NCPA - National Center for Policy Analysis

U.S. World Productivuty Leader

June 7, 1996

The McKinsey Global Institute has issued a study which finds that the U. S. outperforms Japan and Germany in the productive use of capital by one-third overall and either sets or equals the productivity standards in five selected industries: telecommunications, utilities, retailing, auto manufacturing and food processing. The goal of the research was to determine which country uses capital - both physical (machinery and buildings) and financial -- most productively.

Some of the findings:

  • Higher capital productivity translates into higher financial returns for U. S. savers --9.1 percent compared to 7.4 percent in Germany and 7.1 percent in Japan.
  • One factor in the U. S. successes was the clever and subtle trade-offs our businesses make between giving customers what they want and operating efficiently.

For example, Japanese electric utilities keep massive generating capacity in reserve to meet demand on the very hottest summer days. U. S. utilities reduce such peaks through clever pricing schemes and incentives for customers to cool their homes more efficiently.

  • Japanese utilities trail their U. S. counterparts by better than 50 percent in capital productivity.
  • The U. S. leads both Germany and Japan in telecommunications capital productivity by well over 50 percent.

In many industries -- particularly telecommunications, utilities and autos -- German engineers design equipment that delivers well beyond what the task at hand requires. Some phone cables are designed to be run over by a tank, for example.

The report found that German and Japanese managers tend to pay more for the equipment they buy -- relying on high-priced local sources, rather than scouring the globe for the best prices. In the food industry the potential savings could run about 10 percent; in telecommunications, they could reach 60 percent.

Source: Bill Lewis (McKinsey Global Institute), "The wealth of a Nation, "Wall Street Journal, June 7, 1996.


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