Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited
Sustaining national competitiveness
Article Type: Editorial From: Competitiveness Review: An International Business Journal, Volume 21, Issue 5
For decades, development and competitiveness have been looked at in terms of being economic indicators (e.g. growth in per capita income, trade statistics, etc.). However, viewing competitiveness strictly in terms of being an economic indicator is not only problematic but a fatal mistake. Rethinking this outlook should take priority both in global discourse and national policy direction. Development and competitiveness are national strategic matters that should not be left to economic manipulation and political games. Their importance stems not only from their economic and social significance but also from their impact on national security and the essence of sovereignty.
The current events in the Arab world, especially in Egypt, Tunisia, and Yemen, along with political upheavals in other parts of the world, have revealed that economic prescriptions and recommendations divorced from social and political conditions can lead to unworkable conclusions. International agencies have often recommended that developing nations open their markets to international trade and integrate their economies in the global market as a means of fostering their national competitiveness. This prescription, however, is on many occasions specified irrespective of domestic conditions. The ultimate aim for these nations has become the opening of their markets to international trade rather than building functional competitiveness domestic economic and legal institutions and improving the well-being of their respective people.
Indeed, Egypt’s popular uprising has called for rethinking the premise that economic indicators are a reliable measure of people’s welfare and well-being. The popular uprisings in the Arab world provide undisputed evidence that a national policy which hinders or restrains broader participation of citizens in deciding their future impairs national productivity and does not contribute to national competitiveness and the general well-being of the society. For example, The World Bank (2009) shows that Egypt’s GDP growth in 2009 was 4.6 percent and in its Doing Business in the Arab World 2010, the World Bank grouped Egypt among the easiest top economies to do business with. In particular, the report asserted that “The most active reformers in the Arab world have been Egypt and Morocco” and that Egypt as a leading reformer has “underscored the importance of tax reform in enhancing economic growth and investment, increasing competitiveness, combating unemployment and achieving good governance”.
Similarly, The bank has identified Tunisia as one of the countries which has been doing well economically. Its GDP growth rate has been increasing since 2000. The bank reported that in 2009, Tunisia’s merchandise trade (percentage of GDP) was about 85 percent, while the poverty ratio was only 3.80 of the population. Out of 183 countries, the country was ranked number 55 on the “ease of doing business” index in 2011.
However, economic statistics provided by the World Bank reflected neither the depth of misery in Egypt or Tunisia nor captured the rooted corruption and economic and political injustice prevalent in each country. Egypt, for example, has experienced one of the highest rates of unemployment and corruption in the region. The Economist (2011) reported that Egypt’s youth-unemployment rate is about 25 percent while that of Tunisia is 30 percent. The Transparency International (2011) has ranked Egypt high on the 2010 Corruption Perception Index. Corruption in Tunisia stems from abuse of power by the ruling elite and their control on the economy. The Wall Street Journal (Gauthier-Villars, 2011) reported that:
Over his 23 years in power, Mr Ben Ali – who is being tried in absentia – and his relatives amassed a fortune in banks, telecommunications firms, real-estate companies and other businesses, giving them control over as much as one-third of Tunisia’s $44 billion economy.
Though economic statistics have to be viewed with caution, scholars often utilize them as a vital and necessary measure of national competitiveness. Porter (1990), in his pioneering study on national competitiveness and competitive advantage, defined national competitiveness as “the ability to export many goods produced with high productivity, which allows the nation to import many goods involving lower productivity”. Other researchers in and outside international institutions have utilized similar perspectives. Indeed, even the World Economic Forum, for many years, utilized in its Global Competitiveness Report a narrow definition of national competitiveness equating it to “high rates of growth in GDP per capita”.
Though, in later reports, the World Economic Forum has broadened its definition, the continued emphasis on the level of productivity of a country may lead to questionable measurements and conclusions. For example, the Global Competitiveness Report 2010-2011 gave Qatar, UAE, Tunisia, and Thailand high ranking; 17, 25, 32, and 38, respectively. The first two countries, however, depend primarily on oil exports and on foreign labor. In both countries, most, if not all, of the work in the private sector is carried out by expatriates. National human capital formation and skill acquisition never take root as expatriates eventually leave the host country and citizens are not directly involved in the production and economic process. More importantly, these countries are ruled by tribal chieftains and so the wealth of the state and that of the ruler are one and the same. Citizens’ participation in policy making and political affairs and that of civic societies is severely limited.
