Politics of competitiveness


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Lecture on the Politics of International Competitiveness for Emeriti House, Indiana University, October 16, 2013

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Politics of competitiveness

  1. 1. The Politics of International Competitiveness Jeffrey A. Hart October 13, 2013
  2. 2. Contact information Department of Political Science Woodburn Hall 210 Bloomington, IN 47405 Tel: (812) 855-9002 Email: hartj@indiana.edu Web: http://mypage.iu.edu/~hartj
  3. 3. My books on this topic:    Rival Capitalists (1992) Managing New Industry Creation (2002) Technology, Television, and Competition (2004)
  4. 4. What is International Competitiveness?  Means something different at the national level than at the firm or industry level  Economists tend to equate national competitiveness with changes in productivity  Industry analysts tend to look at:  Profitability and market share data  Frequency of industrial crises  Creation of high value-added employment
  5. 5. World Economic Forum Definition We define competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. Source: WEF, Global Competitiveness Report 2013, p. 4.
  6. 6. GCI Top Twelve 2013
  7. 7. WEF on US Competitiveness
  8. 8. US Problematic Factors
  9. 9. Critique  The World Economic Forum approach is based on conservative economic notions of competitiveness and undervalues the importance of technology and innovation.  Industry-level approaches are less susceptible to these failings, but may not aggregate well to national level assessments.  It may be more reasonable to assert that problems of competitiveness are regional rather than national.
  10. 10. Laura Tyson’s Definition of Competitiveness A nation’s competitiveness is the degree to which it can, under free and fair market conditions, produce goods and services that meet the test of international markets while simultaneously expanding the real income of its citizens.
  11. 11. Declining Labor Costs in the US, Japan and the Euro Area
  12. 12. Problems of International Competitiveness in the 1980s  Conflict between the US and Europe over wide body jets (Airbus v. Boeing)  Trade conflicts between the US and Japan over autos, semiconductors, and other industries  Conflict over exchange rates (mainly US v. Japan)
  13. 13. Global Production Share Data For the Steel, Motor Vehicle, and Semiconductor Industries
  14. 14. The Rise of Asia  Japan, the countries of Southeast Asia, and China rapidly in manufacturing competitiveness  Their per capita GDPs rose sharply also  In some high technology industries, however, the US and Western Europe remained dominant (e.g. biotech, aerospace, pharmaceuticals)  Asians are now making great efforts to catch up in these industries also (e.g. flat panel displays)
  15. 15. Production Shares of TFT LCDs by Location, 1993-2005, in percentages Source: Thomas Murtha, Stefanie Lenway and Jeffrey Hart, Managing New Industry Creation (Stanford, Calif.: Stanford University Press, 2001) updated.
  16. 16. Competitiveness as a Political Issue after the Financial Crisis of 2007-8  In the US, the main problem is currently defined politically in terms of competition with China.  In Europe, the relative competitiveness of different countries and regions in Europe is combined with concerns over competition with China.  As in the 1980s, there is resistance in the US and Europe to further liberalization of trade.
  17. 17. Competitiveness as a Political Issue  People on the Right look primarily at price competitiveness without considering issues of productivity and quality of employment.  People on the Left are more concerned with wages and the quality of employment.
  18. 18. Left-Right Differences over Enhancing Competitiveness Right Left Role of the state Minimal Pro-industrial policies Importance of relative labor costs High Low Macroeconomic strategies Austerity budgets Deficit spending Technology The state is incapable of picking winners The state should promote innovation: infrastructure, education, and R&D spending Taxation Reduce rates Enough to pay for the above
  19. 19. Key Questions  Is it possible for governments to promote the growth and development of high-tech industries?  If so, when and where, and under what conditions?  When is industry-promotion “unfair”?  Use of subsidies to gain market advantage  State trading (diplomacy used to promote trade unfairly)  Suppression of wages by restrictions on the ability of trade unions to organize and bargain  What is the importance of macroeconomic variables such as the exchange rate that are controlled to some degree by national governments?
  20. 20. Industrial Policies  Includes a wide variety of policy instruments that are intended to advance the international competitiveness of “national champion” firms, such as:     Investment subsidies Public R&D expenditures Science parks and free trade zones Export incentives
  21. 21. Theoretical approaches:  Neoclassical (industrial policy is bad and counterproductive)  Regulatory State (regulation necessary for markets to work properly, but industrial policy is still bad)  Developmental State (industrial policy is useful for catching up)  Competition State (industrial policy has to take globalization into account)
  22. 22. The Developmental State vs. the Regulatory State Developmental Regulatory Type of Bureaucracy Elite, Insulated Transparent, Accountable Support for New Industries Extensive Limited Use of StateControlled Banks Extensive Limited Stance w/regard to Private Firms Tutellary Regulatory
  23. 23. The Impact of Globalization on National Economic Strategies  To remain internationally competitive, firms have adopted global production strategies  Need to be present in countries with high growth rates of domestic demand  Even regulatory states have to compete for inflows of foreign direct investment  Developmental states cannot succeed with pure national champion strategies
  24. 24. Example of GM in China  2010 sales of 2.3 million vehicles in China  World-class production facilities (joint venture with SAIC)  Modified Buick as a chauffeur-driven luxury car  Not competing with low-end national champions like Geely
  25. 25. Globalization in Motor Vehicles  Demand has shifted to Asia, and especially to China  US and European demand is fairly flat  So growth in global demand is increasing thanks to higher sales in Asian and other developing countries  GM can remain ahead of other producers only by servicing those markets