Competitiveness

Competitiveness 

What is competitiveness?

The ability of a nation to compete successfully internationally and to sustain improvements in real output and wage.

What the different measures of competitiveness?

World Economic Forum came up with nine areas of measurement.

1. Industrial relation - UK gets a high rating as employees have a good relation with the unions and this can be productive (unproductive too though).
2. Levels of R&D - innovation spurs productivity
3. Human Capital - level of education and training 
4. Capital Investment as a proportion of GDP - shows I, growth, quality
5. Current Account - Surplus is a sign of competitiveness
6. Share of exports in the world market
7. Relative unit labour costs; This affects the cost of production hence competitiveness. Relative unit costs can be calculated by diving total wages by real output. [like opp cost costs over gains]
8. Productivity levels which can be calculated by total GDP/number of workers
9. Economic growth rates

In 2008-2009 US was at the top!

What are the factors influencing a country’s competitiveness - This is similar to the different ways of measuring competitiveness but focuses on core issues such as wage rates which affect more than one method of measuring

1. Productivity rates
2. Wage rates
3. Exchange rates 
4. Regulations e.g. working hours, NMW
5. Cost of living
6. Tax
7. Availability of labour
8. Levels of R&D
9. Technology
10. Type of growth AS or AS - through C or I
11. Relative inflation rates
12. Quality of production - SR/LR
13. Level of infrastructure
14. Perhaps efficiencies 

What are the different things a government can do to improve competitiveness?

I have split the policies into supply side and non-supply side

Supply-Side policies:

1. Education and training - better human capital increases productivity hence attracting TNCs and leading to an increase in real output. - Expensive + time lags involved
2. Reducing National Minimum wage - Lower labour costs mean that more labour can be employed hence more can be produced thus attracting TNCs - unrealistic
3. Reducing trade union power - Again this works by allowing countries to make the most out of their labour making their labour more productive and attracting TNCs. - unrealistic

Other policies which can improve the competitiveness of countries.

Deregulation - this means  that there are less costs involved (Albeit time costs) which makes productivity more efficient and attracts TNCs. The consequences of this however are unknown such as deregulation of banks were somewhat the cause of the recent global downturn.

Reducing interest rates  - This attracts investment and spurs productivity. - Issues with inflation which means in terms of foreign currency a country becomes uncompetitive. 

Increasing interest rates to maintain inflation which means price wise we become competitive however this leads to lower levels of investment which makes a country uncompetitive.

Subsidies and grants - This reduces costs for domestic firms making their exports seem cheaper and thus more competitive

Artificially maintaining exchange rates at a low level - This works by making the price of exports cheaper.

Any Case Studies

India and competitiveness

Policies employed by the government

• Infrastructure Debt Fund - money to be spent over a long period of time through PPPs
• Investment in private sector
• Encouraging development of telecommunications
• Encouraging tourism

What advantages does India have in terms of leading the way with IT?

• Highly educated workforce
• Good internet access and excellent international data communication links
• Wages are one quarter or one tenth to that of Europe and America
• Governments subsidizing 

UK and Competitiveness 

Notes for this are taken by the Guardian article “Innovation: Britain’s other deficit” by James Dyson

• He emphasis on the need for real true R&D which leads to patentable products which plans such as the “Silicon Roundabout” in East London aren’t doing - we are just sticking to the likes of financial markets and Google and Facebook at best.
• He supports Obamas corporate tax cuts and increased investment in R&D for those reasons.
• He also goes on to talk about education and training being a key part in all this.

So what are the strategies to become competitive that he suggests?

1. Tax credits to encourage R&D
2. Cut corporation tax
3. Student loans to be lower and paid off
4. Maths and science teachers paid more

Issues with Dyson’s proposals

• Time lags
• Expensive especially when austerity measure are being implemented
• Opportunity costs