The US economy continues to grow way below potential (at least I hope potential is above 1-2% a year) and remains nearly 2 million private-sector jobs short of prerecession levels. Of course, GDP and job growth were weak even before the downturn. So how about some pro-growth policies with both a short-term and long-term impact? In a new report, McKinsey sees five “game changer” opportunities for growth that could generate an additional 5.3 million jobs and $2.2 trillion in GDP growth by 2020.
(A McKinsey caveat: While it is tempting to add these numbers together into a rosy forecast for trillions of dollars in additional GDP, we caution that these scenarios are not meant for simple addition. Each one was calculated in isolation and did not consider the second-order effects on prices and exchange rates. … They are meant to demonstrate the size of the potential impact and explore the actions needed by both business leaders and policy makers to pursue these game changers”.)
Here they are, along with a few relevant charts:
1. Shale-gas and -oil production. Powered by advances in horizontal drilling and hydraulic fracturing, the production of domestic shale gas and oil has grown more than 50 percent annually since 2007. The shale boom could add as much as $690 billion a year to GDP and create up to 1.7 million jobs across the economy by 2020. The impact will extend to energy-intensive manufacturing industries and beyond. The United States now has the potential to reduce net energy imports to zero—but only if it can successfully address the associated environmental risks.
2. US trade competitiveness in knowledge-intensive goods. The United States is one of the few advanced economies running a trade deficit in knowledge-intensive industries. But changing factor costs, a rebound in demand, and currency shifts are creating an opening to increase US production and exports of knowledge-intensive goods, such as automobiles, commercial airliners, medical devices, and petrochemicals. By implementing five strategies to boost competitiveness in these sectors, we believe the United States could reduce the trade deficit in knowledge-intensive industries to its 2000 level or close it—which would add up to $590 billion in annual GDP by 2020 and create up to 1.8 million new jobs.
3. Big-data analytics as a productivity tool. Sectors across the economy can harness the deluge of data generated by transactions, medical and legal records, videos, and social technologies—not to mention the sensors, cameras, bar codes, and transmitters embedded in the world around us. Advances in computing and analytics can transform this sea of data into insights that create operational efficiencies. By 2020, the wider adoption of big-data analytics could increase annual GDP in retailing and manufacturing by up to $325 billion and save as much as $285 billion in the cost of health care and government services.
4. Increased investment in infrastructure, with a new emphasis on productivity. The backlog of maintenance and upgrades for US roads, highways, bridges, and transit and water systems is reaching critical levels. The United States must increase its annual infrastructure investment by one percentage point of GDP to erase this competitive disadvantage. By 2020, that could create up to 1.8 million jobs and boost annual GDP by up to $320 billion. The impact could grow to $600 billion annually by 2030 if the selection, delivery, and operation of infrastructure investments improve.
5. A more effective US system of talent development. The nation’s long-standing advantage in education and skills has been eroding, but today real improvements are within reach. At the postsecondary level, expanding industry-specific training and increasing the number of graduates in the fields of science, technology, engineering, and math could build a more competitive workforce. At the K–12 level, enhancing classroom instruction, turning around underperforming high schools, and introducing digital learning tools can boost student achievement. These initiatives could raise GDP by as much as $265 billion by 2020—and achieve a dramatic “liftoff” effect by 2030, adding as much as $1.7 trillion to annual GDP. These opportunities can have immediate demand-stimulus effects that would get the economy moving again in the short term and also have longer-term effects that would build US competitiveness and productivity well beyond 2020. Taking action now could mark a turning point for the US economy and drive growth and prosperity for decades to come.
The McKinsey report is a lengthy one that fleshes out each of these options and how to implement them. And I will give each further analysis. But bigger picture, the report suggests a slow-growth, New Normal economy isn’t preordained. Nor do we have to sit around simply hoping for some next-wave innovation to bail us out. The private-sector will do the heavy lifting, but government has a role to play, too. From the report: “Governing by temporary measures or taking years to approve projects also creates policy uncertainty that discourages businesses from investing and slows economic momentum.”