Thailand and Tunisia suffer from corruption and unemployment. Furthermore, poverty is widespread and only a limited number of the powerful elite control most of the national wealth. In Thailand, the top 20 percent own 69 percent of the country’s assets while the bottom 20 percent own only 1 percent. In terms of income distribution, the top 20 percent enjoy more than 50 percent of the gross domestic product while the bottom 20 percent, only 4 percent (Ekachai, 2009). Like in the case of Qatar and UAE, these countries lack sound institutions. In fact, institutions, legal and otherwise, are extensions of the ruler’s court. Bureaucracy is the norm and labor has no voice concerning how resources should be allocated and how to manage organizations. One of the common indicators of innovation is the number of registered patents held by a country. Recent statistics show that the number of patents granted in Thailand, UAE, Tunisia, and Qatar in all the years ending in 2010 are 579, 85, 20, and 8, respectively. In the same period, South Korea had 84,840 registered patents. It is tragic that these countries have not shown a commitment to discovery and upgrading their capacity for economic renewal and development. This may explain the reason why none of these countries is known for producing high-quality, high value-added products.
Equating national competitiveness to the traditional measure of economic productivity or growth in GDP is, at best, inadequate and should never be used as a sole standard for measuring the state of national competitiveness or the national economy’s growth potential. The health and competitiveness of any nation should be judged on whether or not the economic growth and the wealth of a nation contributes to the welfare of the population and quality of life, and safeguards the interests of future generations. Furthermore, national competitiveness is a dynamic concept which results from the interplay of several factors – many of which are subject to fluctuations or experience dramatic alterations. The latter is more relevant to the state of mind of the general population, work attitudes and discipline, and or actions by other nations (e.g. war, international disputes, economic sanctions, etc.).
National competitiveness is about optimizing the welfare of citizens without endangering that of future generations. This primarily depends on a nation’s ability for renewal and shaping and defining its future. Back in 1999 and 2000, 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”. Our rationale at that time stemmed from the following basic facts: the fruit of development and by necessity that of competitiveness should be broadly distributed so that all social segments can be active participants in the marketplace; eroding a nation’s position in world affairs has serious political, social, and economic consequences; purposeful and active participation in the global economy is impossible to achieve without building sound legal and government institutions that focus on domestic growth; and understanding competitiveness requires focusing on both the input and output aspects of competitiveness. The input is cultivated in an environment where human dignity is valued and resources are efficiently cultivated and deployed.
This makes it imperative that responsible policies should be enacted to minimize fraud and corruption while ensuring wider participation of citizens in the economy. While the fate of a nation is characteristically linked to the global economic environment, its health and competitiveness are adversely affected by national policies, especially those which sanction consumption, borrowing, inequality, and a disregard of international norms. In many countries, especially in developing ones, economic vision and policies that steer efforts to fostering domestic capacity and growth are often lacking. Because of this, there has been a lack of active and vital participation of these countries in the global economy, rendering any discussion on competitiveness useless. There are certain prerequisites for any nation, especially in the developing world, to meet before becoming an active player in the global economy. Chief among them are:
Functional government. Countries that have achieved visible economic growth and adequately addressed social and economic injustice have functional governments and reasonable transparent governing systems (e.g. Sweden, Finland, Malaysia, etc.). Other countries like Afghanistan, Pakistan, Uganda, Sudan, and Somalia have fragmented, unstable governments and some have reached the failed state status. Under these conditions, neither economic progress nor social justice is possible, leaving these countries with shattered hopes. It is in these states that the safety and security of citizens is not ensured.
Clear and integrated economic priorities. When economic priorities are articulated and are a product of deliberate process and active partnership between the state and various economic actors (e.g. private sector, NGOs), the prospect for having a productive economic environment is bright. In China, the government actively spurred village economy and entrepreneurship through practical agricultural-reform measures implemented during the 1980s. The government enacted and rapidly executed rural agricultural reforms. This has resulted in rural areas being linked to major highways and cities, making it possible for farmers and their associations to get needed resources and for their corps to reach the markets on time. In contrast, the Indian Government has shown limited ability to bringing about real change in the country’s villages, which has left many farmers subject to manipulation by corrupt politicians and unable to get their produce in good condition and in a timely manner to the markets (Khanna, 2008).
Sound and independent legal systems and institutions. In an era of globalization, fraud and corruption often transcend national borders. Fraudulent actors, be they corporations or individuals, have acquired sophisticated ways to circumvent laws and regulations. In addition, they network with influential individuals. To effectively deal with them, an independent and powerful judicial system is needed to pass judgment and enforce existing laws. Though corruption takes place even in developed countries, in countries where the legal system is weak corruption is rooted and becomes chronic. The Transparency International (2009) argues that the cost of corruption is four fold: political, economic, social, and environmental. This amounts to several trillion dollars a year. However, in many of developing nations, where legal institutions are either weak or marginalized, corruption not only paralyzes government institutions but also obstructs development and perpetuates poverty and inefficient utilization of resources. Therefore, before these economies are encouraged to integrate in the world economy, priority must be given to establishing legal institutions capable of dealing with corruption and criminal activities.
