Productivity — it's the magic word. Japan's future prosperity depends on it. Whether you are discussing the economy with global central bankers, corporate leaders, policy makers, or just debating with your friends, sooner or later everyone agrees that, yes, Japan must raise productivity. After all, in its simplest form, economic growth is derived from the combination of growth in the population and growth in productivity. So in Japan, since the population is going down, all the hard lifting will have to come from productivity.
The good news is that Japan is about to have a big productivity boost. Why? Because after years of under-investment, Japanese companies are finally beginning to make the necessary investment in both human and physical capital. And yes, you need to spend on both humans and machines to get truly sustainable productivity growth. Smarter machines need smarter operators.
Let's have a look at the numbers. First of all, Japan does indeed lag behind in a global comparison of overall productivity. OECD data suggests that growth in real GDP per capita — which is the broadest measure of an economy's productivity — has averaged 2.9 percent per annum over the past 20 years. This is lower than the 3.3 percent growth recorded in the United States or the 3.6 percent achieved by Germany during the same period.