National Economic Growth and Competitiveness

National Economic Growth and Competitiveness

Chap 2.2

1. Meaning and Intro

2. Porter’s Diamond / Porter and National Prosperity

3. Krugman’s Criticism on competitiveness

a. Dangerous Obsession

b. “meaningless”

c. “misleading”

4. Comments by other Academics

a. Francis Fukuyama

b. Robert Reich

c. Laura Andrea D’Tyson

5. Critique on Krugman

6. Conclusion

1. Meaning and Intro

Porter wanted to find out why US was losing its competitiveness, and why

- Japan was strong in automobiles

- US strong in Chemicals

- Switzerland strong in pharmaceutical

- Germany strong in Machines

- Etc

The classical economic theorists were unable to explain.

Porter put forth his theory on Competitive Advantage of Nations, according to him; it is the diamond factors that determine the nations’ competitive advantage.

2. Porter’s Diamond Factors

Firm Strategy, Structure and rivalry

Free Market -> increased competition.

Eg. In Japan, highly aggressive competition for most industries (cars, consumer elec, cameras, semi-conductors)

Role of Govt

a) deregulation

b) privatization

c) Diminish role of Govt-Linked-Coys (GLC) eg. GIC, Temasek Holdings

Related and Supporting Industries

Agglomeration Economies -> inter-related firms

Porter refers to Italian industry for leather goods like shoes and bags to illustrate cluster.

In Singapore: Oil related firms

- Port

- Oil Refineries

- Manufacturers of oil rigs

Role of Govt

Support Private Sector cluster development

- Invite world class coys

- Infrastructure

- Support R&D

- Training

- Location of related firms

Eg. Life Sciences in SG

Demand Conditions

Having sophisticated consumers -> High level of demand and expectations

This pushes firms to produce better goods at lower prices.

Eg. Japanese Camera industry

Role of Govt

Factor Conditions

Helps to allocate the resources of the countries efficiently

These include

- basic wages – unsustainable -> likely to rise

- advanced structure – infrastructure – state of the art : port, IT , roads, buildings

- Capital market that is vibrant

- R&D that is Govt led

- Education, research, training and development

Role of Govt