Customer Reviews

The Power of Productivity: Wealth, Poverty, and the Threat to Global Stability

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In this book, William Lewis sums up the conclusions drawn from ten years and a sequence of studies that try to determine what makes a country have better economic performance than another. In this innovative text, he argues that it is not the traditional macroeconomic variables, or even the traditional labor (education, hours worked, work ethic) and capital inputs, but rather the productivity of each of the major industries in those countries. Ok, so far, not an earthshattering finding. However, most interesting is his conclusion as to what leads to high productivity; not education, not access to finance, but good old free competition.

He shows how, in markets sheltered from competition by barriers or regulation, productivity remains low and so do the returns on capital and labor. The studies are drawn from developed (Japan, US, Europe) and developing nations (Brazil, India, Korea) and go in depth into particular industries in order to understand the factors that drive productivity. No book in recent publication is as insightful on the true engine that drives development.

The author was the leading partner at McKinsey in charge of the McKinsey Global Institute, McKinsey's thinktank. Using McKinsey resources, which are unique and unavailable to any other economist, Lewis was able to analyze conditions that could only previously be seen from afar by economists. His training as a physicist also helped him synthesize phenomena, drawing the overarching themes behind producitivity.

I highly recommend this book, it will breathe new life into economists that may be losing hope that development is not possible in certain places due to such factors as environment or culture. It is accessive to non-economists as well, so I hope policy-makers would have a chance to read it and follow some of its good advice.

This is certainly one of the most thought-provoking and significant books I have read in the last 10 years. As a retailer, I found it to be an enlightening vindication of price-competition and the consumer (as opposed to producer) mentality. It is a well-researched testament to how important retailing productivity really is to the health of our economy, and to why the US economy is so much more productive than other, seemingly as advanced, economies like Japan and Germany. The difference, Lewis concludes, is that while Germany and Japan have arguably more refined and productive manufacturing industries, the United States is light years ahead in terms of productivity and efficiency in retailing, which comprises a huge part of any economy. I can certainly understand why some reviewers might be upset by his conclusions, because Lewis does gore a few oxes in the process: big goverment, mom-and-pop retailers, and any entity that would seek to control or maintain prices are likely to be upset by this book.

The most provocative conclusion is probably Lewis' refutation of Robert Reich's thesis in The Work of Nations: that education on and of itself will lift lesser economies out of poverty. Lewis, professionally trained as a physicist, very astutely and rationally argues that it is not education, but productivity, both in manufacturing and in retailing, that will lead these economies out of darkness, and productivity in a given job is a skill that can be learned quite easily without any formal education whatsoever, simply by imitating best practices from around the world; the example used most convincingly in the book is that of Mexican home-builders working in Houston, TX.

One surprising footnote, however: in his conclusion, Lewis actually DOES make a rather strong argument for the need for liberal education in the poorer nations, but not for the reasons you might suspect. The linchpin of his argument is that competition- free, unfettered, unrestrained, unadulterated competition- is what drives economic growth, and that the only way it really develops without tampering or interference by special interests is when a culture develops a mindset that the consumer, not the producer, comes first. Most Americans take for granted that the whole world thinks this way, but Lewis reminds us that this is not at all the case, and that education and the cultivation of critical thinking may be the only way to shift the focus from producer to consumer in poorer nations.

One thing a reader may find a bit odd about this book is that it was apparently dictated, for the most part, using voice-recognition software, and it shows. It acutally helps the book flow more seamlessly, but I sometimes found the conversational air to be a bit off-putting and longed for "harder edges" in the text. That, however, is a very small complaint in comparison to the outstanding quality of the scholarship, research, and thought contained in this volume.

This is truly a remarkable piece of work, for its singular focus on productivity and its impact on the welfare of mankind. The presentation is balanced, thoughtful, and reflects a thorough understanding of issues facing countries, companies, industries, and policy makers.

What makes this work truly exceptional is the fact that:

1) The resources and the brains that went into collecting and analysing myriad data -- countries, industry segments, "best practice" corporations -- is impressive, and makes it all worthwhile

2) The empirical evidence is all around us, but it is simply beautiful to see the quantification, by segment, inspite of the limitations. I was impressed by the depth of knowledge displayed in the examples ranging from the productivity of Russian oil fields, to agriculture in India.

3) The spectrum: A great companion for those trying to understand and invest around the world. It covers a decent sample of the developed economies, to the middle income countries of Brazil annd Russia, and finally low-income India.

