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Published on Feb 23, 2011
According to the McKinsey report, sustainable growth and economic competitiveness will only be possible if America takes the necessary actions to foster wider productivity gains in both the public and private sectors. In the past, labor force growth has constituted a large portion of US economic growth. With the retirement of the baby boomers, America needs to match these productivity gains through other avenues. In order to match the GDP growth of the past two decades, the US will need to increase labor productivity by 1.7 to 2.3 percent, representing a 34% acceleration in productivity. McKinsey explains that this acceleration must come both from efficiency gains and from increasing the volume and value of outputs for any given input.
The Institute identifies areas of the economy that hold potential productivity gains. Even under current regulation, McKinsey has found that businesses can achieve three-quarters of the necessary productivity growth acceleration. For example, three-quarters of this growth can be achieved by adopting best practices in the private sector and implementing emerging business and technological innovations. These innovations include 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.
The public sector must also play its part. To obtain the last one-quarter of the acceleration government needs to act on economy-wide barriers that limit productivity growth. The report identifies seven imperatives: 1. Drive productivity gains in the public and regulated sectors. 2. Reinvigorate the innovation economy. 3. Develop the US talent pool to match the economy of the future and harness the full capabilities of the US population. 4. Build 21st century infrastructure. 5. Enhance the competitiveness of the US regulatory and business environment. 6. Embrace the energy productivity challenge. 7. Harness regional and local capacities to boost overall US growth and productivity.