Competitiveness as a government strategy
by Luis Garicano on 22 September 2010
The recent Global Competitiveness Report from the World Economic Forum is very concerned with Spain. In the elaborate ranking provided by the WEF, Spain has fallen 9 places, dropping from a mediocre 33rd to a clearly poor 44th in the world. Some of the countries that have more "competitiveness" than Spain: Qatar, Saudi Arabia, UAE, Malaysia, Chile, Iceland, Tunisia, Kuwait, the Czech Republic, Bahrain, Thailand... Truly, these rankings should be taken with a grain of salt, given that sometimes it is just perceived performance that determines the ranking more than objective factors (and some of these obviously have gotten worse in Spain), but in this case the report has enough credibility, not only for being directed by Xavier Sala-i-Martin, but also for the information it offers in various sub-categories. And if it is true that we are less competitive than Tunisia and Thailand? Can we accept less than developing-nation status? What should we do if not?
In order to put Spain onto a path of sustainable growth, the future leaders of Spain should announce their commitment publicly with this tool (or another similar) as a way to measure their progress in the short turn until the vaunted "new productivity model". Shortcuts of the "we will have the first electric car" type are useless, as they will create an island of development in a desert. We see what we need in each specific area (more about this below), and we will have reaching a competitiveness level similar to the countries we want to be like as a goal: the first 10 on the list (Switzerland, Sweden, Singapore, the United States, Germany, Japan, Finland, Holland, Denmark and Canada). Use of a metric would allow us to simply evaluate the different ministries and departments - it would simply consist of notes measuring the progress in each of these areas using the selected models.
The report addresses (similarly to the article by Sala-i-Martin et al. p3) "measuring the factors that foster sustainable economic growth and prosperity." And for this reason we define competitiveness as "the group of institutions, policies and factors that determine the level of productivity of a country" (p4 of the report). The institutions, policies and factors are broken down as Institutions, Infrastructure, Macroeconomic Environment, Health and Primary Education, Higher Education, Goods, Labor and Financial Markets, Technology, Market Size, Business Complexity and Innovation. This seems reasonable and complete, in the sense that it addresses all of the factors experts (Sala-i-Martin among them, summarized - for example - in this famous report) have highlighted. The authors consider the five primary factors to be the development base, the markets that determine efficiency, and the last two factors that determine innovation.
Spain is behind in many areas. The analysis is on pages 304 and 305 and re-iterates many of the topics we have discussed here often. Institutions are a disaster (ranked 53rd); why?: the weight of regulation (110th in the world, which speaks for itself), the efficacy of the judicial system, etc. A bright spot: an excellent police force; primary education: 93rd in the world - completely unacceptable; quality of the education system: 107th in the world; labor market, 115th in the world... With numbers like these, Spain is a country heading towards stagnation, that much is clear. And yes, as you have questioned in the comments, with good reason, the methodology etc. But I think that if it is indeed as it looks, there are some huge problems in many areas that need to be addressed soon, and pretty much everything in two areas: the regulatory and education systems.
How to we get ourselves out of this hole? I think that we can't develop a strategy of any type without a system of measurement that will allow us to determine whether we are improving or not; and I think the Global Competitiveness reports are a means to do this.
In the business world there isn't any doubt that strategy requires translating grand ideas into concrete and measurable goals. Allow me to provide an example. Southwest Airlines wants to be an airline with excellent service and low cost. This is their strategy; if there weren't ways to quantify this and bring it down to earth, it wouldn't help anything. Which operational objectives have been chosen to execute their strategy? (1) More frequent flights and (2) increased utilization of each plane's capacity (full airplanes). If these two objectives are achieved, customers will be happy and cost will decrease (higher utilization, in a business that is purely capital, is the same as lowering cost). How will we achieve these objectives? Three ways (1) choose routes where it is possible to have at least 5 flights per day going and returning ((round trips -trans)); (2) resupply and prepare an airplane to fly again 20 minutes after landing; and (3) avoid delays during takeoff and landing, ensuring that landing is within 10 minutes of initial approach (we're not going to speak of flying into Heathrow).
Given the above, SWA has transformed from an unknown with little credibility (in terms of good service and low cost) ((into a major player -trans)) using a solid strategy as a base for development of an intermediate objective and then achieving it with operative measures. And another thing: SWA doesn't try to be everything to everyone. To give you an idea, SWA is like EasyJet, being an airline that treats you well but is entirely spartan (not like Ryan Air, who like to pick on). They have chosen not to fly many desirable routes in order to stick to the key elements that allow them to turn around planes in 20 minutes.
For Spain, it is necessary to be reasonable about who we want to be (Finland? Singapore?). Announcing this loudly is necessary in order to bring all parts of society together behind these goals. And then, and this is most important, translating this abstract idea into a concrete measure. And here is where I think that indicators like those from the WEF, or those from the WB ((World Bank --trans.)) or the OECD can be very useful. It is beneficial to describe government objectives for each area centered on improving in key dimensions, and to do so quickly. Is this possible? Yes. Finland, after a very severe crisis in the late 80s, charged up its batteries (?) and did it; Chile as well, has separated itself from its much less successful hispanic neighbors.
If Spain wants to return to growth, its leaders should decide that competitiveness is a strategic objective, support it with a large social consensus, and choose a set of individual metrics for measuring progress until it has risen to the top of the WEF rankings.
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