U.S. leads in worker output Europe, Japan lag in McKinsey study

October 13, 1992|By New York Times News Service

A new study of productivity in different countries -- the most authoritative comparison to date -- shows that the United States commands a significant lead over Europe and Japan in output per worker.

In 1990, a full-time American worker produced $49,600 of goods and services a year. In dollars of equivalent purchasing power, a German worker produced $44,200, a Japanese worker $38,200 and a British worker $37,100, according to the study conducted by the McKinsey Global Institute, a Washington offshoot of the McKinsey consulting firm, together with three of the nation's top productivity experts, including Nobel Laureate Robert Solow.

America's secret productivity weapon, the report concluded, is not bigger companies, more robots or even brainier managers. Instead, it is Washington's relative reluctance to protect companies from the rigors of competition, domestic or foreign.

The study shows that the United States is farthest ahead in the service sector, which now employs three out of four American workers.

"We were all surprised by the extent of the U.S. lead in services," said Professor Martin Baily, an economist at the University of Maryland who wrote parts of the report. "Most of us had concluded that the U.S. had been overtaken."

The study is not the first to reach this conclusion. But it is more persuasive than earlier research because it is based on better data for manufacturing, as well as detailed case studies of several service industries.

Productivity is the ultimate yardstick of international competitiveness. It determines not only a nation's standard of living but also its status in the world. Whether it was Italy from the 13th to 15th centuries, Holland in the 18th, England in the 19th or the United States in the 20th, the reigning superpower has always been the global productivity leader.

"We're trying to take the position that competitiveness is not just machinery and semiconductors but the entire economy," Mr. Baily said. "The service sector is terribly important to overall living standards."

General merchandise retailing, for example, is more than twice as efficient in the United States than in Japan, largely because Japan's zoning laws save mom-and-pop stores from annihilation the Japanese equivalents of Wal-Mart, according to one of five case studies of service industries in the report.

And the deregulated American telecommunications industry is at least twice as productive as Germany's government monopoly, while the fragmented American consumer banking industry is a third more efficient than Germany's gargantuan banking oligopolies.

The United States has not had to sacrifice consumer choice or quality for greater efficiency either, the authors say, citing retail banking and telecommunications.

Some conservative economists say the report confirms what they have long maintained: that the United States is still No. 1.

The report did not attempt to explain why the productivity of the U.S. economy has been growing more slowly since 1973 than it has, on average, during the last century.

"There's nothing in here that should make a reasonable person conclude that the trend rate of growth in productivity since 1973 has been OK," said Francis Bator at the Kennedy School of Government, who helped shape the study.

For manufacturing, the McKinsey report draws heavily on new data, not widely disseminated here, from a Dutch research team at the University of Groningen led by Angus Maddison, one of the world's leading authorities on international economic comparisons.

The Dutch comparisons are based on more appropriate and more detailed data than have been available before, in particular on hours worked and prices of factory goods needed to convert different countries' production into dollars of the same purchasing power.

It found that German and Japanese factory workers produced just 80 percent as much on average as American workers on an hourly basis.

While Japan has pulled ahead of the United States in several heavy manufacturing industries, including cars and machinery, it lags far behind in at least half of its manufacturing base.

And while the United States' lead in manufacturing has continued to shrink in recent years, it shrank more slowly during the 1980s -- and actually widened against Germany -- than in the first 3 1/2 decades after World War II.

Referring to manufacturing, the authors said: "It seems likely that the United States will retain a modest productivity lead for some years to come."

That might seem surprising, since the United States has been investing a far smaller fraction of its resources than Germany or Japan. But the study also found that the United States seems to have gotten more mileage from its investments than other countries, because freedom from heavy-handed regulation has allowed many industries, but especially in the service sector, to function more efficiently.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.