Article at a glance:

Reviving French and German productivity

In the late 1990s—for the first time since the 1950s—Germany and France saw their productivity gap with the United States widen. Although many observers cite low investment in technology by the two European countries as the main cause of the shift, they are off target: the real problems are regulations that not only hinder the adoption and spread of innovation but also support fragmented industries, as well as differences in demand among these countries.

The take-away

Aging populations make it imperative for Germany and France to return to high productivity growth. More deregulation is needed to create competitive pressure that would make businesses adopt innovations more quickly.

This article is part of a McKinsey Quarterly special package on findings from a study by the McKinsey Global Institute. To read another article from the collection, please select from the following. Telecom: Advantage, France and Germany French and German banking: Showing IT's strength French and German trucking: IT for the long haul