Is National Competitiveness Possible in an Era of Globalization in Retreat?

• Author: Ali, Abbas

INTRODUCTION

The focus in the literature, in the context of competitiveness, is on the firm. Since the early days of the debate on the subject, which intensified in the1980s, firms received special attention as engines for growth and wealth creation. Many economists and journalists, especially during the Reagan era (1981-1989), celebrated the demise of the Soviet Union and fiercely claimed that the triumph of the free market economy was/is the predictable outcome of the soundness of private enterprise. The debated-on competitiveness, therefore, was steered toward underscoring the indispensability of a free market economy in generating wealth and lifting prosperity for people around the world. Subsequently, various countries in the third world and in Eastern Europe espoused a free market economy, engaged in privatization, and encouraged MNCs to invest there.

In underscoring the role of firms in creating competitiveness and in being competitive, economists either overlooked or denied the existence of national competitiveness. Among them was Krugman (1994) who argued that there is no national competitiveness. He asserted that competitiveness at the national level is "elusive" and "meaningless" and that an obsession with it "is both wrong and dangerous." While the objective here is not to debate whether national competitiveness exists, it should be pointed out that the national environment is essential for the rise of firms and for achieving competitiveness. Indeed, it is impossible for any firm to be competitive if the home market is characterized by the absence of political stability, a middle class, and law and order. Furthermore, in the last four decades we have witnessed the rise of various measures for national competitiveness. These measures have undergone serious refinement and have provided pragmatic views on the subject.

Among early scholars who underlined the role of a national environment in achieving a competitive position are Porter (1990) and Reich (1990). Porter argues that a nation's home environment plays a critical role in sustaining competitiveness. That is, the role of the nation has to grow rather than decline in order to facilitate a competitive advantage. Reich (1990), on the other hand, stresses the role of the nation in creating an environment conducive to growth and technological breakthrough. Therefore, he asserts that the overriding goals of any government are to induce global corporations to build human capital in the home market and to upgrade the skills and learning of its workforce. For both Porter and Reich, competitiveness is achieved through active participation in the global marketplace.

OBSTRUCTING NATIONAL COMPETITIVENESS

The arguments above underscore the fact that no nation is immune from losing its competitiveness if the right conditions do not exist. Among these conditions are attractive environments for investment, market openness, attracting talent irrespective of where they come from, promoting and encouraging entrepreneurship, safe and secure environments for corporations, sound domestic and foreign policies, and active participation in international trade. These factors are necessary for achieving competitiveness both for corporations and nations. Without competitiveness, some nation's most likely weaken their...