National competitiveness in a changing world

Citation

Ali, A.J. (2008), "National competitiveness in a changing world", Competitiveness Review, Vol. 18 No. 3. https://doi.org/10.1108/cr.2008.34718caa.001

National competitiveness in a changing world

Article Type: Editorial From: Competitiveness Review: An International Business Journal, Volume 18, Issue 3

Alarmed by recent unemployment and inflation rates in the USA, a report in the Wall Street Journal (2008, June7-8) predicted that a recession is highly probable. Fortune (2008, June 23) magazine, meanwhile, warning that the USA might be up for sale in the near future, has called for a rethinking of economic priorities. These dramatic speculations have been made even though US productivity, especially in the manufacturing sectors, ranks as one of the highest in the world. Globalization and, subsequently, global competition have been blamed for America’s misfortune. This justification has gained a wide acceptance among politicians, especially those who are protectionists. The problem, however, may not have been accurately identified by politicians and journalists.

The USA, across the centuries, has gone through severe economic conditions but has always regained its health and recovered its vital economic position in the global economy. In recent decades, the USA has become a global economic powerhouse, the envy of the rest of the world. In fact, since the early 1950s, the USA has reached an economically competitive position which has never been matched in the history of mankind. The recent slowdown in its economy and the collapse of certain financial institutions, coupled with rapid increases in oil prices and the sharp decline of the dollar value, however, has sent a shock wave across the globe. Developing countries, in particular, have experienced the worse conditions as world wide demand and droughts have induced the price of essential commodities to skyrocket.

Since US economic health is so inextricably linked to the global market, its economic troubles are felt all over the world. That is, the health of the US economy is characteristically linked to the global economy and the competitiveness of the USA is best realized in the global marketplace. Restoring or maintaining US competitiveness is of primary concern to other nations and MNCs all over the world. This is because the USA has the largest economy and has been the most dynamic economic actor in the global arena. However, in recent years, the rise of China, India, Brazil and other emerging markets has posed a challenge to US competitiveness. Primarily, these rising stars have shown exceptional agility and flexibility in responding to ever-changing conditions. It will take, however, years for these nations to match the US economy. The fact that they recognize the significance of being competitive and the necessity to create an environment to reinforce the spirit and quest for competitiveness, should position them to be leading global economic actors in a few years. Indeed, their focus on economic matters and the priority they have given to building and upgrading their infrastructure and the skill of their employees will enable them to make remarkable strides in the global arena.

National competitiveness is a dynamic concept. Previously, Porter (1990) advanced the proposition that competitive advantage is created and sustained through a highly localized process. He argued that a nation’s home environment plays a critical role in sustaining competitiveness. That is, the role of the nation grows rather than declines in facilitating competitive advantage. Similarly, Reich (1990) stresses the role of the nation in creating an environment conducive to growth and technological breakthrough. Therefore, he asserts that the overriding goals of any government are to induce global corporations to build human capital in the home market and to upgrade the skills and learning of its workforce.

In today’s global market, the free movement of capital, commodities, and knowledge, and the relative ease in the movement of labor enhances opportunities for countries to deepen their global involvement and upgrade their national institutions. In turn, this process has accelerated the denationalization of geographic space and reinforces globalization trends. Indeed, expanded worldwide connectivity and never ending IT innovation have rendered render territoriality and geographic distances irrelevant.

Porter (1990) defined competitiveness at the national level as “the ability to export many goods produced with high productivity, which allows the nation to import many goods involving lower productivity.” He argued that the only useful concept of competitiveness at the national level is national productivity. The World Economic Forum (1998) in its 1998 Global Competitiveness Report defined competitiveness as “the ability of a country to achieve sustained high rates of growth in GDP per capita.” The 2007-2008 report (World Economic Forum, 2008), in turn, defines competitiveness as the “set of institutions, policies, and factors that determine the level of productivity of a country.” In these three cases, competitiveness is defined in terms of productivity or in terms of the ability to achieve high growth in per capita income. These definitions, despite their general applications, are inadequate. First, the definition of competitiveness is not explicitly linked to globalization. Pursuing and realizing a goal of superior productivity can only be achieved in an open global market. Only in a global competition can the twin forces of competitors and customers exercise their collective influence to insure continual improvement in manufacturing and operation processes. Second, the ability of a nation to achieve a high rate of growth in GDP per capita can be sustained only in the dynamic process of global competition. Third, the three definitions appear to overlook the need to give paramount importance to the collective welfare of customers/citizens. Customers and citizens are “one and the same.” Issues of global growth and customer welfare are vital elements of competitiveness. For example, the USA, business productivity, especially productivity in manufacturing, has increased significantly over the past ten years. At the same time, however, many workers have lost their jobs and/or been forced to accept a cut in their wages/benefits. Likewise, there are several countries (e.g. Bahrain, Kuwait, Saudi Arabia, and United Arab Emirates) that have sustained a high-per capita income, over the past two decades, but that have failed to build a civil society that would foster improvement in intellectual capital, nurture productive efforts, and offer access to and participation in the national political arena.

A few years ago, we defined national competitiveness as a nation’s ability to improve the economic and social welfare of its people through active and purposeful participation in the global marketplace. Such a definition of competitiveness is based on the assumption that eroding a nation’s position in world affairs has serious political, social, and economic consequences. In addition, the definition focuses on both the input and output aspects of competitiveness. Competitiveness encompasses all those factors that are essential for coping with global competition (e.g. vital economic and civil institutions, adequate infrastructure including educational systems, and a skilled and knowledgeable workforce). Improving the welfare of people (e.g. standard of living, safe environment, etc.) constitutes the primary outcome of competitiveness. Most importantly, the definition refocuses attention on purposeful participation in the global marketplace. It is in the global economic arena that competitiveness inputs are invented, energized, and or revitalized. Likewise, the output of competitiveness, be it high-living standards or social welfare, is more likely to erode in an environment of war, instability, and hostility. National policies that sanction unrestrained borrowing and spending and espouse perpetual war to achieve illusionary objectives are destined to jeopardize national competitiveness. These policies are economically destructive as they divert the attention from creativity, innovation, reform and conservation, and reinforce the mentality of unbridled spending and consuming instead of production and active involvement in the global marketplace.

In the new dynamic world, responsible policies cannot be built on false premises. While the fate of a nation is characteristically linked to the global economic environment, its health and competitiveness are adversely affected by national policies which sanction consuming, borrowing, and aggressive military ventures abroad.

Abbas J. Ali