[Viewpoint] Competitiveness is no Olympic event

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[Viewpoint] Competitiveness is no Olympic event

In almost any ranked list, it’s always better to rank high. You may express the opinion that the ranking itself isn’t of much importance, but that only sounds convincing when you happen to have a high rank on the particular list. If you don’t, it sounds like you’re making an excuse for your poor performance. This is certainly true for national competitive rankings.

We all know that rankings themselves don’t mean much, and taking them too seriously can be a mistake. But this year, Korea received the highest score in its history in the 2011 World Competitiveness Yearbook by Switzerland’s International Institute for Management Development (IMD). Korea ranked 22nd.

The list raises some obvious questions. Ireland and Iceland are ranked 24th and 31st, despite their profound financial crises. And are they really more competitive than Brazil, the leading emerging market, which sits in the 44th slot? Thailand is in the middle of serious political instability, but it’s ranked 27th, only one rung lower than Japan at 26. The United States and Hong Kong share the top honor. But are those two vastly different economies in any way comparable?

It’s generally unconvincing that small countries received relatively higher scores. Small countries tend to have simple industrial structures, and if a certain industry or company struggles, the entire economy is affected. Such was the case for Finland, where Nokia is in a slump. In 2005, Finland was at the top of the global competitiveness ranking. Is it valid to adjust an entire country’s competitiveness because a single company is not doing that well?

Rating agencies and other organizations use different standards when they rank countries, and the results show it. The IMD ranking is quite different from the competitiveness ranking by the World Economic Forum (WEF), which announces its list in the fall. Last year, Japan was ranked 27th by the IMD, but the WEF put it at sixth. Germany was 16th place in the IMD ranking but number five for the WEF.

The IMD gave Hong Kong (along with the U.S.) its top slot. But the WEF rated it 11th. Depending on the standards and data, the result can be very different. The rankings are clearly affected by the arbitrary interpretation of statistics.

In fact, national competitiveness is not an economic term. It may sound important and attract the attention of the public, but it is not based on a concept with an academic pedigree. As the term is used frequently, we can easily get the mistaken idea that countries are in competition like companies.

Criticism of the concept of national competitiveness began in the 1990s. Nobel Prize-winning American economist Paul Krugman is a notable critic. In a 1994 article entitled “Competitiveness: A Dangerous Obsession,” he warned that the idea of national competitiveness is irrelevant and a dangerous misconception. He argued that countries enjoy mutual benefit from trading with one another, and therefore, it is wrong to rank them. He said that a national competitiveness ranking is meaningless.

He certainly has a point. For example, Korea may be lower than China in the national competitiveness ranking, but that doesn’t mean Korea is falling behind China. The opposite is true. China’s economic development, in fact, benefits Korea’s economy. Exports to China will grow and Chinese tourists will spend more money on visits to Korea. In today’s global economic structure, China’s prosperity will boost Korea’s economic growth.

Comparative rankings simply don’t reflect the greater reality. Korea is four places higher than Japan in competitiveness, but Korea has always had a huge deficit in trade with Japan. In contrast, Korea enjoys a handsome trade surplus with the United States and China, which have higher rankings. The trade dynamics aren’t in the least explained by the list.

Nevertheless, the national competitiveness rankings are published every year and the media coverage reminds us of the Olympics. The results are often used politically. When the ranking drops, it’s used as a cudgel against the government in power. When it rises, the government in power crows. Both of these are foolish and shallow.

People and money will flow into a country because of its various charms and the hope it offers. The attractiveness of freedom and openness may be the real competitiveness that the IMD and the WEF are trying to measure. However, it is very hard to objectify charm. Maybe that’s why we pay attention to rankings with such obvious shortcomings.

So let’s not worry about competitiveness rankings too much. If we do, a shallow obsession could lead us down wrong policy paths, as Krugman warned.

*The writer is a senior business writer of the JoongAng Ilbo.


By Nahm Yoon-ho

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