From: johnt@meaddata.com (John Townsend)
Subject: Democrats: READ it and WEEP!
Organization: Mead Data Central, Dayton OH
Date: Thu, 15 Oct 1992 20:48:44 GMT


From:  The New York Times
       October 13, 1992, Tuesday, Late Edition - Final

Headline: U.S. Output Per Worker Called Best
By: Sylvia Nasar

   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 only $37,100, according
to the study by the McKinsey Global Institute, a Washington offshoot of the
McKinsey consulting firm, together with three of the nation's top productivity
experts, including the Nobel Laureate Robert Solow.

Competition Is Cited

    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.

>> /* If you're still a liberal, re-read that paragraph */
>> /* Keep reading!  There's more! */

    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
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
convincing than earlier research because it is based on better data for
manufacturing as well as detailed case studies of several service industries.

Ultimate Yardstick
     Productivity  is the ultimate yardstick of international competitiveness.
It determines not only a nation's standard of living but also status in the
world. Whether it was Italy from the 13th to 15th centuries, the Netherlands 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," Professor 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 as in Japan, largely because Japan's zoning laws save
mom-and-pop stores from annihilation by 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.

First Place Confirmed?

    Some conservative economists say the report confirms what they have long
maintained: that the United States is still No. 1. "It's nice when the evidence
says that what you thought was the case is the case," said John Taylor of
Stanford University, a former member of President Bush's Council of Economic
Advisers.

   The report did not attempt to explain why the productivity of the United
States 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 O.K.," said Francis Bator at the Kennedy School of Government, another
academic 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 1980's -- and actually widened against Germany -- than in the first
three and a half 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 may 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.

>> /* Did you Democrats get that? */

   In fact, the second surprising conclusion is that America's biggest advantage
consists of Washington's relatively hands-off attitude, compared with Tokyo or
Bonn. This means, for example, that American companies are relatively free to
lay off unnecessary workers, to change prices or to enter new businesses or
leave old ones compared with their counterparts elsewhere.

>> /* How awful! */

   America's competitors, on the other hand, have forgone higher living
standards for all in order to protect the jobs of some.

   "It's not obvious that the U.S. should be copying a model elsewhere," said
William Lewis, director of the McKinsey Global Institute and an Assistant
Secretary of Energy under President Jimmy Carter. The United States has moved
faster in this direction since the mid-1970's, deregulating airlines,
telecommunications, trucking and some parts of banking, among other things.
Today, United States airlines are almost a third more productive than European
airlines, the study reported, based on the number of workers needed to book
passengers, fly them and serve them.

   The researchers said they had expected the far greater size of the American
passenger air market to explain most of that difference.

   "Big enterprises ought to have advantages over smaller enterprises,"
Professor Solow said. "There are traces of that. But over all, it's not
important."

   In the case of airlines, for example, the cutthroat competition turns out to
be far more effective in keeping the airlines efficient, than their large size
or their ability to use the hub system, which brings together large groups of
passengers headed for different destinations. In fact, the researchers found the
much-vaunted hub system actually reduces the productivity of American airlines
by requiring peak staffing.

   "It means you have ground crews and ticketing agents and a lot of them,"
Professor Baily said. "You can't service one plane at 4 and another at 4:30 with
the same crew."

   If the analysis in the report is correct, it suggests that Americans bent on
improving the nation's competitiveness would be ill advised to retreat from
freer trade, openness to foreign direct investment or the deregulation, all of
which have characterized the Carter, Reagan and Bush years.

   "The case studies of service industries point up the role of competition much
more sharply than the rest of the economy," Mr. Lewis said.

Competition Need Seen

    Indeed, the report urges the next administration -- no matter who is elected
-- to stimulate more competition in services as a way of ultimately lifting
living standards, along with efforts to increase saving and investment and
improve worker skills.

   "Deregulation of services, where it could be accomplished, is likely to pay
off," Professor Solow said. "There are still plenty of restrictions on banking
and I have a feeling there's less competition in writing insurance than there
might be."

   Professor Taylor at Stanford pointed to some other important opportunities,
too: "The findings suggest to me the importance of promoting competition in
other services, especially in health and education," he said. Health, education,
government and nonprofit organizations that are not subject to intense market
pressures employ 28 percent of America's workers, compared with 22 percent in
Germany and 12 percent in Japan.

   The report's authors -- all long-time Democrats -- also stressed that future
administrations should press harder to get other nations to open their borders
wider to American service companies. The advantage to the United States, which
has been closing its trade deficit with the help of billions of dollars in
service exports, is obvious, but the report also stresses that greater
competition in Japan and Europe will ultimately benefit businesses in those
countries as well as consumers.

>> /* That sounds like something Ronald Reagan would say. */

   But the authors argue that along with a free market approach government must
also pursue full employment policies and provide cash and retraining for those
who lose jobs as companies strive to become even more efficient.

Supports Earlier Ideas

    Though the report contradicts today's conventional wisdom, the study's
conclusions support earlier research by economists like William Baumol and
Edward Wolff at New York University, Dale Jorgenson at Harvard University and
Robert Summers and Alan Heston at the University of Pennsylvania as well as the
theme of Michael Porter, the Harvard Business School author of "The Competitive
Advantage of Nations."

   The detailed case studies that the team of McKinsey consultants prepared shed
light on issues that have been troubling researchers like these who have been
working with aggregate national income account data for years.

   "There's no way to get at services through the macro data," Professor Baily
said. "I was staggered by how systematic the McKinsey guys were," he added.
"Somebody would raise an issue. We'd say, 'There's no data' and these guys would
fly off to Europe to ask other consultants and their clients to find out for for
them."


Table: "Still No. 1"

Thousands of dollars of goods and services produced by an average full-time
worker. Percentages show workers employed in service industries.

74%                 U.S.     $49.6
56                France      47.0
55               Germany      44.2
65                 Japan      38.2
67               Britain      37.1

(Source: McKinsey Global Institute) (pg. D19)


Chart: "How the Competition Measures Up"

Factory productivity for major industries in 1989.

MANUFACTURING INDUSTRIES: Machinery, electrical engineering and transport
equipment
JAPAN: 117%
GERMANY: 80%

MANUFACTURING INDUSTRIES: Basic metals and metal products
JAPAN: 98
GERMANY: 85

MANUFACTURING INDUSTRIES: Chemicals, petroleum, rubber and plastic products
JAPAN: 92
GERMANY: 70

MANUFACTURING INDUSTRIES: Wood, paper products and others
JAPAN: 70
GERMANY: 80

MANUFACTURING INDUSTRIES: Textiles, apparel and leather
JAPAN: 63
GERMANY: 69

MANUFACTURING INDUSTRIES: Food products, beverages and tobacco
JAPAN: 25
GERMANY: 69

MANUFACTURING INDUSTRIES: Total manufacturing
JAPAN: 80
GERMANY: 80

(Source: McKinsey Global Institute) (pg. D19)

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