Understanding the Need for Competitiveness

Productivity has been found to be the main factor driving growth and income levels. Income levels are closely linked to welfare. Understanding the components that impacts this chain of events is important.

In essence, rising competitiveness means increasing prosperity. The World Economic Forum believes that competitive economies are most likely to grow more sustainably.

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Defining Competitiveness Among Countries

The World Economic Forum defines competitiveness as the "set of institutions, policies and factors that determine the level of productivity of a country."

Another way to view it is to consider how it promotes wellbeing. A competitive economy is productive, leading to growth, increased income levels, and hopefully improved wellbeing.

While the world is getting better at measuring things, there is still no fail-safe way to include a country's environmental record into its competitiveness core. Nor is there a way to measure if and how competitiveness makes people happy.

However, comparing the competitiveness of those economies engaged in monetary stimulus programmes, those with high competitiveness scores were more successful in driving economic growth.

Basic drivers of competitiveness such as infrastructure, health, education, and markets will always be important, but the data suggests that a nation's performance regarding technological readiness, business sophistication and innovation is as important in driving competitiveness and growth.

Leaders of emerging markets need to know that helping their economy succeed is more nuanced than previously thought.

The WEF (World Economic Forum) breaks down countries' competitiveness into 12 areas. These are grouped into three sub-categories.

  1. Basic requirements: Institutions, infrastructure, macroeconomic environment, and health & primary education.
  2. Efficiency enhancers: Market size, goods market efficiency, labour market efficiency, financial market development, higher education and training, technological readiness.
  3. Innovation and sophistication: Business sophistication, and innovation.

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RELATED IDEAS

Even if the economy is growing, income inequality and stagnant wages can make people feel less secure as their relative status in the economy diminishes. Behavioural economists have shown that "our status compared to other people, our happiness, is derived more by relative measures and distribution then by absolute measures. If that’s true then capitalism has a problem.

Economic Free Fall

The current pandemic has led to an economic free fall which is unparalleled in history. In the US alone, the unemployment rate plummeted at such a speed that more than 10 million have claimed unemployment insurance in a matter of three weeks.

With over 30 percent of the U.S. population expected to be unemployed by this summer, and the GDP shrinking at a faster rate that the Great Depression of the 1930s, the current situation is uncharted territory, even for the experts.

This blog is a follow up to the recent event ‘The global housing crisis and the home ownership myth’ . The event is part of IIPP’s ‘Who owns what and why’ series. The recording of the event can be watched here .

A ccording to the IMF, the Covid-19 pandemic triggered the deepest global recession since the Great Depression of the 1930s. Millions of people have lost their jobs or been furloughed, while thousands businesses have been pushed to the edge of bankruptcy.

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