Competitiveness

Though unintended, Adam Posen has a good follow-up to Samuelson's latest column. First, Samuelson:

Cooling Off About Keeping Up, by Robert Samuelson, RCP/WaPo: ...We are experiencing another competitiveness panic. These occur every 15 or 20 years. There's an outpouring of worried reports and articles. After Sputnik in 1957 -- the first artificial earth satellite -- we were supposedly doomed to be overtaken by the Soviet Union. In the late 1970s and 1980s, it was Germany and then Japan. Lately, China and India have been the threats. ...

One problem with these debates is that competitiveness is a vague term. What does it mean? If it means keeping the lead in every industry where we once led, we're doomed. ... Similarly, if competitiveness requires the United States to maintain its present share of the world economy, we are also probably doomed. ...

One possible "competitiveness'' definition is the ability of countries to stay ahead in developing new industries. Economists once saw land, labor and capital as the basic inputs of any economy. But they've now added "knowledge,'' as David Warsh ... shows in his engaging book "Knowledge and the Wealth of Nations.'' ... By this standard, the United States is still doing well. It's a leader in many industries -- aerospace, computers, biotechnology, investment banking and entertainment. It also leads in research and development. ...

Maybe we ought to settle on this definition: productivity. That's economists' code word for "efficiency.'' ... Higher productivity allows for new products and services, from health care to iPods. Incomes and living standards tend to move in parallel with productivity changes. In the first 25 years after World War II, productivity in the business sector grew about 3 percent a year. ... Since 1995, it's grown at about 3 percent again. If we can sustain that, we'll have an easier time meeting all the future's competing needs. ...

How to do that? Good question. Unfortunately, economists don't understand why productivity has fluctuated so much. ...

While we may not be able to explain the cyclical components of productivity growth, i.e. every bit of variation around the long-run average, we do have some idea of what makes the average increase over time (no, it's not tax cuts), and competition is a big part of the story.

I think Adam Posen would agree that a focus on productivity rather than "competitiveness" is best, and that competition is one of the keys to attaining high productivity growth. Here's his comments on competitiveness and the folly of mercantilist ideas about using competitiveness to maximize exports over imports:

A heavy burden for any economy, by Adam Posen, Commentary, Financial Times: Exports are all the rage this season. Cries for adjustment of global imbalances become disputes over who has to “shoulder the burden” of reducing their current-account surpluses; the collapse of the Doha trade talks makes every World Trade Organisation member acutely aware of barriers to their export success; and the integration of China and India into the global labour force raises “competitiveness” once again to prime status as the policy goal on politicians’ lips.

Yet export competitiveness has little beyond being fashionable to recommend it as an objective for economic policy. Like today’s again trendy platform shoes, pursuit of competitiveness gives one a temporary boost that is un­stable, untenable and, with repeated use, unhealthy. A dozen years ago Paul Krugman, the US economist, famously called competitiveness “a dangerous obsession” among US policymakers. In fact, in every decade, in all advanced economies, a focus on export competitiveness tends to erode living standards and distracts policymakers from a more beneficial emphasis on productivity.

If governments want to increase their economies’ share of global production in high-value-added sectors or, better still, create new such products and sectors, then the policy goal should be to increase competitive pressure upon an economy’s own businesses. In spite of the frequently cited examples of export-led growth for some developing countries, there is mounting evidence that the benefits to growth of countries’ engagement in trade are attributable to openness. These include: the direct benefits of importing lower prices and greater variety; the efficiency gains from challenging (rather than protecting) domestic businesses; and policy choices that contribute to a broadly liberal and market-orientated framework across the economy. Exports taken on their own, the usual narrower target of competitiveness policy, are not correlated with average per capita income growth.

A focus on export competitiveness usually leads to actively harmful policies, beyond simply wasted resources and rhetoric. If exports are the public criterion of economic success, policymakers can meet that goal only by self-destructive means: depreciating a country’s currency, thus eroding the purchasing power and the accumulated wealth of citizens; depressing wages in export sectors, either directly or through relative deflation vis-a-vis trading partners, thus cutting real incomes and domestic demand; subsidising or protecting exporting companies, thus distorting investment decisions and locking in old technologies and businesses at the expense of new entrants; or promoting national champions, thus increasing both wasteful public spending and the costs to domestic households and businesses.

