Economic competitiveness:
matters but not as
an end in it - it matters because nations that are more competitive are more
productive, and are therefore more able to provide for the social needs of
their people. The world has changed dramatically over the last decade, and
measuring the factors that determine competitiveness continues to be a highly
complex process. That’s why in order to calculate the World Economic Forum’s Global Competitiveness Index we use
hundreds of different measures and consider many factors. It’s certainly true
that the Fourth Industrial Revolution – new, rapidly changing technologies in
many different fields – has changed the way we need to measure some aspects of
competitiveness, particularly in relation to innovation and ideas. We need to
stress, for example, the value of ideas and collaboration within companies; the
values of open-mindedness, of connectivity, and the value of an entrepreneurial
spirit. Once we have an idea, is it easier to implement in country A or country
B?
Growth before goals
Even so, the concept of competitiveness remains unaltered: it is
a combination of the factors that determine the productivity of a nation, which
are both the foundation of a nation's standard of living and its engine of
economic growth. Most importantly, the result is that the most productive
countries are able to afford all the factors that are not directly connected
with competitiveness, but are crucial to the well-being of a population.
Equitable income distribution is one important example. There is no example of
any country in the history of the world that has achieved these vital social
goals without economic growth. So while growth, per se, is not the objective -
and is not, in itself, enough - it is a necessary condition if countries are to
achieve these other social aspirations that are so desirable.
The World Economic Forum also publishes an index called the Inclusive Development Index. Its measurements
include growth, social inclusion, and national equitable income distribution.
There is a very clear correlation between the Inclusive Development Index and
the Global Competitiveness Index, meaning that it's only if you are productive,
only if your economy is competitive, that you are also able to develop socially
desirable features, such as inclusiveness. Over the past 10 years we have seen
four major trends in the world that all need to be considered, discussed and
dealt with.
1. The productivity paradox
Global productivity is not growing as
fast as it used to be; it has slowed down. This is a paradox because the world
has seen extremely rapid technological innovation. How is it that all these new
technologies are not resulting in higher productivity? This is a question many
economists have pondered over the last decade. There are several possible
explanations. One is that the innovations are simply not making us more
productive. The major innovations associated with the first and second Industrial
revolutions, such as the steam engine, the internal combustion engine and
domestic machines (like the washing machine), dramatically changed the way we
produced goods. We became far more productive. It has been argued that today’s
innovations may be cool and nice to have – we may have better-looking smart
phones that allow us to play Pokémon GO, for example – but that’s not
particularly productive. That’s one explanation for this productivity paradox.
A second explanation is that today’s innovations are making people’s jobs
obsolete. Imagine you have spent five years studying how to process airplane
tickets by hand, understanding the airline codes and so on. Then, almost
overnight, this process is automated and your skills become worthless. This is
happening over and over in different professions: machines can calculate
accounts, for example, or tax returns, and accountants are no longer needed for
these tasks. A further explanation for the lack of productivity is that we have
made mistakes over the kind of investments we have made. The fact that interest
rates have been extremely low has meant that we have been able to invest vast
amounts of money, but perhaps these investments have not been especially
productive, or useful.
Another possible
cause is that the population is ageing in Asia, Europe and the United States.
And as the population ages, obviously it becomes less productive, and we have a
higher proportion of people who aren't productive at all.
The final explanation – and the one I favor – is that we don’t
measure GDP correctly, and in order to measure productivity levels accurately
you certainly have to measure GDP in the right way. GDP measures the value of
goods and services produced in a country over a year. This worked fairly work
well when our economies produced goods (like potatoes or cars) where we can
multiply the price of potatoes by the amount of potatoes produced and add the
amount of cars, multiplied by their price, to arrive at the total value of what
is produced in a country.
But in today’s world we have so many innovations that produce
things that are free. To the national accounts, the value of the services
Google provides to its users – its contribution to GDP – is zero, because those
services are free. The contribution of Facebook and Twitter’s services are also
zero. But Google makes my life easier in significant ways. We no longer have to
go to the library to search for hours for the documents we need, for example;
but the productivity we have gained by using Google’s search engine is not
counted at all. This is the case with many innovations - and so it could be
that a large element of GDP is going undetected, and that economies are
actually growing a lot faster than we think. In fact, evidence suggests that global
we are missing as much as a full percentage points a year: instead of growing
at 2%, we are growing at 3%. Compounded over years, this is a huge difference.
2. The Fourth Industrial Revolution
The appearance of very disruptive technologies has been
incredibly rapid. If we go back 10 years, the iPhone didn’t even exist. We have
seen huge developments in artificial intelligence, new materials, synthetic
biology, big data and on-demand technologies, and all these are changing the
business landscape at a planetary level.Significantly, many of these
innovations did not occur in those countries where technology used to be
produced almost monopolistically. It is no longer the case that only the US and
Europe innovate; the new industrial revolution has created opportunities for
nations across the globe. This is a hugely important trend.
3. Growing income
inequality
There has been great
convergence over the last 40 years between economies, and the incomes of the
citizens who live in emerging markets have continued to grow faster than those
who live in advanced economies. Income inequality at the global level has
therefore been decreasing.However, despite this, we have seen rising income
inequality within countries. So while incomes in China are getting ever closer
to those in the US, Americans relative to each other are moving further apart.
This is partly a consequence of the Fourth Industrial Revolution, which is
taking away middle-class jobs.
This is different from previous industrial
revolutions, which essentially benefited the poor. People moved from low-paid
agricultural jobs to better-paid ones in the city and in previous industrial
revolutions the far slower pace of change meant that, although people did lose
jobs, they gained them somewhere else. They had time to adapt. That is not the
case any more. And because technological changes are now so rapid and the
middle classes suffer as a result, there are political consequences, notably
the current waves of populism: Trump, Brexit, Le Pen, the rise of neo-Fascism
and leftist movements in Europe are examples.
4. A massive increase in the working population
The fourth trend, which we discuss in the Competitiveness
Report, is that over the last few decades 4 billion people, especially people
in Asia, have entered the world’s labour market. These people are highly
skilled, well trained and educated, and they have taken jobs from developed countries.
This has also contributed to populism, and was one of the main complaints of
those who supported Donald Trump or Brexit – "We are losing jobs to
foreigners."The consequence has been a backlash all over the world against
trade, against globalization; and a dangerous strand of neo-nationalism has
emerged.
What is needed?
It is vital, then, that we change labour policies in the West.
It is increasingly clear that we need to combine flexibility with job security,
because it is also increasingly clear that these two are not incompatible. The
strategy in many countries has been to have less job security in order to
compete. Policies have stripped workers’ rights in order to have more
flexibility in the workforce. And this has been a mistake. You can have more
flexibility AND security. This is the way some Nordic countries have been
heading, and their unemployment rates are almost zero. The idea is that we need
to protect workers, and this does not necessarily mean protecting their jobs.
To do so, we need to find ways to help those workers who lose their jobs to
find alternatives. This may mean more active retraining policies rather than
policies that protect the old jobs. We need to rethink this combination of
flexibility and security, so that we can create jobs in the West while
enshrining rights that protect workers.
If we don’t, we are
going to see a further rise in nationalism, fascism and populism.
All this is why competitiveness, and the idea that countries
should develop competitiveness, is more vital than ever. It is only through
being competitive that we will have the means to address these four big trends.
If we do not address them correctly, with a lack of resources, we will have
more of the unfortunate consequences that we have already seen emerge.
Albert Sngi Lyngdoh
Independent Analyst.
21.07.2019
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