BusinessDay 11 Dec 2017

Monday 11 December 2017
36 BUSINESS DAY
C002D5556
Harvard
Business
Review
MondayMorning
In association with
Fixing U.S. manufacturing
Gary Pinkus, Katy George
and Sree Ramaswamy
The decline of
manufacturing
has dominated
the political
narrative in the
United States, but there are
dual plotlines within this
well-known story. A few
outlier industries (notably
pharmaceuticals, medical
devices and computers)
prop up the sector’s aggregate
performance; most
others have experienced
flat growth or outright declines
in real GDP over the
past two decades.
Even more striking, new research
from the McKinsey
Global Institute analyzes
firm-level financial results
and finds a stark contrast
in performance between
the biggest U.S. manu-
and employment.
As a group, the largest U.S.
firms have had the scale
and resources to navigate
the challenges of the
past two decades successfully.
But while the largest
U.S. firms have seen their
domestic revenues grow
more than twice as fast as
the sector average even
in the domestic market,
their smaller suppliers
— the firms that provide
them with the materials
and components they
depend on — have experienced
negative growth.
Some tier-one suppliers to
major manufacturers are
performing well, but tiertwo
and -three suppliers in
many industries are struggling.
Without the breathing
room to invest in new
equipment and technologies,
smaller manufacturfacturing
multinationals
and the small and midsize
firms that make up most of
the sector’s establishments
ers may be up to 40% less
productive than large companies
— a gap so sizable
that it drags down the entire
sector’s performance.
In some instances, the end
results were firm closures
and lost jobs. Many of the
small and midsize manufacturers
that did manage
to survive kept going by
cutting costs, which has led
to stagnant wage growth.
But now the situation
has reached such a tipping
point that larger U.S.
manufacturers are taking
notice. They already report
that the domestic supplier
base is hollowed out, depriving
them of the agility
they need to respond
quickly to new market opportunities.
Any long-term, strategic vision
for making U.S. manufacturing
more globally
competitive has to involve
shoring up small and midsize
suppliers across entire
industries. Policy can help
through measures like capital
access programs, business
accelerators or tax
incentives. But the future
trajectory of U.S. manufacturing
depends in no small
part on whether its largest
firms help to breathe new
life into the broader ecosystem
in which they operate.
(Gary Pinkus is a managing
partner for McKinsey
in North America. Katy
George is the managing
partner of McKinsey’s
mid-Atlantic office and a
member of the MGI Council.
Sree Ramaswamy is a
partner at the McKinsey
Global Institute.)
To combat the opioid epidemic, we must be honest about all its causes
David Blumenthal and
Shanoor Seervai
The opioid epidemic
is a source of
deep national anguish
in the United States: It
now kills almost 100 Americans
each day, more than
motor vehicle accidents.
It’s likely that there are
multiple causes of the problem.
Doctors have played
their part. Pharmaceutical
companies have also been
implicated. Several investigations
have established
that drug makers fueled the
epidemic to increase their
own sales. In addition, socioeconomic
forces play a
powerful part. Unemployment,
lack of health insurance
and poverty are all
associated with a higher
prevalence of prescription
opioid misuse and use dis-
orders among adults.
Of course, these financial
disadvantages could be
consequences, not causes,
of the epidemic, but it
seems plausible that hopelessness
and social trauma
are to blame in part. The
geographic distribution of
opioid misuse is revealing:
Areas of social dislocation,
such as poor and densely
populated parts of cities,
and Appalachia, have some
of the highest rates of addiction.
The soaring death rates
from opiate abuse have led
to an increase in the mortality
rate among workingage
white Americans. History
offers only one other
recent example of a large
industrialized country
where mortality rates rose
over an extended period
among working-age white
adults: Russia in the decades
before and after the
Soviet Union’s collapse. The
Russian experience, like the
American one, was fueled
in part by social dislocation
as the Soviet Union’s economy
collapsed and Russian
workers experienced
a dramatic loss in financial
security.
For those living with addiction,
it’s very difficult to
maintain regular employment:
Nearly one-third of
prime-working-age men
who are not in the labor
force take prescription pain
medication on a daily basis,
Princeton economist Alan
(C) (2017) Harvard Business Review. Distributed by New York Times Syndicate
B. Krueger found in 2016.
Building on this research,
Krueger recently estimated
that opioids could
account for about 20% of
the decline in labor-force
participation from 1999
to 2015. This reduction in
the proportion of working-age
Americans who
are employed is alarming.
While this research isn’t
definitive, the connection
between opioids and economic
productivity is certainly
suggestive.
Whether opioid addiction
is the cause or the result
of widespread economic
dislocation in America may
be academic at this point.
As Krueger points out, “Regardless
of the direction of
causality, the opioid crisis
and depressed labor force
participation are now intertwined
in many parts of the
U.S.”
(David Blumenthal, MD,
is president of the Commonwealth
Fund. Shanoor
Seervai is a senior
research associate and
communications associate
at the Commonwealth
Fund.)