Where does the U.S. advantage in productivity growth come from? Is it in the water? Mahalanobis says that it isn't in the water: the secret to the U.S. economy's excellent productivity growth performance lies in its business organizations--and what they know can be easily transferred to and applied in other countries:

Mahalanobis: Raffaella Sadun and John Van Reenen have written a nice summary (10 pages) of their paper entitled "It ain't what you do, it's the way that you do I.T. - Testing explanations of productivity growth using U.S. affiliates." Here is an even shorter summary for the busy reader[1]:

Research out today shows productivity levels are similar in US companies based here to those in the US. The research goes a long way to proving that the US productivity miracle of the past 10 years is not explained by the US business environment being better; rather US companies are simply better at using computers and other technology to drive productivity higher. Remarkably, the effect explains most of the gap in productivity growth between the US and the UK over the past decade. US output per hour grew by 2.5 per cent a year on average between 1995 and 2004 compared with 1.5 per cent in the 15 members of EU before enlargement. Further work by research institutions such as the National Institute of Economic and Social Research and the US Conference Board were able to prove that the difference was accounted for almost exclusively in sectors of the economy that used technology intensively. Retail, wholesale and finance sectors were most important. Using detailed data held by the Office for National Statistics about the performance of more than 7,000 private sector establishments in Britain, the CEP researchers were able to demonstrate that US-owned establishments in the UK managed to increase productivity pretty much like their parent companies at home. The detailed analysis confirmed that the big productivity differences were in industries that used IT heavily. US-owned multinationals in the UK, such as Asda or Starbucks, got more out their workforce than other multinationals, such as Tesco, and much more than purely domestic companies. US companies were managed differently in two respects. They had more "aggressive" human resources practices, promoting good performers quickly and getting rid of weaker performers and they devolved greater managerial autonomy in the implementation of IT systems to local plants rather than trying to run everything centrally.