The only constructive way to increase exports is for the total value of exports to rise as the side-effect of productivity growth...

Daniel Drezner also comments on Posen's article and the politics of Doha.

Comments

[Movie Guy]

Robert Samuelson - "Incomes and living standards tend to move in parallel with productivity changes."

Where is Calculated Risk when you need him?

This point isn't holding true. CR did a post that is worth noting.

[Richard]

"there is mounting evidence that the benefits to growth of countries’ engagement in trade are attributable to openness."

How broadly do we interpret the word "openness"?

Clearly Posen suggests openness to exports. But would lack of corruption be "openness" as well? After all, corruption indexes are routinely used as proxies for the friction of doing business in a country. How about openness to the flexibility of change? Isn't that supposed to be the flexibility provided by countries like Denmark: the social benefits of government provided health care and unemployment benefits ease the costs of change and provide a social lubricant for job retraining.

So is this "openness" as Posen intends it? And are there multifactor studies supporting this?

[nyuk]

I look at the concept of productivity as being increasingly unquantifiable. If I combine my knowledge and skills in such a way as to accomplish that which may have been impossible up until I did it, by what percentage has productivity increased? The leap from zero to one can be profound.

[cm]

"Competitiveness" as in used everyday parlance (i.e. corporate/lobbyist PR and media "court" reporting thereof) is little more than a euphemism for gutting labor standards and social safety nets.

[cm]

OT, it also reminds me of the Despair.com poster Goals that bears the caption:

It's best to avoid standing directly between a competitive jerk and his goals.

[dryfly]

Maybe we ought to settle on this definition: productivity. That's economists' code word for "efficiency.''

I'd counter with... 'its still often better to be cheap'.

My understanding of productivity is it is 'units of production per man-hour' and while it should be coupled to profitability or overall 'efficiency' in a dollar sense, it need not be.

In effect, I'd like him to comment on the following alternative processes & their relative 'efficiencies' & 'productivities' & 'profitabilities'...

Given a product (widget) that sells for $100 each and can be produced through two different processes... one labor intensive and the other more capital intensive... let's assume the labor rate per man hour is the same ($10/hr) & the rate of production output is the same (10 widgets/hour). Frequently not the case but it still works out the same in many cases.

Process A requires labor inputs of 2 man-hrs per widget and carries a burden rate of $450/hr while Process B carries TWICE the burden rate ($900) but only requires ONE FOURTH the man hours per widget (1/2 man-hr/widget).

Burden is the lump sum hourly rate of capital & overhead and other 'inputs' tied to capital.

In effect Process B is four times more 'efficient'...

Summarized below (forgive the formatting mess - MS Excel pastes like hell into TypePad).

.....................Process A....Process B
Man-hours per widget........2.......0.5
Widgets/hr.................10........10
Price per widget..........$100.......$100
Burden Rate ($/hr)........$450.......$900
Labor Rate ($/man-hr)......$10.......$10

Revenue ($/hr)............$1000......$1000
Labor Cost ($/hr)............$200.....$50
Burden ($/hr)................$450.....$900

Gross Profit ($/hr)...........$350.....$50

Productivity (widgets/man-hr)....5......20

We can see that switching from Process A to Process B results in a HUGE increase in productivity... from 5 widgets/man-hr to 20 widgets/man-hr... but results in far poorer Gross Profit... from $350/hr to only $50/hr.

I know this is a 'cooked up' case but I see this kind of thing happen all the time in global situations where the offshore 'unproductive' labor intensive process is far more 'profitable' than the domestic 'highly productive' capital intensive process.

This is especially true when the labor rates (and sometimes even capital unit costs) aren't equal... in many case the inefficient & unproductive labor intensive process in low wage countries clobbers domestic highly efficient operations IF the domestic labor & capital cost is high.

Capital can trump labor but not always... not when the labor rate differentials are as high as they currently are between the developed & undeveloped world.

Productivity can be over-rated.

[cm]

dryfly: And in addition to capital there are other factors -- resource inputs (into automation), e.g. electricity (proxy to oil/gas), "geographically" different executive/management compensation (how often does the VP/CXO bonus trump subject-matter costs), or other "non-linearities" (here it costs more, but the cost includes training/initiation (which is often the more appropriate term) of the next generation of workers, and a certain "loyalty premium" (well who knows these days)).

