Competitiveness and the USA

One year ago, HBR gave ways to fix capitalism. Its special report in the coming March 2012 issue will be about restoring US competitiveness. Wikipedia defines competitiveness as “a comparative concept of the ability and performance of a firm, sub-sector or country to sell and supply goods and/or services in a given market“. Instead of comparing the USA directly against other countries at competitiveness level, Michael Porter (the same one, yes) and Jan Rivkin take it indirectly, re-defining the USA as “a competitive location to the extent that companies operating in the U.S. are able to compete successfully in the global economy while supporting high and rising living standards for the average American“. In their article, they give several examples of what the competitiveness of the USA is and what it is not. Two videos on show interviews from American CEOs on the biggest threat to US competitiveness and potential solutions from businesses. These videos enumerate a list of items that either cause problems or could solve the said issue (sometimes, an issue can also be a solution) and are a light summary of what is written in the paper.

Following Porter and Rivkin, there are a number of economic performance indicators going in the wrong direction: reduced productivity, disappearing job growth, slowly growing wages, unfavorable international trade and investment balance and finally, a lack of confidence of American managers for the future. Unfortunately these indicators are part of what constitutes competitiveness:

  • From a macro perspective, a competitive nation requires sound monetary and fiscal policies (such as manageable government debt levels), strong human development (good health care and K–12 education systems), and effective political institutions.
  • From a micro perspective, a competitive nation exhibits a sound business environment (including modern transport and communications infrastructure, high-quality research institutions, streamlined regulation, sophisticated local consumers, and effective capital markets) as well as strong clusters of firms and supporting institutions in particular fields, such as information technology in Silicon Valley and energy in Houston.

(directly from the article)

Although this comes from interviews with HBS alumni, it goes in the same direction as the last Global Competitiveness Report (2011-2012) from the World Economic Forum. In this report the USA continue to lose its leadership position in competitiveness (they are now 5th behind Switzerland, Singapore, Sweden and Finland). America’s most problematic factors are the tax rates and regulations, its inefficient government bureaucracy and the access to financing. Government debt is also a big issue.

Porter and Rivkin don’t really give any solution. But they conclude that actions should be taken. And in the video interviews, some CEOs seem to have ready-made plans (e.g. thinking more locally, engaging in public-private parnerships, lobbying the US government to make the right changes, promoting continuous self-learning, investing in public goods, etc.).

But in the end, does it matter?

The main “opponent” to the competitiveness concept is Paul Krugman. In a 1994 paper, he argues that countries do not compete with others the way corporations do. And somehow, by defining the competitiveness of a country (here, the USA) by the competitiveness of its companies, Porter and Rivkin aknowledged that Krugman was right on this point. Back to Krugman’s paper, one may use productivity as the main component of a country economic welfare, but not competitiveness. And he finally also highlight the fact that using competitiveness risks distorting the quality of domestic economic policies (with a detailed example of the health care reform undertaken during the Clinton administration).

This reminds me of Prof. Gerooms’ course on Economics where he introduced Ricardo’s law of comparative advantage. Basically this “law” says that every country is gaining from trade (thus introducing a bit more than “just” competition). And when one digs a little bit more, one will find criticisms of this law by Porter (again), in 1985 (Ricardo was from the 19th century), when he introduced the competitive advantage. Everything is interconnected … I’m wondering if professors will address this issue of competitiveness during the trip to the USA …

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