A discussion group I belong to, The Senge Circle has been discussing a fascinating book called “The Power of Productivity” by William Lewis. This is a book about a research project by the McKinsey Global Institute that started in 1991 to 2004, when the book was published. The motivation for the book was the thought in 1991 that the US was falling behind the Japanese in productivity. The interesting thing was very early they discovered that although the US was lagging in some key industries their overall productivity was 25% higher than the Japanese. They dug into the findings and then continued the study by researching many large economies. Each has a chapter devote to it. However the initial chapter has all the key findings.
The most surprising finding is that a huge factor in productivity is the productivity of the service industries. The employment in service industries in most countries is about 80% of the work force so has a major impact on the statistics. In Japan the service industries do not compete globally and are fairly archaic. However automobile and electronic manufacturing compete globally and outpace the US by 25% and other countries by a lot more.
Another key factor in productivity is the percentage of Gross Domestic Product (GDP) that is the cost of government. In Brazil for example the cost of government is as high as the US but their economy is much less developed. In addition fifty percent of Brazil’s GDP is underground and therefore pays no taxes. The little businesses in the bazaars do not report revenue and pay no taxes. Thus the cost to the more productive parts of the economy was double.
The book has fascinating examples of other factors in different industries in different countries which make great reading.
Our group is discussing each Chapter so I suggest someone pick a chapter and does a little summary of the discussion or I invite critiques of the book.