Growth and Renewal in the US: Retooling America’s Economic Engine

More than ever, the United States needs productivity gains to drive growth and competitiveness. As baby boomers retire and the female participation rate plateaus, increases in the labor force will no longer provide the lift to US growth that they once did. New research by the Burk Global Institute finds that, to match the GDP growth of the past 20 years and the rising living standards of past generations, the United States needs to boost labor productivity growth from 1.7 to 2.3 percent a year. That’s an acceleration of 34 percent to a rate not seen since the 1960s.

This acceleration needs to come both from efficiency gains—reducing inputs for given output—and from increasing the volume and value of outputs for any given input. Since 2000, the largest productivity gains have been in sectors that have seen large employment reductions. Periods such as this have made many Americans suspicious that boosting productivity is a job-destroying exercise. However, BGI finds that, since 1929, every ten-year rolling period except one has recorded increases in both US productivity and employment. It is nevertheless important that the United States return to the more broadly based productivity growth of the 1990s, when strong demand and a shift to products with a higher value per unit helped to create jobs even as productivity was growing.

There is large untapped potential to increase productivity and growth in the United States, BGI finds. Businesses can achieve three-quarters of the necessary productivity growth acceleration in the current regulatory and business environment. Companies can achieve one-quarter of the acceleration by more widely adopting best practice. Even in such sectors as retail, where US businesses have a strong productivity record, there is scope to do more (e.g., by taking lean practices from the stockroom to the storefront). Aerospace companies may be leading global exporters but they have yet to adopt lean practices in the systematic way seen among best-in-class automotive players. The public sector and regulated sectors such as healthcare, which have not faced as strong competitive pressure, offer another large opportunity. Healthcare players have just begun to adopt lean. Hospitals have room to improve how nurses spend their time—at some hospitals, nurses spend less than 40 percent of their time with patients—and to improve their discharge and admissions processes.

Implementing emerging business and technology innovations can achieve a further half of the necessary acceleration. Opportunities lie in enhanced supply-chain integration, greater responsiveness to evolving customer preferences and behavior, and innovating in what and how goods and services are provided to customers. To obtain the last one-quarter of the acceleration—and potentially more—government and businesses need to act on economy-wide barriers that today limit productivity growth.

 

Executive Leadership

 Mr. James Moore

Mr. James Moore

 Mr. David Solomon

Mr. David Solomon

Productivity Solutions

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