Competitiveness: In search of balance?

Everyone (almost) understands that a consistent deficit in trade undermines an economy and eventually a state.

Look at Greece.

But also look at the UK, France and the US, some of the world mature yet champions of trade deficits economies in the world. Can they consistently make up their trade deficits via borrowing no matter how attractive they try to be for foreign investors (look at eg the UK)?

But is exporting "beggar thy neighbour" after all? Are too export driven economies not that stable after all? Look at Germany and China for example.

It is about a dynamic balance after all?

On the competitive advantages of countries (and USPs)

Athens has never had a Manhattan (like NYC) and imo it never should.

Or a City (like London).

The solution is for those who want a City to move to London and for those who want Acropolis, Greek, islands, and a different way of life to stay or move to Greece. Especially true in an EU context, since intra-EU freedom of relocation is high (not perfect or as high as within the USA, but high). That same rationale could apply globally if global freedom of relocation of persons was anywhere near a descent level, but it is not (the WTO and capital freedoms are not enough, humans' freedom is the key premise in my rationale here, because humans are the basis for all econ/fin, biz and other dimensions, w/o humans what the point of economics, biz etc, not a Caprica (see US TV series)).

Trying to import US, UK, German and other models to Greece and other PIGS (and vice-versa) is wrong Strategy (and wrong philosophy).

One does not give up one's USP (unique selling proposition) to try to copy another's. In spite what many think re the success of copycat products in recent years (aka survival of the cheapest).

For example, US and other foreign educated Greeks (and tdes me) have the challenge to develop suitable original models for Greece not try to copy or transpose other models or patches of the UK, US, German, Dutch etc models.

My scepticism includes study of best practices, not in principle, but in practice. Imo, at best, best practices should be examined as a mere part of a brainstorming process, not as an excuse to shortcut original (and systemic) thinking in models of competitiveness.

Re Brain Drains

Some countries should not worry about a "brain drain" since their econ/work models do not employ brain intensive competitiveness.

What some people don't seem to get re the hard Euro

In the years of the hard Euro, ie when the Euro was (until relatively recently) quite high compared to the USD, the Yuan and other currencies of major trade partners (and tourist origins eg USA),  that  suffocated much of EZ business because it not only had a hard time exporting to non-Euro markets but also faced (when eg Euro was 1.4 or 1.5 USD) more fierce competition inside the Eurozone and even their own "national" markets.

So while interest rates for Eurozome member states were lower than past thus allowing them to borrow more (via sovereign bonds) than the pre-Euro years, they were still high enough (in order to stick to the 2% inflation target of the then ECB directorate) compared to US, UK and other central bank interest rates, for the Euro to be expensive Euro vis-a-vis USA, China, etc.

So while the budgets of Euro member states benefited from cheaper money, and maybe companies too, the price competitiveness of many Eurozone businesses (including tourist ones) took a severe, IMO, beating.

Is Germany a bull in the Eurozone's China Store?

Some thoughts of mine on PressEurop's very interesting report: Berlin still selling too much (14/8/2012)

1) The FAZ comments IMO, at best, show (let's call it) "non-systemic thinking".

2) Is Germany exporting too much or importing and in general consuming too little? Too little from the Eurozone?

3) In terms of trade surplus, Germany is a bull in a China Store. Funny thing is, Germany's inflation phobia makes China another bull in the Eurozone and EU's "stores"/mkts for goods.

4) Germany saves "a lot" which means it has to find outlets for its investments. No wonder Germany had invested "a lot" in the PIIGS (while selling "a lot" to them too). The rest is not "rocket science"!

5) But the strategic/systemic question is: Is Germany too big to be part of the EU/EZ but too small to be a power on its own? And if Germany is too small to be a world power on its own, what do that say for eg UK's ambitions? France, sometimes arrogant, nevertheless knows it needs "Europe". UK and Germany (and others) act as if they do not.