[reason]

If I devalue my exchange by 25% my competitiveness has increased by 25%. Or if I replace an income tax (which taxes local production but not imports) with a VAT (which taxes imports but not exports) my competitiveness also moves massively. Productivity just determines my real income, not my competitiveness. The problem as I see it, is simply that the international financial system is broken and nobody knows how to fix it.

The correct assignment of tools to targets is that full employment and external balance should be acchieved by exchange rate adjustment (in turn dependent on interest rates) but the adjustment does not happen due to financial speculation and manipulation.

[Emmanuel]

(1) Posen holding up the US and UK as examples to follow beggars belief (unless you're a neoliberal FT commentator). Income inequality is soaring in either country. He also pokes fun at the falling real wages in Germany, as if the opposite holds true in the US. Implying that the US or UK is in a better economic position than Germany beggars belief:

Real wage compression in Germany has proved no more a sustainable path to growth today than the nominal devaluations pursued by the UK and Italy intermittently from the 1970s through the early 1990s. In contrast, both the US and Britain have grown strongly since the early 1990s by generally encouraging strong currencies, foreign competition for and investment in the corporate sector, openness to imports and private investment in research and development – all of which was only possible with a healthy disregard for export performance and the fortunate absence of an explicit competitiveness policy.

(2) There's an absence of an explicit competitiveness policy in the UK, eh? A quick search brings me to this paper on competitiveness commissioned by the Department of Trade and Industry and conducted by none other than Michael Porter of the, er, "Institute of Strategy and Competitiveness" at Harvard. For this whopper, I now put the FT slightly ahead of the WSJ in the neoliberal economic fantasyland sweepstakes--which is no mean feat.

[dryfly]

And in addition to capital there are other factors -- resource inputs (into automation), e.g. electricity (proxy to oil/gas), "geographically" different executive/management compensation (how often does the VP/CXO bonus trump subject-matter costs), or other "non-linearities"

CM - 'Automation' is in the capital component and is rolled into the higher burden cost... and automation is a big part of the cost differential between the burden rates.

People think capital is dump trucks vs shovels or hand drill vs drill press but that's not it... its men operating individual machines (like drill presses) vs an almost unattended automatic CNC machine.

Energy is also a period or burden cost usually more than a rate dependent factor cost. That's because the energy consumed in most plants is almost the same whether they run full speed or very slow. The only way energy consumption changes much is if the go binary - plant on, plant off. This isn't true for process plants but is true for most all others.

Location, etc. that is a 'social factor' & 'market factor' but can't be attributed to either high labor-low burden or high burden-low labor models. Its a wash.

You can make the example I provided 'more complex' and 'realistic'... but that defeats the purpose. I intensionally left it simple (but accurate to real themes) to make a point, that being:

There is a whole lot more to 'competitiveness' than just 'productivity'. High productivity is essential if you want to maintain a high wage prosperous society. HOWEVER high productivity alone won't overcome a very large wage rate differential in most cases.

[dryfly]

If I devalue my exchange by 25% my competitiveness has increased by 25%.

Yup. Which is in effect a 25% wage cut in PPP terms... and the more coupled our economies becomes the more a currency adjustment becomes a personal income adjustment.

And you are right - the world financial systems haven't caught up with this yet.

[reason]

dryfly...
PPP change is only for tradables (i.e. the result will be less than 25% depending on how open your economy is).

[dryfly]

reason - okay you are right, it wouldn't be one for one.

But more and more things are becoming tradable. Stuff that was never tradable before sure is now.

I mean the kid mowing my lawn still isn't (he's my son) but everything from my financial services to evaluating my stress test results can be. And some already is.

My sister sees it in law, my BIL sees it in IT, I see it in mfg (where design & supply chain mgmt is increasingly done off-shore... not just the mfg anymore).

The bigger the wage differentials the bigger the incentive to do it elsewhere and with technology more and more of it can be.

The world is becoming a whole lot 'flatter'.

So with an increasing interdependence a currency revaluation could eventually effect a whole lot more in PPP terms than it used to. Our economy - whether we like it or not - is more open to these kinds of effects.

