A study by the McKinsey Global Institute¹ recently examined labor productivity in Germany, Japan, and the United States in nine representative manufacturing industries: autos, auto parts, metalworking, steel, computers, consumer electronics, processed food, beer, and soap and detergent. Adjusted both for differences in product quality and for fluctuations in the business cycle, the results are illuminating—not only for the facts they debunk or establish, but for the explanations that lie beneath them. The inescapable conclusion: global competitiveness is a bit like tennis—you improve by playing against people who are better than you.

Several key findings emerged from our research:

• Japan leads in five industries: autos, auto parts, consumer electronics, metalworking, and steel.
• The US leads in four—computers, processed food, soap and detergent, and beer—and has closed much of the gap in autos.
• Remarkably, Germany leads in none and is a distant third in six—including autos and auto parts, where it is often cited as exemplary.
• Because more Japanese are employed in producing food than in steel, autos, auto parts, and metalworking combined, the weighted average of Japanese worker productivity across these nine case studies is actually lower than that in...