TheMarketForIdeas

Despite the argument by Krugman that “economists, in general, do not use the word competitiveness”[1], a cursory survey of the literature reveals a wide range of definitions of competitiveness and frequent usage of the concept. Moreover, although research on competitiveness has been popular for forty years, in recent time it appears to be flourishing as many economic phenomena are assessed according to whether they are competitive or non-competitive[2]. This probably explains why the last several years have witnessed a growing academic and political debate over better ways to conceptualize and measure competitiveness. 

Branching out 

Within such a context, it is worth mentioning that the evolution of this debate has oscillated around a number of key ideas (the division of labor and specialization, market share, costs/prices, productivity) and concepts and theories of competitiveness (ranging from those considering a nation’s competitiveness from the macro-perspective to those concentrating on firms, looking at competitiveness in micro-economic terms)[3].

Proposed and employed by the World Economic Forum (WEF) in its annual reports on Global Competitiveness Index, the concept is defined as “the set of institutions, policies and factors that determine the level of productivity of a country”, that is “the ability of countries to achieve sustained high rates of growth in GDP per capita, to provide high levels of prosperity to their citizens. This in turn depends on how productively a country uses available resources”.

The supporters of the classical approach focus mainly on competitiveness at the macro-level (international, regional, country), whereas the neoclassical-inspired authors on the micro-level, respectively. The macro-level approaches to competitiveness very often refer to international trade and nations’ comparative advantage in production of certain commodities which are the subject of foreign trade. There is also a set of theories and concepts directly addressing the relations between competitiveness and market structure (perfect competition, oligopoly, monopoly). These are the classic approaches in which competitive struggle in the market is an indicator of the competitive position of the individual players. There are also numerous modern concepts and theories of competitiveness, which include, in particular, the views of Paul Krugman (new economic geography theory) and Michael Porter (management theory). Additionally, there are a number of competitiveness theories that advocate state intervention in the market.

In our opinion, this state of affairs basically speaks of a precarious epistemological status of the concept of competitiveness: despite the fact that it is an ubiquitous term in economic research – which is analyzed at different levels of aggregation (supranational, national, regional, local, industrial, sectoral, as well as to individual companies) –, there are still troubles with understanding its meaning as well as with its measurement. In addition, the term is often used almost interchangeably with other concepts like productivity, profitability, prosperity, innovation or market share. As Porter and Rivkin have rightly emphasized[4], the wide misunderstanding of the concept of competitiveness has dangerous consequences for political discourse as well as policy and corporate choices. 

The Davos set 

The wide misunderstanding of the concept of competitiveness has dangerous consequences for political discourse as well as policy and corporate choices.

This is particularly true, we would say, for probable the most widespread form under which the term is used today, namely the concept of global competitiveness. Proposed and employed by the World Economic Forum (WEF) in its annual reports on Global Competitiveness Index, the concept is defined as “the set of institutions, policies and factors that determine the level of productivity of a country”, that is “the ability of countries to achieve sustained high rates of growth in GDP per capita, to provide high levels of prosperity to their citizens. This in turn depends on how productively a country uses available resources”.

Since 2004, the report ranks the world’s nations according to the Global Competitiveness Index. It is stated that the index is based on the latest theoretical and empirical research: it is made up of over 110 variables, of which two thirds come from the Executive Opinion Survey, and one third comes from publicly available sources (such as the United Nations), while the variables are organized into twelve pillars, with each pillar representing an area considered as an important determinant of competitiveness.

As a private initiative of the WEF, marketing the Report seems to be a profitable business. However, as a study and analysis of the global competitiveness issue in our time, it should be received with much caution.

