What caused the great recession?
Almost all, however, look to current or recent developments, not long-term historical trends. Yet the real story of the massive meltdown of 2008 starts not in the late 20th century but in the early 17th.
It was in the 1630s that the Puritan migration to America set the cornerstone for US economic prosperity – and it was our falling away from Puritan values in the 1970s that sowed the seeds of destruction.
This migration endowed the Bay Colony of Massachusetts with four core beliefs: (1) a conviction that the purpose of life, however vaguely conceived, was to establish the Kingdom of Heaven on Earth; (2) an aptitude for the exercise of mechanical skills; (3) a moral outlook that subordinated the interests of the individual to the group; and (4) an ability to assemble and use financial, material, and human resources to a single purpose, on a massive or a lesser scale.
These four beliefs created a powerhouse. The genius of America's inherited "hands-on," "can-do," "up-the-ladder" managerial culture cannot be overstated. In the course of three centuries, it turned a handful of small colonies into the greatest economic and political power on earth.
The perversion of this culture – spurred by the rise of the "professional manager," often with an MBA degree – has hollowed out the US economy and undermined American thrift and self-reliance. Forty years ago, the net national savings rate was 10 percent. Last year, it reached minus 2.5 percent.
The Puritans loved to get their hands dirty
The Puritan journey to America was a masterpiece of organization. Two substantial earlier attempts had failed. Of the 144 people who had sailed for Virginia in 1606, only 38 remained alive by the end of 1607. Of the roughly 100 Pilgrims who had sailed on the Mayflower in 1620, barely half survived until March 1621.
By way of contrast, 200 ships brought 14,000 migrants to the Bay Colony of Massachusetts between 1630 and 1640 – and nearly all survived. Only one ship was lost at sea. This third attempt succeeded because its organizers had mastered the logistics of travel. In 10 short years, they also laid the social, legal, political, religious, and commercial foundations of the future United States.
The Puritans equated godliness with craftsmanship. From the outset, a willingness to become involved in menial tasks, to "get one's hands dirty," distinguished American society from older and more stratified European societies. Managers rose to senior positions only after demonstrating ability at lower levels. Puritanism is, essentially, an attitude of mind and an associated series of practices which, in the right circumstances, can be, and have been, transferred between races, tribes, nations, and even religions.
This way of doing things would evolve to reach a peak of ability in what we call the Golden Age of Management (1920-70). Milestones leading up to it included: the adoption of a federal constitution by the former colonies in 1787, creating a secure political framework within which society could prosper; the establishment by the 1830s of the Springfield Armory, which historian Daniel Wren has described as "the first mechanised manufacturing plant" in the country; the integration of geographic and functional divisions at the Pennsylvania Railroad in the late 1850s; and the relaunch by Pierre du Pont of his family company in the early 20th century, providing the model for an alphabet of "blue chip" companies – AT&T, Boeing, Chrysler, John Deere, Eastman Kodak, Ford, General Motors, Hewlett Packard, IBM, and so on.
America's great managerial inheritance would be successfully transplanted into Japan under the US occupation (1945-52).
Japan's internal communications systems had been destroyed by bombing and neglect. As a result, a Civil Communications Section was created within the Supreme Allied Command to re-create them. It was necessary first to teach local suppliers how to manufacture to US standards of quality.
Before World War II, "made in Japan" had meant "of poor quality"; increasingly after the war, it would imply the opposite. Japan's communications equipment manufacturers evolved rapidly into a world-beating consumer electronics industry; other industries, such as automobiles, followed suit.
Japan would teach the very same lessons that it had learned from its US occupiers to the future Asian "Tigers" – notably to Taiwan, which imparted them to mainland China in the 1990s, and to Vietnam a decade later. About 70 percent of China's electronic exports are said to originate today in mainland factories owned or managed by Taiwanese.
The rise of the professional manager
Sadly, under the influence of top-tier business schools, America would walk away from its inherited managerial culture after 1970. This lowered the quality of manufactured goods. And it contributed to disasters as diverse as the savings and loan crisis, the Enron debacle, and today's global credit crisis.
Before 1970, management was regarded as a craft to be learned "on the job" under the eye of an experienced executive. As a junior manager climbed the ladder, he would also acquire what General Electric CEO Jeff Immelt has called "domain knowledge." As a result, banks in the mid-20th century were run by people who knew a lot about banking, engineering companies by people who knew a lot about engineering, and so on.
Under the new dispensation, management was reclassified as a profession to be practiced by holders of a special academic degree (the MBA) – just like medicine or the law. It was no longer considered necessary for an executive to learn the craft of management or to acquire "domain knowledge." The holder of an MBA was deemed capable of exercising control over any kind of organization through the medium of its accounts department. "Financial engineering" replaced mechanical engineering. The effect on the quality of decisionmaking in both the public and the private sectors was catastrophic.
As we say in our book "The Puritan Gift," American factory managers have in large part reclaimed the secrets they taught the Japanese over half a century ago; the rest of American business and society must now follow suit.