Sound infrastructure. Countries like Singapore, Switzerland, and recently China have achieved remarkable progress in their economic growth and in sustaining competitiveness since their infrastructures have made it easier for corporations to start and operate businesses. In countries where transportation, communication, port and warehousing facilities, and health systems are in bad shape, economic achievement and people’s well-being are difficult to improve. This is especially clear in Bangladesh, Yemen, and Uganda.
Sound educational institutions. The spread of economic globalization and the dawning of knowledge-based societies intensify competition for skilled and knowledgeable workers. Countries may have to allocate scarce resources to building sound educational institutions at all stages, from elementary to higher education. While some countries, such as those that are major oil producers, have the resources to recruit skilled labor from abroad, for other countries the only solution for an emerging global shortage of skilled works is to set up first-class educational and training institutions to nurture knowledge and sharpen skills.
Vital middle class. A sizeable middle class is essential for dynamic participation in wealth creation and job generation. Members of the middle class are not only instrumental for creating demand and thus stimulating market competition but they are essential for creating a culture where knowledge is created and the spirit of discovery is sanctioned. Since the dawn of the industrial revolution, countries that have had a comparatively large middle class have witnessed economic progress and innovation (e.g. Germany, Switzerland, the USA, Sweden, etc.).
Disciplined and task-driven indigenous workforce. National competitiveness is characteristically linked to the creative involvement and commitment of the workforce. It is impossible to find a country which has achieved economic growth without hard work and purposeful conduct in the workplace. A disciplined and goal-driven workforce, however, cannot thrive in countries where the government is in disarray, corruption is widespread, infrastructure is crumbling, and education is not valued. Nations like Taiwan. Germany, Switzerland, and Singapore have national workforces that are not only disciplined but are inspired and do not shy away from shouldering challenging tasks.
Strong and independent NGOs. The rising power of bureaucrats and executives require a countervailing force to sensitize corporations and governments to emerging pressing issues and to champion certain trade and market programs which have broader implications for national economy and competitiveness. More importantly, active and independent NGOs play a determining role in defending human rights, ensuring safe environments, and civility in conduct. This is clearly demonstrated in countries like Finland, Sweden, and Denmark and lacking in nations such as Sudan, Chad, and Cameroon which have a long way to go in actively participating in the global marketplace and achieving respected economic progress.
A regulatory regime that eases investment, protects innovators and property rights, and encourages and cultivates entrepreneurial spirit and competition. Though a regulatory regime is not independent from the presence of sound legal institutions and governance, its effectiveness and practicability depends on devising national policies that encourage and facilitate entrepreneurship, investment, and creativity while fostering human capital formation.
Tax system that ensures fairness without obstructing growth. While a tax regime is necessary but not sufficient for fostering national competitiveness, the existence of a cumbersome taxing system with multiple layers always frustrates entrepreneurs and corporations. Singapore and Taiwan, for example, have an income tax system which is practical and is designed to attract investment without burdening the general population with multiple taxes. In Singapore, taxes are allocated primarily to fund government expenditure. In 2009/2010, the area that got the highest share of government operating expenditure was the social development sector which includes expenditure in areas such as education, health, community development, youth and sports, information, communication, the arts, environment and water resources, and national development.
Sound financial system. In many developing countries, the conditions for enacting sound competitiveness policies and encouraging entrepreneurs and investors to take risk are not readily available. Banks, insurers, stock exchanges, pension funds, central banks, and regulators are not yet developed to reasonably provide financial assistance and services. Because the financial systems are weak, neither the governments nor the private sectors can mount credible actions to pull these countries out of their economic ills. Indeed, even after many years of experimentation with economic liberalization, some developing countries still do not have either the resources or the skills needed to strengthen their financial systems, especially fiscal policies.
The above conditions are necessary foundations for improving capacity building and for having a stable economic environment. Indeed, the presence of these conditions can enable many nations to rise out of destitution, ultimately enhancing the well-being of their citizens. More importantly, the presence of these conditions is a critical factor for fostering business sophistication and confidence at home and ensuring predictability of business conduct and operations.
Furthermore, demanding that nations first participate in global trade before domestic growth and direct their resources to serve this goal is misleading if not dangerous. Integrating nations without sound domestic institutions into the global economy can only further weaken the ability of these nations to compete effectively and safeguard the interests of their citizens. Prudent policies should refocus resources on optimizing the welfare of their people. In the end, it is the well-being of the people that should be the ultimate measure of competitiveness.
Abbas J. Ali
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