McKinsey - Game changers: Five opportunities for US growth and renewal full report - August 2013

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Report| McKinsey Global Institute Game changers: Five opportunities for US growth and renewal July 2013 | bySusan Lund, James Manyika, Scott Nyquist, Lenny Mendonca, and Sreenivas Ramaswamy

Text of McKinsey - Game changers: Five opportunities for US growth and renewal full report - August 2013

  • 1. McKinsey Global Institute July 2013 Game changers: Five opportunities for US growth and renewal

2. Copyright McKinsey & Company 2013 The McKinsey Global Institute The McKinsey Global Institute (MGI), the business and economics research arm of McKinsey & Company, was established in 1990 to develop a deeper understanding of the evolving global economy. Our goal is to provide leaders in the commercial, public, and social sectors with the facts and insights on which to base management and policy decisions. MGI research combines the disciplines of economics and management, employing the analytical tools of economics with the insights of business leaders. Our micro-to-macro methodology examines microeconomic industry trends to better understand the broad macroeconomic forces affecting business strategy and public policy. MGIs in-depth reports have covered more than 20 countries and 30 industries. Current research focuses on six themes: productivity and growth; natural resources; labor markets; the evolution of global financial markets; the economic impact of technology and innovation; and urbanization. Recent reports have assessed job creation, resource productivity, cities of the future, the economic impact of the Internet, and the future of manufacturing. MGI is led by two McKinsey & Company directors: Richard Dobbs and James Manyika. Michael Chui, Susan Lund, and Jaana Remes serve as MGI principals. Project teams are led by the MGI principals and a group of senior fellows, and include consultants from McKinsey & Companys offices around the world. These teams draw on McKinsey & Companys global network of partners and industry and management experts. In addition, leading economists, including Nobel laureates, act as research advisers. The partners of McKinsey & Company fund MGIs research; it is not commissioned by any business, government, or other institution. For further information about MGI and to download reports, please visit 3. McKinsey Global Institute Game changers: Five opportunities for US growth and renewal Susan Lund James Manyika Scott Nyquist Lenny Mendonca Sreenivas Ramaswamy July 2013 4. Game changers: Five opportunities for US growth and renewal McKinsey Global Institute Preface With the UnitedStates mired in a painfully slow recovery from the Great Recession, some economists project thatyears of tepid growth may lie ahead. But this view does not fully account for the resilience and innovative capacity of the US economy. In this report we identify game changerscatalysts that can spur productivity, boost GDP by hundreds ofbillions of dollars, and generate significant numbers of jobs by 2020. After evaluating a larger universe of ideas, we arrived at a set of five opportunities that could accelerate growth: shale gas and oil production; increased trade competitiveness in knowledge-intensive manufactured goods; the potential of big data analytics to raise productivity; increased investment in infrastructure, with a new emphasis on its productivity; and a more cohesive and effective system of talent development in both K12 and post-secondary education. These game changers are different in nature, but mutually reinforcing. Some are relatively sector-specific, while others are broad and cross-cutting. Some are already rapidly unfolding and can boost demand to speed the recovery, while a renewed emphasis on infrastructure and workforce skills will lay the foundation for longterm growth, delivering even larger returns by 2030. But they all share a common thread: an immediate window of opportunity for substantial impact. In all five of these areas, forward-thinking investments and continued innovation from the public and private sectors alike could place the UnitedStates on a faster growth trajectory by 2020setting the stage for higher living standards and greater prosperity in the decades that follow. This report is part of a large body of MGI research on the US economy. Recent publications in this series include Urban America: US cities in the global economy; An economy that works: Job creation and Americas future; and Growth and renewal in the UnitedStates: Retooling Americas economic engine. This research was led by McKinsey Global Institute principal Susan Lund and MGI director James Manyika, along with McKinsey directors Scott Nyquist and Lenny Mendonca. The project team was managed by Sreenivas Ramaswamy and included Marie Louise Bunckenburg, Peter Chen, Nirant Gupta, RebekahLipsky, Suhrid Mantravadi, Brian Pike, JJ Raynor, Marc Sorel, EkaterinaTitova, JohnValentino, and Emmanuel Verrier-Choquette. Thanks go to Lisa Renaud for editorial support and to other members of the MGI communications and operations teamincluding Deadra Henderson, Julie Philpot, Rebeca Robboy, and Marisa Carderfor their many contributions. We also extend thanks to our MGI research colleagues, including Michael Chui, Jan Mischke, and JaanaRemes, as well as Tim Beacom, Eduardo Doryan Jara, Jan Grabowiecki, Moira Pierce, and Vivien Singer, who provided us with analysis, expertise, and support. 