The Power of Productivity: Wealth, Poverty, and the Threat to Global Stability [Hardcover]

In this book, William Lewis sums up the conclusions drawn from ten years and a sequence of studies that try to determine what makes a country have better economic performance than another. In this innovative text, he argues that it is not the traditional macroeconomic variables, or even the traditional labor (education, hours worked, work ethic) and capital inputs, but rather the productivity of each of the major industries in those countries. Ok, so far, not an earthshattering finding. However, most interesting is his conclusion as to what leads to high productivity; not education, not access to finance, but good old free competition.

He shows how, in markets sheltered from competition by barriers or regulation, productivity remains low and so do the returns on capital and labor. The studies are drawn from developed (Japan, US, Europe) and developing nations (Brazil, India, Korea) and go in depth into particular industries in order to understand the factors that drive productivity. No book in recent publication is as insightful on the true engine that drives development.

The author was the leading partner at McKinsey in charge of the McKinsey Global Institute, McKinsey's thinktank. Using McKinsey resources, which are unique and unavailable to any other economist, Lewis was able to analyze conditions that could only previously be seen from afar by economists. His training as a physicist also helped him synthesize phenomena, drawing the overarching themes behind producitivity.

I highly recommend this book, it will breathe new life into economists that may be losing hope that development is not possible in certain places due to such factors as environment or culture. It is accessive to non-economists as well, so I hope policy-makers would have a chance to read it and follow some of its good advice.

This is certainly one of the most thought-provoking and significant books I have read in the last 10 years. As a retailer, I found it to be an enlightening vindication of price-competition and the consumer (as opposed to producer) mentality. It is a well-researched testament to how important retailing productivity really is to the health of our economy, and to why the US economy is so much more productive than other, seemingly as advanced, economies like Japan and Germany. The difference, Lewis concludes, is that while Germany and Japan have arguably more refined and productive manufacturing industries, the United States is light years ahead in terms of productivity and efficiency in retailing, which comprises a huge part of any economy. I can certainly understand why some reviewers might be upset by his conclusions, because Lewis does gore a few oxes in the process: big goverment, mom-and-pop retailers, and any entity that would seek to control or maintain prices are likely to be upset by this book.

The most provocative conclusion is probably Lewis' refutation of Robert Reich's thesis in The Work of Nations: that education on and of itself will lift lesser economies out of poverty. Lewis, professionally trained as a physicist, very astutely and rationally argues that it is not education, but productivity, both in manufacturing and in retailing, that will lead these economies out of darkness, and productivity in a given job is a skill that can be learned quite easily without any formal education whatsoever, simply by imitating best practices from around the world; the example used most convincingly in the book is that of Mexican home-builders working in Houston, TX.

One surprising footnote, however: in his conclusion, Lewis actually DOES make a rather strong argument for the need for liberal education in the poorer nations, but not for the reasons you might suspect. The linchpin of his argument is that competition- free, unfettered, unrestrained, unadulterated competition- is what drives economic growth, and that the only way it really develops without tampering or interference by special interests is when a culture develops a mindset that the consumer, not the producer, comes first. Most Americans take for granted that the whole world thinks this way, but Lewis reminds us that this is not at all the case, and that education and the cultivation of critical thinking may be the only way to shift the focus from producer to consumer in poorer nations.

One thing a reader may find a bit odd about this book is that it was apparently dictated, for the most part, using voice-recognition software, and it shows. It acutally helps the book flow more seamlessly, but I sometimes found the conversational air to be a bit off-putting and longed for "harder edges" in the text. That, however, is a very small complaint in comparison to the outstanding quality of the scholarship, research, and thought contained in this volume.

This is truly a remarkable piece of work, for its singular focus on productivity and its impact on the welfare of mankind. The presentation is balanced, thoughtful, and reflects a thorough understanding of issues facing countries, companies, industries, and policy makers.

What makes this work truly exceptional is the fact that:

1) The resources and the brains that went into collecting and analysing myriad data -- countries, industry segments, "best practice" corporations -- is impressive, and makes it all worthwhile

2) The empirical evidence is all around us, but it is simply beautiful to see the quantification, by segment, inspite of the limitations. I was impressed by the depth of knowledge displayed in the examples ranging from the productivity of Russian oil fields, to agriculture in India.

3) The spectrum: A great companion for those trying to understand and invest around the world. It covers a decent sample of the developed economies, to the middle income countries of Brazil annd Russia, and finally low-income India.

After having lived in the worlds poorest and richest countries, and being a keen student of economic and political events, while purchasing Japanese automobiles, and disliking the high cost of living in Europe, awed with the generally high labor and capital productivity (and the resulting superior financial performance) of US businesses, it finally all makes sense: productivity.

I hope Lewis comes up with an update on this every decade or so, and grows his analysis to include UK and China. The dynamics are constantly changing. The world economies are constantly evolving and playing catch up. I would have loved to see a chapter on China. But, I can understand that getting good data on the Chinese economy is difficult. This is a great start, and I hope they can cover China in future.

This should be required reading for the key political leaders and policy makers in the developing world. I can't think of a better self help guide.

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