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Appendix: Book Review – “The Power of Productivity”
In 2004, William W. Lewis, Founding Director of the McKinsey Global Institute, published “The
Power of Productivity”. The book is based on studies by the McKinsey Global Institute of the
economies of thirteen countries. The studies were motivated largely by the belief that “the
disparity between rich and poor is the most serious and the most intractable problem facing the
world today.”
Example 16: In 2013, about 12% of the world’s population lived in high-income countries, with a
per capita GDP at least 60% of U.S. per capita GDP. About 11% of the world’s population lived in
middle-income countries, with a per capita GDP of between 25% and 60% of U.S. per capita
GDP. About 77% of the world’s population lived in low-income countries, with per capita GDP
less than 25% of U.S. per capita GDP.
The book draws conclusions about the crucial question: Why do some countries achieve
economic growth and grow rich, while other countries fail to achieve economic growth and remain
poor?
Among the conclusions reached in the book are:
1. A country’s standard of living (per capita GDP) depends almost exclusively on the productivity
of its labor.
2. A poorly educated labor force and a low level of savings are not huge barriers to increasing
the productivity of labor.
3. Sound macroeconomic policies make high productivity possible, but do not guarantee high
productivity.
4. A large government is a hindrance to productivity growth, especially for low-income countries.
5. Free and competitive product markets are vitally important for achieving high productivity.
6. A focus on consumer interests rather than on producer interests is necessary to achieve free
and competitive product markets.
Productivity
A country’s standard of living (per capita GDP) depends almost exclusively on the productivity of
its labor. The productivity of labor varies widely from country to country.
Example 17: In 2013, the average American worker produced about $108,000 worth of output
and about 49% of the population was in the labor force. This yields a per capita GDP of about
$53,000. In 2013, the average Ukrainian worker produced about $14,800 worth of output and
about 50% of the population was in the labor force. This yields a per capita GDP of about $7,400.
Many countries place a strong emphasis on manufacturing productivity. But developed
economies tend to be service-oriented, with a larger service sector than manufacturing sector.
The average productivity of labor for the entire economy will be more strongly influenced by large
sectors of the economy than by small sectors of the economy.
Example 18: Japanese workers are more productive than American workers in the production of
steel, automotive parts, metalworking, automobiles, and consumer electronics. These industries
employ about 1.5 million workers in Japan. In the retail sector, Japanese workers are only about
one-half as productive as American workers. The retail sector employs about 7.5 million workers
in Japan. The low productivity of the 7.5 million retail workers is much more important to
determining per capita GDP in Japan than the high productivity of the 1.5 million manufacturing
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