5. We are grateful to the academic advisers whose insights enriched this report. Martin N. Baily, the Bernard L. Schwartz Chair in Economic Policy Development at the Brookings Institution; Laura Tyson, the S. K. and Angela Chan Chair in Global Management at the Haas School of Management, University of California, Berkeley; and Richard Cooper, Maurits C. Boas professor of international economics at Harvard University, all provided guidance. We are indebted to McKinsey directors Byron Auguste, Toos Daruvala, Doug Haynes, Vik Malhotra, Gary Pinkus, and Tim Welsh for their support and continued thought partnership on topics related to US growth and renewal. We thank McKinseys director of publishing, Rik Kirkland, and Franz Paasche, head of external relations, NorthAmerica, for their assistance. We also benefited from the perspectives of academic, policy, and industry experts, including Ted James, Jeffrey Logan, and Alan Goodrich of the National Renewable Energy Laboratory; Doug Arent and Morgan Bazilian of the Joint Institute for Strategic Energy Analysis; Jeffrey Jones and Glenn McGrath of the US Energy Information Administration; David Sandalow, Brandon Hurlbut, John Richards, and Robert Fee of the US Department of Energy; Elizabeth Klein and Neil Kornze of the US Department of the Interior; William Colton, Peter Clarke, and Dong Fu of ExxonMobil; PeterRagauss of Baker Hughes; Steve Raetz of C. H. Robinson; Kati Haycock of Education Trust; John Danner, formerly of Rocketship Schools; Rick Hess of the American Enterprise Institute; Matt Miller, a senior adviser to McKinsey and a columnist with The Washington Post; Jeanne Holm of; and Ed Morse and Daniel Ahn of Citi Global Perspectives and Solutions. This report is the result of a collaborative effort that drew on the expertise of many McKinsey colleagues across multiple offices and industry practices. For their insight into our energy research, we thank Matt Rogers, a director in the San Francisco office; Thomas Seitz, a director in the Houston office; Bob Frei, a director in the Chicago office; Jeremy Oppenheim, a director in the London office; Stefan Heck, a director in the Stamford office; Jonathan Harris, a director in the New York office; and Scott Andre, Thomas Czigler, Tim Fitzgibbon, MarkusHammer, Tommy Inglesby, Katie Jolly, Mike Juden, Paul Kolter, MichaelLinders, Ed Schneider, and Ken Somers. The infrastructure chapter benefited from the insights of Jimmy Hexter, a director in McKinseys Washington, DC, office; Robert Palter, a director in the Toronto office; and Tyler Duvall, Brandon Kearse, Simon Kennedy, Douglas Mehl, ErikaSchroederus, and CarrieThompson. We thank Mona Mourshed, a director in McKinseys Washington, DC, office; Andre Dua, a director in the New York office; and DianaEllsworth, Nora Gardner, Bryan Hancock, Martha Laboissiere, AndyMoffit, Annie Rittgers, and Jimmy Sarakatsannis for their valuable insights into education and training. We thank Jacques Bughin, a director in McKinseys Brussels office; Aamer Baig, a director in the Chicago office; and MichaelEbeid, PeterGroves, CarlMarch, Doug McElhaney, and Matt Welsh for their expertise on big data. Our work on knowledge-intensive trade was enriched by KatyGeorge and ChristopherSimon, directors in McKinseys New Jersey 6. Game changers: Five opportunities for US growth and renewal McKinsey Global Institute office; Hans-Werner Kaas, a director in the Detroit office; Nick Santhanam, a director in the Silicon Valley office; and Andrew Gonce, Jeff Holland, Phil Jones, RicardoMoyaQuirogaGomez, David OHalloran, and Lou Rassey. This report aims to provide a fact base on the trends that will shape theyears ahead. We hope this work will spark a constructive discussion among business leaders and policy makers about creating a more competitive and productive US economy that will generate jobs and opportunity. As with all MGI research, this report is independent and has not been commissioned or sponsored in any way by any business, government, or other institution. Richard Dobbs Director, McKinsey Global Institute Seoul James Manyika Director, McKinsey Global Institute San Francisco July 2013 7. Breakout opportunities... 50%annual increase in US shale gas and oil production since 2007 1.7millionjobs created economy-wide from shale energy development 10%annual growth of greenfield FDI in the UnitedStates since 2003 135%growth of US aerospace net exports since 2009 $325billionincremental annual GDP from big data analytics in retail and manufacturing by 2020 8. ...for growth and renewal $180billionadditional annual investment required in US infrastructure 1.8millionjobs created by increasing infrastructure investment through 2020 40%potential improvement in infrastructure productivity due to better selection, delivery, and operation 9