Page 195 - Global Political Economy_Understanding The International Economic Order

CHA PTER S EVEN
ratio and by macroeconomic (fiscal and monetary) policies. Further-
more, the productivity growth of one economy does not necessarily
harm other economies and may even raise the economic welfare of
others. For example, increased productivity of one economy can im-
prove the economic welfare of its trading partners by making the
former’s exports less expensive. As a case in point, no one could deny
that the high rate of productivity growth of the Japanese automotive
and electronics industries has benefited American consumers enor-
mously and has forced American firms to increase their own produc-
tivity and competitiveness in price and quality.
Although nations may not compete with one another in a narrow
economic sense, nations can be said to compete in a broader sense;
that is, in their ability to manage their economic affairs effectively.
At particular times, certain national economies are obviously superior
in their ability to fashion and implement policies that promote eco-
nomic and productivity growth. Beneficial economic policies encour-
age savings, investment, and education, and also facilitate rapid ad-
justment of the private sector to economic and technological change.
Swedish economist Gunnar Eliasson stated that competitiveness can
be defined as a nation’s ability to renew itself. In this sense, competi-
tiveness is ultimately the ability of a society to transform itself contin-
uously in response to economic, political, and technological changes.
The state and its policies must play a central role in transformation
and adjustment; markets alone will not succeed. The state must ad-
dress such issues as market failures and the provision of such public
goods as R & D. Eliasson believes that competitiveness depends on
the economy’s flexibility both to adjust relative prices and to modify
industrial structures by scrapping obsolete economic activities and
thus releasing labor and capital to facilitate the development of viable
new businesses. The capacity of an economy to transform itself is a
crucial characteristic in the global struggle to determine which na-
tions will developa comparative advantage in those industries and
economic activities most important to economic welfare and national
power. 52
The concept of the “competitive state” emerges from ideas ex-
pressed by Eliasson and incorporates Krugman’s argument that it is
firms and not states that compete. The competitive state concept also
incorporates the fact that firms are increasingly mobile as they seek

52
Gunnar Eliasson, The Knowledge Base of an Industrial Economy (Stockholm: In-
dustrial Institute for Economic and Social Research; distributed by Almqvist and Wik-
sell International, 1988).
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