Global economic growth is under threat because populations are aging, shrinking the size of the pool of people able to work. The only answer to the growth question in an era of dramatic demographic change is productivity growth.
If historical rates of productivity growth were to remain constant, global GDP growth would be 40 percent lower over the next half century than it was in the previous 50 years—2.1 percent, down from 3.6 percent, according to recent research by the McKinsey Global Institute. In the United States, GDP growth could slow by about 34 percent. That would be slower than past growth in France and the United Kingdom, for instance.
To compensate, and to meet social and debt obligations, global productivity growth would need to accelerate by 80 percent. This is a big ask—but not impossible. MGI has identified opportunities to boost productivity growth to 4 percent in the 19 national economies of the G20 group plus Nigeria, which together account for 63 percent of the world’s population and 80 percent of global GDP. Globally, three-quarters of the scope comes from catching up with best practice and the rest from innovation—and that’s only what we can foresee. For a developed economy like the United States, close to half of the potential comes from catching up, and the rest from “pushing the frontier” of the economy’s GDP potential through innovation.
Having ample opportunities to improve productivity does not guarantee that those opportunities will be realized. We have identified 10 key areas where change is necessary to help achieve a step change in productivity growth:
- Remove barriers to competition in service sectors.
- Focus on efficiency and performance management in public and regulated sectors.
- Invest in physical and digital infrastructure, especially in emerging markets.
- Craft a regulatory environment that incentivizes productivity and supports technology.
- Foster demand for, and research and development investment in, innovative products and services.
- Exploit existing and new data to identify transformational improvement opportunities.
- Harness the power of new actors in the productivity landscape through digital platforms and open data.
- Put in place regulation and social support to boost participation in the labor market among women, young people and older people.
- Improve education and matching skills to jobs, and make labor markets more flexible.
- Open up economies to cross-border economic flows.
Chosen excerpts by Job Market Monitor. Read the whole story at How productivity can save an aging world | McKinsey Global Institute | McKinsey & Company.