Opportunities to Boost GDP and Jobs

Opportunities to Boost GDP and Jobs

A new report from the McKinsey Global Institute (MGI) identifies five large-scale investment opportunities that have the potential to increase GDP by over $1 trillion and create millions of new jobs by 2020. MGI came up with these by first analyzing the structural (that is, long-term) causes of the lackluster Great Recession recovery. According to the Congressional Budget Office (CBO), it’s not the commonly discussed issues of deleveraging and fiscal austerity (although they do play a significant role). Rather, it’s weak investment in the underlying productive capacity of the economy, demographic shifts, and a slowdown in productivity growth. These are problems that have been decades in the making. The current generation of Americans is the first generation in the last 50 years at risk of seeing a decline in their living standards over their lifetimes (see Is The American Dream Over?).

As a next step in identifying these opportunities, MGI looked for developments that are poised to achieve scale immediately and that could accelerate growth across multiple economic or business sectors by 2020. Here are the five winners (MGI calls them game changers):

  • Shale-gas and shale-oil production. Powered by advances in horizontal drilling and hydraulic fracturing, production has grown more than 50 percent annually since 2007. Not only does this have the potential to reduce U.S. net energy imports to near zero, but they estimate it 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 challenge is to successfully address the associated environmental risks.
  • Competitiveness in knowledge-intensive industries such as automobiles, commercial airliners, medical devices, and petrochemicals (where the U.S. has been lagging most other advanced economies). By boosting competitiveness in these sectors, they believe the U.S. could return to its 2000 level, which would add up to $590 billion in annual GDP by 2020 and create up to 1.8 million new jobs.
  • 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.
  • 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, amounting to a cost of one full 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.
  • A more effective 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 technical & scientific fields 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.

Although they will require substantial up-front investment, these game changers can ultimately ease the challenge of reducing fiscal deficits and debt by raising GDP growth. The best part, according to MGI, is that Federal gridlock does not have to pose a barrier to undertaking these goals. The U.S. economy remains one of the most innovative and flexible in the world, and the private sector can drive much of the investment and realize much of the opportunity. Taking action now could mark a turning point for the U.S. economy and drive growth and prosperity for decades to come.

You can find the report here: http://www.mckinsey.com/insights/americas/us_game_changers

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