Tuesday, May 17, 2005

The absurdity of competitiveness

What is it about our love for ranking nations according to their “competitiveness”? To me, these lists, such as the one published by the Word Economic Forum (WEF), seem totally useless. Basically, the rankings are nearly identical to an ordered list of income per person. Which is rather tautological: the richer you are, the more competitive you are and vice versa. Duh.

Part of the problem, of course, is that “competitiveness” has many meanings, as this excellent article explains. Yet, even if we agreed upon on a specific definition, it is a flawed concept. John Kay tells it like it is:

Interest in national competitiveness is an extension of interest in the competitiveness of companies. Competitive businesses are able to offer goods or services more attractive than those of their rivals through lower costs or better products.

But the analogy between individual businesses and national economies doesn't quite hold.Companies that are not competitive disappear. Countries that are not competitive don't. These nations still need to import, and their exchange rate falls until they become competitive again. Every country that trades internationally is competitive in some areas - the things it exports - and uncompetitive in others - those it imports. This principle of comparative advantage has been a foundation of economic analysis for 200 years.