Surprise: America the Productive!

Tom Peters

In the few weeks since his election, Bill Clinton has made it clear that he plans to put the economy at the top of the new administration’s agenda. An Economic Security Council will share equal billing with the National Security Council. And to get the ball rolling, Clinton has called a “working” economic summit of business, labor, academic, and government leaders.

I applaud Clinton’s running start. A lot needs to be done to cope not only with the lingering recession, but also with the more important, long-range task of preparing to compete in the 21st century. But I do fear that Clinton and his activist advisers may reach for a panic button that need not be pushed.

The McKinsey Global Institute recently completed the most thoroughgoing study to date of world productivity. Led by Nobel laureate (and Democrat) Robert Solow of MIT, it gave us surprisingly good grades. McKinsey & Co. Managing Director Fred Gluck discussed the institute’s findings.

* A big lead, and holding our own. Compared to the rest of the developed world, the United States has—and is maintaining—about a 20 percent lead in industrial productivity (as measured by 1990 output per full-time worker, adjusted for purchasing power). U.S. output per worker is $49,600 vs. $44,200 for Germany, $38,200 for Japan, and $37,100 for Britain. Moreover, as Germany and Japan have approached U.S. productivity levels, the rate at which the gap between “us” and “them” is closing has slowed. In the 1980s, only Japan edged up on us (and not by much); we actually added to our lead over Germany. (Besides, as Gluck points out, this isn’t football: “The successful growth of our trading partners is in our interest. Competition between national economies has never been a zero-sum game.”)

* A robust edge in manufacturing. It’s true Japan does a better job with consumer electronics and autos; but the McKinsey report shows the United States leading Japan in total manufacturing productivity, including two-thirds of the major manufacturing categories (e.g., chemicals, petroleum, rubber and plastics products; textiles and apparels; food products). Other studies suggest a significant U.S. productivity advantage over Japan in high-tech industries such as biotech, computers, and software. (In each of these areas, by the way, Japan has mounted highly publicized, organized—and mostly fruitless—catch-up efforts.)

* A stunning lead in services. In the service sector (which employs 74 percent of Americans, 65 percent of Japanese, and 55 percent of Germans) we excel overall, with a 2-to-1 edge over Japan in retail productivity and a 2-to-1 edge over Germany in telecommunications. (Our balance of trade in services, which, incredibly, is not included in conventional trade statistics, is running about $50 billion per year in our favor.)

The chief cause of American service sector domination is relatively less regulation by Washington than by Bonn and Tokyo—and more competition among moderate-size firms. The latter surprised MIT’s Solow, who told the New York Times, “Big enterprises ought to have an advantage over smaller enterprises … but … overall, (size) is not important.”

Gluck was clear about the implications: “Our economy is moving rapidly from the manufacture of material-intensive products to the production of intellectually intensive products and services. … We absolutely dominate the new service and ‘soft manufacturing’ sectors and we must take great care to understand the sources of our success.”

* Creating businesses and jobs. Our job-creation record takes honors, too, no thanks to the Fortune 500, which shed 3 million employees in the 1980s and is continuing to shrink at a chilling pace. The jobs have come from smaller firms. (Headline, San Francisco Chronicle, summer 1992: “As big banks fire staff small ones are hiring.”) From 1965 to 1989, Gluck reports, we created 45 million new jobs, compared to 14 million in Japan and 10 million in all of Europe. This is an area for Clinton’s attention, since the U.S. job growth has stalled. But trying to hang on to jobs at big old firms, most of which are still far too fat, is not the answer—I’m worried Clinton’s top economic advisers don’t get that message.

* Sprucing up our work force. “I believe the reason we feel so bad,” Gluck said, “is because the impact of the move to a global economy has been to provide higher wages to more highly skilled and educated individuals at the upper-income levels while driving down the wages of the lesser and moderately skilled workers at middle- and lower-income levels.” The answer per Gluck: “People must be prepared for a job that places a high premium on critical thinking. … This probably entails the introduction of national standards for the three R’s of reading, ‘riting, and ‘rithmetic, but just as importantly for the C’s of computing, critical thinking, and capacity for change.”

Energizing the skittish economy, building a 21st century infrastructure and preparing the work force for tomorrow should keep the new administration busy. But Gluck concludes we’re solidly ahead of Japan in economic areas that employ 94 percent of our citizens. William Lewis, director of the McKinsey Global Institute and a former assistant secretary of energy under Jimmy Carter adds, “It’s not obvious that the U.S. should be copying a model elsewhere.” Clinton and company, take note.