However that does not prevent attempts to come up with many different indices, based on all sorts of data, of a country’s relative standing in the global league. Economists define international competitiveness narrowly at the macroeconomic level in terms of changes in a country’s real (inflation-adjusted nominal) exchange rate. A country loses competitiveness if it experiences real appreciation of its currency, all else being equal. This is then reflected in its reduced current account balance. Although this has often been viewed as a serious problem of the Turkish economy, a reduced current account balance by itself does not necessarily indicate something is wrong and needs to be fixed.Outside the economics discipline, however, the concept of international competitiveness has had a much broader and not surprisingly a rather nebulous meaning. I remember in the 1980s there was much concern among US policy-makers about America’s losing international competitiveness vis-à-vis Japan (now of course it is China). Often this concern led to recommendations for US government intervention to support declining industries or nurture rising industries through an activist national industrial policy. Later in 1994 the US economist Paul Krugman in an influential Foreign Affairs article labeled this concern “a dangerous obsession,” a fallacious notion that each nation is “like a big corporation competing in the global marketplace.” Krugman argued that international trade is not a zero-sum game; nations do not compete with each other in the way companies compete for market share. A nation does not have a clearly defined bottom line in the way a company has that can be used to measure its competitiveness.
So what are we to make of Turkey’s being ranked 48th among 55 nations in 2007, down from 43rd in 2006, on the basis of 323 criteria, in the International Institute for Management Development (IMD) World Competitiveness Yearbook 2007 (WCY), published last week? (See chart below.) The IMD, a highly respected center of executive education based in Lausanne, Switzerland, has published the WCY annually since 1989. The WCY is said to be based two-thirds on different types of objective data from national and international sources, and one-third on subjective data from surveys of executives. The IMD prepares the WCY in cooperation with 50 partner institutes worldwide, including the Turkish Industrialists and Businessmen’s Association (TÜSİAD).
According to the IMD the WCY “analyses and ranks the ability of nations to create and maintain an environment that sustains the competitiveness of enterprises.” This clearly says the WCY is not about the international competitiveness of a nation per se but its companies. In that sense, the WCY is dealing with a subset of the issues dealt with the World Bank’s annual Doing Business reports. (See my column “Ease of doing business around the globe and in Turkey.”) The WCY is based, however, on a much wider set of factors and sub-factors: 1 -- economic performance (domestic economy, international trade, international investment, employment, prices); 2 -- government efficiency (public finance, fiscal policy, institutional framework, business legislation, societal framework); 3 -- business efficiency (productivity, labor market, finance, management practices, attitudes and values); and 4-- infrastructure (basic infrastructure, technological infrastructure, scientific infrastructure, health and environment, education). All these add up to an impressively exhaustive 323 individual criteria. The WCY 2007 notes that although top rankings in international competitiveness are still occupied by developed nations, with the US at the very top, many developing nations, such as China and India, have been improving their standing as they catch up. But there are also others such as Indonesia, Argentina, Brazil, Mexico, the Philippines and Turkey that are said to be losing ground.
Incidentally there is a rival annual publication on international competitiveness, based on a very similar set of factors as well as similar types and sources of data. It is called the Global Competitiveness Report (GCR), put out by the World Economic Forum, in Geneva, Switzerland (available on http://www.weforum.org/en/initiatives/gcp/Global%20Competitive-ness%20Report/index.htm) According to the latest GCR, published last September, Turkey was ranked 59th among 125 countries in 2006, up from 71st in 2005. The GCR attributed this sharp rise to the “EU bonus,” anticipated EU membership, which has since then presumably become much less of a positive factor for Turkey’s ranking. In another significant departure from the WCY, the GCR gave the US its sixth ranking in 2006, down from the first position in 2005.
Therefore if you wish to be happy about Turkey’s supposedly stronger international competitiveness, ignore the WCY and read the GCR. If you wish to be unhappy then do the opposite. I do not wish to sound too flippant or sarcastic. Both of these annual publications, which have been around for several years, must consume considerable resources in their preparation and are sold for hefty sums. So we may assume that there is a profitable market for them, especially in the corporate world. The question I have is what real benefits they provide to their buyers, especially when they differ in their conclusions so strikingly.
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