If the dollar slips, our 'competitiveness' as a nation improves but for most of us our real incomes decline... How much? Hard to tell until it starts to happen but I think more than people realize.

But it still has to happen.

[anne]

We are lost really really lost :)

http://www.nytimes.com/2006/08/10/automobiles/10auto.html?ex=1312862400&en=f0e408552a6a445e&ei=5090&partner=rssuserland&emc=rss

August 10, 2006

Detroit's Answer to $3-$4 Gas: New Muscle Cars
By NICK BUNKLEY

TRAVERSE CITY, Mich. — As gasoline prices surge past $3 a gallon in most of the country and closer to $4 in some cities, sales figures show Americans are snapping up small cars that go easier on fuel and on their wallets.

But none of the smallest cars are designed or developed by Detroit companies, which in the face of high gas prices are now highlighting another kind of automobile not usually thought of as energy efficient: the muscle car.

Ford Motor said Wednesday that it planned to build a 325-horsepower version of the Ford Shelby GT. It also plans a big luxury car, the Lincoln MKS, which will become the struggling brand's flagship sedan. The announcement came at an industry conference here sponsored by the Center for Automotive Research.

On Thursday, General Motors is expected to confirm that it will resurrect one of its most famous muscle cars, the Chevrolet Camaro, which was a hit at the Detroit auto show in January....

[anne]

When Detroit decides that muscle cars, watch me swoon in delight, will get me out of my Toyota Prius, then we cann really really forget about the trade deficit. Really, really.

[anne]

We really are lost lost lost :)

http://www.nytimes.com/2006/08/10/business/media/10adco.html?ex=1312862400&en=df01a13c1d36f3a9&ei=5090&partner=rssuserland&emc=rss

August 10, 2006

Would You Like a Gas Guzzler With That?
By MELANIE WARNER

WHEN General Motors introduced the three-ton, 11-miles-to-the-gallon Hummer H2 four years ago, it redefined American extravagance. But now, with gas prices hovering at $3 a gallon and threatening to go higher, sales of Hummers are declining as Americans become increasingly conscious of gas mileage.

McDonald's, however, appears not to have gotten the message. This week, the restaurant chain started putting toy Hummers in children's Happy Meal boxes, calling it the "Hummer of a Summer" promotion. Television and radio ads, which started running this week, feature a family riding in a Hummer on the way to a McDonald's.

With enough visits to McDonald's, children will be able to collect eight different Hummers in a variety of colors, including two versions of the H1, the original and most monstrous member of the Hummer family, which General Motors stopped making in June.

The promotion runs until the end of August and is aimed at young boys. Girls can choose to get Polly Pocket fashion dolls in their Happy Meals instead.

Not surprisingly, environmental groups are appalled. Brendan Bell, an energy policy analyst at the Sierra Club, says that Hummers in Happy Meals are about as responsible as "dipping a Big Mac in the fry oil and serving it to your kids." ...

[anne]

Funny; everywhere I look in Cambridge there are more cars and trucks about other than Detroit's cars and trucks, and especially cars that evidently make fuel sense. Detroit however wants to put me in a Hummer. Parking is a mystery to me in a Prius; imagine me though in a Hummer cruising for guys. Hmmm....

[Isabel]

I somehow can't imagine cruising for guys in a Prius, whatever qualities it might have. So...
On the other hand, what kind of guy would one get with a Hummer?
Tough choice.

[anne]

I know, I know, but the Prius is red, very red :) Funny, how ideas come though, and there I would be cruising and revving, is it revving, in my Hummer, red too, if they allow red as not being to hot to handle, and a shotgun rack behind, empty, but all the same, you know....

[Isabel]

My husband adds "and don't forget a baseball cap turned backwards". He thinks one can by them like that nowadays.

[dryfly]

Funny; everywhere I look in Cambridge there are more cars and trucks about other than Detroit's cars and trucks, and especially cars that evidently make fuel sense.

Great articles anne - too true, too depressing.

I have been spending some time recently in Detroit - against my will - long story. Anyway I've come to the conclusion that unless 'the big three'... (now just 'the sorta big two' since Daimler Chrysler is really just Daimler USA and GM & Ford are shrinking)... but unless they relocate to someplace OTHER THAN DETROIT they will die.

