This ‘Competitiveness’ Thing Is a Scam
This ‘Competitiveness’ Thing Is a Scam
What is ‘competitiveness’? It’s an important part of the euro area leaders’ negotiated terms in the July 21st Summit announcement by the European Heads of State. The first paragraph, #4, and #11 of the announcement all refer to this issue of ‘competitiveness’:
We also reaffirm our determination to reinforce convergence, competitiveness and governance in the euro area.
create a Task Force which will work with the Greek authorities to target the structural funds on competitiveness and growth, job creation and training.
All euro area Member States will adhere strictly to the agreed fiscal targets, improve competitiveness and address macro-economic imbalances.
It’s not totally clear what they mean by ‘competitiveness.’ However, I note that they separate the term ‘competitiveness’ from ‘macro-economic imbalances’. Current account imbalances across the region should be included in addressing ’macro-economic imbalances’.
Therefore, it’s bigger than the OECD definition of international competitiveness – measure of a country’s advantage or disadvantage in selling its products in international markets.
See, ‘competitiveness’ is an elusive concept that is often associated with relative price movements, real exchange rates, or openness to international trade. But if we look at a May 2011 speech given by German Finance Minister, Wolfgang Schäuble, what he (and by association, the Germans) thinks of ‘competitiveness becomes more clear (h/t Marshall Auerback and bold by yours truly):
“All Eurozone governments need not only convincingly demonstrate their commitment to fiscal consolidation but also to increasing competitiveness to restore confidence of markets as well as their citizens.
Besides, one does not resolve one’s own problems of competitiveness by asking others to become less competitive and one cannot permanently close the gap between expenditure and income by asking others for more money.
the Eurozone has to put additional emphasis on strengthening the competitiveness of all its members. Consumption developments, bubbles in housing markets and the accumulation of external and internal debt in some Member States deepened the impact of the crisis and constrained the capacity to respond. This is why a new procedure for detecting and correcting economic imbalances will be introduced. This procedure will concentrate on curing the root causes of macroeconomic deficits by forcing Member States to ensure a high level of competitiveness.
Competitiveness is about strong macro-prudential policy, infrastructure, efficiency and income gains, saving, etc. Schäuble used the word ‘comopetitiveness’ 14 times in this speech – it’s an important part of his (and perhaps more broadly Germany’s) vision of the euro area’s structural construct. After reading the speech, you realize ‘competitiveness’ isn’t just about international trade and exports, it’s about the efficiency of an economy as a whole.
Now we’re on to something. The World Economic Forum measures competitiveness as a composite of various factors that describe institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation (.pdf link here, and composite technicals listed on .pdf page 49). The chart below illustrates the rankings of the euro area 12 and the USA (for comparison) as measured by the percentage of countries that rank below it across 142 developing and developed economies (.pdf page 15).
(Click to enlarge chart)
In 2011-2012, Germany ranks #6 out of 142 countries, where 95 of the 142 countries are less competitive than Germany. Also ranked below Germany is every euro area economy except Finland. So when a German finance minister says that he wants economies to increase competitiveness, he’s effectively saying that he wants economies to be more German. From the bottom up, countries should reform their education, financial markets, business sophistication, innovation, etc., all the while emulating those institutions in Germany.
Better put: being asked to increase competitiveness is really a scam to get these economies to become more ‘German’. If I were Italy or Spain or even Ireland (who by the way is very open but less ‘competitive’ according to this measure), I’d have a problem with that.
originally published at The Wilder View…EconoMonitor
“’s not totally clear what they mean by ‘competitiveness.’ However, I note that they separate the term ‘competitiveness’ from ‘macro-economic imbalances’.”
Err, yes, becuase “competetiveness” is a micro concept. not macro.
Cost of labour (or capital etc) compared to output of labour (or capital etc).
Union dominated, high wage, Detroit is un “competetive” as compared with not union, lower wage, “not Detroit”. The history of the US car industry writ large.
Ah yes. Those high paid union workers scuddled Detroit and caused the autombile buyers to run and buy those high priced Japanese models instead of the crap that the Detroit engineers were designing and Detroit was building. And the Germans sold all those high priced cars because their labor was so cheap. Detroit built crap through out the 70s, 80s and 90s. That’s why they went belly up. Unadulterated crap in comaprison with what the Japanese and Koreans were building. So too in comparison with the Germans where labor never came cheap. You had a choice. A Cadillac or a Benz, BMW or even an Audi. The Caddy was crap from design to build quality.
But it was the uncompetitive labor cost that sunk Detroit. Tim have you anything else to offer in addition to such bull shit.
