Do nations
compete?
There has been a long-standing, ongoing controversy in the literature as to whether nations compete internationally, or is it the case that only individuals, firms, business units, and enterprises located within national boundaries compete with each other internationally? The reason for the controversy is that when individuals, firms, business units and enterprises compete for international trade they are definitely engaged in a zero-sum game in which the winner-takes-all. When this occurs then one firm’s gain is at the expense of others. However, from the perspective of nation states, engagement in international trade is based on comparative advantage, which produces synergies. That is, all nations gain from the greater specialization trade makes possible, even though some may gain more than others. The bottom line remains, however, that based on comparative advantage, every nation engaged in international trade is a winner. If a nation believes it will be a loser, then the rational response is to refuse to trade.
The perspective that nation states compete internationally has been criticized from two principal standpoints. First is that if nations are characterised as competing internationally, there is a great danger that governments will adopt a mercantilist approach to the global economy. This would be logical as the international economy will be an arena, in which, if other countries gain, it will be at their expense. If this holds true, what is called ‘beggar-thy-neighbour’ policies such as competitive devaluation, competitive movements in interest rates, export subsidies, and trade restrictions become rational responses to the winner-take-all dilemma posed by global trade.
The second standpoint is that recent concerns over national competitiveness arose in business schools in North America and Europe, where the primary focus is on corporate strategic analysis in the typical context of firms fighting each other to expand their market shares and hence profits at the expense of each other. This is truly a zero-sum game situation of winner-take-all, that firms face regularly in international trade.
If truth be told, this controversy stretches far back to the eighteenth century and the early Classical economists (Adam Smith and Ricardo) who created the basis for the first modern statement of comparative advantage as the basis for international trade. Their approach was in direct refutation of the mercantilist approach to trade, which prevailed at the time. Because of this clouded theoretical base it is important that readers make the effort to understand the method employed by the World Economic Forum (WEF) in its approach to measuring national competitiveness. In my opinion it successfully avoids the pitfalls mentioned as it portrays national competitiveness as the contextual environment in which individuals, firms, business units, and enterprises operate internationally.
Definition of national
competitiveness
In the 2007/2008 Report the WEF states:
“We define competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the sustainable level of prosperity that can be earned by an economy
