability to improve competitiveness is hurting European companies' profitability, said Ulrich Ruetz, chief executive officer of Beru AG, a German ignition-systems manufacturer whose customers include DaimlerChrysler AG, Nissan Motor Co. and General Motors Corp.
``No wonder industry is looking for other countries to invest, where they don't have this millstone around their neck,'' Reutz said in an interview. He said high German taxes also are pinching German companies.
European governments are aware of the disparity and have said they want to reduce impediments to productivity growth. At a European summit two years ago, they set a goal of together becoming the most competitive economy in the world by 2010.
French Prime Minister Jean-Pierre Raffarin's government proposed a draft law last week to make it easier for companies to fire workers to avoid bankruptcy. Spain has revised some of its labor laws. Italian Prime Minister Silvio Berlusconi proposed easing job-security guarantees for small companies.
Changes Draw Protests
The efforts have drawn protests. Spanish Prime Minister Jose Maria Aznar abandoned some changes under union pressure. Berlusconi's proposal sparked riots. France still mandates a maximum 35-hour workweek and is unlikely to change.
``I don't think such reforms are necessary,'' said Wolfgang Scheremet, head of the economic policy department at Germany's 7.8- million-member DGB trade union federation. ``Fiscal and monetary policy have to boost growth and productivity.''
Forecasters in the U.S. and Europe say the gap is likely to keep widening. The Conference Board's Goldstein predicted that while U.S. productivity growth will slow to 2.5 percent during the first half of 2003, in Europe it will grow 1.5 percent.
It was? I'm in Atlanta, and I saw only one. Which direction were you suppose to look?
The PREM started in the -5's. It continued to hit until 9:35. Hit again at 9:38, 9:39 and 9:40. TICK is finally starting to move up. PREM at 9:45 finally made it over 0.00. Futures bounced off of 893.00. Had a slight priece to 829.90. PREM at 9:45, just missed hitting buy levels. Looking to slowly be rolling over.
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