Challenge for the Next President: Productivity

Boston Consulting Group's Harold L. Sirkin argues that America must bolster the productivity and inventiveness of its work force

By Harold L. Sirkin

Dear Senators McCain and Obama:

It is now clear that the upcoming election will be mostly about the economy and jobs. Your first weeks and months in the White House will undoubtedly be spent on these issues, barring an international crisis. The statisticians by then will have officially confirmed the recession most Americans already know is here. Things may get worse before they get better. Your leadership skills will be challenged right out of the box, and you may have to butt heads with some of those who helped put you in the White House. So it's important that you understand not only what's wrong with the U.S. economy, but also what's right—and what works.

First, it is important to remember that the U.S. is a highly mobile nation with a very flexible economy. People for decades have gone where the jobs are. And for decades jobs have been shifting from the Northeast and the Rust Belt to the South and Southwest.

Second, it is important to remember that the U.S. can be the most productive country in the world: We PROVE THAT every day in thousands of plants from coast to coast. This is not rocket science. Successful companies today are using pretty much the same techniques that Edward Deming, the great business leader, brought to post-war Japan in the 1950s.

Third, it is important to remember that as we face increased global competition, unions and management will need to work hand in hand—or they may not work at all. The U.S. can probably afford to have a thriving automotive industry led by companies from Japan and South Korea (and in the not-too-distant future, China and India and elsewhere). But the employees of the Big Three can't afford to lose their jobs. General Motors alone, for example, still has approximately 139,000 employees in North America, making it the fourth-largest employer in the country. GM also supplies health-care benefits to more than 1 million Americans, including active workers, retirees, and dependents. If one of the Big Three is forced to file for Chapter 11 bankruptcy, or even Chapter 7, many of these benefits could be lost. Can the President bring the UAW and management together and end this long-standing stalemate?

Comparative Advantage

The Royal Swedish Academy of Sciences recently awarded the Nobel Prize in economics to Princeton University professor and columnist Paul Krugman in recognition of the pioneering research expanding on the observations of an earlier economic thinker, David Ricardo.

It is Ricardo who, in his 1817 book On the Principles of Political Economy and Taxation, helped the world understand the principle of "comparative advantage." As economist David Henderson, a research fellow at the Hoover Institution, noted upon Krugman's selection, "Ricardo grasped that people will specialize in producing the goods and services in which they have a comparative advantage." For example, Henderson wrote, though you may be able to rake leaves faster than the teenager next door, "it still makes sense to hire him because you have a comparative advantage in writing software programs."

As we move forward, U.S. manufacturing must always be based on comparative advantage. And America's comparative advantage is the productivity and inventiveness of our workforce.

Indeed, these have been America's most effective economic weapons. And, in fact, we have been extraordinarily successful. Even today, as we compete with companies from everywhere for everything, America remains the world's largest manufacturer, with more than 20% of the world's total manufacturing output in 2007, the most recent year for which reliable data are available.

But some of our companies and industries are struggling. And the competition is increasing year after year. This trend will not only continue but intensify as companies from such rapidly developing countries as Brazil, China, India, Turkey, and many others go through their growing pains and become world-class innovators and manufacturers.