Even after perceived build quality went up in Detroit, they didn’t build cars that were small and high-mileage. Instead, they exploited a loophole and built SUVs which no one but Americans would buy, thereby destroying their own ability to sell to the world. We would have done both Detroit and ourselves a great favor by tightening up the regulations and forcing Detroit to build the cars we ought to be making.
The failure of the Detroit OEMs is most certainly not tied to the Cost of Direct Labour unless of course you happen to believe Dephi’s Miller and his $78/hour. Perhaps, it was fully burden with the underutilized facilities underutilized because of a flawed build to inventory sales plan and the numerous models which were too heavy and powered by large engines. Detroit OEMs have had the bad habit of missing the market wave on earlier occassions.
Your concept of the cost of direct labor has not existed since the sixties and since then it has continually shrunk with the more labor intensive being sourced overseas 🙂 and productivity gains from greater efficiencies which have not gone to Labor but instead to capital.Gettelfinger when he testified in front of Congress (which I heard) had it correct when he stated the cost of direct labor has shrunk to ~10%.
Detroit is not necessarily uncompetitive because of its direct labor costs as much as the overhead which exists in this country as compared to China where it exists in a lesser amount.
What new domestic OEM plants are you aware of today? I know of none. Most of these old dinosaurs are built for the very same vehicles as what Nissan and Toyota has introduced in the Tundra and Titan (such machismo in those names). Before Wall Street dragged the economy down and crashed Main Street, the OEMs did have in place plans to close many of these plants and implemented new entry level wages besides the thousans of white and blue collar layoffs.
China luvs those Buicks and big vehicles as well as Germany. Its not what I would propose as a good business mdel because it ignores the inevitable, higher and higher oil prices resulting from bith the oil and refining cartel.
The point isn’t what types of vehicles will or won’t sell around the globe today. The point is that the unions don’t deserve the blame for the crap that Detroit tried to sell its own domestic customers. Detroit went down in flames because they failed to compete in quality and design. There is just so long that you can sell crap before the buyers get the hint and turn to other providers. But I guess that its just too easy to blame labor and say that unions make our labor uncompetitive. Bull shit!!!
The Germans sell what they make with their expensive labor and high taxes because they make products that the world respects. When is America’s management corps going to accept their complicity in destroying the US economy having started with its industry.
“We also reaffirm our determination to reinforce convergence, competitiveness and governance in the euro area.”
Ah! The World Cup! 😉
“All euro area Member States will adhere strictly to the agreed fiscal targets, improve competitiveness and address macro-economic imbalances.”
We can improve competitiveness and address macro-economic imbalances by letting Greece get the first draft pick. 😉
exactly what i was thinking.
The euro-dictators mean by competitiveness: cut wages and benefits.
from what i can tell that is your understanding of the whole purpose of the economy. it is written: labor shall not enjoy the fruits of its labor.
Min: “We can improve competitiveness and address macro-economic imbalances by letting Greece get the first draft pick.”
I think you are on to something. But wait, LaRue Martin happened.
“Mercedes-Benz U.S. International (MBUSI) is a Mercedes-Benz automobile manufacturing plant near Vance, Alabama. It is located about 34 miles (55 km) miles west of Birmingham and about 19 miles (31 km) miles east of downtown Tuscaloosa. The factory was announced in 1993 and produced its first vehicle, a ML320, in February 1997.“
“From its inception to 1999, the president and CEO of MBUSI was Andreas Renschler. When he was promoted to Head of Global Executive Management Development for DaimlerChrysler, he was succeeded by Bill Taylor. Taylor has announced his resignation and effective June 2009 was succeeded by Ola Kaellenius who himself is succeeded by Markus Schaefer in July 2010.”
“Daimler announced in December 2009 that it will move production of the Mercedes-Benz C-Class to its Vance plant, with production beginning in 2014.”
And how is that important to the argument? M-B builds one of their cars in the US because it sells most of those cars in the US. What has that got to do with cost of labor vs quality of engineering as factors in the success and profitability of a product. I didn’t say that American workers couldn’t build good cars. That M-B decided to b uild in Alabama is no surprise given that all producers will look for the least expensive open space and labor. That doesn’t address the issue. Nor does that suggest that M-B might not have made a profitable car any place else in the US.
Thanks for the m eaningless reply. Your par for the course.
Obviously you have yet to figure out the difference between a factory in Alabama and a Factory in Detroit.
sure I have. from your post i learn it is 19 miles (31 km) east of Tuscaloosa, demonstrating your sure grasp of the essentials of the argument.