Bolaji Olawoyin

The word count for this essay is 1637 words including references. This figure excludes the cover page

The word count for this essay is 1637 words including references. This figure excludes the cover page
COMPETITIVENESS
BSM018

This essay will discuss competitiveness of countries and account for a competitiveness indicator the United States (US), a member of the Organization of Economic Cooperation Countries (OECD) performs strongly in. It will also look at two competitiveness indicators where US underperforms and suggests ways in which such indicators could be improved. In addition to this, it will consider to what extent international practices match economic theories. First, the term competitiveness, and various methods used to measure it will be discussed. The second section will examine one competitiveness indicator in which the US excels. Two competitiveness indicators in which the US underperforms will be explored in the third section, and in particular, ways in which these indicators could be improved. Finally, the extent to which current practices match theories will be discussed.
There is no accepted definition for the term “national competitiveness and it has become a much-debated concept. Clark and Tracey (2004) argued that the definition of competitiveness is one of the many unresolved debates posing significant challenges to contemporary academic inquiry and policy-making in the field of globalization and economic integration. Equally, Chursin and Makarov (2015 p.4) note that “with reference to an economic entity, market participant, economic process, etc., the meaning of competitiveness is interpreted in terms of the purposes, problems, and the content of the study”. In other words, “competitiveness is a concept that is widely but not consistently used and that can be analyzed at various levels - by groups of countries, industries, and firms” (Hughes 1993 p.1).
Similarly, different organizations have employed the use of different methodologies to define countries competitiveness. Organizations such as the International Institute for Management Development (IMD) and World Economic Forum (WEF) publish competitiveness reports on a yearly basis. IMD’s competitiveness methodology divides the national environment into four main factors and allocates the same weight in overall consolidation of the result to each factor regardless of the number of criteria it contains (IMD 2015). On the other hand, WEF’s Global Competitiveness Index (GCI) rating is grouped into 12 pillars of competitiveness. Unlike IMD, WEF places increasingly more weight on those areas that are becoming more important for the country’s competitiveness as the country develops (Schwab 2014). Furthermore, Reiljan, Hinrikus and Ivanov (2011 p.14) note that “each entity’s competitiveness should be examined according to the factors most vital to the survival of the entity in its specific competitive environment”. For this reason, this essay will rely on WEF’s global competitiveness reports to determine the performance of competitiveness indicators.
The US is classified as an innovation-driven economy and the key competitiveness pillars for such economies are the level of business sophistication and innovation (Schwab 2014). According to WEF (2015), one of the United States’ major strength is its exceptional innovation capacity which is ranked 4th in the world. The country’s innovation capacity is driven by unique collaboration between firms and universities (2nd in the world). It also ranks 4th on availability of scientists and engineers, and 3rd on company spending on Research & Development (WEF 2015). An example of the country’s innovation capacity is the advancement that has been made in Shale-gas and oil production. According to Lund et al. (2013), the production of domestic shale gas and oil has grown more than 50 percent annually since 2007. Furthermore, the shale boom could add as much as $690 billion a year to GDP and create up to 1.7 million jobs across the economy by 2020. Similarly, the US also leads the charge in patent applications. According to World Intellectual Property Organization (WIPO), (2013), China and US drove strong growth in patent applications filed worldwide. It is without doubt that US exhibits exceptional innovative capacity.
Conversely, the US underperforms in its macroeconomic environment where it ranked 96th in the world (WEF 2015). The stability of the macroeconomic environment is important for business and, therefore, is significant for the overall competitiveness of a country (Schwab 2014). The US recorded a trade deficit of $48.3 billion in August 2015, up $6.5 billion from $41.8 billion in July coupled with large amount of external debt of $6.7 trillion (Trading economics 2015). In addition, the United States recorded a Government Debt to Gross Domestic Product (GDP) of 102.98 percent of the country's GDP in 2014. However, the budget deficit has been narrowing since the onset of the financial crisis. It recorded a budget deficit of $439 billion in fiscal 2015, lower than a $483 billion gap a year earlier (Trading economics 2015). To improve its macroeconomic indices, the US would require change in fiscal policies. Other policy changes that could improve competitiveness on the long run are; raising revenue through Value Added Tax (VAT), raising the Social Security retirement age, reforming the corporate tax code, and phasing out the mortgage-interest deduction (Vietor and Weinzierl 2012).
Another competitiveness indicator where the US underperforms is its institutional environment, which is determined by the administrative and legal structure within which individuals, firms, and governments interact to generate wealth (WEF 2015). A major cause for concern is the business cost of fighting terrorism and crime which is ranked 114th and 77th in the world respectively (WEF 2015). Additionally, the government can do more, to reduce its wasteful spending which ranked 75th in the world. Furthermore, a good chunk of government’s funding is been spent on health care insurance and other entitlements which does little to directly enhance competitiveness (Vietor and Weinzierl 2012). To improve its institutional environment, the US will have to embark on a range of reforms to improve productivity which must include addressing high health and social security costs. Additionally, in other to improve productivity - which requires improving human capital, increasing physical capital or using these forms of capital more efficiently, the US government must be willing to spend more on infrastructure such as Public education and Public funded R&D (Vietor and Weinzierl 2012).
Theories of national competitiveness match what is obtainable in practice to a reasonable extent. These theories were developed by policy-makers who applied the concept of firm-level competitiveness to national competitiveness. Firm-level competitiveness theories believed, if there were no competition, markets would not be as efficient and there would not be any pressure for improvements and innovations of goods or services offered (Berger 2008). By doing so, policy makers typically proclaim that nations can be “competitive‟ and thus follow policies for fostering national competitiveness on the regional and national level, although many scholars rejected the application of the term competitiveness in the national context (Berger 2008). However, countries have been using national competitiveness concept as a basis for productivity comparisons. For instance, OECD takes account of competition across the range of its policy advice and encourages governments to assess their own policies for opportunities to enhance competition. Not only that, OECD held a delegation on lifting or imposing restrictions on member countries in respect to violation of specific policy interventions (OECD 2015). Similarly, competitiveness reports published by international organizations such as the IMD and WEF are used increasingly by policy makers to evaluate their countries’ performance internationally and to inform policy directions. On the contrary, disparity in methodologies employed by these organizations in developing these reports suggests that national competitiveness is more of a subjective way rather than an objective way of measuring countries performance. For example, according to WEF (2015) US is ranked third most competitive country out of 144 countries while IMD (2015) ranked US the most competitive country in the world. This disparity has not stopped countries from showing increasing interests in utilizing national competitiveness theories to ensure they stay competitive and relevant in international scene.
In conclusion, there is no pure competitiveness theory as such, but different concepts have been developed to provide a framework for competitiveness. Equally, organizations and institutions do not share identical views on methodologies used in measuring competitiveness. The IMD and WEF annual competitiveness reports are two of the internationally recognized competitiveness reports. The US is highly competitive due to its exceptional innovation capacity. However, to further increase her competitiveness, the US macroeconomic environment would require several policy redirections as it currently underperforms in this pillar of competitiveness. Similarly, the US can do more in its institutional environment where there is a general perception that the government spends its resources relatively wastefully. Clearly, there is a close match between national competitiveness theories and current practices in the world.

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