THE POWER OF PRODUCTIVITY
June 28, 2004
America's accelerated productivity in the late 1990s can be largely attributed to competition and the low-tech innovations of Wal-Mart, says author William Lewis in his new book, "The Power of Productivity."
According to Lewis, retailing is largely overlooked in countries like Japan and Germany, which suffer from a producer mentality, ignoring the value added between assembly line and store shelf. This happens in other countries as well:
- In Japan and Korea, regulation stymies efficiency gains by preventing large-scale stores from driving the mom-and-pops out of business.
- When Russia opened up, Carrefour and Wal-Mart didn't even bother entering the market because they knew high tariffs and taxes meant that they couldn't compete against local retailers who flout the laws.
- Britain's retail industry is becoming more efficient, but only slowly, because restrictions on redevelopment make it difficult for the big stores to find space.
Lewis's focus on competition -- in retailing and much else besides -- has serious implications for development economics, say observers.
- He questions, for instance, the Washington consensus, which assumes that investment in education is critical and that emerging markets need massive infusions of portfolio capital.
- He argues instead that industrializing economies could grow quickly with the available inputs of labor and capital if they would just embrace competition and small government.
Competition, he says, is unlikely to take off in poor countries until the scourge of big government is brought under control. Lewis notes that governments in Brazil, Russia and India spend more than 30 percent of gross domestic product (GDP) while the United States and European countries, at a similar stage of development, spent less than 10 percent. High tax rates lead to a large informal economy, which means that an even heavier burden falls on legitimate businesses.
Source: Hugo Restall, "Getting More For Less," Wall Street Journal, June 23, 2004; based upon William Lewis, "The Power of Productivity," University of Chicago Press, 2004.
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