Competitiveness, a continuing series

‘Competitiveness’ rears its ugly head by Samuel Brittan, FT:

“Competitiveness” originally had a clear meaning but has now been taken up by politicians and business leaders as an all-purpose slogan… Unfortunately this debatable concept is now too generally accepted in the political world for such repudiation to be feasible. Originally some economists and officials mentally substituted the word “performance”, but now themselves talk of competitiveness, presumably thinking: if you can’t beat ’em, join ’em… What is misleading is the transfer to whole economies of concepts relevant to individual businesses or regions…

Here we come to the rub of the matter. The competitiveness analysis applies where there is a single currency. If we still had the mark and the lira we could leave the foreign exchange market to sort it out. The exchange rate is a safety valve which allows a country employing it to make up its own mind on its inflation goals and level of business support without worrying about the balance of payments.

The vogue for competitiveness arose in a fixed exchange world. Then if UK products were too expensive, or in other ways unattractive, jobs would be cut and foreign exchange reserves might be lost by the British government, which would then have to embark on one of its notorious stop-go episodes. Edward Heath’s decision in 1972 to float sterling, however reluctantly he made it, should have changed all that. Yet even the British Treasury found it difficult to adapt.

Previous installments:
Competitiveness, argh!” (11 Aug 2007)
Competitiveness, again (29 May 2007)
Obsession with “competitiveness” lives on (30 Aug 2006)
Paul Krugman – Pop Internationalism (29 Aug 2006)