MOEA Training Course 2011
Competitiveness of Nations
Charles-Henri MONTIN
Senior Regulatory expert
Ministry of economy and finance
France
French representative to OECD/RPC
montin@smartregulation.net
What makes nations prosper?
A nation’s standard of living (wealth) is determined by the productivity
with which it uses its human, capital, and natural resources. The
appropriate definition of competitiveness is productivity.
Productivity depends on the value of products and services e.g.
uniqueness, quality) and the efficiency with which they are produced.
It is not what industries a nation competes in that matters for
prosperity, but how firms compete in those industries
Productivity in a nation reflects what both domestic and foreign firms
choose to do in that location (location of ownership is secondary)
The productivity of all “local” industries is of fundamental importance
to competitiveness, not just that of traded industries
Devaluation does not make a country more “competitive”, rather it
reveals a lack of fundamental competitiveness
2
What is competitiveness?

Competitiveness is the productivity with which a nation
uses its human, capital, and natural resources
–
–

Productivity sets the standard of living
Productivity growth sets sustainable economic growth
Productivity and prosperity depends on how a nation
competes, not what industries it competes in
–
–
Productivity in the modern global economy arises from a
combination of domestic and foreign firms
Relentless innovation is necessary to drive productivity growth
and enable the standard of living to rise Technology, products, and
organizational methods (source: Porter -2010)
See also Wikipedia definition, which includes
reservations on the economic validity of the concept
3
Does national competitiveness exist?

Nations compete to offer the most
productive environment for business
Legal framework
– Market efficiency
–

The public and private sectors play
different but interrelated roles in
creating a productive economy
4
National Competitiveness “policy clusters”
External
Competitiveness
Openness
to
international trade
Regulatory
Competitiveness
Attractiveness
of
the domestic
business
environment
Regulation
supportive of
efficient markets
Public sector
Competitiveness
Investment
in
infrastructure
Security
Education
Dangers: ideological bias (“liberalisation”) lack of economic analysis
Source: Weymouth and Feinberg
5
How can governments nurture
competitiveness?





Establish a stable and predictable macroeconomic,
political, and legal environment
Improve the availability, quality, and efficiency of general
purpose inputs, infrastructure, and institutions
Set overall rules and incentives governing competition
that encourage productivity growth
Facilitate cluster development and upgrading
Create an explicit, ongoing process of economic
change and competitive upgrading which informs
citizens and mobilizes the private sector, government at
all levels, educational and other institutions, and civil
society.
6
Example: the UK national
competitiveness programme
Based on two principles
 Maintenance of macroeconomic stability to
provide firms with the certainty they need to
invest
 Micro economic reforms to remove barriers that
prevent markets from functioning efficiently
The “Enterprise Strategy 2008” cites 5 “enablers” of
enterprise, on of which is Regulatory Framework
7
The 4 “dimensions” of competitiveness




Attractiveness vs Aggressiveness
Proximity vs Globality
Assets vs Processes
Individual Risk Taking vs Social Cohesiveness
These dimensions can combine in
national/regional models:
 Globality + Risk Taking
 Proximity + Social Cohesiveness
8
Cultural and other factors

Values, which evolve as the economy becomes
richer:
–
–

Hard work
Social Participation
- Wealth
- Self-achievement
Behavior models :
“South European”: regulations, social protection
– “North European”: stability, social consensus,
regulation
– “Anglo-saxon” model: deregulation, flexible labour,
higher risk acceptance
–

Technology
9
Selected golden rules of
competitiveness (Garelli)









A stable and predictable regulatory environment
Work on a flexible and resilient economic structure
Invest in traditional and technological infrastructure
Promote private savings and domestic investment
Develop export- drive and attract FDI
Quality, speed and transparency of admin action
Maintain relation between wage levels and productivity
Preserve the social fabric by reducing wage disparity
Invest in education and training of work force
10
Determinants of competitiveness
(Porter)

Macroeconomic competitiveness:
–
–

Social infrastructure and political institutions
Macroeconomic policies
Microeconomic competitiveness:
–
–
–
Quality of business environment
State of development of clusters
Sophistication of company operations and strategy
11
12
13
14
15
16
The Irish approach
17
The Irish approach to competitiveness
(“essential conditions”)
1. Business Performance
–
–
Business Investment
Trade
2. Productivity and Innovation
3. Prices and costs
4. Employment and Labour Supply
18
Irish competitiveness: “policy inputs”
1 Business Environment
–
–
–
Taxation and finance
Regulation and Competition
Social Capital
2 Physical and Economic Infrastructure
–
–
–
Investment in Physical Infrastructure
Transport, Energy and Environmental Infrastructure
Information and Communications Technology Infra.
3 Knowledge Infrastructure
19
Measuring competitiveness


Global Competitiveness Index
World Bank “Doing Business”
20
The Global Competitiveness index
21
Taiwan in the GCI
22
Taiwan in the GCI 2011- 2012
23
Problematic factors of doing business
24
Sub-indexes and pillars

The 12 pillars are grouped in 3 subindexes, which are weighted differently
according to the stage of development
Basic requirements, key for factor-driven
economies (20% in innovation-driven)
– Efficiency enhancers, key for efficiency-driven
economies (50%)
– Innovation and sophistication factors, key for
innovation driven economies (30%)
–
25
Indicators


Each pillar comprises a number of indicators,
variable from 2 (market size) to 21 (institutions),
totaling 114 in 2011- 12
Indicators depend on availability of data, which
is collected from public statistic series where
information covers, as far as possible, all
economies
26
Comment from GCI
Taiwan, China remains stable in 13th position, profile nearly unchanged
Consistent performance across the pillars of the GCI,

Assets
–
–
–
–

innovation (9th)
quality and presence of business clusters in high-end
manufacturing, first-class R&D,
excellent educational system,
high level of technological readiness (24th) and well-developed
infrastructure, with the exception of air transport (51st).
Weaknesses:
–
–
rigidity of labor rules (118th, deteriorating) causes inefficiency of
market (33rd),
public and private institutions (31st), but improving.
27
Doing Business approach
. Taiwan, China
28
Taiwan’s comparative position
29
Taiwan’s current position
30
Taiwan’s assets in global competition










Highly innovative
Strong intellectual property protection
Entrepreneurial
Flexible business culture reacts rapidly
Large pool of researchers
Strong science and technology education, research institutions
Some deep technology clusters in closely related industries
Logistics strengthened In past 10 years
Strong outbound FDI
Gateway to China: strongest democracy, freedom of speech of any
Chinese-speaking
31