A Tiny Number of Standout Companies Drives U.S. Productivity. Let Them Thrive.

Nvidia Blackwell Ultra GB300, announced in March, has 1.5 times more AI compute power than its predecessor. (SeongJoon Cho/Bloomberg)

About the authors: Martin Neil Baily was chairman of the Council of Economic Advisers under President Bill Clinton. Matthew J. Slaughter was a member of the CEA under President George W. Bush. Today, they both serve as academic advisors to the McKinsey Global Institute.

Economic headlines come and go, but the centrality of labor productivity to economic performance remains constant. Productivity is a significant determinant of a nation’s average standard of living and its overall economic success.

It has long been assumed that national productivity, commonly measured as the amount of output generated per worker, grows when many firms across the economy make incremental gains in their efficiency. That might have been true in the past. But according to our new research at the McKinsey Global Institute, it isn’t today.

We looked at the productivity growth of 8,300 large firms between 2011-19 across four key industries in Germany, the U.K., and the U.S. The results were staggering: Fewer than 100 companies, which we call “standouts,” accounted for a remarkable 50-80% of total productivity growth. In the U.S., just six of 2.5 million companies accounted for half of all productivity growth in retail. These standouts experience bursts in productivity so large that they raise economy-wide performance.

Standout firms don’t stand out because they are doing existing things more efficiently, but rather because they are making bold innovations. And they aren’t necessarily young upstarts. Amazon and Zalando, a German online retailer, built and scaled e-commerce platforms over many years. Home Depot and Tesco, both in business for decades, have successfully overhauled their customer value propositions.

Equally important to economic growth are the “stragglers”: a small number of poorly performing companies that meaningfully lower a nation’s productivity. In our sample, there were only 55 stragglers. But they accounted for 50-65% of the productivity drag we measured.

We also found that a big reason that national productivity grows much faster in the U.S. than in comparable economies is that stragglers in the U.S. are forced to restructure or exit. In Europe, most stragglers just keep dragging on. Adaptation after failure is critical.

In our research, we saw the importance of reallocation—the increase in employment in productive firms and the reduction of employment in less productive firms. In Germany and the U.K., less contraction among low performing firms—often stragglers—and reallocation to leading ones—often standouts—reduced economy-wide productivity growth relative to the U.S. by a full percentage point.

Across the world, economic policy isn’t aligned with the new reality that aggregate productivity is determined by standouts, stragglers, and how capital and resources are reallocated between those groups. We believe that a fresh pro-productivity policy agenda should recognize this shift.

Antitrust policy needs to let standout firms thrive and grow through their burst of innovation. It should acknowledge that productivity growth in standout firms sometimes leads to their expanded market share, and that snapshots of market share and industry concentration are thus poor proxies for pro-growth antitrust policy.

Industrial policy needs to enable standout firms to undertake large investments that, hopefully, result in improvements to business models or innovations that create new value at scale. Of course, supporting the diffusion of innovative technologies, such as AI, to make the broad swath of firms more efficient matters, too. But most of the economic impact—at least initially—is likely to arise from only a small number of standout firms. That is OK.

Workers need adequate support to navigate the creative destruction that will occur among the standouts and stragglers. Supporting workers shouldn’t mean the government engages in outsize efforts to keep stragglers alive. Here, countries can learn a lot from each other. With an active market for mergers and acquisitions, well-established bankruptcy laws, and flexible labor markets, the U.S. makes it easy for stragglers to restructure or exit. Europe, on the other hand, provides more support for workers when needed. All countries should strive to build skills and opportunities for people across their working lives, independent of the ebbs and flows among firms.

How individual firms connect to the bigger picture of aggregate productivity growth has long been something of a black box for policymakers. By going deep into firms’ own productivity growth and examining how much each company contributes to national productivity gains, they can gain fresh insights about overall growth, just as we did.

Governments may be well advised to track and understand the contributions of individual firms—to design better intervention and develop a new productivity playbook to match.

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