The Rational Optimist (P.S.)

by Matt Ridley

The burst of increasing productivity that countries like America and Britain rather unexpectedly experienced in the 1990s at first puzzled many economists. They wanted to credit computers, but as the economist Robert Solow had quipped in 1987, ‘you can see the computer everywhere but in the productivity statistics’, and those of us who experienced how easy it was to waste time using a computer in those days agreed. A study by McKinsey concluded that the 1990s surge in the United States was caused by (drum roll of excitement) logistical changes in business (groan of disappointment), especially in the retail business and especially in just one firm – Wal-Mart. Efficient ordering, ruthless negotiating, hyper-punctual time keeping (suppliers must sometimes hit a thirty-second window for deliveries), merciless cost control and ingenious responses to customers’ preferences had given Wal-Mart a 40 per cent efficiency advantage over its competitors by the early 1990s. Wal-Mart’s competitors rapidly followed suit, raising their own productivity by 28 per cent in the later 1990s, but Wal-Mart had not stood still, gaining another 22 per cent in the same time, even as it opened an average of seven new three-acre supercentres a month for a decade. According to Eric Beinhocker of McKinsey, these ‘social-technology’ innovations in the retail sector alone accounted for fully a quarter of all United States productivity growth. Tesco probably had a similar effect in Britain.