The Changing Determinants of Economic Performance in the World Economy
New Horizons in Institutional and Evolutionary Economics series
Chapter 1: Introduction
1 DOES COMPETITIVENESS MATTER? Since the mid-1980s a growing number of businesspeople, policy makers and researchers have recognized the importance of international competitiveness for economic growth and standard of living. At the same time the rapid technological change, increasing mobility of productive resources and the growing structural problems of industrialized economies have called into question the validity of traditional neoclassical economic theories (Lazonick 1993; Dunning 1995a; Heilbroner and Milberg 1997; Fogel 1999). These theories are based on the assumption of efficient markets, no unemployment of productive resources, international immobility of resources and global specialization of production based on comparative advantage. Also the Keynesian demand management policies appear increasingly irrelevant today in the face globalizing markets and weak or non-existent supranational monetary and fiscal authorities. The diminishing policy relevance of macroeconomic theories is gradually shifting the economic policy debate to the microeconomic determinants of economic efficiency, competitiveness and growth (see OECD 1997a, 1997b, 1997c, 1997d). The microeconomic policy debate evolves around absolute rather than comparative advantage. Absolute advantage, or competitive advantage, as it is more generally known, is the key determinant of economic growth and living standards in today’s highly specialized and integrated, technology-intensive, and rapidly changing world economy where many of the basic premises of traditional economic theories do not hold (Dunning 1995a; Hatzichronoglou 1996). So far business practitioners, organizational management scholars and public policy makers have been more interested in competitiveness than economists. The economists’ lack of interest in competitiveness issues stems from the insufficiency of the traditional economic...