Don't necessarily need to relocate mfg mind you but rather the upper management - the big cheese. They need a change of scenery - someplace like California. Sort of like Boeing moving from Seattle to Chicago. Someplace where a lot of planes fly in and out.

I bounced that idea off my BIL who has lived his whole life in and around Detroit... he was aghast. He said "Why would Ford or GM want to go to California? Those people only buy Japanese cars!!!"

My reply was "Exactly. Go there, live there and try to figure out WHY they prefer Japanese cars because so far they haven't figured out those markets operating out of Detroit. Then start making vehicles those people & everyone else wants... and not just cars guys who grew up in Detroit think we want."

[anne]

http://www.calvorn.com/gallery/photo.php?photo=6736&u=97|13|...

Osprey in Flight
Oceanside Marine Nature Study Area--Long Island.

I like the idea of asking for a backward turned baseball cap :) Designer.

[anne]

http://www.calvorn.com/gallery/photo.php?photo=6688&exhibition=7&u=96|4|...

Least Tern Fledgling
Nickerson Beach, Long Island.

A clever fashion maven husband :)

[cm]

dryfly: The description "Japanese brand name cars", and likewise "US brand name cars" may be more accurate. OTOH, cars assembled in Mexico are still "American" cars.

[Isabel]

"Hubba Hubba", says he.

[anne]

Curiously, Isabel always reminds me of reading. Do you know of Benito Perez Galdos? Why am I so reminded? I remember being in the Spanish library at UCLA, and there was a complete shelf of Perez Galdos, who was almost unknown in America; relatively recently translated and only partly. Southern literature has been neglected here.

[anne]

http://query.nytimes.com/gst/fullpage.html?res=EE05E7DF173BE077BC4951DFBF66838B669EDE

September 21, 1970

Tristana
By VINCENT CANBY

Luis Bu–uel, the Spanish director who has had to live and work most of his life in exile in France and Mexico, has been making movies since 1928 (Un Chien Andalou), but it wasn't until 1961 and the international critical success of Viridiana that he could pick his properties with any degree of independence. There has followed a kind of Bu–uelian age d'or, nine years of extraordinarily rich moviemaking of the sort that most fine, idiosyncratic directors—probably unfortunately—pass through before they're fifty.

Since Viridiana, Bu–uel, now seventy, has made The Exterminating Angel, Diary of a Chambermaid, Simon of the Desert, and, starting in 1967, a series of "farewell," films that include Belle de Jour, The Milky Way, and his latest, Tristana, which is nothing less than the quintessential Bu–uel film of all time.

This is not quite the same thing as saying that Tristana, which closed the New York Film Festival last night and opens today at the Lincoln Art Theater, is Bu–uel's best. Unlike Tristana, the virginal school girl whose transformation into grand demon Bu–uel traces in his new film, I would hesitate to choose the better of two grapes, two bread crumbs, or two snowflakes, to say nothing of two Bu–uels.

Viridiana is his undoubted masterpiece, but Tristana is more pure and more consistent, less ambiguous and more complex. It has no "set pieces" to equal Viridiana's tumultuous Last Supper, but the entire film moves so swiftly, with such uncompromising concern for the matters at hand, that anything on the order of a "set piece" would have destroyed its practically perfect symmetry.

The film is an adaptation by Bu–uel and Julio Alejandro of a novel by Benito Pérez Gald—s, the late nineteenth-century Spanish writer who also wrote the novel on which Bu–uel and Alejandro based the screenplay for Nazarin. The time has been updated from 1892 to the early 1920's, and the setting is Toledo, the medieval city whose narrow streets and ancient courtyards (on which a certain amount of restoration is going on, but lethargically) correspond to the Bu–uelian view of the social and political scene.

Don Lope (Fernando Rey) is an aging, aristocratic, but financially impoverished free thinker, an enemy of all arbitrary authority (except his own) who believes in a gentleman's honor, in those commandments that do not have to do with sex, and in the nobility of only the work that is done "with pleasure." When her mother, an old flame of Don Lope, dies, Tristana (Catherine Deneuve) comes to live with him....

