Professional Documents
Culture Documents
PUBLISHED ON
OCTOBER 21, 2013
Background
DURABUILD: SEEKING NEW INSIGHTS
The peeling Durabuild Inc. sign, desperately in need of a touch up, caused Grant Stone to
cringe slightly as he entered the company’s St. Louis headquarters. He had mixed feelings
about the meeting he had scheduled with the company’s president—his father, Frank Stone
Jr. Grant’s agenda was a tough one: to try to get a better sense of what he viewed as his
father’s (and his grandfather’s) less-than-perfect business acumen. In the weeks since Grant
had left his analyst position in New York to join the family’s firm as vice president for
business development, he had become concerned about the company’s future and had also
grown curious about details of its early growth.
Durabuild Inc. was a diversified, family-held business in the construction industry, with
significant interests in France as well as in the United States. The president’s spacious corner
office looked out over the faded glory of an industrial brick skyline. Grant’s father, finishing
up what appeared to be a customer call, silently motioned for his son to settle into the most
comfortable spot in the room—an overstuffed, butter-soft, leather armchair. A large-scale
aerial photo of Durabuild’s operations in France circa 1962 hung on the wall.
As soon as his father hung up the phone, Grant cut right to the chase. “I’ve been studying
our books, Dad, trying to make sense of where Durabuild has been and where we are
headed. From what I can see, the company’s best growth period was in the middle of the last
century, right after we opened operations in France. I want to work with you to understand
that growth in a larger context so we can try and recapture it. Maybe, as we discussed last
week, in China.”
This document is authorized for use only in Prof Vinish Kathuria's Macroeconomics-1 at Shailesh J. Mehta School of Management (SJMSOM) from Jul 2018 to Jan 2019.
DURABUILD: THE EARLY YEARS
Frank Jr. loved to tell stories, and especially liked to sprinkle them with facts about US
history, his passion. He poured himself a glass of chilled water from the carafe before he
began. “Grant, I think you know how this story started. First, some history… At the end of
World War II your grandfather saw a great opportunity in the G.I. Bill of Rights. Right after
the war, the G.I. Bill provided free college tuition to the millions of soldiers who came home
from the war. That bill gave veterans the opportunity to go to college, but it also gave
them”—here he ticked the benefits off on his fingers— “housing subsidies, business loans,
and other help in getting their lives back on track.”
“When Grandpa Frank came back from France, he took out a business loan and established
Durabuild in 1947 with offices in the United States and France. The construction industry
was a good choice. After 15 years of the Depression and five years of war, housing in
America was in bad shape, or at least in need of renewal. Mortgage loan guarantees
provided by the G.I. Bill were helping the war veterans buy homes, which started a big
housing boom. Those were some of our best years.”
“But why expand into France? I never quite understood that choice.”
Frank Jr. gazed out the window. “As you know, during the war, your grandfather fought on
the front lines in Normandy. He saw firsthand the destruction of factories, the ashes of
villages, the wreckage of schools and bridges. As the US housing market shot up after the
war, he saw that once the recovery got underway in Europe, France would have an even
greater need to rebuild than we did here in America. And he was right. For nearly two
decades, France’s economy soared.”
“I remember once when I was about 10 years old, your grandfather told me about the
miracle of postwar Europe. ‘Out of the ashes of destruction have risen the wings of
opportunity,’ he said. We, Durabuild, were helping to make that happen.”
“But Dad, did Grandpa Frank think the growth was going to continue forever?”
“Well, there’s the catch. The housing market in France that had boomed so impressively in
the 1950s and 1960s leveled off in the 1970s, and my father didn’t understand what was
happening. He fully expected the French market to get back on track any minute. He kept
thinking opportunity was just around the corner, because there was still so much room left
for France to grow.” He shook his head.
“Expecting the building industry to come roaring back, Grandpa invested Durabuild’s
capital year after year in factories and warehouses from Calais to Cannes. While the US part
of the business held steady, Durabuild’s French affiliates suffered. The demand for new
construction in France was drying up, but Grandpa Frank refused to see it. I was a young
apprentice at your grandfather’s side at that time, and I admit I was taken in by his view of
the world. Or maybe blind to the same things.”
Grant felt himself growing impatient. “What’s frustrating to me is that you guys waited
around for more than 30 years, just hoping that Europe would return to the high growth
rates of the postwar times. Thirty years in the twentieth century and beyond! Didn’t you
Source: Original 1950–2000 GDP per capita data for France and US is from Penn World Tables 7.1.
Exhibit 1 compares the logarithm of the GDP per capita data.
Exhibit 2
Comparison of Factors in GDP per Capita (France/United States)
Year Y/POP A (K/N)^0.3 N/POP
Source: Population (POP) and GDP per capita (Y/POP) are from Penn World Tables 7.1. Total hours
worked (N) is from the Conference Board. Capital (K) in 2000 is assumed to be 1/3 of total GDP at
2001, and capital at other dates is calculated using investment and a depreciation rate of 4.4%. (A)
refers to total factor productivity.
Source: 1950–2000 population data France and US is from Penn World Tables 7.1. Total hours
worked is from the Conference Board.
1Robert Solow, “Unemployment in the United States and in Europe: A Contrast and the Reasons,”
Working Paper no. 231 (January 2000); Olivier J. Blanchard, “Explaining European Unemployment,”
NBER Reporter: Research Summary (Summer 2004); Richard Rogerson, “Understanding Differences in
Hours Worked,” Review of Economic Dynamics 9, no. 3 (July 2006).