DCO-ZXE jgfPP1 The Power of Productivity William W. Lewis The University of Chicago Press, 2004 COPARMEX October 24, 2008

DCO-ZXE jgfPP1 1 WORLD DISTRIBUTION OF PER CAPITA GDP BY COUNTRY U.S. Dollars, at PPP High income countries Middle income countries Low income countries China India Mexico Brazil Indonesia Pakistan Bangladesh Russia Nigeria Vietnam South Africa Poland Spain Korea GDP per capita, 2002 U.S $ thousands Population Millions Norway Germany France U.K. Japan Canada Italy U.S.

DCO-ZXE jgfPP1 2 Percent U.S level ECONOMIC DEVELOPMENT PATHS

DCO-ZXE jgfPP1 3 Capital and technology Scale and capacity utilization Skill level of personnel Organization of functions and tasks, marketing and other operational factors GDP per capita EmploymentLabor productivity Capita x=

DCO-ZXE jgfPP1 4 CONCLUSIONS Sector level analysis is necessary to find causal factors of economic performance Education is not as immediately important as most people think Distortions in competition in product markets are more important than labor or capital market problems Distorting markets to achieve social equity objectives is usually a bad idea Today’s big governments in poor countries are a handicap today’s rich countries did not have when they were poor Consumers are the only political force that can stand up to producer interests, big government, and the technocratic, political, business, and intellectual elites

DCO-ZXE jgfPP1 5 CONCLUSIONS Sector level analysis is necessary to find causal factors of economic performance Education is not as immediately important as most people think Distortions in competition in product markets are more important than labor or capital market problems Distorting markets to achieve social equity objectives is usually a bad idea Today’s big governments in poor countries are a handicap today’s rich countries did not have when they were poor Consumers are the only political force that can stand up to producer interests, big government, and the technocratic, political, business, and intellectual elites

DCO-ZXE jgfPP1 6 DUAL ECONOMY IN JAPAN Relative productivity levels Index U.S. = 100 Employment 100% = million employees Steel Automotive parts Metal working Cars Consumer electronics Retail Housing construction Food processing U.S. = 100 Beer Soap and detergent Computers Industries

DCO-ZXE jgfPP1 7 CONCLUSIONS Sector level analysis is necessary to find causal factors of economic performance Education is not as immediately important as most people think Distortions in competition in product markets are more important than labor or capital market problems Distorting markets to achieve social equity objectives is usually a bad idea Today’s big governments in poor countries are a handicap today’s rich countries did not have when they were poor Consumers are the only political force that can stand up to producer interests, big government, and the technocratic, political, business, and intellectual elites

DCO-ZXE jgfPP1 8 Organization of labor Labor productivity M 2 /thousand hours Construction cost U.S.$/M 2 U.S. (Houston) Brazil (São Paulo) U.S.Brazil Subcontractors Blue collar background 40 Mexican agriculture 10 Brazilian northeast agriculture Less specialized Similar educational background U.S.Brazil Brazilian gap BLUE COLLAR TRAINABILITY – CONSTRUCTION OF SUBSIDIZED HOUSING

DCO-ZXE jgfPP1 9 CONCLUSIONS Sector level analysis is necessary to find causal factors of economic performance Education is not as immediately important as most people think Distortions in competition in product markets are more important than labor or capital market problems Distorting markets to achieve social equity objectives is usually a bad idea Today’s big governments in poor countries are a handicap today’s rich countries did not have when they were poor Consumers are the only political force that can stand up to producer interests, big government, and the technocratic, political, business, and intellectual elites

DCO-ZXE jgfPP1 10 LABOR PRODUCTIVITY, OUTPUT, AND EMPLOYMENT IN U.S. COMMERCIAL BANKS Indexed to 1980 = Output Employment Productivity Deregulation

DCO-ZXE jgfPP1 11 INDIAN AUTOMOTIVE INDUSTRY % increase Labour productivity Output % increase Employment Barriers removed Licensing abolished FDI allowed 280% increase Index: India = 100 in

DCO-ZXE jgfPP1 12 CONCLUSIONS Sector level analysis is necessary to find causal factors of economic performance Education is not as immediately important as most people think Distortions in competition in product markets are more important than labor or capital market problems Distorting markets to achieve social equity objectives is usually a bad idea Today’s big governments in poor countries are a handicap today’s rich countries did not have when they were poor Consumers are the only political force that can stand up to producer interests, big government, and the technocratic, political, business, and intellectual elites

DCO-ZXE jgfPP1 13 French minimum wage costs (U.S. $ 9.3) U.S. minimum wage costs (U.S. $ 5.1) WAGE COSTS 26% Number of jobs in the U.S. IMPORTANCE OF LOW SKILLED LABOR IN THE U.S. – 1995

DCO-ZXE jgfPP1 14 CONCLUSIONS Sector level analysis is necessary to find causal factors of economic performance Education is not as immediately important as most people think Distortions in competition in product markets are more important than labor or capital market problems Distorting markets to achieve social equity objectives is usually a bad idea Today’s big governments in poor countries are a handicap today’s rich countries did not have when they were poor Consumers are the only political force that can stand up to producer interests, big government, and the technocratic, political, business, and intellectual elites

DCO-ZXE jgfPP1 15 GOVERNMENT SPENDING VS. GDP PER CAPITA India (2000) Brazil (2000) Japan (1950) France (1913) U.S. (1913) ,00010,00015,00020,00025,00030,000 GDP per capita 1990 U.S.$ Government spending As percent of GDP Russia (1998) U.S. (2000)

DCO-ZXE jgfPP1 16 SUPERMARKETS AND INFORMAL MARKETS IN RUSSIA Index price in gastronoms = Cost of goods Taxes With equal laws and enforcement Supermarkets 1998 Operating expenses Net margin Retail/wholesale markets Price 96

DCO-ZXE jgfPP1 17 Percent urban employment INFORMALITY IN BRAZIL Informal Formal

DCO-ZXE jgfPP1 18 CONCLUSIONS Sector level analysis is necessary to find causal factors of economic performance Education is not as immediately important as most people think Distortions in competition in product markets are more important than labor or capital market problems Distorting markets to achieve social equity objectives is usually a bad idea Today’s big governments in poor countries are a handicap today’s rich countries did not have when they were poor Consumers are the only political force that can stand up to producer interests, big government, and the technocratic, political, business, and intellectual elites

DCO-ZXE jgfPP1 19 Consumers have political clout US Consumer advocacy 1914, Walter Lippman “We hear a great deal about the class-consciousness of labour. My own observation is that in America today consumers’ consciousness is growing very much faster.” 1906, Senator Robert La Follette “The welfare of all the people as consumers should be the supreme consideration of the government.” 1932, President Franklin Roosevelt “I believe that we are at the threshold of a fundamental change in our popular economic thought; in the future, we’re going to think less about the producer and more about the consumer.” 1960, John F. Kennedy “The consumer is the only man in our economy without a high-powered lobbyist. I intend to be that lobbyist.”