Why ‘competitiveness’?

“The notion of the competitiveness of countries, on the model of the competitiveness of companies, is nonsense.”
– Martin Wolf, chief economics commentator, Financial Times.

Whole governments and societies have been subverted by the notion that – as U.S. President Bill Clinton once put it – a nation is “like a big corporation competing in the global marketplace.”

This website explores our obsession with this kind of ‘competition’ and so-called ‘competitiveness.’

How, exactly, do countries – or units like individual states inside a federation – ‘compete’ with each other? Is it a good idea to have a ‘competitive’ tax system? Who wins and who loses when a country sets out to have a ‘competitive’ financial sector? What are the implications when countries ‘compete’ internationally on wages policies?

And what do these c-words actually mean, in practice? Is it what our politicians think they mean, when they say ‘we must be competitive?’

Once you start looking for these c-words, you will find them (and a few other dog-whistle wordseverywhere. In the areas of tax, financial regulation, corporate governance, wages policy, financial transparency, monetary policy, and many others.

To oppose an internationally ‘competitive’ tax system, for example, has come to be seen as being as bad as opposing motherhood, or apple pie. Policy makers, fearful of becoming internationally ‘uncompetitive’ become paralysed: unable or unwilling to respond appropriately to domestic economic challenges such as setting up fair tax systems or implementing appropriate financial regulation or wages policies.

And this isn’t just a passive, generic force in the world economy. These c-words have proved fantastically useful tools for for scaremongering, to force governments to give special privileges for mobile global capital. The outcome is often a race to the bottom in a wide range of areas, providing an ever-expanding cornucopia of subsidies and opportunities for the wealthiest and most powerful members of society in all countries.

Emerging work in the field of tax suggests that the race to the bottom is particularly harmful for poorer countries.

Yet these fears are usually misplaced, even from a purely self-interested national perspective. The intellectual foundations of the dominant ‘competitiveness’ agenda rest on elementary economic fallacies and confusions: when the concept is unpacked, it tends to fall apart in one’s hands, as the U.S. economist Paul Krugman noted in a seminal 1994 essay entitled “Competitiveness: a Dangerous Obsession.”

Financial deregulation or corporate tax-cutting or wage-suppression in pursuit of national ‘competitiveness’ have not generally proved useful ways to increase prosperity or improve the long-term welfare of populations, particularly in larger economies.

In the words of Martin Wolf, chief economics commentator for the Financial Times:

“The notion of the competitiveness of countries, on the model of the competitiveness of companies, is nonsense.


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