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Title: McKinsey Diagnose: Government and Public Education Dragging America Down
Source:
Economist
URL Source: http://www.economist.com/blogs/schumpeter/2011/02/us_productivity
Published: Feb 18, 2011
Author: Schumpeter
Post Date: 2011-02-18 15:17:49 by jwpegler
Keywords: None
Views: 2115
Comments: 3
THE McKinsey Global Institute has produced a fascinating report on productivity growth in the United States: why the country needs more of it to maintain GDP growth, what barriers are holding the country back, and how they can be overcome. I'll quote it in full, since it is clearly written and compelling. But I must say I'm pessimistic about the country's ability to rise to the challenge. The report puts heavy emphasis on improving productivity in the public sector, and improving America's education system. But the public sector has proved almost impossible to reform, with temporary gains quickly being negated by vested interests (remember Al Gore's reinventing government programme); and the education system has proved even more resistant than the rest of the public sector. Alas, a country which is so good at business is pretty bad at government, and being good at government may be vital to bumping up those productivity numbers. More than ever, the United States needs productivity gains to drive growth and competitiveness. As baby boomers retire and the female participation rate plateaus, increases in the labor force will no longer provide the lift to US growth that they once did. New research by the McKinsey Global Institute finds that, to match the GDP growth of the past 20 years and the rising living standards of past generations, the United States needs to boost labor productivity growth from 1.7 to 2.3 percent a year. That’s an acceleration of 34 percent to a rate not seen since the 1960s. This acceleration needs to come both from efficiency gains—reducing inputs for given output—and from increasing the volume and value of outputs for any given input. Since 2000, the largest productivity gains have been in sectors that have seen large employment reductions. Periods such as this have made many Americans suspicious that boosting productivity is a job-destroying exercise. However, MGI finds that, since 1929, every ten-year rolling period except one has recorded increases in both US productivity and employment. It is nevertheless important that the United States returns to the more broadly-based productivity growth of the 1990s when strong demand and a shift to products with a higher value per unit helped to create jobs even as productivity was growing. There is large untapped potential to increase productivity and growth in the United States, MGI finds. Businesses can achieve three-quarters of the necessary productivity growth acceleration in the current regulatory and business environment. Companies can achieve one-quarter of the acceleration by more widely adopting best practice. Even in such sectors as retail, where US businesses have a strong productivity record, there is scope to do more (e.g., by taking lean practices from the stockroom to the storefront). Aerospace companies may be leading global exporters but they have yet to adopt lean practices in the systematic way seen among best-in-class automotive players. The public sector and regulated sectors such as health care, which have not faced as strong competitive pressure, offer another large opportunity. Health care players have just begun to adopt lean. Hospitals have room to improve how nurses spend their time—at some hospitals, nurses spend less than 40 percent of their time with patients—and to improve their discharge and admissions processes. Implementing emerging business and technology innovations can achieve a further half of the necessary acceleration. Opportunities lie in enhanced supply chain integration, greater responsiveness to evolving customer preferences and behavior, and innovating in what, and how, goods and services are provided to customers. To obtain the last one-quarter of the acceleration—and potentially more—government and businesses need to act on economy-wide barriers that today limit productivity growth. MGI sees seven major imperatives: 1. Drive productivity gains in the public and regulated sectors. Public and regulated sectors such as health care and education represent more than 20 percent of the US economy, but has persistently low productivity growth. McKinsey analysis has demonstrated that, if the US public sector could halve the estimated efficiency gap with similar private sector organizational functions, its productivity would be 5 to 15 percent higher and would generate annual savings of $100 billion to $300 billion. 2. Reinvigorate the innovation economy. Innovation can increase the quality and quantity of goods and services produced, contributing to productivity gains. The United States remains the global leader in R&D spending but others are rapidly catching up. US policy and regulation should provide the right incentives for private companies to continue to invest in innovation and expand their US-based R&D activities. Specifically, the United States needs to ensure that the IT infrastructure and technologies are in place to capture fully the transformational potential of existing and new technologies. The potential runs from Big Data—data-driven business decisions and actions—to cloud computing and the application of advances in biology and the life sciences. 