Productivity growth has been falling dramatically in industrialized countries for some time now. This is not only associated with a loss of growth, but also a loss of prosperity, as the McKinsey Global Institute (MGI) explains and warns in a large-scale study. While production in the industrialized countries is barely becoming more efficient and the scope for distribution is therefore becoming ever narrower, the emerging and developing countries are catching up in great strides. According to the McKinsey economists, the emerging economies are „in the fast lane“. If they maintain this pace, they will approach the productivity level of the developed economies within the next quarter of a century, roughly.

Productivity is usually measured in output per hour. It results, for example, from investments in and the use of financial capital for the capital stock, as well as innovations in all areas. Another part of productivity is achieved by human capital: the better trained a company's employees are and the more they contribute to and perform in the processes, the more and better products are manufactured and can be sold at higher prices due to their quality.

According to McKinsey, productivity growth is therefore the growth driver par excellence and the best „antidote“ to the asset price inflation of the past 20 years, as the study states. Equity and real estate assets have largely outstripped the real economy and 160 trillion dollars in „paper assets“ have been created on the capital markets – not least topped up by a large chunk of debt. A higher productivity could reduce this gap again and possibly prevent a financial crash, which is imminent if the real economy and the capital markets diverge even further, the MGI analysts are warning.

Added to this are the upcoming major transformational challenges: The climate turnaround, which requires huge investments, can only be achieved through more value creation and innovation. A side effect of this is that the higher growth induced by this is generally also accompanied by higher tax revenues, which are necessary to shape environmental policy and compensate for social hardship.

The demographic challenge also needs more economic efficiency and productivity as a basis for overcoming it, so that the (fewer) young people are able to help finance the (more) old people in retirement. Not to mention the necessary investments in the corresponding infrastructure.

According to studies by MGI, average labour productivity (median) worldwide rose from 7,000 dollars per worker in 1997 to 41,000 dollars in 2022; an annual average increase of 7.3%. In the USA, productivity rose by 2.1% between 1997 and 2007, but only by 0.7% between 2012 and 2019. In Germany, productivity growth was 1.6% in the first period, but only 0.8% in the second. The trend is similar in other Western European industrialized countries.

According to MGI, the slower growth of the capital stock, that is investment in machinery, infrastructure, and training, explains 90% of the productivity loss in the USA, but 100% of the loss in Europe. Since 1997, the researchers criticize, the bottom line has been a decline in investment.

They were surprised to find that increased digitalization has not had a direct positive impact on productivity development during this period. On the one hand, this may be due to a certain time lag and to opposing effects in the affected sectors (online retail/stationary retail), says MGI. But it is also due to incomplete digitalization, because the digital boom has not had a strong enough impact on other sectors.

According to MGI, if the USA had not experienced a decline in productivity, value added per capita would be 8,900 dollars a year higher; in France, Germany and the UK, it would be between 3,500 and 5,900 dollars. This is an order of magnitude that would have been clearly reflected in economic growth and tax revenues.

MGI cites the lack of effective growth and competition policy and the reluctance of banks to finance projects as reasons for the decline in investment. According to the McKinsey economists, regulation and taxation must promote innovation even more strongly in future and bureaucracy must be reduced even more consistently.

According to their estimates, increased use of new technologies could drive productivity up by 0.5 to 1.0 percentage points. And McKinsey believes that the impetus from artificial intelligence (AI), which is spreading in many industries and being integrated into processes and products, is so great that it could provide a productivity boost of 0.5 percentage points on its own. In industrialized countries with demographic changes, artificial intelligence could help to compensate for the shortage of skilled workers through automation. This is similar to the earlier automation in industry through the use of robots.