Remember when Americans were considered the idiots of the business world? Remember how they were roundly criticized during the 1970s and '80s for focusing too much on quarterly profits? My, my, my, what a difference a new world order can make. Today American companies are ripping through the global economy, gobbling up competitors, and rewriting the rules of the game.

The question is: How did the Japanese and Europeans let the also-ran Americans vault past them? And the answer is: by failing to adopt hard-nosed business practices that put growing shareholder value as management's top priority.

During the last quarter century Japanese automakers were glowingly praised for investing heavily in robots, pouring money into research and developing a flood of new cars and trucks. The Japanese were considered especially shrewd because they tinkered with 100-year business plans. How can you beat these guys, the thinking went, when they're already planning for the next century?

But who cares if you have a 100-year business plan if you completely miss the massive shift to trucks in the world's largest market, can't foresee an economic meltdown in southeast Asia and are unwilling to abandon traditional business practices that prevent you from becoming competitive?

The great advantage of focusing on quarterly profits is that, man, does it drive discipline! And putting shareholder interests ahead of all others opens management's eyes to all sorts of business opportunities. That is precisely what drove American managers to restructure their operations, sell off unproductive assets, outsource to suppliers, and buy up competitors. And remember, you can't consistently increase quarterly earnings, year in and year out, unless you plan for the long run.

Much of the praise heaped on foreign companies over the last 25 years overlooked the difference in the cost of capital between the United States, Japan and Europe. In Japan, as in much of Asia today, the government supports banks so they can lend money at very low rates. Even today, with American interest rates lower than most people can remember, the cost of capital in Japan is nearly half of what it is in the United States. That always made, and makes, it far easier for Japanese managers to justify investing in automation, technology and new models. And let's not even get into government policies that kept the yen artificially low to gain a price advantage in export markets.

Moreover, accounting rules in Europe and Japan are much less transparent than they are in the U.S. In 1993 Daimler-Benz AG, which wanted to become listed on the New York Stock Exchange, had to adopt the general accounting principles required of all American corporations. That year, under German accounting rules, Daimler-Benz reported a $1.1 billion profit. That same year, under American accounting rules, it reported a $100 million loss. Same company, same set of books, but a billion dollar difference. Which system do you think gives shareholders a clearer view of how their company is performing? (Hey Juergen, why does it now take DaimlerChrysler AG weeks longer than General Motors Corp. to report a less complete picture of your quarterly earnings?)

Look at the mess Ford Motor Co. ran into as it took control of Mazda. The problems it encountered were far worse than anyone thought by looking at the books. The same happened at Kia, though Ford walked away from that one. The economic meltdown in Southeast Asia was primarily caused by a lack of transparency in government and business. No one knew how bad the situation was until it collapsed.

By forcing (and rewarding) managers to focus on increasing the wealth of the shareholders, who are the real owners of the company, it creates an open mindset. Managers start to come up with new and novel ways of making the company perform better. This is precisely why U.S. suppliers are emerging as the dominant players in the auto industry. To give shareholders greater returns, they're willing to buy and merge with others; they're not too proud to admit they can't do it all on their own. This is also why U.S. automakers are no longer just interested in making cars, and are getting into automotive services that offer far greater opportunities for growth and profitability.

The 1970s and 1980s were a snapshot in time that seemed to favor a certain type of business model practiced by Japanese and European companies that now seems flawed. But who knows? Maybe the 1990s are just another misleading snapshot in time. Maybe the U.S. economy will simply collapse on a stock market crash when the dot-com craze comes to an end. Maybe American automakers and suppliers will prove to be too highly leveraged and lacking in core technologies. But I don't think that's what's going to happen.

The point is, businesses that exist merely to maintain a cozy government-banking-corporate existence are inured from the harsh realities and constructive destruction of the marketplace. Rather than change their chummy ways, they merely fight to preserve the status quo. Conversely, the focus on shareholder value and quarter-to-quarter earnings growth keeps the pressure on. It keeps managers squirming and forces them to think.

- John McElroy is editorial director of Blue Sky Productions, producer of "Autoline Detroit" and "The Nightly Auto Report" for WTVS-Channel 56, Detroit