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Monday, May 03, 2004

New book challenges old views on wealth creation via Businesstimes

Productivity determines GDP per capita, not size of labour and capital markets.It's all due to, in a word, productivity, says a McKinsey study on why rich countries become richer, and others get poorer. And government policies that distort competition - rather than factors like low education - are the biggest barrier to the sprouting of productive, efficient industries.
Conventional wisdom has it that improvements in infrastructure, technology, capital markets, education, and health care would narrow the global wealth gap. Fifty years and billions of dollars of international aid efforts later, this wisdom has proved wrong, notes retired McKinsey partner William Lewis in a new book, The Power of Productivity: Wealth, Poverty, and the Threat to Global Stability.GDP per capita - or the average amount of goods and services produced by each person - is widely seen as the single best measure of economic well-being. And virtually all the differences in GDP per capita around the world are explained by productivity, rather than by the size or structure of the labour or capital markets.The conclusion arrived in this book stands as,"Economic progress depends on increasing productivity, which depends on undistorted competition. When government policies limit competition, even unintentionally, more efficient companies can't replace less efficient ones. Economic growth slows and nations remain poor." Very nice perspective.

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