[anne]

http://query.nytimes.com/gst/fullpage.html?res=EE05E7DF173EE267BC4C52DFB6678389669EDE

October 14, 1972

The Discreet Charm of the Bourgeoisie
By VINCENT CANBY

As in a dream things go fearfully wrong for the characters in Luis Bu–uel's brilliant (and brilliantly titled) new comedy, The Discreet Charm of the Bourgeoisie, but the Ambassador of Miranda and his Parisian friends, the Sénéchals and the Thevenots, and Mrs. Thevenot's sister, Florence, always manage to cope gracefully. On second thought, Florence is not quite as consistent as the others.

One martini and Florence is inclined to throw up—looking beautiful one minute and like a dead goose the next, her head dangling out the Ambassador's Cadillac window.

For the most part, however, the Ambassador, the Sénéchals, the Thevenots, and Florence survive a series of magnificently bewildering circumstances, employing the kind of elegance, self-interest, delicacy, intelligence, rudeness, and short attention spans that Bu–uel apparently finds to be the power, the curse, and the appeal of the European upper middle class.

The world of The Discreet Charm of the Bourgeoisie is one of absolutely everything interrupted.

For some peculiar reason, every time the friends sit down to dine, odd things happen. An Army arrives or, just as the food is being served, a curtain goes up and the friends find themselves on a stage playing to an audience. "I don't know my lines," M. Sénéchal (Jean-Pierre Cassel) says with wild-eyed, middle-of-the-night fright.

When Mme. Thevenot (Delphine Seyrig) is at the flat of the Ambassador (Fernando Rey) for an afternoon tryst, her husband (Paul Frankeur) stops by—and you haven't seen such a flurry of garter belts and little white gloves in forty years of moviegoing. Things get so bad that fate even conspires to interrupt (though not permanently) the very profitable heroin smuggling operation that the Ambassador conducts with the help of M. Sénéchal and M. Thevenot.

One must, I suppose, talk about The Discreet Charm of the Bourgeoisie rather gravely. It is, after all, Bu–uel's twenty-eighth feature since L'Age D'Or in 1929 but, except for The Exterminating Angel and Belle de Jour, he has never since employed the special freedom of Surrealism for such astonishing and lucid results.

Several years ago, Bu–uel said of The Exterminating Angel that "its images, like the images in a dream, do not reflect reality, but create it." A lot of The Discreet Charm of the Bourgeoisie is made up of dreams—at times, of dreams within dreams, at other times, dreams that one person has dreamed that another dreamed. Sometimes they are just the dreams of a passerby. You've never seen so many wish fulfillments. However, much of it is not a dream, and all of it is real—the unique creation of a director who, at seventy-two, has never been more fully in control of his talents, as a filmmaker, a moralist, social critic, and humorist....

[anne]

http://www.calvorn.com/gallery/photo.php?photo=6720&exhibition=7&u=96|26|...

Green Heron Perched in a Tree
Oceanside Marine Nature Study Area--Long Island.

[NinjaPlease]

Re: Anne

Don't go into the automotive world.

http://www.edmunds.com/reviews/list/top10/115851/article.html

Gas prices be damned.

[NinjaPlease]

http://www.edmunds.com/reviews/list/top10/101528/article.html

http://www.edmunds.com/reviews/list/top10/99278/article.html

http://www.edmunds.com/reviews/list/top10/49547/article.html

http://www.edmunds.com/reviews/list/top10/45758/article.html

Consider yourself unimportant.

[Isabel]

Stay away from Hummers, Anne:

"Janet Wilson is a 52-year-old, legally blind Quaker who demonstrates against the war with a group of other Quakers and peace activists once a week. She carries a sign that bears a peace symbol and the word “peace” in both English and Spanish.

Last Saturday, Janet had her sign ripped from her hand and destroyed by a passer-by who jumped out of his Hummer, which was towing a trailer done in camouflage and covered by a domed tent, to scream at them to support the troops. After yelling at them and smashing their signs, he then left."

http://ezraklein.typepad.com/blog/2006/08/america_in_one_.html

[anne]

http://www.calvorn.com/gallery/photo.php?photo=6755&u=96|2|...

Black Skimmer in Flight
Nickerson Beach, Long Island.

So much for any of my fancies :)