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This paper addresses the interdependence of government policies and the economic order. This interdependence has been neglected in economics, which strongly affects the discussion concerning the competitive advantages of nations. To analyze the consequences of this neglect, the paper discusses the nature of an economic order and the functioning of the public sector from a political economic perspective. This is followed by a critique of Porter's analysis, and a discussion of some developments regarding the economic order.

The evolving economic order in Europe will be shaped by a combination of ex ante political harmonization and ex post harmonization as a result of institutional competition. In view of Porter's theory, emphasis has to be put on the latter. Moreover, a flexible view of European unification is needed. In this Porterian world, national governments will be forced to redefine their role and to shift their activities away from redistributive to allocational market-supporting activities.

Within the context of an evolving economic order, the changing role of the multinational company captures the spotlight, especially in regard to the increasing importance of strategic decision making and networking and the more complete role taken up by subsidiaries. In this critical analysis of Porter's (1990) popular study of competitive advantages, it is posited that the international corporate activities are insufficiently incorporated and that the triadic dimension and economic bloc formation among countries are not sufficiently taken into account. As the drivers of the world economic “triadization,” many MNCs transform themselves into regional clusters rather than global or transnational structures. The triadic constellation requires more coordination from national governments in areas such as competition, merger activity, and research policy. To participate fully in the global economy, national governments are switching to macroorganizational policies that are proactive. The proliferation of strategic alliances among MNCs is creating special challenges to the competition policies of national governments. Now that the relative share of developing countries in the inward direct-investment flows is increasing again, the opening up of the Triad to developing countries may have begun.

This paper shows how European market integration can provide a better environment for European firms and promote the creation of stronger competitive advantages. The first part focuses on how European market integration changes the competitive process and influences both the corporate strategies and the internal organization of European firms. The second part deals with the ways in which the adjustment of corporate strategies influences restructuring within European industries through mergers, acquisitions, and cooperation agreements between firms. The last part compares empirical findings regarding mergers, acquisitions, and cooperative agreements with the theoretical arguments developed in the first two parts of the paper.

Porter's single, home-based, diamond is relevant for larger triad economies like the United States and Japan. For smaller countries a generalized double diamond approach is required. This approach requires analysis of both the home diamond of the small country and the diamond of its largest trading and investment partner. This new framework is applied to Canada and South Korea. The generalized double diamond is a better way to relate foreign direct investment and the role of government to the competitiveness of firms, industries and nations.

Porter's Competitive Advantage of Nations is an important but ultimately unsatisfactory book; while the case studies are fascinating, as a whole the analysis is insufficiently theoretical and not empirically rigorous. The analysis of international competitiveness needs to better incorporate the scientific work of international economics, especially the lasting relevance of the theory of comparative advantage.

Porter's diamond model of national competitiveness is shown to be comparable to the traditional structure-conduct-performance paradigm of industrial economics. Subsequently, empirical findings relating to national competitiveness in the industrial economics literature are reviewed, after a brief review of direct competitiveness measurement. A number of mechanisms with regard to national competitiveness are observed: the negative influence of differentiation on import and export volumes, the attraction of noncompetitive market structures for potential importers, the disciplining effect of imports, and the positive effect of creating economies of scale on the import volume.