The ‘competitiveness’ of a country can be taken to mean many things.
Many people, such as Martin Wolf or Paul Krugman, have argued forcefully that it is a meaningless or dangerous concept. Others argue that – on another level – it’s a question of language: you can make national ‘competitiveness’ mean whatever you like.
But there is a common use of the term out there — what we at FG call the Competitiveness Agenda — which accepts a particular meaning for what it means for a country or state to be ‘competitive.’
The Competitiveness Agenda
This involves special pleading to bestow perks (such as tax cuts, or financial deregulation) on Capital and its owners, on the basis that if they aren’t pampered they will flee to other more hospitable jurisdictions. (Whether they would actually do this is another matter: the point here is that the scaremongering is often effective in extracting subsidies for Capital.)
The Competitiveness Agenda creates a range of generic harms, categorised below: click on one to see our articles.
Lower economic growth
Tax Justice Network on how tax wars redistribute wealth upwards.
In a nutshell, capital is mobile across borders; but workers aren’t. So governments feel pressured to cut taxes on mobile capital, which ultimately, and in aggregate, means cutting taxes on wealthy people. Poorer people must pay higher taxes or suffer degraded services as a result.
More financial instability
The basic proposition here is that globe-trotting financial institutions are constantly seeking the most amenable regulatory environment, where they can make maximum profits at the expense of taxpayers elsewhere (via the famous ‘taxpayer backstop.’ To ‘compete’ for these big financial institutions’ business means to offer them, in a nutshell, relaxed financial regulation. Which means, in the long run, more financial instability.
For a wide range of stories about how tax havens (the ultimate fruits of the Competitiveness Agenda) damage financial stability, see the Tax Justice Network’s dedicated page, with numerous links.
Bigger "too big to fail" banks
Less competition, more monopoly
The basic proposition here is that the pursuit of national ‘competitiveness’ along the lines of the Competitiveness Agenda – that is, showering subsidies on capital and the owners of capital, for fear that they will flee elsewhere – will tend to boost larger firms (which are generally more internationally mobile) at the expense of smaller firms, thus reducing genuine competition in markets.
Or, to put it crudely, the pursuit of national ‘competitiveness’ reduces market competition.
March 2016 – An interview with Martin Hellwig: competitiveness as doublespeak
Nov 2015 – Do ‘competitive’ corporate tax cuts boost growth? Including a section on how corporate tax cuts have tended to boost larger firms at the expense of small firms.
More crime and fraud
In general terms, the Competitiveness Agenda requires capital and the owners of capital to be pampered with subsidies and other goodies, for fear that they will flee to more hospitable jurisdictions. Naturally, this applies to prosecution of financial wrongdoing: a jurisdiction that doesn’t prosecute bankers is likely to attract many of (the worst kinds of) them. For an introduction to this topic, see this.
Damage to SMEs
Damage to labour and jobs
July 2015 – Labour standards and the race to the bottom
Damage to innovation
Too big to fail banks
Corporate cash hoarding
Nov 2015 – Do ‘competitive’ corporate tax cuts boost economic growth? Looking at how these cuts boost unproductive corporate cash hoarding. With a handy graph.
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