(1) A first reason would be its weak conceptual consistency. The authors of the Report operate with a central concept of global competitiveness which is simply a vulnerable one as it lacks the epistemological specificity meant to define in its clearly outlined contours its sphere of theoretical relevance. And this because:

- on the one hand, global competitiveness is understood as a hybrid notion, without a specific conceptual identity, a notion which embodies, vaguely differentiated, almost everything that can be related to the phenomenon of competitiveness. Thus, competitiveness is at the same time productivity, and efficiency, and profitability, and effectiveness, and prosperity, and competition. The real problem is that it comes out of nowhere what distinctive features competitiveness has against the above mentioned “related” concepts (which are indiscriminately incorporated in it, as in a genuine conceptual mixture);

- on the other hand, by promoting the concept of systemic competitiveness, the authors engage themselves in a questionable and extremely risky theoretical enterprise, dispersing the phenomenon on not less than four simultaneous planes of economic ontology (micro level, mezzo level, macro level, meta level), ignoring with a dismaying serenity the serious difficulties that economic theory typically encounters when trying to set up the register of relations operating between these distinct levels of economic reality.

(2) A second reason would be the poor methodological framework that undergirds the analyses.

Global competitiveness is understood as a hybrid notion, without a specific conceptual identity, a notion which embodies, vaguely differentiated, almost everything that can be related to the phenomenon of competitiveness. Thus, competitiveness is at the same time productivity, and efficiency, and profitability, and effectiveness, and prosperity, and competition.

Since the global competitiveness is understood as a multilevel complex concept determined by a multiplicity of factors, the authors consider that the most appropriate way to estimate the level of competitiveness is by using multidimensional or composite indicators (indexes) of competitiveness. However, there is a serious constraint of a methodological nature here: the construction of composite indicators could be associated with the dilemma of selecting appropriate variables (individual indicators) and weights representing their relative importance (priority), as well as of choosing an aggregation method. As a consequence, the relevance of the indicators could be severely affected.

(3) A final reason would be the doctrinal stance adopted. On the one side, the authors correctly surmise that, while firm-related factors (such as tangible and intangible assets, processes, performance and networks) effectively determine and facilitate the competitiveness, it is also affected by a range of government policies as well as formal and informal institutions. Accordingly, public spending and taxes, exchange rates, interest rates, and government regulatory activities are all examples of key macroeconomic determinants of competitiveness. On the other side, unfortunately, the authors pay a high tribute to the interventionist approach since they explicitly express their concern about facts and developments that give credit to the free action of markets and, as a consequence, claim that developing government policies is the key-factor to both improve the business competitiveness and facilitate firms’ ability to compete.

As a private initiative of the WEF, marketing the Report seems to be a profitable business. However, as a study and analysis of the global competitiveness issue in our time, it should be received with much caution.

Symptomatic in this respect is, among others, the “panic” that surrounds them before the finding that there are still important non- and de-regulated segments of the international financial markets, not to mention their “anxiety” in the face of the growth of the private sector debt in an increasing number of countries. 

Conclusion 

While Klaus Schwab and the WEF have made good business out of sustainability and competitiveness over the years, and insinuated themselves as important mediators for the formulation and articulation of policy preferences for the global managerial elite, we must keep in mind the limitations of their system and exercise caution and skepticism in the face of the global consensus which they are fostering. Reasoned debate and constructive criticism may become scarce under the spotlights that the WEF shines on its participants, who may sometimes be more eager to partake of the status-enhancing abilities of the WEF than to engage with it in a critical manner.

[1] Paul Krugman (1996), Making Sense of the Competitiveness Debate, Oxford Review of Economic Policy 12 (3), pp. 17–25.

[2] Tomasz Siudek, Aldona Zawojska (2014), Competitiveness in the Economic Concepts, Theories and Empirical Research, Acta Scientiarum Polonorum, Oeconomia 13 (1), p. 92.

[3] T.Siudek, A.Zawojska, op.cit., pp. 94, 102.

[4] M.E. Porter, J.W. Rivkin (2012), The Looming Challenge to U.S. Competitiveness, Harvard Business Review 90 (3), pp. 54-61, apud. T. Siudek, A. Zawojska, op. cit., p. 92.