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competitiveness

The perils of competition

Zahid Hussain's picture


Promoting competition is considered the best available option for increasing economic well-being. The recent global financial crisis prompted policymakers to reconsider basic assumptions, but the virtues of competition were not among them. However, gone are the days when practitioners slept sound thinking the economy, if left alone, is self-correcting.

The limitations of competition as a force for universal good are well-known. Consumers can be inadequately informed, making it possible for firms to take advantage of them. The intrinsic difficulty of matching skills to positions and the costs associated with moving jobs may make workers stay with abusive employers. More basically, in a world where people have imperfect information and workers can’t always leave their employer, firms may be able to respond by cutting corners and abusing consumers and workers.

Is the problem with competition itself or the legal and informal institutions that yield this type of competition? The answer depends in part on one’s ideological lens—namely the belief of competition existing outside a regulatory framework, necessitating governmental intervention in the marketplace versus the belief that regulatory forces help create, define, and nurture competition in the market, necessitating improvements to the legal framework if competition is failing.

Some policies that supposedly restrict competition are justified for promoting competition. Intellectual property rights, for example, can restrict competition along lets say the use of a trade name. But the argument is that intellectual property and antitrust policies complement, rather than conflict, one another in promoting innovation and competition.

Life will surely be more stressful if we needed to compete for everything. Cooperation is often more relaxing. Society and competitors at times benefit when rivals cooperate in joint ventures to address collective needs. Competition can make people less cooperative, promote free-riding, and reduce contributions to public goods, thus leaving society worse off.

The point is not all forms of competition are beneficial. Just as athletic contests distinguish between fair and foul play, the law distinguishes between fair and unfair methods of competition. Bangladesh’s garment industry is a contemporary case in point.  The collapse of Rana Plaza in Bangladesh brought to the fore the pathetic state of working conditions in many factories serving the global supply chains. The structure of the supply chain itself—the relationship among regulators, buyers, suppliers, and workers—is fundamentally related to these problems. 
The practice of subcontracting is routine in Bangladesh’s garment industry. The prevalence of competitive indirect sourcing strategies has resulted in a supply chain driven by the pursuit of nominal cost minimization. It has increased risks for business and workers by undermining prices, wages, working conditions, and investment in productivity and quality. The apparel units engaged in sub-contracting are mostly non-compliant particularly in paying wages and maintaining safety standards.

Question is why do compliant factory owners take recourse to such sub-contractors? Major global buyers see Bangladesh as a market where they can obtain the most competitive prices for a high volume of lower end products. Consequently, they set low price targets. The manufacturers compete for large orders by undercutting each other, further driving down the prices. They make delivery commitments far in excess of their capacity to produce without breaching compliance. When prices are dramatically driven down, the natural tendency of a garment manufacturer is to manage their unit at a least cost with regard to overheads and wages. The pressure to drive these down arise inevitably.

Have 'Special Economic Zones' Entered the 21st Century Yet? A Tale of Two Cities

Martin Norman's picture

At the World Free Zone Convention in Izmir, Turkey, which I attended in December, an important question was asked:  Have "Special Economic Zones" entered the 21st Century?  Evidence shows that, in many ways, they have – but in many instances we are still seeing across the globe the same isolated economic enclaves with few linkages to the local market and little economy-wide impact.

More than ever, special economic zones (SEZs) are on the defensive, despite the fact that the more than 3,500 SEZs worldwide have provided employment for more than 60 million people.

I believe that two zones, in particular, can shed light on the factors of success and failure in SEZs today:  Shenzhen, China, which is almost universally considered to be a success story, and the Calabar Free Trade Zone in Nigeria, which has failed to live up to its original projections. 
 

Sri Lanka - Resplendent Island, Raring to Deliver

Parth Shri Tewari's picture


Sri Lanka conjures up different images in the minds of different people: lush green tropical canopies, steaming cups of aromatic tea, and hardworking fishermen in their dinghy boats.

For me, the country also packs enormous promise for growth and development. There is not the slightest doubt that Sri Lanka will have to come clean and deal with the aftermath of its prolonged civil war. However, at a fundamental level, there is a sense of hunger in its people to rebuild their lives and their country. The new-found peace that engulfs the population is cherished by most, and is part of dinner conversations especially with foreigners like me.




