Economist Clyde Prestowitz was the keynote speaker at the 2005 Best Bosses Conference & Celebration. Prestowitz recently published Three Billion New Capitalists: The Great Shift of Wealth and Power to the East, which examines a tidal change in the global market. As he writes: “Over the past two decades … China, India and the former Soviet Union all decided to leave their respective socialist workers paradise and drive their 3 billion citizens along the once despised capitalist road.”

Prestowitz discussed some consequences of this phenomenon at our event, ones which could cause a great deal of hardship as jobs increasingly head overseas. Listening to him, I found myself contemplating the United States’ future viability in a connected, global economy. A recent report from McKinsey & Co. and the Centre for Economic Performance in London supplies some answers and good news on that front, chiefly that the U.S. can compete. The key to remaining competitive: sound, high-quality management.

The researchers examined the policies and operations of 700 manufacturing companies in the United States, United Kingdom, France and Germany. They judged their performance in three key management areas: shop-floor lean manufacturing deployment, performance management and talent management.

The study found that poor managers have an impact that extends well beyond the companies unfortunate enough to employ them. According to McKinsey & Co. and the Centre for Economic Performance, the quality of corporate management accounts for at least 20 percent of the difference between a productive national economy and a sluggish one. Interestingly, they discovered that the difference is evident even between countries with similar economic policies. For example, the study found that better management was responsible for 15 percent of America’s 25 percent edge in hourly output over Britain.

This is yet further evidence that creating a winning workplace is not only good for your business and your employees, but for society. Engaging employees is not a feel-good effort, but a business imperative, one that we as a nation cannot afford to ignore. When it comes to labor cost, the U.S. simply cannot compete. China and India already have the upper hand and will for the foreseeable future. Our only chance of remaining competitive is to work more effectively, more efficiently and continually develop new innovations.

It is fitting that McKinsey and the Centre for Economic Performance focused on manufacturing, because it is a mature industry that has been coping with these issues for a number of years. Over the years, Winning Workplaces has profiled a number of manufacturers in our Success Stories and Best Bosses recognition program whose progressive management approaches have helped them remain competitive in an increasingly difficult global market. These enterprises have succeeded in engaging employees and tapping their expertise to create new efficiencies and innovate.

For example, Georgia Berner of Berner International Corp, a New Castle, Penn.-based manufacturer of air doors, achieved the near impossible: a long-term deal with her employees labor union that left wages and assignments at the discretion of the CEO. One of our 2004 Best Bosses, Ms. Berner, secured the deal in part because of an inclusive management style that engendered trust in the workforce.

One key step in this unique achievement was to dismiss a micromanaging plant manager and push more responsibility and accountability down to frontline personnel. For the first time, employees were asked to voice their ideas and opinions, in short to think. The change proved valuable, helping the firm avoid the kind of adversarial business-labor relationship found in similar work environments.

Similarly, IRMCO, an Evanston, Ill.-based manufacturer of lubricants, has managed to remain profitable during tough economic times by opening their books and engaging their employees in the problem-solving process.

The firm is heavily dependent upon auto industry suppliers, which to say the least have struggled in recent years. IRMCO has adapted, however, supported by a reservoir of employee-management goodwill and by placing a premium on efficiency and innovation. For example, the firm educated employees on the costs associated with maintaining high inventory levels and how it ultimately affected their pay. As a result, employees adjusted production schedules to make better use of inventory. The company managed to double inventory rotations, resulting in a tremendous cost savings.

The company’s use of open book management also helped it secure buy-in from the employees for an increased investment in research and development at a time when the company was freezing salaries. The organization’s commitment to R&D has recently paid off, resulting in the development of one of its best selling new products: a lubricant designed to work with the lighter, high-strength steel that has become popular with auto manufacturers.

IRMCO CEO Jeff Jeffery credits the firm’s innovation, and ultimately their survival, in part to creating an engaged workplace. “We are nimble and creative, with smart people communicating and working together,” he says.

The continued health of small businesses like Berner and IRMCO is an issue that concerns us all. Not only does the small business sector create the majority of U.S. jobs, but outsourcing is disproportionately done by large firms. The health of our economy and our job market rests with the small enterprise, the family business, the entrepreneur; making workplace best practices a national concern. That’s what we mean when we say that a Winning Workplace is “Better for Business, Better for People”: It is also better for society.