Putting Consumers First: The 2006 Guglielmo Marconi Lecture William W. Lewis Director Emeritus, McKinsey Global Institute Brussels, 04 December 2006
Consumers First The Remaining Difference Between Europe and the US William W. Lewis The Lisbon Council Brussels December 4, 2006
WORLD DISTRIBUTION OF PER CAPITA GDP BY COUNTRY U.S. Dollars, at PPP GDP per capita, 2002 U.S. 2002 $ thousands 40 35 30 25 High income countries Middle income countries Low income countries Norway Canada Germany U.S. France Japan U.K. Italy 20 Spain 15 10 Korea Poland South Africa Mexico Russia Brazil 5 0 Pakistan Bangladesh Nigeria Vietnam India Indonesia 0 1000 2000 3000 4000 5000 6000 Population Millions China 2
ECONOMIC DEVELOPMENT PATHS Percent U.S. 1995 level GDP per capita Percent 100 90 80 W. Germany (1970-95) U.S. (1890-1995) 70 60 50 40 France (1970-95) U.K. (1970-95) Korea (1970-95) Japan (1950-95) 30 20 Brazil (1960-95) X X 10 0 India (1970-99) Russia (1997) Poland (1997) 0 20 40 60 80 100 120 140 Total labor and capital inputs per capita 3
4 GDP per capita = Employment Capita x Labor productivity Skill level of personnel Organization of functions and tasks, marketing and other operational factors Capital and technology Scale and capacity utilization
HISTORIC SHARES OF EMPLOYMENT IN DIFFERENT SECTORS 1900-1995 Percent of total employment Services Industry Agriculture 80 70 60 50 40 30 20 10 France Germany Japan Norway US 0 1901 1995 1907 1995 1906 1995 1900 1998 1900 1995 5
6 CONCLUSIONS Serving consumers interests at the industry level is necessary for the highest economic performance Distortions in competition in product markets reduce productivity and hence consumer benefits Distorting markets to achieve social equity objectives is usually a bad idea Consumers are the only political force that can stand up to producer, labor, and political elites benefiting from market distortions
7 CONCLUSIONS Serving consumers interests at the industry level is necessary for the highest economic performance Distortions in competition in product markets reduce productivity and hence consumer benefits Distorting markets to achieve social equity objectives is usually a bad idea Consumers are the only political force that can stand up to producer, labor, and political elites benefiting from market distortions
DUAL ECONOMY IN JAPAN 11 Industries Relative productivity levels Index U.S. = 100 160 140 120 100 80 Steel Automotive parts Metal working Cars Consumer electronics Computers Soap and detergent U.S. = 100 60 40 20 Beer Retail Housing construction Food processing 0 0 10 20 30 40 50 60 70 80 90 100 Employment 100% = 12.473 million employees 8
9 CONCLUSIONS Serving consumers interests at the industry level is necessary for the highest economic performance Distortions in competition in product markets reduce productivity and hence consumer benefits Distorting markets to achieve social equity objectives is usually a bad idea Consumers are the only political force that can stand up to producer, labor, and political elites benefiting from market distortions
10 LABOR PRODUCTIVITY, OUTPUT, AND EMPLOYMENT IN U.S. COMMERCIAL BANKS Indexed to 1980 = 100 150 140 130 120 Output 110 Productivity 100 Employment 90 Deregulation 80 70 60 1970 72 74 76 78 80 82 84 86 90 1992
11 AUTOMOTIVE LABOR PRODUCTIVITY GROWTH Vehicles produced per employee Labor productivity Vehicles per employee 44.7 70 35.5 27.9 60 Toyota 50 40 Nissan Toyota 1974 Nissan 1974 Hyundai 1996 30 Hyundai 20 10 20-year labor productivity growth rate Percent 13.8 12.9 0 1976 ( 54) 80 85 ( 64) 90 1996 ( 74) ( 80) 8.6 Toyota 1954-74 Nissan 1954-74 Hyundai 1976-96
12 CONCLUSIONS Serving consumers interests at the industry level is necessary for the highest economic performance Distortions in competition in product markets reduce productivity and hence consumer benefits Distorting markets to achieve social equity objectives is usually a bad idea Consumers are the only political force that can stand up to producer, labor, and political elites benefiting from market distortions
13 IMPORTANCE OF LOW SKILLED LABOR IN THE U.S. 1995 Number of jobs in the U.S. 26% U.S. minimum wage costs (U.S. $ 5.1) French minimum wage costs (U.S. $ 9.3) WAGE COSTS
14 CONCLUSIONS Serving consumers interests at the industry level is necessary for the highest economic performance Distortions in competition in product markets reduce productivity and hence consumer benefits Distorting markets to achieve social equity objectives is usually a bad idea Consumers are the only political force that can stand up to producer, labor, and political elites benefiting from market distortions
15 5. Consumers have political clout US Consumer advocacy 1906, Senator Robert La Follette The welfare of all the people as consumers should be the supreme consideration of the government. 1914, Walter Lippman We hear a great deal about the class-consciousness of labour. My own observation is that in America today consumers consciousness is growing very much faster. 1932, President Franklin Roosevelt I believe that we are at the threshold of a fundamental change in our popular economic thought; in the future, we re going to think less about the producer and more about the consumer. 1960, John F. Kennedy The consumer is the only man in our economy without a high-powered lobbyist. I intend to be that lobbyist.
Putting Consumers First: The 2006 Guglielmo Marconi Lecture William W. Lewis Director Emeritus, McKinsey Global Institute Brussels, 04 December 2006