Lecture on the Politics of International Competitiveness for Emeriti House, Indiana University, October 16, 2013

1. The Politics of
International Competitiveness
Jeffrey A. Hart
October 13, 2013

2. Contact information
Department of Political Science
Woodburn Hall 210
Bloomington, IN 47405
Tel: (812) 855-9002
Email: hartj@indiana.edu
Web: http://mypage.iu.edu/~hartj

3. My books on this topic:
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Rival Capitalists (1992)
Managing New Industry Creation (2002)
Technology, Television, and Competition (2004)

4. What is International
Competitiveness?
 Means something different at the national level than at
the firm or industry level
 Economists tend to equate national competitiveness with
changes in productivity
 Industry analysts tend to look at:
 Profitability and market share data
 Frequency of industrial crises
 Creation of high value-added employment

5. World Economic Forum
Definition
We define competitiveness as the set of
institutions, policies, and factors that
determine the level of productivity of a
country.
Source: WEF, Global Competitiveness
Report 2013, p. 4.

7. GCI Top Twelve 2013

8. WEF on US Competitiveness

9. US Problematic Factors

10. Critique
 The World Economic Forum approach is based on
conservative economic notions of competitiveness and
undervalues the importance of technology and
innovation.
 Industry-level approaches are less susceptible to these
failings, but may not aggregate well to national level
assessments.
 It may be more reasonable to assert that problems of
competitiveness are regional rather than national.

11. Laura Tyson’s Definition of
Competitiveness
A nation’s competitiveness is the degree to
which it can, under free and fair market
conditions, produce goods and services that
meet the test of international markets while
simultaneously expanding the real income of its
citizens.

12. Declining Labor Costs in the
US, Japan and the Euro Area

13. Problems of International
Competitiveness in the 1980s
 Conflict between the US and Europe over wide
body jets (Airbus v. Boeing)
 Trade conflicts between the US and Japan over
autos, semiconductors, and other industries
 Conflict over exchange rates (mainly US v.
Japan)

14. Global
Production
Share Data
For the Steel,
Motor Vehicle,
and Semiconductor
Industries

15. The Rise of Asia
 Japan, the countries of Southeast Asia, and
China rapidly in manufacturing competitiveness
 Their per capita GDPs rose sharply also
 In some high technology industries, however,
the US and Western Europe remained dominant
(e.g. biotech, aerospace, pharmaceuticals)
 Asians are now making great efforts to catch up
in these industries also (e.g. flat panel displays)

16. Production Shares of TFT LCDs by Location, 1993-2005, in
percentages
Source: Thomas Murtha, Stefanie Lenway and Jeffrey Hart, Managing New
Industry Creation (Stanford, Calif.: Stanford University Press, 2001) updated.

17. Competitiveness as a Political Issue
after the Financial Crisis of 2007-8
 In the US, the main problem is currently defined
politically in terms of competition with China.
 In Europe, the relative competitiveness of
different countries and regions in Europe is
combined with concerns over competition with
China.
 As in the 1980s, there is resistance in the US
and Europe to further liberalization of trade.

18. Competitiveness as a Political
Issue
 People on the Right look primarily at price
competitiveness without considering
issues of productivity and quality of
employment.
 People on the Left are more concerned
with wages and the quality of employment.

19. Left-Right Differences over
Enhancing Competitiveness
Right
Left
Role of the state
Minimal
Pro-industrial policies
Importance of relative
labor costs
High
Low
Macroeconomic
strategies
Austerity budgets
Deficit spending
Technology
The state is incapable of
picking winners
The state should
promote innovation:
infrastructure, education,
and R&D spending
Taxation
Reduce rates
Enough to pay for the
above

20. Key Questions
 Is it possible for governments to promote the growth
and development of high-tech industries?
 If so, when and where, and under what conditions?
 When is industry-promotion “unfair”?
 Use of subsidies to gain market advantage
 State trading (diplomacy used to promote trade unfairly)
 Suppression of wages by restrictions on the ability of trade
unions to organize and bargain
 What is the importance of macroeconomic variables
such as the exchange rate that are controlled to some
degree by national governments?

21. Industrial Policies
 Includes a wide variety of policy
instruments that are intended to advance
the international competitiveness of
“national champion” firms, such as:


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Investment subsidies
Public R&D expenditures
Science parks and free trade zones
Export incentives

22. Theoretical approaches:
 Neoclassical (industrial policy is bad and
counterproductive)
 Regulatory State (regulation necessary for
markets to work properly, but industrial
policy is still bad)
 Developmental State (industrial policy is
useful for catching up)
 Competition State (industrial policy has to
take globalization into account)

23. The Developmental State vs. the
Regulatory State
Developmental Regulatory
Type of
Bureaucracy
Elite, Insulated
Transparent,
Accountable
Support for New
Industries
Extensive
Limited
Use of StateControlled Banks
Extensive
Limited
Stance w/regard
to Private Firms
Tutellary
Regulatory

24. The Impact of Globalization on
National Economic Strategies
 To remain internationally competitive, firms have
adopted global production strategies
 Need to be present in countries with high growth
rates of domestic demand
 Even regulatory states have to compete for
inflows of foreign direct investment
 Developmental states cannot succeed with pure
national champion strategies

25. Example of GM in China
 2010 sales of 2.3 million vehicles in China
 World-class production facilities (joint
venture with SAIC)
 Modified Buick as a chauffeur-driven
luxury car
 Not competing with low-end national
champions like Geely

26. Globalization in Motor Vehicles
 Demand has shifted to Asia, and
especially to China
 US and European demand is fairly flat
 So growth in global demand is increasing
thanks to higher sales in Asian and other
developing countries
 GM can remain ahead of other producers
only by servicing those markets