Home truths from Houston

AS AN antidote to British gloom about the state of the economy, I spent the weekend talking with American investment consultants. in Houston, Texas.

The contrast in attitude is extraordinary. If you look at the data, you will see that the US and UK economies have performed pretty similarly over the last six years; both countries have put up a storming performance, growing far faster than the big European countries and Japan. And in both countries there have been signs of strain. Here, inflation has nudged upwards, while, in the States, the strain has shown in the widening current account gap. Yet the big picture has been remarkably similar.

However the attitude to that excellent performance could not be more different. Here the growth has been acknowledged grudgingly, if at all; and now that a slowdown seems to be happening, surveys of British business opinion report an outlook more gloomy than at any time since the recession of the early Nineties. Faced with this, we blame ourselves, or rather some other segment of British society: so, for instance, Tony Blair blames inefficient British business; business leaders blame the Bank of England monetary committee; William Hague blames Blair.

By contrast, in the States - and particularly in Texas - the idea that the good times might not carry on rolling for ever is only gradually seeping into the public consciousness. More than this, if there is going to be some sort of slowdown, it certainly won't be the fault of the good ol' Americans - it will be the fault of East Asian "crony capitalism", the paralysed Japanese politicians, the inward-looking European central bankers and the refusal of the Russians to honour their debts. Insofar as Americans will acknowledge that there are weaknesses in the US system, it is the fault of people on Wall Street - and, down in Texas, New York seems about as far away as Addis Ababa.

I suspect that, when the history of the 1999-2002 economic cycle comes to be written, the outcome will turn out to be somewhere in between. Some of the British gloom will turn out to be justified, for it will take a while to work through what will undoubtedly be a sharp downturn. But it won't, at least as far as the UK is concerned, be as bad as we seem to expect. We are, so to speak, over-prepared for recession.

On the other hand, the Americans are under-prepared. Suddenly the magazines are full of stories about "the crash of 1999", complete with little graphs sketching parallels with the crash of 1929. The sharp fall in share prices and the near-collapse of the hedge fund Long-Term Capital Management have certainly shaken the professionals in the investment community. The job losses on Wall Street have, I am told, suddenly made it a doddle to get into posh New York restaurants without a reservation. But, at the level of ordinary businesses, I detected little of this concern - and the restaurants of Houston were packed with diners chomping their way through their 24- and 32-ounce steaks.

For example I met the chairman and founder of a medium-sized electronics group, big enough to have plants in France and the Far East and a distribution centre in the UK. Yes, I was told, there was weakness in demand in East Asia, but the order book for the US and Europe was perfectly healthy. They had trimmed a bit here and there, but they were not really concerned. And if things did get worse, well, they would adapt. The Britons who worked for the company, he noticed, were nimble too, in contrast to his staff on the Continent. He was not worried about business here; the problem of coping with a slowdown would come in Europe.

It suddenly struck me, listening to him, that the defining quality that will determine how different countries weather the downturn will be how nimble they are, how quickly they can adjust their economies to different sources of demand. What will matter will be not so much how quickly economies go down but how quickly they come back up.

Houston itself is a fascinating example of both excess and resilience. It is now the fifth-largest city in the States and, according to some calculations, the fastest-growing city. It ranks with Atlanta as one of the best for business, has a glittering downtown array of office blocks, the largest medical complex in the world and a fine set of museums. It has also had the most volatile economy of any large US city.

Texas is oil country. In the late Seventies and early Eighties, Houston experienced an extraordinary boom, fuelled by the surge in the oil price. The tower blocks shot skywards. Then came the collapse of oil prices, the collapse of property prices and the near-collapse (for they had to be rescued) of a number of banks and other financial institutions which had lent unwisely in the boom years.

Since then it has gradually put everything back together. Like the other sun-belt boom cities of Atlanta and Phoenix, economic success has come through diversification. Though it has a fair proportion of Fortune 500 companies headquartered there, the main engine of job growth in Houston has been companies with fewer than 100 employees. While the current fall of the oil price has undoubtedly caused problems, industries such as medical care are remarkably recession-proof. People still get ill, whatever the economic climate.

You could even say that the Houston roller-coaster experience could become a model for the US economy. There has undoubtedly been a speculative boom in the States, and I don't believe for one moment that the Long-Term Capital Management rescue will be the last of its sort; there is more trouble coming up. However, what will matter will be the ability to co-ordinate national policy (matters such as interest rate cuts and bail-outs, where necessary) with local pick-yourself-up, dust-yourself-down and start-again resilience.

American business is just starting on another round of the reorganisation it carried out in the Eighties. It is cutting costs, refocusing on new products, getting rid of bits that don't perform. This process will help the country though the tough times. Japanese business, by contrast, is finding it extremely hard to think up a strategy for coping with the sort of events and forces which are beyond its experience. Most Japanese managers have only known growth, so they are finding it very hard to figure out how to cope when demand falls and goes on falling. The Japanese cannot dig their way out.

American managers, on the other hand, have seen recession: in Houston they have seen it in spades. So they have developed a mindset which acknowledges change and tries to cope with it. They will be able to dig themselves out, even if, at the moment, they have failed to grasp quite how rough the next couple of years may be. I have found that only one big US forecasting unit, the team at JP Morgan, is predicting recession in the US next year (it also, by the way, predicts recession here as well).

Rather like the citizens of Houston, we in Britain are used to the roller- coaster ride, for the UK economy has been more volatile than the main European ones. We will bitch and moan if there is indeed recession next year, but since it will not come as a complete surprise, maybe, just maybe, we will be adapt in a nimble way.

Is the spirit of Texas alive and well in the United Kingdom? Er, no. But there is that certain get-up-and-go here, which the chairman of the Houston electronics firm noted. The face we show to the world is very different, but behind it, maybe, we have become more like Texans. Well, just a bit.