We will write a custom Essay on Rethinking Microeconomics Competitiveness specifically for you
301 certified writers online
Competitiveness refers to the productivity of a nation‘s resources. This productivity arises from a combination of domestic and foreign firms. Through competition, an organization creates wealth and jobs; offering the most productive environment for businesses in any nation. The public and private sector plays a great role in creating a productive economy.
Microeconomic competitiveness is determined by the quality of the national business environment, the state of the cluster development and the complexities of a company’s operations and strategy. Therefore, productivity ultimately depends on improving the microeconomic value of the aforementioned concepts to improve the microeconomic capability of the economy.
National macroeconomic competitiveness has been a Key focus point of the national policy debates over a long period of time. For example, Laureate Paul Krugman challenged the concept competitiveness arguing that nations usually do not compete with one another in a zero–sum game, but rather they benefit from each other’s successes through mutual beneficial trade.
Other alternative approaches put forward by other authors focus on the measure of a nation’s competitiveness. Competition elsewhere has been defined as the nation’s ability to produce, distribute and service goods in the international economy in comparison to the other products produced in other countries (Hasset 2).
It was not until recently that Michael Porter, a prominent advocate of competitiveness concept, related the welfare of a nation to the microeconomic factors which determine the competitiveness of a firm. According to Porter, competitive advantage implies that a firm is more productive than the rival firms.
The model explains that competition at the national level is extended due to the interconnection of micro reforms in the marketplace. The competitive interests have resulted to a number of indexes consistent with Porter’s view. The two most important are the Global Competitiveness Report of the World Economic Forum (WEF) and the report by the International Institute of Management Development IMD in the World Competitiveness Year book.
Additionally, various institutions have developed their own ranking and evaluation systems. According to the Global competitiveness report, competitiveness refers to an institution’s policies and factors that determine the level of productivity of an organization or a country. They agree with Porters’ view that the role of firms is to remain productive whilst the role of the government is to establish the environment for productivity (Hasset 3).
Evidently, much discussion of competitiveness and economic development has focused on the macroeconomic, political, legal and social circumstances underpinning success in a nation’s economy. It is well established that sound fiscal and monetary policies accompanied by a trusted and efficient legal context and stable set institutions contribute greatly to healthy economy. However, the broader conditions are crucial but insufficient to provide the opportunity to create wealth.
Wealth is created in the microeconomic level of the economy. It is rooted in the complexities of an organization’s strategies, the operating practices as well as the quality of the microeconomic business environment where the nation’s firms should compete. Therefore, unless there is appropriate improvement at the microeconomic level, the macroeconomic, political, legal and social reforms will not bear full benefits (Porter 1).
The microeconomics of competition focuses on evaluating and comparing the complex array of national circumstances that support high and sustainable level of productivity measurable by GDP per capita. It aims at moving beyond the examination of the broad, aggregate variables in the most typical economic growth analyses to that of establishing a framework for countries and companies to understand their detailed competitive strengths and weaknesses.
The microeconomic approach also highlights that improvement in competitive potential is not the simple linear process in which an organization must progress on but rather a successful economic development requires nations to develop the ability to compete increasingly in ways that support higher wages and national income (Montiel 303). As a matter of fact, more than 80% of the variation of GDP per Capita across countries is accounted for by microeconomic fundamentals.
Despite the micro reforms in larger institutions such as International Monetary Fund, findings show that without Micro reforms, growth in GDP induced by sound macro policies, market openings and privatization do not translate into improvements in GDP Per capita. Appropriate micro reforms which boost productivity and productivity growth ease in a great extent the government’s challenges in meeting the fiscal obligations and in reduction of macroeconomic distortions.
Additionally, micro economic reforms ease the political pressure on governments trying to defend macroeconomic stabilization and the market opening against vested interests. It results to monopolies losing their grip, businesses reforming themselves, increased opportunities for employment and entrepreneurship increased more than government interventions would do (Porter 20).
To continue to have a momentum of economic performance in the world, there is a pressing need to look into the microeconomic competitiveness reforms. The reforms should focus on narrow standards approaches that embrace domestic competition, increase stringent environmental standards and policies to meaningfully boost the skills and opportunities of individuals at the microeconomic level. This is because countries’ competitiveness depends largely on the productivity of their companies.
Get your first paper with 15% OFF
Hasset, Kevin. Rethinking competitiveness. American Institute for Public Policy Research, 2011. Web.
Montiel, Peter. (2011). Macroeconomics in Emerging Markets. Cambridge, UK: Cambridge University Press.
Porter Michael. Microeconomics of competitiveness: Firms, Clusters and economic development. Harvard Business School, 2012. Web. <https://www.hbs.edu/Pages/default.aspx>