3. Develop the US talent pool to match the economy of the future and harness the full capabilities of the US population. The US talent pool is not growing fast enough to meet future demand. For example, MGI estimates that the United States may face a shortfall of almost two million technical and analytical workers and a shortage of several hundred thousand nurses and as many as 100,000 physicians over the next ten years. In aerospace, 60 percent of the workforce is aged over 45 years old compared with 40 percent in the overall economy. The United States could alleviate such shortages by removing barriers to older workers staying in the workforce longer (e.g., altering disincentives in how health care costs for older workers are allocated; addressing defined benefit rules); improving incentives to technical and analytical training, for example through innovative funding mechanisms and direct links between jobs and educational institutions); and reducing barriers to the immigration of skilled workers. 4. Build 21st century infrastructure. US infrastructure is not only inadequate to meet the needs of a dynamic, growing, and productive economy but its quality has been in relative decline. The United States today ranks 23rd in the quality of its infrastructure. There is major scope for the United States to identify and implement leading-edge practices from project selection to financing and delivery, sometimes through public-private partnerships. 5. Enhance the competitiveness of the US regulatory and business environment. The relative competitiveness of the US regulatory and business environment is declining at a time when many competitor countries have taken major steps to create favorable conditions in order to attract companies to invest and participate in their economies. The United States scores particularly poorly on the burden of government regulation and red tape. The United States needs to reduce regulatory complexity, streamline the process of resolving disputes, and eliminate remaining sector-level barriers to more robust competition—learning from the most effective approaches employed elsewhere. 6. Embrace the energy productivity challenge. Global demand for energy is predicted to rise at an accelerating pace over the next 20 years and focus needs to shift to boosting energy productivity—the level of GDP obtained from each unit of energy consumed. Today, the United States lags behind others in this regard, and also risks being left behind in important emerging technologies. Clear long-term policy could encourage the market discipline that drives productivity. For example fuel-economy standards could encourage the adoption of existing energy-saving technologies and spur the development of new ones. 7. Harness regional and local capacities to boost overall US growth and productivity. Cities and regions in the United States have markedly different growth and productivity trajectories, and there is insufficient sharing of best practice among them. But there is a rich seam of effective solutions at the federal and local levels that offers scope for shared performance metrics (e.g., a defined set of tracking variables made transparent through technology) and the transfer of best practice. All levels of government should also seek cross-regional alliances in economic development.
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#1. To: All, capitalist eric, go65, gnu new taxes (#0)
(Edited)
Great report. Here is the synopsis: 1.) Government and public school productivity stinks, and they are resistant to change. (We've recently seen this in Wisconsin.) 2.) The rotten public school system is going to leave us short of millions of people educated in math and science who we need to compete in a global economy. 3.) Government is overburdening business and innovation with regulation and red tape 4.) Government is not doing one of it's legitimate jobs, ensuring that our infrastructure is in good repair and keeps up with economic growth. 5.) They didn't exactly say this, but our energy troubles are a result of both the left shutting down progress in the nuclear energy 30 years ago and the GOP establishment who have oil on the brain. I've said this many times before -- America has the very worst government in the developed world. The politicians won't do anything about it because various government employee unions OWN the Democrats and most of the GOP are cowards. That's the problem. So, bravo to Governor Walker for have the cajones to take a stand.
Nice synopsis. I agree 100%. As to point #5., it's even worse then this... the government is intentionally tearing down our energy production capabilities, as part of a larger- global- plan. Every last one of those traitorous bastards needs to die a traitors' death... And I think that when TSHTF a lot of them WILL...
Socialist ass-hats think "There will be no more money when the U.S. dollar has no value, until that time we can keep printing more." And yes, that IS from LF's answer to Ben Bernanke, go65, leading disfunctional and delusional socialist of the forum. "You want me to kill THE ENEMIES of Jappos, I'll kill THE ENEMIES of Jappos, Rebs, or Sioux, or Cheyenne... For 500 bucks a month I'll kill whoever you want. But keep one thing in mind: I'd happily kill you for free." Algren, "The Last Samurai" What do places like India and China do better than us? Are their education systems privatized? How much debt does an Indian student have when they graduate college?
Since January 3, 2011, Republicans have controlled the power of the purse.
a country which is so good at business is pretty bad at government...
"Everything that can be invented has been invented."-- Charles Duell, Commissioner of US Patent Office, 1899
#2. To: jwpegler (#1)
#3. To: jwpegler (#1)
1.) Government and public school productivity stinks, and they are resistant to change. (We've recently seen this in Wisconsin.)
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