After having lived in the worlds poorest and richest countries, and being a keen student of economic and political events, while purchasing Japanese automobiles, and disliking the high cost of living in Europe, awed with the generally high labor and capital productivity (and the resulting superior financial performance) of US businesses, it finally all makes sense: productivity.

I hope Lewis comes up with an update on this every decade or so, and grows his analysis to include UK and China. The dynamics are constantly changing. The world economies are constantly evolving and playing catch up. I would have loved to see a chapter on China. But, I can understand that getting good data on the Chinese economy is difficult. This is a great start, and I hope they can cover China in future.

This should be required reading for the key political leaders and policy makers in the developing world. I can't think of a better self help guide.

There is an excellent book about productivity. Bill Lewis was head of McKinsey, the international consulting firm, for 12 years. They did a lot of studies of different business sectors around the world under his leadership, and this book pulls all of these together. It is a compelling case for free-market competition, which is what drives higher productivity and creates a larger pie for everyone to share.

I think Lewis is pretty much misguided about macro-economic issues (I think the reason that there were so many international crisis in 1998 was because of the Fed's mistakes in monetary policy causing the dollar to deflate), and he believes Jared Diamond's arguments about why Western culture has been so successful (Diamond is not a master of logic, and ignores or discounts other possible explanations, such as are presented in IQ and the Wealth of Nations), and Lewis makes mistakes in the way he averages productivity across sectors (you really need to look at absolute productivity in some way for averages to be meaningful), but it is still an excellent book because of the compelling case he makes for competition driving productivity increases, and the way he lays out the barriers to productivity growth in different nations.

I also wish he had spent more time explaining why higher productivity makes everyone better off. He does cover this to some extent, but not with the power that it deserves.

Still, 5 stars because the good stuff is outstanding.

Very well written, easy to read, very well documented. Finally somebody wrote, in a comprehensible way, what economists can not explain through "models". Lewis touches the core points that should be addresed by the citizens of the third world if they ever want to leave poverty. It will not surprise you what has to be done, but you will understand the strong forces that have to be bent before ever starting the path to prosperity.
Sometimes repetitive (due to the constant comparisson among countries) but definetivelly worth reading.

Anyone who is interested in what makes our economy, and the rest of the world's economies, work and not work ought to read the Power of Productivity. Drawing on a decade of research by McKinsey into the productivity of major industries around the world, Lewis has been able to go far deeper into this subject than economists who are limited by official data. This is the first book I've ever read whose explanations of economic success and failure really ring true in light of my personal experience in business and government. Charles O. Rossotti, Washington, DC

I read this book over two years ago; it is an astonishing tour de force that has completely changed my understanding of the world economy. It provides a review of the global economy that is both deep and broad, and it explains why the good old USA is the most productive economy of all.

But wait, you say, what about Japan and Toyota and Honda? Very true; they are more productive than US auto companies, but the high productivity firms only represent 10 percent of GDP in Japan. The rest of the Japanese economy--retail, construction, and food processing--is woefully inefficient. (And that means, for you environmentalists, that it is wasting resources.)

You see, it's not high-tech that drives productivity, it's "the productivity of every worker that matters... [It's] the productivity of the massive number of workers in retailing, wholesaling, and construction that give the United States the highest GDP per capita in the world."

Can you spell Wal-Mart?

There are startling insights throughout the book. Did you know that the US standardized lumber sizes in the 1910s and 1920s? Did you know that in many countries the government enterprises don't pay their electric power bills?

Lewis has unconventional ideas on education. Education is important, but, for the great mass of people, not that important. Businesses need people who are trainable, not fabulously educated.

It all adds up to this. The US is best not because we are so great but because we put the fewest roadblocks in the way of productive workers and businesses. The privileged are privileged, but just not as much as elsewhere in the world.

William Lewis starts his book by stating that gross domestic product (GDP) per capita is the fundamental metric for measuring the wealth of nations. In fact, GDP per capita is THE measure of productivity across countries. So Lewis starts off stating that the material welfare of the population of a country is directly related to the productivity of its population. Wealthy countries have high national productivity, and poor countries have low average productivity. The differences in national productivity are huge; many countries are one tenth as productive as the United States, the general overall productivity leader in the world economy.

