(1) We're getting older as a society. (2) We're also the wealthiest nation the world has ever known. (3) Those two facts aren't secrets.
And because it's not as widely known that productivity is what makes a society sustainably rich, let's look closely at the challenges ahead with respect to that key issue and its relationship to the future economic health of Americans.
How to Reverse the Looming Economic Slide is subtitled 'The next half-century will be rough without an all-hands-on-deck effort to boost U.S. productivity:'
"As presidential candidates ponder their economic platforms for 2016, they would do well to add a new report from the McKinsey Global Institute (MGI) to their reading list. The report focuses on the dramatic slowdown already under way in the growth of the labor force throughout the advanced economies and in many developing countries as well. Without a sustained surge in productivity, we face a slow-growth future.
Since 1964, MGI finds in the report, gross domestic product in the (developed countries increased) at a compound annual rate of 3.6%. About half that growth is attributable to expanding employment, the other half to rising productivity. But during the next 50 years, employment growth will slow dramatically, to only 0.3% a year from 1.7%. Even if productivity continues to grow at 1.8%, as it did between 1964 and 2014, overall growth would slow by 40%, to only 2.1% annually (a bit less than during the past five years), and the growth rate of GDP per capita would shrink by about 20%.
The U.S. is no exception to the trends. Between 1960 and 2000, according to the Bureau of Labor Statistics, our labor force grew by an average of 1.8% annually. By the first decade of the 21st century, annual labor-force growth had fallen to 0.8%. Between 2020 and 2030, it will average only 0.5%.
In addition, the U.S. is facing an unprecedented change in the age structure of its population. In 1964, there were 15 Americans age 65 years and older for every 100 of working age. By 2014, that ratio had risen only modestly, to 19 per 100. But in the next half-century, it will double, to 38 per 100.
Without rapid growth, it will be hard to finance the social costs of an aging population. But MGI projects that the annual economic growth rate for the U.S. between now and 2064 will be only 1.9%, one-third lower than during the preceding half-century, and that per capita growth will average only 1.3%.
Better public policy could boost the labor-force participation of young adults, women and older Americans. But MGI finds that this would make at most a modest difference. If slow economic growth is not to become the persisting “new normal,” the U.S. will have to increase the rate of productivity growth well beyond the average of the past half-century.
Can this be done? MGI thinks we have a shot—but only with relentless focus and an all-hands-on-deck effort to accelerate innovation, better train and mobilize the labor force, and promote a more intelligently integrated world economy. . . .
The road to higher productivity and faster growth will be challenging. But in key respects, the U.S. is better off than most of its competitors.
Over the next half-century, despite slower growth, the working-age American population is projected to increase by 26%. By contrast, labor forces in Germany, Japan, Italy and Russia have already peaked and are now declining. During the 2020s, China and South Korea will follow suit.
The U.S. can remain the world’s predominant economic power in the 21st century—if our political system can get the basics right."
Summing Up
Simply put, productivity is what makes a nation rich and its people prosper.
And productivity results from getting more output from the same or less input, or the same output for less input --- it's really that simple.
From the agricultural to the industrial revolutions, our entrepreneurial risk taking nation has led the way and our people have prospered.
Now the technological revolution is occurring, and a new question must be answered -- In this new and highly competitive age of globalization and technology, will Americans enjoy similar increases in overall prosperity as we have in the past?
Today our government not only doesn't encourage private sector productivity; it actively stifles it.
But as our society continues to age, future Americans are in for a slow growth weakened economic future unless we get really serious about curtailing government control and unleashing the entrepreneurial risk taking private sector.
It's our choice, and right now it's hard to be optimistic about which one we'll make.
That's my take, and I hope I'm wrong -- for the sake of our kids and grandkids.
Thanks. Bob.
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