The word “competitive” is popping up in conversations these days more often than its use is warranted. It is, therefore, important that we formulate a good understanding of its meaning especially that people often use it not to express the complex ideas it carries but use it as an ID card to gain entry into an ongoing debate where they contribute a huge amount of noise and very little substance.
To begin with, we must understand that the word competitive can carry a different meaning depending on where it is used. For example, when we say: “This product is competitive,” the word means something different from when we say: “This worker is competitive.” In the first instance, we assume that several products have the same quality but that the price of one is cheaper than the others; therefore we deem it to be the most competitive. As to the second instance, when we say that a worker is competitive, we make the mistake of imagining a superhuman being that has the ability to consistently produce goods and/or services of the highest quality, and do so in record time each and every time. We then compound the mistake by attributing the ability of this one being to the entire workforce he supposedly represents.
To enter into a debate having only a superficial understanding of the word competitive is an approach that diminishes the value of the debate and sends it in the wrong direction, a situation that results in the formulation of false conclusions. To avoid this outcome, we must acknowledge at the start that only a potential buyer can judge whether or not a product is competitive; not a disinterested party such as a journalist, an analyst or an economist. And this is because to be competitive is not a quality that is intrinsic to the product but a judgment that is colored by the relative status of the buyer. For example, a wealthy buyer to whom money is no object will deem a product or a service to be competitive when it is of high quality regardless of the price. On the other hand, a buyer with modest means will deem a product or a service to be competitive if he can afford it regardless of its quality.
As to the competitiveness of a worker, much will depend on the work that is being done and the circumstances in which it is done. For example, the work can be as simple as cutting trees with an ax. In this case, a healthy and physically strong man or woman will be more competitive than a weak one because – all else being equal -- they will cut more trees. But if the work is done with a machine, the worker that has experience using this machine will be more competitive whether or not they are physically strong. But how do we judge the entire workforce to which that man or woman belongs? Here again, the answer will depend on the assumptions we make at the start. Several examples follow to illustrate this point.
First example. You own a firm that employs ten lumberjacks. Everyday you sell as much lumber as they cut. An outfit that fabricates a tree-cutting machine wishes to sell you its product and sends someone over to show you what the machine can do. The demonstration goes well and you are satisfied that two individuals with the machine will do the work of ten strong and healthy lumberjacks; a five fold improvement. At first, there will be no doubt in your mind that the switch from manual to mechanized will render your firm more competitive than before because each of your employees will become five times more productive. But on second thought, it dawns on you that you will have to pay for the machine, pay for its maintenance and pay for the fuel it will use. You work out the math, taking these realities into account, and find that a good part of what you save on wages will go to pay for the new expenses. In the final analysis you see that you will not be five times more competitive but maybe just twice – and possibly acquire negative side effects as well.
Second example. You are that employer and the ten lumberjacks in your employ are members of your immediate family. If you mechanize your operation, you will not let them go but will keep them in the house and support them just the same. You will, however, be paying for the machine, the maintenance and the fuel. Thus, you begin to understand that unless you find a market that is large enough to absorb more of your lumber (preferably five times as much as before to keep everyone employed) you will not be employing all of your people and you will not fully benefit from having mechanized your operation. Yes, each of the two employees remaining on the job will be five times as competitive as before but as a family unit, you will not be. In fact, you may now think of the family business as indicating “moribund” on the scale of competitiveness. And this is never a pleasant state in which to find yourself.
Something else will crop up to add to your sense of unease. It is that having mechanized the business, your lifestyle will have to change to suit the times. Now earning a little more than before, you will also spend a little more to accommodate the new lifestyle; a sign that says you have a higher standard of living. Paradoxically, however, you will have lost the ability to make ends meet each month or save some money -- which you could do before. And this is a sign that says you now have a lower standard of living. To be richer yet poorer at the same time will weigh on you and drag your spirits down in a way you never imagined. The unpleasant feeling is compounded and you dream of the good old days when life was simpler.
Third example. Despite all this, you decide that you must catch up with the times and you proceed to mechanize the operation anyway. This done, you go look for new markets to sell your lumber but find none because other firms did the same as you. The result is that you all managed to create a glut of lumber on the market, and you have triggered a price war that turned the blessings of mechanization into a curse. Many of the firms are now threatened to go out of business – yours among them -- and you frantically search for a way to save your firm and your family. You hit upon the idea of creating new markets -- not for lumber -- but for new products that will be made of wood. To avoid having to face another competition early on, you judge that the products you make will have to be something that no one made before. This means in the final analysis that to stay in business in this new world, you must innovate and keep pushing the bounds of innovation further and further all the time. And this is not a very practical thing to do.
Fourth example. You are in charge of a high wage, industrially advanced nation that is holding its own in the capital intensive, high value-added industries but you are challenged in the labor intensive, low value-added industries because of a price cutting competition that is coming from the emerging nations. Companies in your jurisdiction are going out of business as a result, and people are being laid off in droves. You respond by gathering your best thinkers in the field and commission them to study the situation and offer solutions. They do just that and come back with the following options to choose from.
