Economic growth has been fueled by two factors: the expanding pool of workers and their rising productivity. From the perspective of rising prosperity, however, it is productivity that makes all the difference. Disparities in GDP per capita among countries—or between the past and the present in the same country—primarily reflect differences in labor productivity. That in turn is the result of production and operational factors, technological advances, and managerial skills. As managers improve efficiency, invest, and innovate to be competitive, their collective actions expand the global economy.
While half-century forecasts are hazardous—particularly for the forecaster!—a productivity-based perspective on the future of growth suggests that a demographic slowdown today need not lead to economic stagnation tomorrow.
MGI’s 1993 study of manufacturing productivity debunked the then-popular notion that the Japanese and German economies had become more efficient than that of the United States
This same set of cross-country productivity comparisons also highlighted the ways in which operational factors, from scale to production processes, had a far greater influence on productivity than education, the usual suspect at the time. Moreover, MGI found that productivity was highest in industries and countries that are exposed to, rather than protected from, competition. The research also revealed a shadow side of Japan’s strong productivity in the automotive and consumer-electronics sectors: weak service-sector performance. Low productivity in the service sectors, which accounted for a growing majority of jobs, soon became the Achilles’ heel of Japan’s overall economic growth.
Many countries have advanced well past the productivity frontier established by the United States in 1964. But the frontier has advanced, too, leaving significant future catch-up opportunities.
Falling barriers to trade and foreign direct investment. MGI case studies show that countries and sectors can make rapid productivity gains when international barriers to trade and foreign direct investment fall
Regulatory changes that increase competition and performance pressure. These types of reforms, which occur within rather than across economies, are particularly important in local services
Pushing out the frontier will require a willingness to make significant changes in business processes and organizational structures, as well as trade-offs between mature businesses with healthy cash flows, on the one hand, and disruptive (often digital) business models, on the other, with the potential for self-cannibalization even as they offer a transformative productivity potential. Another transformative opportunity, in many countries, continues to be the status of women, whose greater employment could alter the demographic equation and boost growth independently of productivity advances