"Japan and Germany play catch-up with U.S"
By Thom Calandra, CBS MarketWatch
Last Update: 03:11 PM July 22, 1998
SAN FRANCISCO (CBS.MW) -- As top
U.S. banker Alan Greenspan laments the
swift demand for skilled U.S. workers,
one international consultant says
American companies have plenty of
reasons to exult these days.
Productivity gains in Japan and Germany
are so far behind those in the United
States, the two countries probably will
never catch up, says Ennius Bergsma at
McKinsey & Co. in New York.
The McKinsey Global Institute, a Washington,
D.C., think tank, has been running comparative
productivity studies on the three countries.
Some of the research was used at a recent
gathering of the G-7 nations.
The studies zeroes in on capital flows and
regulatory systems, things like construction
rules in Germany that make building a house
twice as expensive as building one in the United
States.
Bergsma also says investors in high-flying
Internet companies might be smarter than some
media pundits think. (More on that later.)
"We concluded that in the late 80s, all of the
wailing about the decline of the West and the
ascendacy of the Far East was nonsense," he
said.
"The wealth of the U.S. is gaining signficantly;
we are 25 percent better on GDP per capita than
Germany. We are ahead and staying ahead,"
Bergsma said. GDP per capita measures the amount
of economic ouptut per person in a nation's
population and is a yardstick for corporate
efficiency.
For those who might have trouble deciphering
what Federal Reserve Chairman Greenspan is
telling Congress this week about "virtuous"
economic cycles and a looming shortage of
skilled U.S. workers, Bergsma is a breath of
fresh air. (For more on Greenspan's testimony,
click here.)
"It's like the Japanese and the Germans are
taking $1 million and investing it in a 3
percent return, making their million worth
$600,000," he said in plain English.
McKinsey's figures shed light on the race for
greater productivity. The eye-opener: total
financial returns in the United States averaged
9.1 percent yearly from 1974 to 1993 vs. 7.4
percent in Germany and 7.1 percent in Japan.
The outlook for Japan and Germany, the second
and third largest economies in the world after
the United States, is sobering, Bergsma said.
Germany and Japan suffer from rigid workplace
rules and centuries-old networks among
politicians, farmers and other "special" groups.
"There is no way they can extact themselves from
this morass," he said.
For investors, the outlook is a bit different.
The United States may have less pork-barrel
spending by politicians and fewer workplace
restrictions than its competitors, but future
financial returns are another story.
What's it all mean for investors?
"Stock prices are a reflection of future
performance expectations. If I am a brilliant
investor and everyone is convinced of that, you
will pay the share price and get your 10 percent
a year return, as long as everything goes as
planned. But if some mediocre manager takes a
lousy company and improves it, you will get
above average returns," he said.
Maybe that's why international mutual funds in
the United States are soaring in value this
summer, even amid grave concerns about Japan's
recession and the Asia Pacific region's consumer
slump.
No consultant can pass up an opportunity to
discuss the phenomenon of soaring Internet
stocks. Bergsma is no exception.
"If you look at Internet stocks, most of those
valuations are quite plausible," he said. (Many
Internet companies have U.S. shares that trade
at 30 to 60 times one year's sales, and few of
them are making money.)
"We shouldn't be saying this company is going to
make money five years from now and so should
sell for so many times those future profits. I
would instead look at cash flow. In the physical
world, a lot of growth takes place through the
balance sheet," he said.
Growth through cash flow is a major reason why
companies such as Yahoo! (YHOO) and Amazon.com
(AMZN) can develop sales strategies and
marketing efforts while enjoying enormous
appreciation of their shares, he said.
Let's hope that shareholders this summer, as a
slew of Internet companies reveal marginal
profits or gaping losses, see it Bergsma's way.
(For more on Internet companies, see Internet
Daily.)
YEAR 2000: Computer Associates, the large Long
Island, N.Y., software company, says customers
are shuffling their feet on the purchase of
products and services because of Year 2000
concerns. The notice by Computer Associates (CA)
helps to bear out Securities & Exchange
Commission testimony reported here last week
(See the column: Year 2000.)
In the report, one SEC commissioner, Laura
Unger, warned that only a sliver of U.S.
publicly held companies is reporting or tackling
new code that could fix the so-called millennium
computer bug. Some 73 percent of U.S. publicly
traded companies in one SEC survey has not begun
code remediation, according to some
interpretations of the study.
Wall Street began early testing of trading
systems for U.S. securities last week.
This coming weekend, Germany's central
depositary for clearing securites transactions
will begin testing software and trading systems
that must grapple with the conversion of
European currencies into the new euro. Germany
hopes to become the major clearing zone for
securities that are traded with the new euro
currency starting as soon as 1999.
TV show: See Thom Calandra on KPIX-TV Channel 5
each day from 5:30 a.m. to 7:45 a.m. PT in San
Francisco.Your eye on the market. Please scan
our CBS stock lists, including our Channel 5
MarketWatch stock list, which is crammed with
Silicon Valley companies.
Thom Calandra is CBS MarketWatch's
editor-in-chief. |
