MOEA Training Course 2011 Competitiveness of Nations

1. MOEA Training Course 2011Competitiveness of Nations Charles-Henri MONTIN Senior Regulatory expert Ministry of economy and finance France French representative to OECD/RPC montin@smartregulation.net

2. What makes nations prosper? A nation’s standard of living (wealth) is determined by the productivity with which it uses its human, capital, and natural resources. The appropriate definition of competitiveness is productivity. Productivity depends on the value of products and services e.g. uniqueness, quality) and the efficiency with which they are produced. It is not what industries a nation competes in that matters for prosperity, but how firms compete in those industries Productivity in a nation reflects what both domestic and foreign firms choose to do in that location (location of ownership is secondary) The productivity of all “local” industries is of fundamental importance to competitiveness, not just that of traded industries Devaluation does not make a country more “competitive”, rather it reveals a lack of fundamental competitiveness

3. What is competitiveness? • Competitiveness is the productivity with which a nation uses its human, capital, and natural resources • Productivity sets the standard of living • Productivity growth sets sustainable economic growth • Productivity and prosperity depends on how a nation competes, not what industries it competes in • Productivity in the modern global economy arises from a combination of domestic and foreign firms • Relentless innovation is necessary to drive productivity growth and enable the standard of living to rise Technology, products, and organizational methods (source: Porter -2010) See also Wikipedia definition, which includes reservations on the economic validity of the concept

4. Does national competitiveness exist? • Nations compete to offer the most productive environment for business • Legal framework • Market efficiency • The public and private sectors play different but interrelated roles in creating a productive economy

5. External Competitiveness Openness to international trade Regulatory Competitiveness Attractiveness of the domestic business environment Regulation supportive of efficient markets National Competitiveness “policy clusters” Public sector Competitiveness • Investment in infrastructure • Security • Education Dangers: ideological bias (“liberalisation”) lack of economic analysis Source: Weymouth and Feinberg

6. How can governments nurture competitiveness? • Establish a stable and predictable macroeconomic, political, and legal environment • Improve the availability, quality, and efficiency of general purpose inputs, infrastructure, and institutions • Set overall rules and incentives governing competition that encourage productivity growth • Facilitate cluster development and upgrading • Create an explicit, ongoing process of economic change and competitive upgrading which informs citizens and mobilizes the private sector, government at all levels, educational and other institutions, and civil society.

7. Example: the UK national competitiveness programme Based on two principles Maintenance of macroeconomic stability to provide firms with the certainty they need to invest Micro economic reforms to remove barriers that prevent markets from functioning efficiently The “Enterprise Strategy 2008” cites 5 “enablers” of enterprise, on of which is Regulatory Framework

8. The 4 “dimensions” of competitiveness Attractiveness vs Aggressiveness Proximity vsGlobality Assets vs Processes Individual Risk Taking vs Social Cohesiveness These dimensions can combine in national/regional models: Globality + Risk Taking Proximity + Social Cohesiveness

9. Cultural and other factors • Values, which evolve as the economy becomes richer: • Hard work - Wealth • Social Participation - Self-achievement • Behavior models : • “South European”: regulations, social protection • “North European”: stability, social consensus, regulation • “Anglo-saxon” model: deregulation, flexible labour, higher risk acceptance • Technology

10. Selected golden rules of competitiveness (Garelli) A stable and predictable regulatory environment Work on a flexible and resilient economic structure Invest in traditional and technological infrastructure Promote private savings and domestic investment Develop export- drive and attract FDI Quality, speed and transparency of admin action Maintain relation between wage levels and productivity Preserve the social fabric by reducing wage disparity Invest in education and training of work force

11. Determinants of competitiveness (Porter) • Macroeconomic competitiveness: • Social infrastructure and political institutions • Macroeconomic policies • Microeconomic competitiveness: • Quality of business environment • State of development of clusters • Sophistication of company operations and strategy

17. The Irish approach

18. The Irish approach to competitiveness(“essential conditions”) 1. Business Performance • Business Investment • Trade 2. Productivity and Innovation 3. Prices and costs 4. Employment and Labour Supply

19. Irish competitiveness: “policy inputs” 1 Business Environment • Taxation and finance • Regulation and Competition • Social Capital 2 Physical and Economic Infrastructure • Investment in Physical Infrastructure • Transport, Energy and Environmental Infrastructure • Information and Communications Technology Infra. 3 Knowledge Infrastructure

20. Measuring competitiveness • Global Competitiveness Index • World Bank “Doing Business”

21. The Global Competitiveness index

22. Taiwan in the GCI

23. Taiwan in the GCI 2011- 2012

24. Problematic factors of doing business

25. Sub-indexes and pillars • The 12 pillars are grouped in 3 sub-indexes, which are weighted differently according to the stage of development • Basic requirements, key for factor-driven economies (20% in innovation-driven) • Efficiency enhancers, key for efficiency-driven economies (50%) • Innovation and sophistication factors, key for innovation driven economies (30%)

26. Indicators Each pillar comprises a number of indicators, variable from 2 (market size) to 21 (institutions), totaling 114 in 2011- 12 Indicators depend on availability of data, which is collected from public statistic series where information covers, as far as possible, all economies

27. Comment from GCI Taiwan, China remains stable in 13th position, profile nearly unchanged Consistent performance across the pillars of the GCI, • Assets • innovation (9th) • quality and presence of business clusters in high-end manufacturing, first-class R&D, • excellent educational system, • high level of technological readiness (24th) and well-developed infrastructure, with the exception of air transport (51st). • Weaknesses: • rigidity of labor rules (118th, deteriorating) causes inefficiency of market (33rd), • public and private institutions (31st), but improving.

28. Doing Business approach . Taiwan, China

29. Taiwan’s comparative position

30. Taiwan’s current position

31. Taiwan’s assets in global competition • Highly innovative • Strong intellectual property protection • Entrepreneurial • Flexible business culture reacts rapidly • Large pool of researchers • Strong science and technology education, research institutions • Some deep technology clusters in closely related industries • Logistics strengthened In past 10 years • Strong outbound FDI • Gateway to China: strongest democracy, freedom of speech of any Chinese-speaking