Don't bank on clean tech jobs: McKinsey

By SiliconIndia   |   Wednesday, 28 April 2010, 03:08 Hrs
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Don't bank on clean tech jobs: McKinsey
Bangalore: Policy makers pinning their hopes on cutting-edge 'clean' technologies to create jobs on a large scale are likely to be disappointed. Innovation in R&D-intensive sectors can play a vital role, enabling productivity gains and consumer benefits in the economy more broadly - think IT. But such sectors alone are simply too small to make an economy-wide difference in growth and employment.

These are among the key findings of new McKinsey Global Institute (MGI) research, How to compete and grow: A sector guide to policy, which examines what drives the growth and competitiveness of industries, as well as which policies have succeeded - or failed - in generating jobs and growth in six sectors across eight countries. In the wake of the financial crisis, many governments are attempting to boost growth and competitiveness more actively. The fragility of the business climate heightens the responsibility to get public policy right. In the past, it has too often been hit or miss because it was based solely on a macroeconomic view - whether one country is more competitive than another.

MGI's analysis offers policy makers a pragmatic guide to help them make the right decisions and trade-offs, drawing on a bottom-up, sector-based approach. The research is based not only on McKinsey's industry expertise but on nearly two decades of MGI sector-level analysis in more than 20 countries and 28 industrial sectors. In the latest research, MGI studied competitiveness and growth in six industries (retail, software and IT services, tourism, semiconductors, automotive, and steel) across eight or more countries in each case, including both emerging and high-income economies. The lessons that emerge from our case studies are applicable to other sectors, both existing and emerging, and across countries at different income levels.

Mentioned below are the four key points found out by MGI survey.

The competitiveness of sectors matters more than the mix:

Some governments worry about the "mix" of their economies, but research shows that those countries that outperform their peers do not have a more favorable sector mix. Instead, their individual sectors are more competitive.

To generate jobs, service-sector competitiveness is the key:

Many governments are looking to manufacturing sectors as a new source for growth and jobs. But service sectors will continue to be necessary for strong job creation. In high-income economies, service sectors accounted for all net job growth between 1995 and 2005. Even in middle-income countries, where industry contributes almost half of overall GDP growth, 85 percent of net new jobs came from service sectors.

Policy impacts nontradable sector competitiveness directly; in tradable sectors, getting policy right is more complicated:

In nontradable "domestic" sectors, the incentives for companies set by regulation are decisive in raising productivity and employment - and policy changes can impact sector performance in two to three years. In traded sectors, where success requires local companies to be competitive in the regional or global marketplace, policy requires broader understanding of the global industry landscape. To improve their odds of success in these sectors, policy makers should target activities with realistic potential for competitive advantage, base action on solid business logic, and implement policy in close collaboration with the private sector.

Competitiveness in new innovative sectors is not enough to boost economy-wide employment and growth:

Many policy makers are pinning their hopes today on innovative new sectors such as cleantech as the answer to the challenges of competitiveness, growth, and jobs. Yet such sectors are too small to make a difference to economy-wide growth. Even mature semiconductor sectors account for 0.5 percent or less of developed economies' employment. It is true that innovative sectors can improve business processes and productivity in many other sectors - but these user benefits don't require local suppliers.

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