Was Prior Growth An Anomaly

Over the past 50 years, the global economy expanded sixfold as the world’s population and per capita income each grew at unprecedented speed. The global population more than doubled while average per capita income almost tripled to about $13,000 at 2012 purchasing power parity. However, there are significant doubts that this growth bonanza will continue in the long term given that the demographic tailwinds of the past half century are now waning.  Hundreds of millions of people were lifted out of poverty.  Yet without significantly boosting the one engine the world economy still has—productivity growth—this period may prove to be a historic anomaly. 

Unless we can dramatically improve productivity, the next half century will look very different. The rapid expansion of the past five decades will be seen as an aberration of history, and the world economy will slide back toward its relatively sluggish long-term growth rate.

Over this time, two factors powered exceptionally fast GDP growth: a rapidly expanding labor force and rising average productivity.

Employment prospects vary significantly. The number of employees has already peaked and started to decline in Germany, Italy, Japan, and Russia; their labor pools could shrink by up to one-third by 2064. In most other countries, employment is likely to peak within 50 years. In China and South Korea, the peak is expected as early as 2024. China and India, the countries with the largest and second-largest populations in the world, respectively, are expected to follow very different paths. India’s labor pool could expand by 54 percent over the next 50 years, but China’s could shrink by one-fifth. Other nations, including Indonesia, South Africa, and the United States, are likely to continue to experience rising employment, albeit at slower rates.

In this months edition, McKinsey examines the areas and tools which can be utilized to boost productivity as well as labor participation.

  • Technological, operational business innovations; a leaner supply chain
  • Boost labor-market participation among women, young people, and those aged 65-plus.
  • Catching up to best practices; closing the gap between low-productivity companies and plants and those that have high productivity.  Think the high costs in the US health-care system partly reflect the excessive use of clinically ineffective procedures

The thought that the growth which we witnessed the second half of the last century being an anomaly is quite mind blowing and an aging demographic in the U.S. as well as China and Japan, exacerbates the conundrum.

How to invest in the future will require envisioning the steps required and seeing the long term value.

Read full PDF in the link above. 

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