Sri Lanka already holds a strong position in certain agricultural and industrial exports, like tea or uncut diamonds. Combine this with its strategic location – situated at the crossroads of major shipping routes connecting South Asia, East Asia and the Middle East – and you have a potent combination, a promise waiting to be fulfilled.

I recently spoke at an event organized by the country’s top business newspaper, the Daily Financial Times, in partnership with the well-regarded Colombo University MBA Alumni Association. The focus of the forum was the country’s emerging six-hub strategy – Maritime, Commercial, Knowledge, Aviation, Energy and Tourism: the cornerstone of its further economic development.

The euphoria leading up to the event was palpable. The ceremonial drums and lighting of the auspicious lamp to evoke good omen created the perfect ambience. I was nervous, not because of stage fright, but because I was about to present a contrarian viewpoint to private-sector and public-sector experts, while sharing the stage with the Minister of Economic Development and the Governor of the Sri Lanka’s Central Bank. Even though my arguments were well-thought-through and fact-based, it was going to be a delicate dance, as I was about to communicate some tough arguments against the implementation of the full-blown six-hub strategy.

Logistics: a Critical Nexus Point for Inclusive Growth

Marc Juhel's picture
As I get ready to head back to Washington DC after a visit to The Netherlands, I don’t want to miss the opportunity to share with you some thoughts on sustainable logistics.

While some of you might be familiar with the term, transport logistics refers to the services, knowledge and infrastructure that allow for the free movement of goods and people. 

In today’s globalized economies, logistics is recognized as a key driver of competitiveness and economic development. And as policy making turns its attention to promoting sustainable growth paths, valuing scarce resources, and minimizing environmental impacts, sustainable logistics is indeed a key nexus point.

Efficient logistics systems are a precondition for regions, countries, cities and businesses to participate in the global economy, boost growth, and improve the living conditions of millions of people.

That’s why this topic is so important for the World Bank’s mission and our client countries in the transport sector. And that’s why this week in The Hague we organized, together with the government of The Netherlands and partners like Dinalog, the Dutch Institute for Advanced Logistics, our first Conference on Sustainable Logistics.

Cities’ Elusive Quest for a Post-Industrial Future

Stefano Negri's picture



What do rusting industrial cities have in common with outmoded BlackBerries? In this era of constant technological progress, talent mobility and global competition, it's striking how many similarities can be drawn between cities and companies, and the need for both to continuously adjust their industrial strategies to avoid oblivion or bankruptcy.

Cities can lose their vigor and vitality just as surely as a once-hot product can lose its cutting-edge cool. RIM, the maker of the the once-ubiquitous BackBerry,
has been leapfrogged by companies with more nimble technologies; Kodak, once synonymous with photography, went bankrupt when it failed to make the transition
from film to digital. The roll call of withering cities – once proud, yet now reduced to rusting remnants – shows how cities, like companies, can lose their historic raison d’etre if they fail to hone their competitive edge.

Heavy industries like steelmaking and automobile assembly once powered some of the world’s mightiest economic urban areas: Traditional manufacturing industries shaped their identity, giving their citizens income and pride. But globalization, competition, shifting trade patterns and changing consumer trends are continuously reshaping the competitive landscape, with dramatic impact on cities and people. Over the past century, industrialized regions like the Ruhr Valley of Germany, the Midlands of Great Britain and the north of France – along with the older shipbuilding cities around the Baltic and North Seas, and the mono-industrial cities of the former Soviet Union – have struggled to make the transition to different industries or toward a post-industrial identity. Their elusive quest for a post-industrial future has had a dramatic impact on their citizens.

The same issue has become daunting in recent decades for aging manufacturing regions in the United States, which have suffered the prolonged erosion of their industrial-era vibrancy. That kind of wrenching change is bound to soon confront other cities in the developing world, as they struggle to adapt their urban cores, civic infrastructure and industrial strategies to an era that puts a higher premium on nimble cognitive skills and advanced technologies than on bricks-and-mortar factories, blast furnaces and big-muscle brawn.

For fast-growing cities in the global South, many of which are urgently seeking solutions amid their sudden urban growth, there could be many lessons in the experience of older cities in the developed world in making such a transition.

A series of recent conferences among urban policymakers and practitioners – backed by a wide range of rigorous academic research and practical client-focused experience in building competitiveness – provide insights that city leaders and the World Bank Group’s practitioners can leverage as they craft programs for transformative urban strategies. 

