My friend Ben Ticehurst points out that a certain phrase seems to have crept into John Howard’s vocabulary lately. It seems the PM can’t stop talking about Australia’s “competitive advantage“.
While the term “competitiveness” means something when applied to firms, the analogy is misleading when applied to nations. The best case for this was made by Paul Krugman, in a 1994Â piece that began:
Almost nobody — in business or government — would disagree with this statement: “Today America is part of a truly global economy. To maintain our standard of living, we must learn to compete in an ever tougher world marketplace. That’s why high productivity and product quality have become essential. We need to move the economy into high-value sectors that will generate jobs for the future. And the only way we can be competitive is if we forge a new partnership between government and business.”
The problem is: It’s baloney. In reality, there is almost nothing to our fixation with national competitiveness, or its central idea — that every country is like a giant corporation slugging it out against rivals in global markets. The U.S. and Japan are simply not competitors in the same way that, say, Ford competes with Toyota. Any country’s standard of living depends almost entirely on its own domestic economic performance, and not on how it performs relative to other countries. That’s not just my view; it’s what most economists think.Â
My advice is to consider a proper understanding of the real relationship between productivity and competitiveness as a kind of test of the reliability of supposed experts, in and out of government. The issues involved are not hard to sort out — we’re not talking quantum mechanics here. So if you hear someone say something along the lines of “America needs higher productivity so that it can compete in today’s global economy,” never mind who he is, or how plausible he sounds. He might as well be wearing a flashing neon sign that reads I DON’T KNOW WHAT I’M TALKING ABOUT.