6) Marketing: What exactly is Germany exporting that the Eurozone (40%), EU (60%), the world, a) cannot substitute or b) always need/want?

7) So with Germany having cornered the high quality market, China the low price one & US the new tech one, what's left for (most of) the rest?

8) Problem not only that Berlin still selling too much but its policy/philosophy not selling (in many parts of Europe/EU/Eurozone)

The number one impairment towards competitiveness for Spain, Portugal, Italy and Greece is

Neither Austerity not Keynes is what South Europe needs the most, It's radical curbing of "polynomia" (over-legislation).


To put it differently, the number one impairment towards competitiveness for Spain, Portugal, Italy and Greece (and others) is a culture of over-legislation that suffocates people and small and medium size business.

Living in most societies today is like living in a condo with 100000 pages worth of rules or using a TV with a 100000 pages manual.



I am not sure whether it's bureaucracy that creates over-legislation or vice-versa, but the solution starts with curbing the latter first.

Products are tested for side-effects etc before they are released. But legislation is not.

Of course over-legislation is a global problem (even in the UK) but it suffocates Spain, Portugal, Italy and Greece the most.

The raison d'etre of politics is to produce public policy, not public relations. Political parties need to become policy making "factories"


But it should be noted that a fewer and better laws philosophy does not mean no laws, ie it's not a libertarian's wet dream.

Their way or the highway?

Countries with large trade surplus take pride in their capabilities.

They sound like entrepreneurs who think they succeeded on their own.

They also sound like the scorpion in the Scorpion and the Frog.

Some things are not the Greeks' fault!

The Greeks/Greece have in the last 2.5 years been blamed by many analysts, commentators, media etc for the Eurocrisis. The main premise for the blame is their perennial government deficits and resulting national debt. One can debate that, but that's not the point of this post.

The point is:

So many allegedly "successful" country (national) economic models are actually based on gimmicks, "piggybacking" on other countries, myths/stereotypes, etc!

For example:

Some countries over-rely on exports (trade surplus). While some exporting is of course a very good thing, there are limits. A country cannot and should not rely too much on the consumers of other countries (that a perennial trade surplus indicates). All in moderation.

Some countries rely on tax competition (too low tax rates, off-shore tax heavens, etc). Nothing to be proud of. On the contrary.

'Some countries' economic model takes advantage of nuclear energy, putting into risk their neighbours and the whole planet!

The same, but to a different extent and nature, applies to CO2 emitting industry. Past and present mega polluters (see global warming).

Crucial events/factors in EU/EZ systemics and dynamics

Crucial events/factors in EU/EZ systemics and dynamics have been:
1) The enlargements. They did make deepening harder after all (UK got its way but got bit some way)
2) BuBa's inflation phobia
3) China's Dec 2001 WTO entry

(3) is the one that disrupted EU/EZ systemics and dynamics the most, esp PIIGS' (and others).

In a "more closed" EU Single Market (or in a WTO withoit China), PIIGS' wages would have to compete with eg Slovak and Bulgarian ones. But now they have to compete with Asian (mostly Chinese) ones.

Cut wages or curb over-legislation?

With a fortress EU or Eurozone many wages will be pushed to converge to the EU/Eurozone lowest. Without a fortress EU or Eurozone, to the global lowest.

A way the PIIGS can gain some competitiveness is via radical curbing of over-legislation ("polynomia"), which can improve productivity.

If the whole of the Eurozone adopted the German manufacturing model, ...

If the whole of the Eurozone adopted the German manufacturing model, what would that do to the world price of quality manufactured goods?

Competitiveness in Economy/Biz vs Sports

Why do the sports clubs and national teams of the European periphery (in geographical terms), ie Eurozone and EU as well as European in general, tend to do so much better in European and world competitions compared  to  the majority of companies and national economies of the same countries?

