1. DCO-ZXE089-20040200-jgfPP1 The Power of Productivity William W. Lewis The University of Chicago Press, 2004 COPARMEX October 24, 2008

2. DCO-ZXE089-20040200-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. 2002 $ thousands Population Millions Norway Germany France U.K. Japan Canada Italy U.S.

3. DCO-ZXE089-20040200-jgfPP1 2 Percent U.S. 1995 level ECONOMIC DEVELOPMENT PATHS

4. DCO-ZXE089-20040200-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=

5. DCO-ZXE089-20040200-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

6. DCO-ZXE089-20040200-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

7. DCO-ZXE089-20040200-jgfPP1 6 DUAL ECONOMY IN JAPAN Relative productivity levels Index U.S. = 100 Employment 100% = 12.473 million employees 0 20 40 60 80 100 120 140 160 020406080100 Steel Automotive parts Metal working Cars Consumer electronics Retail Housing construction Food processing U.S. = 100 Beer Soap and detergent Computers 1030507090 11 Industries

8. DCO-ZXE089-20040200-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

9. DCO-ZXE089-20040200-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

10. DCO-ZXE089-20040200-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

11. DCO-ZXE089-20040200-jgfPP1 10 LABOR PRODUCTIVITY, OUTPUT, AND EMPLOYMENT IN U.S. COMMERCIAL BANKS Indexed to 1980 = 100 60 70 80 90 100 110 120 130 140 150 Output 197072 74767880828486901992 Employment Productivity Deregulation

12. DCO-ZXE089-20040200-jgfPP1 11 INDIAN AUTOMOTIVE INDUSTRY 1992-931999- 2000 256% increase Labour productivity 1992-931999- 2000 Output 1992-931999- 2000 11% increase Employment Barriers removed Licensing abolished FDI allowed 280% increase Index: India = 100 in 1992-93

13. DCO-ZXE089-20040200-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

14. DCO-ZXE089-20040200-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

15. DCO-ZXE089-20040200-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

16. DCO-ZXE089-20040200-jgfPP1 15 GOVERNMENT SPENDING VS. GDP PER CAPITA India (2000) Brazil (2000) Japan (1950) France (1913) U.S. (1913) 0 5 10 15 20 25 30 35 40 05,00010,00015,00020,00025,00030,000 GDP per capita 1990 U.S.$ Government spending As percent of GDP Russia (1998) U.S. (2000)

17. DCO-ZXE089-20040200-jgfPP1 16 SUPERMARKETS AND INFORMAL MARKETS IN RUSSIA Index price in gastronoms = 100 1998 Cost of goods Taxes With equal laws and enforcement Supermarkets 1998 Operating expenses Net margin 101 83 Retail/wholesale markets Price 96

18. DCO-ZXE089-20040200-jgfPP1 17 Percent urban employment INFORMALITY IN BRAZIL Informal Formal

19. DCO-ZXE089-20040200-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

20. DCO-ZXE089-20040200-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.”