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Farewell to Incrementalism!
One of the most
puzzling aspects of the current political campaigns is the almost
complete absence of discussion and debate about the one topic that will
address and resolve most of our problems as a nation.
There is a root
cause for our lack of economic growth; the increasing threat of
inflation; the federal deficits; the unfunded mandates for Social
Security, Medicare and Medicaid and; yes, the poor performance of the
two most important sectors of the economy: Education and Health Care.
America is not
productive enough.
Our schools are not
preparing our children for the Knowledge Economy. Our health sector
gets worse every year: Its productivity is actually negative, so costs
rise even when the volume of care remains the same.
No one likes to be
reminded of the fact that the U.S. economy may soon no longer be the
most dominant engine of prosperity in the world. China will pass us in
total GDP within a decade. Eventually, so will India. The reason is
simple: The annual productivity improvement of these countries dwarfs
that of the United States. Productivity improvement is the only way to
create new wealth for a nation, and we ignore it at our peril.
The amazing thing
about productivity is that we can improve it dramatically —and
lastingly — while at the same time becoming more satisfied and less
stressed in the process. Two-thirds of our negative stress and
dissatisfaction at work is linked to unproductive behaviors; getting rid
of those behaviors gets rid of the stress and dissatisfaction that go
with them.
This is not a
political issue — nor should it be. It is an issue of common sense and
dignity. It is a call to arms for the future of our children.
For 130 years, the
United States has averaged economic growth of 2% per year. Gross
domestic product doubled every 36 years. Occasionally, growth would
expand over a period: From 1946 to 1973, growth averaged 3.79 percent
per year, but from 1973 to 1995, it dropped to 2.84 % per year. If the
United States had maintained its 1946-1973 growth rate until today, U.S.
GDP for 2007 would have been $18,513.71 billion. That is $4,706.21
billion (34%) larger than what actually was generated. But what if the
US growth rate had averaged 5% per year (about 4% of this would be due
to increases in productivity) over the period from 1946 through 2007?
The GDP for 2007 would have been $44,285.05 billion — 221% more than was
posted. Imagine what we could have done with that extra income! We would
likely have had no federal deficits; our social security system
(pension, Medicare and Medicaid) would have been in surplus, and the
dollar would have been very strong among currencies.
The US has exceeded 5% growth for several years
over the period. In my opinion, a 5% growth rate is a realistic and
attainable goal for the United States. In fact, the U.S. could do even
better. Thirty-nine countries averaged 5% or more GDP growth per year
during 1995-2005, and thirteen of these grew at 7%, or more.
Other countries broke the
incrementalist straightjacket by focusing on productivity: Note that a
7% per year increase in productivity produces a 757-fold increase in per
capita income over the course of a century. Compare that to the 7-fold
increase achieved with the incrementalist growth rate of 2%. However,
during the period from 1995-2005, nineteen nations showed growth rates
of 2% or less per year in real GDP. |
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By focusing on
productivity, China moved 400 million people out of
poverty in one generation; India some 150 million.
Critics who say that it is easy to grow fast only
from a low base forget that Singapore, a first-world
economy, manages to grow by 9% per year from a base
that makes Singapore the 25th richest nation on
earth in per capita income — ahead of Germany, Italy
and Spain.
But we need not look
to Asian tigers for support for proof of exceptional
growth. Silicon Valley delivers productivity
increases of 16% per year; and that, in turn,
doubles revenues every 52 months, reduces prices
dramatically, makes it possible to pay the highest
wages in the world, and makes owners into
billionaires.
The reason for this
overwhelming growth and prosperity rests on three
pillars:
We now know how to
improve productivity dramatically and lastingly from
studying the variables that relate to performance
and applying their power to our lives and work.
We are rapidly
evolving into a Knowledge Economy, wherein knowledge
doubles every three years. There appears to be no
ceiling on productivity improvement in a world where
start-up companies can grow from no revenues to $40
billion in a decade, or less.
Globalization has
forced nations out of the safe, comfortable,
incrementalist expectation that it is acceptable to
grow by two percent per year. What do you do if
suddenly your competitors start to grow at a rate of
16% per year?
Productivity emerges
as central to the resolution of the most pressing
problems of our time. Productivity improvement is
also about how it becomes possible to mobilize the
resources needed to defeat hunger, disease, poverty
and conflict.
For the first time,
we can see the end to the scourges that have kept
humankind down and reduced progress to a fraction of
what it could have been.
For the first time,
we understand that productivity science is a
social science, with an infinity of variables,
each one potentially opening a new direction for
growth and development. Psychology and economics
have been added to the armamentarium we have from
our “mother sciences” of industrial engineering and
statistics, and we now see history, anthropology,
sociology, mathematics, religion (!), and all the
other sciences adding their insights to our field.
This year, the
leading experts in productivity will meet at the 15th
World Productivity Congress in Sun City, South
Africa (http://www.congress15.co.za/).
I have the honor of speaking at that Congress. I
hope that you will join me! Statesmen and business
leaders from all over the world will be there as
well, their purpose being to address the root causes
of the overall slowing of global growth and
development that have occurred since 1973 — a
phenomenon that is occurring in far too many
economies of the world.
Their goal is to
lift the contribution of every man, woman and child
on this earth.
I cannot think of a
better gift to give to our own generation, and to
those yet to come.
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