Analyse this!
And feel free to comment here or via Twitter (@npanayotopoulos)

What the EU needs: Single Laws but National/Regional Policies & Strategies

The EU member states need to have common laws in everything, instead of national or local laws, so the EU Single Market can work properly especially for the average citizen and the average company (SMEs). In other words, the optimal level for legislation is the EU level instead of national and local level.

But one must realise that that does not mean one-fits-all policies eg economic policy or competitiveness policy/strategy!

That IMO shows some of the irrationality of the Merkozy Fiscal Compact and in its thinking in general.

The potential for an alternative to the Merkozy way (Part 2: Competitiveness)

This is a follow up to my post "The potential for an alternative to the Merkozy way (Part1)" of March 10, 2012.

The so called "Fiscal Pact" or "Fiscal Compact", that Merkozy conceived and 25 of 27 states signed in early March is too rigid in scope, in philosophy and in targets to be of benefit to the participating states (we shall see how many will actually get the OK from their national parliaments or their citizens, eg Ireland).

It introduces fiscal only interventions to the sovereignty of the members that not only justify a national referendum in Ireland but a 2/3 majority in the two houses of the German parliament (the Bundestag and the Bundesrat) too, etc.

Theoretically, the Europe 2020 strategy that was decided in 2010. But that IMO is not nearly enough.

According to the Europe 2020 webpages of the European Commission, "the 5 targets for the EU in 2020 are:
1. Employment
75% of the 20-64 year-olds to be employed
2. R&D/ innovation
3% of the EU's GDP (public and private combined) to be invested in R&D/innovation
3. Climate change / energy
greenhouse gas emissions 20% (or even 30%, if the conditions are right) lower than 1990
20% of energy from renewables
20% increase in energy efficiency
4. Education
Reducing school drop-out rates below 10%
at least 40% of 30-34–year-olds completing third level education
5. Poverty / social exclusion
at least 20 million fewer people in or at risk of poverty and social exclusion"

It seems to me that this "strategy" is more of a plan that a strategy. Plus IMO it relies too much on R&D as a source of EU competitiveness. Plus it does not allow for specialised strategies and competitiveness models for each state or regions thereof.


What is needed is the establishment of a Competitiveness Agency for the Europlus ie the participating members.

This agency must be the sum of 25 think tanks of the member states and daily monitor and analyse the competitiveness strategy of each member states and regions within the states and seek to coordinate those into an overall "conglomerate" strategy.  It should operate mainly in an inter-governmental way but with cooperation and support from the Services of the European Commission, committees of the European Parliament and councils of the EU. With a very lean infrastructure and secretariat. Also consult with the national parliaments of the participating states.

It should include technocrats who will be personal appointees of the member governments as well as the key national social partners.

The Competitiveness Agency should have the right to express opinions on any action or policy of EU institutions and bodies that affect the competitiveness of not only the Europlus as a whole but the EU and most importantly the participating states!

Eg it should be able to criticise the ECB if its interest rates lead to Euro exchange rates that hurt the competitiveness of the Eurozone/Europlus or some of its members or regions!

Issue opinions on the impact on the competitiveness of eg Greece or Portugal from TENs, evaluate the so called structural funds with respect to their impact on the competitiveness of the recipient economies or regions, even have the right to suggest EU policy vis-a-vis its WTO membership, FTAs, or even argue for EU  exit from the WTO if that is seen as the only way of improving the competitiveness of enough members of the Eurozone/Europlus! Propose EU laws the removal of which would improve competitiveness!

A Eurozone/Europlus "MITI" (as in Japan)? Not quite, simply a body that cares for the competitiveness of the Eurozone/Europlus AND its constituent member states and regions thereof.

The key concept is that the competitiveness of the Eurozone/Europlus is not a one-fits-all policy, but a spectrum of policies that as a whole have to accommodate the competitiveness needs of each state and even region.

To be continued.

People in glass economies should not ....

People in glass economies should not throw stones at Portugal, Spain, Italy and Greece.