Joseph Stiglitz: 'Creating a Learning Society,' and the Implications for Industrial Policy

Ivan Rossignol's picture



The first World Bank Competitive Industries conference on “Making Growth Happen” is just two weeks away. There’s been a thrilling addition to the impressive roster of speakers: A Nobel Prize-winning economist, Professor Joseph Stiglitz of Columbia University, has agreed to deliver one of the keynote addresses on Wednesday, October 16. 

What makes this particularly exciting is that Stiglitz – a former Chief Economist of the World Bank – will talk to us not only about his prior work, but will be giving us a taste of what’s coming next. His forthcoming book, co-authored with Bruce Greenwald, “Creating a Learning Society: A New Approach to Growth, Development, and Social Progress," promises to hold a wide range of policy implications.

In anticipation of the talk, and judging by his analyses on his website, I thought I’d share some of my reflections on this theme in Stiglitz’s work and on its relevance for us – as well as some questions that I hope we will tackle during the conference.

Innovator-in-Chief: The Public Sector – Catalyst of Creativity

Christopher Colford's picture



Brace yourself for some dramatic new evidence about innovation and entrepreneurship – and and circle the dates October 16 and 17 on your calendar.

Propelling leading-edge ideas about competitiveness, Professor Mariana Mazzucato will be among the luminaries at a major conference at the World Bank in mid-October, organized by the Bank's global practice on Competitive Industries. An all-star array of policymakers, academics, business leaders and development practitioners will focus on today's top global economic-policy challenge: spurring growth and job creation.

Exploring “Making Growth Happen: Implementing Policies for Competitive Industries,” the conference in the Bank's Preston Auditorium will include Mazzucato among
some of the world’s foremost analysts of competitiveness. A professor at the University of Sussex in the U.K., Mazzucato’s iconoclastic new book  – “The Entrepreneurial State: Debunking Public vs. Private Sector Myths” – is now rocking the economics world. Mazzucato's insights are forcing a rethinking about the essential role of the public sector in driving the investments that are shaping the modern economy.
 
Public sector? Shaping the economy? Yes, you read that right: Mazzucato amasses persuasive evidence that the government-funded development and deployment of advanced technologies has been pivotal in changing the economic landscape.

Government’s role as a growth catalyst has been just as creative as the role of the private sector – and perhaps even more venturesome. Despite their buccaneering bravado, for-profit firms have lately shied away from high-stakes, high-risk investments in unproven technologies. Mazzucato refutes the defeatist dogma that claims, falsely, that public-sector investment can never do anything right.

Global value chain suppliers are our connection to SMEs

Yara Salem's picture

 
SME connectors can boost the supply chains of apparel, and other industries (Credit: India Kangaroo, Flickr Creative Commons)

This is the second post in the “Supply Chain Junkie" series, which gives personal insights on supply chains- -the “new normal" of doing business that is currently being prioritized by IFC.

Fashion is about constant change and that holds true for the business strategies of apparel Global Value Chains (GVCs) in response to customer preferences and global developments. The global economic crisis has played a major role in the biggest changes to the operational model of these chains, forcing them to cut costs by further consolidating their operations through long-term strategic decisions on supplier countries and supplier firms.
 

Competitive Cities: Driving Productivity and Prosperity

Christopher Colford's picture



The future will be won or lost in the world’s cities. With half of humanity now living in cities – and with the breakneck pace of urbanization likely to concentrate two-thirds of the world’s population into metropolitan regions by 2050 – getting urbanization right is the over-arching challenge of this globalizing age.
 
Urban policy is now at the top of the news due to the bankruptcy filing of forlorn Detroit, which has long been a symbol of urban decay. Yet the urbanization drama goes far beyond the de-industrializing North: The destiny of cities worldwide will determine the success or failure of virtually every development priority – and it will be especially vital for job creation, innovation and productivity growth, environmental sustainability and social inclusion.

You need to be outrageously aspirational when you take on a growth pole


Growth poles can help create jobs for Africa's one billion citizens (Credit: World Bank)

We were asked the other day by our senior management to be outrageously aspirational when we engage with growth poles.  I have been reflecting on what this means for our work on this topic in Africa, especially in light of the findings of the Africa Competitiveness Report.  I think we need to be aspirational in three broad directions: (i) developing the capacity to get things done in Africa, (ii) ensuring all stakeholders benefit from growth, and (iii) mobilizing as much capital as we can, whether it be private, philanthropic or public.


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