Arnold Kling  

The Success of Failure

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Virginia Postrel cites the research of McKinsey's William L. Lewis on international differences in productivity growth.


Food processing in Japan, Mr. Lewis writes, "has more employees than the combined total of cars, steel, machine tools and computers," or about 11 percent of all manufacturing workers. While Japan's fiercely competitive auto industry is the most productive in the world, its food-processing industry is only 39 percent as productive as the United States industry, McKinsey found.

The difference is that in Japan, old firms are propped up, which takes away their incentive to improve. In the U.S., inefficient firms are allowed to fail.

For Discussion. As health care and education become a larger share of the economy, will the U.S. productivity advantage vanish?


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COMMENTS (4 to date)
Lawrance George Lux writes:

Heaith Care and education are both signiture growth industries, which means both use escalating Price frames to erase inflation without check. Consumers need both good health care and a good education. There is unrestricted Profit to both industries due to the demands of the rest of the Economy. Productivity gains are currently not measured in terms of actual Product produced, but by actual Profits made from that production. Such nominal productivity gains have nothing to fear. lgl

John Doe writes:

This is the old productivity paradox isn't it? As some industries improve, they shrink as a percentage of total employment, so productivity growth declines.

Another major 'industry' in the United States is the military. We are unique in the World in how much we spend, and for what?

Scott writes:

The US can continue to have a productivity advantage, even in health care and education, if we allow the inefficient producers to fail. Since colleges can fail and go out of business, they tend to be more efficient than K-12 public education. We don’t allow failing K-12 public education establishments to go out of business and this hurts productivity.

Also note that two of the current proposals for improving K-12 education (smaller class size and more education spending) both reduce productivity.

Tim Shell writes:
Another major 'industry' in the United States is the military. We are unique in the World in how much we spend, and for what?

For the best military in the world.

According to Nationamaster.com the US is ranked 47th in military expenditure, when measured as a percentage of GDP (3.2%). That was a few years ago - with increased spending since 2001 we are probably around 40th place, or 3.4% ($400 billion into $11.5 trillion).

What is unique about the US is this: we are the only country that can afford to spend $400 billion a year on its military.

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