Article at a glance:
Fifty years of focus on the macroeconomic policies of developing nations didn't lift their income levels substantially: 80 percent of the world's people still get by on less than a quarter of the average income in rich countries, much as they did a half century ago. The McKinsey Global Institute’s research in 13 countries suggests that the productivity of the large industries where most people work—"old economy" sectors like retailing, wholesaling, and construction—has the most influence on a country's gross domestic product. To improve the economic welfare of individuals, countries must increase their productivity, primarily by encouraging economic competition.
The take-away
Global economic agencies underestimate the significance of a level playing field. Competition is more important than education or greater access to capital markets in lifting a country's gross domestic product. To reduce barriers to competition, policy makers must stand up to business special interests and focus more on the welfare of consumers.
This article was adapted from
The Power of Productivity: Wealth, Poverty, and the Threat to Global Stability, by William W. Lewis (University of Chicago Press, April 2004).