Competitiveness: From a Dangerous Obsession to a Welfare Creating Ability with Positive Externalities

The attempt to define the term “competitiveness of nations” has reached the phase of decreasing returns. Fortunately, the literature seems to be converging slightly, a tendency, we hope to accelerate. We propose (1) defining competitiveness as “the ability of a country or location to create welfare.” We maintain (2) that a comprehensive evaluation contains an output evaluation and a process evaluation. We claim (3) that the output evaluation (competitiveness achieved) is closely related to a welfare assessment, with a specific slant and stepwise operationalisations. Furthermore, (4) process evaluation (investigating the ability) is related to the analysis of production and technology functions, adding qualitative elements like strategies, and the strengths and weaknesses of a country. This consensus is at variance with the concept of price competitiveness; it sidelines the importance of external balances, while the productivity approach to competitiveness is nested within. Dangerous obsessions and wrong policy conclusions can never be excluded, but are much less likely if we use this approach to competitiveness—as compared to concepts focusing on price competitiveness or on external balances. Specifically, the greater competitiveness of one country must not necessarily go hand in hand with lower competitiveness in other countries. In advanced countries specifically, policies promoting the ability to create welfare will create positive spillovers into other economies. Copyright Springer Science + Business Media, LLC 2006