Characterizing and defining “competitiveness” is not a job for a novice, so we will take a look at what the World Economic Forum says.

Competitiveness is a pretty amorphous term. Dictionary definitions such as that from Merriam-Webster (e.g., 1. relating to, characterized by, or based on competition) don’t help much in defining, for example, the U.S. in terms of global competitiveness.

Complicating the matter are countless articles which, somewhere in their headlines, include the term ‘competitiveness.’ Such articles lead to interesting yet also controversial places, such as automation. Why is automation controversial? As opposed to the doom and gloom one might hear on the nightly news, ‘productivity’ in the U.S. has soared thanks to automation. In a Fortune article from 2003, for example, entitled Will ‘Made in USA’ Fade Away, we see that “The problem for American workers is that factories are experiencing huge gains in productivity — companies now need far fewer employees to churn out all those cars and steel slabs and machine tools.” Continued advances in technology, equipment, and methodology — such as lean manufacturing — will certainly make factories even more productive. Depending on what seem to be largely personal beliefs or political leanings — with ‘statistics’ existing to back up either side — automation has been a productivity godsend, a major factor in unemployment rates, or a damn good reason to ‘repurpose’ millions of displaced workers. Or, all of the above.

Commentary about U.S. competitiveness — even as brief as that which is contained here—cannot be continued even from its early stages without the question, “What about China?” According to an article at BusinessWeek Online entitled America’s Fall in R&D: “Nobody Cares,” only a few days old at the time of this writing, parallels are sometimes drawn between Japan and China. The article includes an extensive interview with National Semiconductor CEO Brian Halla, who “sees a dire emergency in U.S. tech prowess.” Halla says, “Five years ago, I talked with a peer CEO friend of mine who dismissed the China threat by saying he had heard it all 20 years before, with Japan. But Japan is a tiny island that ran out of people very quickly, and their cost of wages dramatically exceeded the U.S.’s. Second, Japan had to obey our laws, because the U.S. market was the only market, and so when it came to dealing with anti-dumping legislation, they had to obey, because they had to sell here. But it’s different with China. They have a total addressable market of 400 million upper- to middle-class spenders they can sell to without ever having to touch the U.S. And another thing China has done, just like we did during the Industrial Revolution: learning from the mistakes of others who have gone before you, and also learning from the things that work.”

Competitiveness certainly involves more than higher sales and margins, greater market coverage, global distribution channels, employment levels, trade deficits, R&D spending, national budget deficits, and even standard of living. Perspectives and determining factors of competitiveness range from micro (economic behavior of individual consumers, firms, and industries) to macro (studying the entire economy in terms of such things as goods and services produced, total income earned, and general price behavior).

Factors determining the competitiveness of a nation are of both a breadth and specificity that, likely, only economists and finance PhDs will ever truly understand. For example, Augusto Lopez-Claros of the World Economic Forum, an organization who recently launched the Global Competitiveness Report 2005-2006, says in the Executive Summary of that report, “… One must also ask: Does the government maintain an arm’s-length relationship with respect to the private sector, or does it play favorites? Does the judicial system allow for the reason- able, expeditious, transparent, and low-cost settlement of disputes, or is justice for sale? Is tax revenue channeled back into the economy through productivity-enhancing investments in human capital and infrastructure, or is the money wasted on inefficient projects, or, what is worse, mostly stolen? Is the regulatory environment hampered by unnecessary layers of bureaucracy and red tape, reducing competitiveness and raising the costs of transactions and operations? How efficiently are new technological innovations absorbed, and is attention being paid to constantly upgrading the country’s educational system? Does the country engage with the outside world with openness and self confidence, or with fear and ambivalence? What is the role of property rights and institutions?”

So, it’s safe to assume that ‘competitiveness’ goes far beyond issues of, for example, automation and even employment — or relative lack thereof. From this hack’s eyes, it seems that competitiveness isn’t a measure of output, but a status report of a given society.

How’s the U.S. doing?

According to our ranking in the latest Global Competitiveness Report, we’re doing very well, remaining in the No. 2 spot behind leader Finland. Finland?? Yup. Why? Back to that Executive Summary, “Finland maintains its position at the top of the ranking. The country owes its strong showing to one of the most innovative business environments in the world, particularly critical to driving productivity in the country, given its advanced stage of development. This is coupled with a very healthy macroeconomic environment, at a time when many other industrial countries are struggling in this area. The willingness of Finnish governments to run budget surpluses, so as to be able to meet future social commit- ments linked to the aging of the population is particularly impressive. This approach to macroeconomic policy high- lights a degree of political maturity in Finnish society worthy of emulation. Furthermore, Finland has an institutional environment that is among the world’s finest: the business community operates in a climate of respect for the law, unusually low levels of corruption, and an openness and transparency which other countries would do well to study.”

Okay, so what’s this guy got to say about the U.S.? “The United States is ranked second, its strong performance attributable to its continuing technological supremacy, and a pipeline of innovation second to none in the world. The U.S. has companies that are aggressive in adopting new technologies, and spend heavily on research and development. However, the country’s technological prowess is offset by its significantly weaker performance in other areas measured by the index, in particular aspects of the macroeconomic environment. This is not surprising in the context of intensifying international concern regarding macroeconomic imbalances in the country, especially in the area of the public finances.”

Getting back to Micro/Macro 101, the U.S. knows its individual consumers, firms, and industries very well, but we need some work on the economy as a whole — which clearly involves everyone from consumers to business to government.

There you have it. Have your beliefs — or gut instincts — been confirmed by global economy wizards?

(By the way. China was ranked 46th in 2004 then lost a few spots, moving to 49th in the latest report. Interestingly, India moved up from 55th to 50th.)

I’d still like to see the U.S. sit in that #1 position for awhile. A long while.

References

World Economic Forum
https://members.weforum.org/site/homepublic.nsf/Content/Homepage

The Global Competitiveness Report 2005-2006: Policies Underpinning Rising Prosperity
http://www.weforum.org/site/homepublic.nsf/Content/Global+Competitiveness+Programme%5CGlobal+Competitiveness+Report

Or to purchase:
http://www.amazon.com/gp/product/1403998442/002-7388591-3240032?v=glance&n=283155&v=glance

Executive Summary: The Global Competitiveness Report 2005-2006
(PDF)
http://www.weforum.org/pdf/Global_Competitiveness_Reports/Reports/GCR_05_06/Executive_Summary

Will ‘Made in USA’ Fade Away
http://www.saveyourfactory.com/FORTUNE-Will%20Made%20in%20USA%20Fade%20Away.pdf

America’s Fall in R&D: “Nobody Cares”
http://www.businessweek.com/technology/content/oct2005/tc2005104_9029_tc121.htm