A foundation of Lewis' innovative views in this book is that understanding a country's overall productivity can only come from examining the productivity of each of the major economic sectors of a national economy - manufacturing, food production, construction, retail and wholesale distribution, services, and so on. National, macroeconomic productivity is simply the sum of the productivity of each microeconomic sector, proportional to the population engaged in each sector. Countries like India and China are still desperately poor even though they have high productivity in some relatively small, though visible, industries, because most of their population is still employed in sectors of the economy with very low productivity.

With this foundation, Lewis then spends a large portion of the book analyzing why productivity differs so significantly from country to country, particularly in a world in which technology and knowledge transfer is so easy and widespread. Countries with high, visible, benchmark levels of productivity exist in every major economic sector - food production, manufacturing, construction, financial services, retailing, and so on. In some sectors, such as steel and automobile manufacturing, most countries have imitated the benchmark leaders and have achieved relatively comparable levels of productivity. The critical question that Lewis addresses is why so many countries have not imitated high productivity practices in most of the other sectors of their economies.

Lewis points out that low national productivity is not caused by a lack of knowledge or technology, nor even by a lack of capital or natural resources. Rather, the low productivity in poor countries is generally self-inflicted. Lewis illustrates with multiple examples that it is the cultural values and government political priorities in these countries that cause them to pursue economic policies and regulations that limit their national productivity. These policies include not allowing clear ownership of property, limiting the size of businesses, limiting imports, constraining capital accumulation, constraining labor mobility, and otherwise placing artificial limits on economic activity. The book also shows that even developed countries implement counter-productive economic policies in some sectors that limit the overall productivity of their economies (for example, food production in Japan).

Lewis argues in particular that large government sectors are a serious drag on low productivity economies. Government activity does not produce wealth, and at best, government is a neutral impact on national productivity. Many low productivity economies have large government sectors that are disproportionate to their economies and that siphon off critical resources from more productive investments. To compound the problem, these large government entities impose a significant drag on their economies through unnecessary regulation, misallocation of resources, and graft and corruption.

Unfortunately, Lewis only gets to the heart of the underlying issue of this book on the last two pages. Wealthy, high productivity countries have cultural values and principles that make them successful. The key principle is the sanctity of individual freedom and rights. Adhering to this principle leads to the corollary principles of property rights, rule of law, sanctity of contracts, economic rights, and limited government involvement in the economy (i.e., to facilitate, not control or direct). Lewis' examples point out that it is heavy-handed and dysfunctional involvement of government in a national economy, to implement national values that violate individual freedom, that limit national productivity.

Lewis therefore argues that poor countries can not be helped by foreign aid, outside capital investment, improved training and education programs, enlightened macroeconomic policies, and most of the other usual prescriptions for improving their lot. The state of poor countries can only cured through a change in the values of their populations, which will then be reflected in more appropriate government policies. Poor countries do not need to just imitate the benchmark macroeconomic practices of more successful countries, but rather, poor countries need to adopt their underlying values. That this change in values is so difficult and unpleasant is why poor countries are not improving their wealth, even though there are so many examples of what they need to do.

Only poor countries can cure their poverty, and only if their populations adopt values that allow individuals -- and high productivity economic activity -- to flourish. The challenge these countries face is that their more enlightened residents do not stick around to educate their fellow countrymen and fight against the counter-productive values and government policies. Those residents emigrate to countries that already offer more individual and economic freedom. So rich countries get richer, and poor countries stay that way.

This is a great book to read if you'd like to see what the intellectual powerhouses of the business world thought of America's economy compared to the rest of the world in the golden age of Clinton's America.

Reading this following the economic collapse brought about by inadequate regulations of derivatives, a loose money Fed, and short term 'productivity gain' focus really makes for a poignant if somewhat painful experience. [Especially after the allegations of McKinsey partner's involvement in insider trading schemes, highlighting the complete corruption of this formerly stolid, blue chip organization.]

But this book does a great job explains the view of America's business elite oh so well: We are the best because the crummy hand of the government stands out of our way. And we, the white collar class, are the best of the best because we arbitrage globalization by exploiting third world labor prices and passing on the subsequent savings to the people that matter: stock investors and corporate officers.

Well the McKinzey-sation of America is complete, and now America has unemployment rates higher than Germany or France without the benefits of social services the poor of those nations enjoy.

Bravo gentlemen, you've done God's work.

One of the best books on economic growth. Not just another macro survey with regression data and predictable talk about property rights and institutions. He drills down to the micro level to deliver some real insights. I wish he'd write an update or another book, I'd buy it sight unseen.