How well a country uses its capital ought to be extremely important to its citizens and policymakers. While labor productivity is a topic of constant debate and was the subject of earlier McKinsey Global Institute studies, far less attention has been paid to questions about the productivity of a nation’s capital stock.

"Capital" actually has two interrelated meanings: physical capital (machinery and buildings) and financial capital (stocks and bonds), which lays claim on physical capital and the income it generates. Capital productivity is the measure of how well physical capital is used in providing goods and services. Productive use of physical capital and labor are the two most important sources of a nation’s material standard of living.

In addition, how well a nation uses its physical capital affects the return that people get on the money they save. The higher the returns, the less they need to save for the future, and the more they can consume today. This is especially critical because most developed countries have a rapidly growing proportion of retirees. Very small differences in rates of return create large differences in future retirement income.

To measure how productively major economies use capital and to understand the...