First option. You are made aware of the fact that contrary to popular belief, the work in the developing countries is not all done manually but done with off-the-shelf automated machines that are cheap to buy and friendly to operate because to make them has become a well understood and mature industry. These machines produce large quantities of goods whether they are located in the advanced nations or the developing ones. The difference is that the price of the goods they produce is kept low in the developing nations because of the low wages paid to the workers there. Thus, to compete against these people, you must automate even more the already automated low value-added industries in your country.
But if it is possible to do this -- which is not always the case – and you go ahead and do it, you will create a glut of goods on the market while absorbing very little of your laid off workforce, a move that will tend to make matters worse not better. And the optic will be that while the workers who hold a job have become more competitive as individuals, the nation as a whole has not for the same reason that mechanization did not make the family of lumberjacks more competitive but made it look moribund. And do not forget that sooner or later, the emerging nations will get their hands on the new super-automated machines; and they too will develop a super competitive workforce to stand against yours. This solution just won't work in the medium or long runs.
Second option. You realize that being an advanced economy at the leading edge of science and technology, you already have an infrastructure of venture capital houses where ideas in the head of an individual are picked up, financed and developed into useful products or services that the public will want to buy. But you wish to speed up the process and so, you offer government financial incentives to encourage your people to innovate faster by rewarding those who do. The intent here is to develop new products and new services for markets where you (as a country) will meet little or no competition – at least for a while. Of course, you understand that someone will catch up with you eventually and will force you to innovate again till someone catches up yet again and so on without end. But you go ahead and offer the incentives to innovate anyway.
The trouble with this option is that government encouragement may be a useful thing in the emerging nations where they lack the infrastructure to pick up an idea in someone's head and develop it into a useful product. Thus, the helping hand of the government can fill a void and do good in such cases. But when it comes to the developed nations, the hand of the government almost always proves to be more toxic than benevolent because it bypasses an existing structure that grew organically over the decades, and threatens its integrity. When left alone the infrastructure functions well but it tends to come to a halt when the government encroaches on its turf. Indeed, the involvement of the government attracts the unworthy charlatans who usually have no good ideas to sell and no public that hungers to buy them. But these people know how to walk into the lobby of power and how to cruise the corridors of the incompetent and corrupt bureaucrats who hand out the money. And where the charlatans go with this money, the venture capitalists leave it and take flight because they know what will come next and they dread it. Many end up going offshore to get away from the artificial climate of a home that can no longer be called sweet home.
Third option. If and when sectors of your economy can no longer compete against the developing nations of the Third World, you must admit to yourself that you have become two nations in one: You are an advanced nation when it comes to the leading edge industries, and you are a Third World nation when it comes to the other industries. To avoid responding to the situations in a schizophrenic way, you do not impose on the Third World portion of your economy the policies that apply to the advanced portion, and vice versa. Instead, you treat the various sectors with an approach and a psychology that suit each of them.
To this end you will let the private sector handle the low value-added industries but you will help protect these industries by negotiating new trade deals with the rest of the world. The aim will be to recognize that while competition is a good thing for humanity, cutthroat competition is not a panacea that will save the human race. Thus, the negotiators will agree that every nation has the right to protect its struggling industries so as to gain a share of its own market and maintain a percentage of it – perhaps 25% to 30% of the local market. It is only logical to want to do this; and doing it will be an antidote to cheating which is hard to detect but something that happens all the time. In return for this gain, the nations will be forbidden to export the products that come under protection. For example, if America wants to protect its textile industry, it can do so but it cannot export textiles. To succeed at obtaining an agreement of this kind, you will argue in world forums that you too have a problem of unemployment and potentially one of social unrest that must be addressed the way they are in Third World nations because a Third World nation is what you have become in these industries.
This done, you will use every tool you have in your tool kit to protect those industries -- from raising the import duties on similar products imported from abroad to subsidizing your own industries directly and indirectly. One additional measure you can take will be to allow the businesses to pay their employees less than the minimum wage by calling them apprentices no matter their age. The social service agencies will then step in and make up for the difference so as to raise the income of these people to a level that will give them a decent life, encourage them to stay on the job, offer them opportunities to learn new skills and help them move on to a regular job at a regular pay.
As to the advanced sectors of the economy, you will let the venture capitalists and the marketplace decide which innovations will be developed and when they will be. But if the need will arise to develop an idea that is national in scale, that will take a very long time to complete or that is beyond the ability of the private sector to handle alone – like, for example, the construction of the highway system, the landing on the moon or the construction of a high speed rail -- then the government can step in and partner with the private sector to work with it or simply lend financial support to the firms that will subcontract the associated projects.
All in all, you do not need workers with superhuman abilities that can crush the competition and help you survive economically. And you do not need to see your workers labor like bees to maintain an economy that gives everyone in the country a decent life. What you will need is a smart finger on the pulse of the economy; one that will give you accurate information at every moment. And you will need the courage to describe truthfully what you see, thus communicate the right message to your assistants.
When this happens, you will be aware of the problems as soon as they appear and before they grow too big or too difficult to solve. In fact, the solution to each problem will suggest itself early on and you will deal with it right away before the bad things can accumulate. And you will never have to take a drastic action to save the economy because you will never neglect it so much as to let it reach this stage.