Euromyth busting: It's rich for an economy to sit pretty in between 3 mega markets, piggyback on them and then boast how competitive & hardworking it is (when it is pretty high in the OECD list of least hours worked per worker).

How would that economy "perform" if it was in the geo position of Greece or Portugal?

What Greece really needed was ...

What Greece really needed was an econ "Gregory House" and his team to get the diagnosis & treatment right (instead of the Troika and the tsunami of world analysts and commentators)

The new capital? How and for whom?

Humankind that gone from real estate & farming land Capital to monetary Capital and now to patent & copyright (intellectual) Capital.

The US did not manage to convince the WTO members to do an agreement on it and tried in a much smaller ad-hoc group with the EU, Canada & 1-2 more (ACTA).

Will this new form of capital be the cause of future friction between countries?

In principle, intellectual capital (and intellectual goods) are one way for the US and EUrope to be able to compete in the international trade game. The other is to erect fortresses in manufactured goods trade. Many services are or can be traded (after all tourism related services count as exports ie they bring revenue to an economy that are equivalent to the one from export of goods).

But what types of "intellect" or "great matter" intensive goods (as opposed to labour or monetary capital) can act as an adequate basis for a modern economy? Can eg an economy live & prosper by producing music, films, TV series, pop art and pop culture, ibn addition or instead of more traditional forms such as traditional R&D "products" (high tech etc)?

Strategy: The relevant market(s)

Originally written: 11/2001
Updated: 15/8/2011

1) National/Niche:
Are some national markets too small for niche orientated strategies?

2) National/Mass:
What are the key corporate/business competences for succeeding in the mass market of a small as opposed to the key corporate/business competences for succeeding in the mass market of large country/economy?

Yet:

3) Existential:

Do the above questions make sense when there is "free" (near) global (WTO rules based) trade for most goods? When there is a single market exists in the EU for almost 20 years now?

(A: In spite of the above, a national market is still a national market, and in some cases a local market is still a local market, ie "native" companies still have concrete/real "advantages" over "alien" ones).

4) National champions playing in the EUropean or the world league:
How are the key corporate/business competences for succeeding as in a national mass market relevant to those needed for succeeding in a wider regional, European or global mass market? To what extent and under what conditions are they compatible? And vice-versa.

Does the Eurozone need a new central bank (part 2)?

Further to Part 1 (July 7, 2011), while the Fed this week pledged to keep interest rates near zero for another 2 yrs, the ECB's President has boasted for having kept Euro inflation lower than Germany did during the DM days (1)!!! Does it take an economist or MBA to figure out that there is something wrong with that? The effects on the price of the Euro and thus on Eurozone's firms, over-priced for a large part of 2002 - present, not only in foreign markets compared to US, Chinese or even non-Eurozone EU made products (and services, see eg tourism) but also in the Eurozone and even home markets!

Europe, wake up! Anti-inflation fixation is suffocating the real Eurozone economy!

To be fair to the ECB, see also my post (Aug 4): Why does the ECB need to keep its rates higher than the Fed and the Bank of England?

(1) New York Times, August 5, 2011: Euro Builder Ends His Career on a Bitter Note: "... As he never tires of reminding journalists, since the introduction of the euro in 1999, the central bank has held inflation below the official target of about 2 percent — a better record than the Bundesbank in the heyday of the German mark...."

Multiculturalism as a competitive advantage

In the midst of an period (not an era) of xenophobia, one has to note that multiculturalism is an asset not a problem for a Society, economy and country that knows how to appreciate it and deploy it as an advantage.

Societies, economies, countries that are as diverse as the world have the assets needed to be true "world powers" in other worlds play a key role in all aspects of world affairs.

It seems that not every country, society, economy has the fibre to appreciate nulticulturalism. Many, tolerate it at best. That makes culticulturalism a rare thus even more valuable asset and source of competitive advantage.