Getting to the Bottom of ‘Competitiveness’

By Kevin Hassett, Director of Economic Policy Studies, American Enterprise Institute (AEI)

“Competitiveness” is a word that politicians and policymakers love to use but that gives economists fits. While we frequently hear calls to take action to enhance national competitiveness, there is rarely much specificity about what “competitiveness” means; there is just a sense that should the nation falter in adopting wise policies, it will fall behind its peers.    

While there is no single accepted definition of competitiveness, there are plenty of aspirants. There is even a small industry that constructs indices of competitiveness that reflect factors such as the skills of a nation’s workforce or the quality of its infrastructure. But this approach has been derided by others, most notably trade economists, who argue that the analogy of winning a competition, while fine for sports or business, is inapt for nations. Nations do not “lose” or go out of business; they just continue performing more or less well. While valid, this does not diminish the extent to which the term has captured the imagination of policymakers. 

My AEI colleague Phil Levy and I hope to reconcile the popular embrace of the idea of competitiveness with the academic discomfort with the term. And so we have launched a year-long research effort to replace loose and crude notions that policymakers often rely upon with sound and well-reasoned ones.  

Later this month, as part of that effort, I will be hosting a discussion in conjunction with NCF to explore American competitiveness. I’ll be joined at that event by Glenn Hubbard of the Columbia Business School. Glenn and I are currently working on a paper that will be out this summer that explores the meaning of the word “competitiveness.”  We are evaluating the usefulness of different measures that have been proposed in the past, such as the various indices of economic freedom. We are also exploring the question of whether countries that lightly regulate industries are able to lure firms away from countries that regulate with a heavier hand. This should be a key concern for policymakers as they consider regulating American companies and industries.

For more information and to register for the event: http://www.uschamberfoundation.org/competitiveness/