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Global competition breeds high productivity; protection breeds stagnation A STUDY BY the McKinsey Global Institute(*) recently examined labor productivity in Germany, Japan, and the United States in nine representative manufacturing industries: autos, auto parts, metalworking, steel, computers, consumer electronics, processed food, beer, and soap and detergent. Adjusted both for differences in product quality and for fluctuations in the business cycle, the results are illuminating -- not only for the facts they debunk or establish, but for the explanations that lie beneath them. The inescapable conclusion: global competitiveness is a bit like tennis -- you improve by playing against people who are better than you. Several key findings emerged from our research: * Japan leads in five industries: autos, auto parts, consumer electronics, metalworking, and steel. * The US leads in four -- computers, processed food, soap and detergent, and beer -- and has closed much of the gap in autos. * Remarkably, Germany leads in none and is a distant third in six -- including autos and auto parts, where it is often cited as exemplary. * Because more Japanese are employed in producing food than in steel, autos, auto parts, and metalworking combined, the weighted average of Japanese worker productivity across these nine case studies is actually lower than that in the US and only a little higher than Germany's. With US worker productivity used as an index of 100, Japan measured 83; Germany, 79. Exhibit 1 presents an overview of these comparisons. Additional detail is provided in the nine individual industry summaries. Large gaps Some of the individual industry productivity gaps are surprisingly large. Japan still leads the world in steel productivity, by almost 50 percent. Productivity in the US food industry tops Japan's by nearly 70 percent. And the German beer industry, even adjusted for differences in quality, trails that of the United States by more than 50 percent. Such disparities are worth noting. With technological knowhow and capital freely mobile between Germany, Japan, and the US, and with their workers enjoying similar levels of educational attainment and health, it would seem reasonable to expect that by 1990 -- 45 years after the end of World War II -- productivity in industries in these three countries would be close. To understand why that is not the case -- and to discover whether the large productivity gaps offer any opportunities for the laggards to catch up -- we investigated the causes of the productivity differences within each of our nine industries. Conventional explanations, such as different manufacturing technologies and economies of scale, do play some role in explaining the gaps in metalworking, steel, food processing, and beer. But elsewhere these factors do not go far in accounting for the gaps. Nor can the differences be attributed to the education and skill of front-line workers, which are more or less equal across the three market economies. Nor does the cost of raw materials -- which varies little from one country to another -- have much effect. High productivity, it seems, flows chiefly from the ability of managers to invent new and ever more efficient ways of making products and from engineers' proficiency in designing products that are easy to make. Whether in the food industry in the US or the auto industry in Japan, managers and engineers do not arrive at these innovations because they are smarter, work harder, or have a better education than their peers. Rather, they do so because they must. They are subjected to intense global competition, where constantly pushing the boundaries of productivity is the price of entry -- and of survival. The converse is equally true. Most of the lower-productivity industries have been protected by governments from the rigors of global competition. The nine industries in the survey speak with one voice: global competition breeds high productivity; protection breeds stagnation. …
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