MOEA Training Course 2011

Competitiveness of Nations

Charles-Henri MONTINSenior Regulatory expertMinistry of economy and financeFranceFrench representative to OECD/RPCmontin@smartregulation.net

2

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

What makes nations prosper?

3

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

4

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

5

National Competitiveness “policy clusters”

External Competitiveness

Openness to international trade

Regulatory Competitiveness

Attractiveness of the domestic business environmentRegulation supportive of efficient markets

Public sector Competitiveness

Investment in infrastructureSecurityEducation

Dangers: ideological bias (“liberalisation”) lack of economic analysis

Source: Weymouth and Feinberg

6

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.

Example: the UK national competitiveness programme

Based on two principlesMaintenance of macroeconomic stability to provide firms with the certainty they need to investMicro economic reforms to remove barriers that prevent markets from functioning efficientlyThe “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 - Wealth– Social Participation - 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

17

The Irish approach

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

20

Measuring competitiveness

Global Competitiveness Index World Bank “Doing Business”

21

The Global Competitiveness index

22

Taiwan in the GCI

23

Taiwan in the GCI 2011- 2012

24

Problematic factors of doing business

Sub-indexes and pillars

The 12 pillars are grouped in 3 sub-indexes, 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

27

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.

28

Doing Business approach

. Taiwan, China

29

Taiwan’s comparative position

30

Taiwan’s current position

31

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