This seems like an oxymoron, yet Noam Scheiber asks in the New Republic - Why Do German and Japanese Manufacturers Innovate More?
“The logic of this comes from the Harvard Business Review piece by Robert Hayes and William Abernathy that I cite. Hayes and Abernathy basically make two points. First, because the Europeans and Japanese rely so heavily on overseas markets, where the prices of their products can fluctuate owing to factors beyond their control, like exchange rates and tariffs, their manufacturers are forced to focus on quality and technological superiority. Technological advantages remain even when an exchange rate cuts against you. By contrast, American companies have always had a huge domestic market, so they could afford to mostly compete in terms of price. (They certainly don’t have to, but they can get away with it, whereas the Japanese can’t and the Europeans couldn’t for decades.) As a result, managers at American industrial companies have tended to think a bit more in terms of short-term costs–ways to undercut the other guy rather than outperform him.
Second, because labor markets tend to be less flexible and hourly labor costs tend to be higher in Europe and Japan (consider Germany’s famously powerful industrial unions), manufacturers there couldn’t traditionally cut costs very easily even if they wanted to. Whereas American manufacturers could often lower costs simply by lowering wages or axing employees, the Germans and Japanese had to either make their workers productive or have them produce more valuable products. It’s not that American manufacturers never did the latter, of course. But some of our foreign competitors simply had no choice, and they were very good at making virtue of necessity.”
I am not familiar with the automobile industry but I can speak about the construction industry. America is much more sensitive to risk and litigation. Today most innovative construction materials come from Europe. There is less litigation and regulation in Europe. For example there is a short cycle for the approvals of the experimental drugs. In order to innovate you need to have a high tolerance for the mistakes and failures. Risk aversion is the avoidance of experimentation and innovation. Especially if you don’t have a job security, like they do in Europe. If you feel secure about your job you are can be inclined to innovate and to experiment. The picture is actually reversed in the High Tech field, compared to the manufacturing. I think this is due to the fact that the startup category is a “financial allocation” in America, etc.
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