A Note on the Competitiveness Debate

Competitiveness is technically a firm level concept. However, it is oftentimes extended to the national level--the idea of a country's 'international competitiveness' with the following analogies: market share-->export share of country; price-->real effective exchange rate or unit labor cost; profitability-->long-run economic growth. The concept of national competitiveness is faulty, in the words of Paul Krugman it has become a 'dangerous obsession.' However, national or government policies do have an impact on firm level competitiveness. The only concept related to firm level competitiveness that can be extended to the national level without ambiguity is technological capability. Meanwhile, the Global Competitiveness Report (GCR) presents two measures of national competitiveness: the Global Competitiveness Index (GCI) and the Current Competitiveness index (CCI). The GCI is simply a measure of a country's potential for economic growth which is not equivalent to competitiveness. The CCI is an exercise in tautology. It simply shows that countries with a higher level of development are 'more competitive.' The issue of the appropriate development policies is not addressed. Since technological capability is at the heart of competitiveness, countries must address this issue squarely. One course of action is to adopt a strategic approach to foreign direct investment--as opposed to a passive strategy--similar to what Malaysia and Singapore did.