Are you a tiger, a cat or a di­nosaur? 100 ques­tions: how com­pet­i­tive­ness in­flu­ences your life

The Smart Manager - - Reading Room - By stephane garelli

There are two ways to man­age the com­pet­i­tive­ness of an econ­omy. The first is to be ag­gres­sive in in­ter­na­tional mar­kets, which means either ex­port­ing or in­vest­ing abroad. The sec­ond im­plies be­ing at­trac­tive es­sen­tially for for­eign in­vest­ments. The ob­vi­ous ques­tion: Which is the bet­ter ap­proach?

His­tor­i­cally, na­tional com­pet­i­tive­ness has of­ten been as­sim­i­lated with an ag­gres­sive eco­nomic strat­egy. At the be­gin­ning of my re­search in the 1980s, ex­perts told me not to over-com­pli­cate the sub­ject be­cause, ul­ti­mately, a com­pet­i­tive na­tion ex­ported. This was rel­a­tively true. All the great postWorld War II eco­nomic suc­cesses— Ger­many, Ja­pan and South Korea— have been based on a ca­pac­ity to ex­port. To­day, these coun­tries re­main the world’s largest ex­porters.

The same can be said for smaller coun­tries. Their ob­jec­tive is to have a cur­rent-ac­count bal­ance sur­plus, i.e. a strong con­tri­bu­tion of for­eign rev­enues to na­tional wealth. This is also a way to com­pen­sate for the lim­ited size of a do­mes­tic mar­ket. For ex­am­ple, Switzer­land, Nor­way and Sin­ga­pore of­ten have a cur­rentac­count bal­ance of more than 12% of their GDP and their pros­per­ity is based on in­ter­na­tional trans­ac­tions.

How­ever, since the 1970s, a new ap­proach has emerged—that of at­trac­tive­ness. An ex­am­ple is Ire­land, which built its eco­nomic de­vel­op­ment on its abil­ity to at­tract large for­eign com­pa­nies such as In­tel, Ap­ple and Hewlett-Packard. The pol­icy that was im­ple­mented com­bined both fi­nan­cial and fis­cal in­cen­tives (a cor­po­rate tax rate of 12.5%) with ac­cess to a young and skilled work­force. China adopted a sim­i­lar ap­proach with the cre­ation of “spe­cial eco­nomic zones” struc­tured to at­tract for­eign in­vestors. One of the most fa­mous ex­am­ples is the re­gion of Shen­zhen near Hong Kong, which has be­come one of the world’s main elec­tron­ics work­shops. Dubai is an­other more re­cent ex­am­ple of a coun­try with an at­trac­tive­ness pol­icy.

The two ap­proaches have dif­fer­ent out­comes. Ag­gres­sive­ness cre­ates sur­pluses in trade bal­ances; there­fore, it pos­i­tively im­pacts na­tional rev­enue and gen­er­ates for­eign cur­rency re­serves. On the other

hand, at­trac­tive­ness cre­ates jobs and pro­motes the trans­fer of technology and know-how.

Dubai, for ex­am­ple, has es­tab­lished a pol­icy by which a for­eign in­vestor will be en­cour­aged to cre­ate a tech­ni­cal col­lege or a train­ing in­sti­tute for its em­ploy­ees and its lo­cal sup­pli­ers.

Ob­vi­ously, the best com­bi­na­tion is to have both an at­trac­tive and an ag­gres­sive econ­omy. Some coun­tries have suc­ceeded: the US, Sin­ga­pore, Great Bri­tain, France and even Switzer­land. Even so, most gov­ern­ments show more in­ter­est in at­trac­tive­ness poli­cies be­cause they lead to vis­i­ble job cre­ation. In con­trast, a sur­plus in the trade bal­ance of­ten re­mains an ob­scure con­cept for the ma­jor­ity of the peo­ple who do not un­der­stand how it will im­prove their lives. This ex­plains why na­tions will usu­ally en­gage in a fierce com­pe­ti­tion to at­tract a com­pany that wants to in­vest in an­other coun­try: Job cre­ation and po­lit­i­cal am­bi­tions are the rea­sons...

what is the long­est word?

For eco­nomic pur­poses, the an­swer must be “ex­trater­ri­to­ri­al­ity” (in English, it is of­fi­cially oul­tra­mi­cro­scop­ic­sil­i­co­vol­canoko­nio­sis”—good luck ...). Of course, such a long word can only be the in­ven­tion of a lawyer...

To make it sim­ple, ex­trater­ri­to­ri­al­ity is when a na­tion sub­mits, will­ingly or not, to an­other na­tion’s ju­ris­dic­tion. This is the case for em­bassies or, his­tor­i­cally, for­eign con­ces­sions in Shang­hai in the 19th and early 20th cen­turies. In eco­nom­ics, ex­trater­ri­to­ri­al­ity is in­creas­ingly a con­cern. Pow­er­ful na­tions such as the United States are reg­u­larly tempted to im­pose their eco­nomic leg­is­la­tions on other na­tions.

The US and Great Bri­tain have laws for­bid­ding trade re­la­tion­ships with cer­tain coun­tries. In ad­di­tion, they also tend to de­mand that for­eign com­pa­nies ap­ply these re­stric­tions, or face re­tal­i­a­tion. In the US, the “Trad­ing with the En­emy Act” of 1917 was of­ten used to this ef­fect even though, since 2008, it has only af­fected Cuba and North Korea. It also makes it pos­si­ble to im­pose spe­cific em­bar­goes on prod­ucts (no­tably arms) or on peo­ple (visas, bank trans­ac­tions, etc.). Un­til re­cently, the US had em­bargo mea­sures in place against Burma, Cuba, Iran, North Korea, Syria, Su­dan and Rus­sia.

From a strictly le­gal point of view, the United States could only im­pose such mea­sures on US com­pa­nies. It gets com­pli­cated when these com­pa­nies are in­ter­na­tional and have sub­sidiaries abroad. In law, the sub­sidiary of a US com­pany has the na­tion­al­ity of the host coun­try.

Af­ter the Soviet Union in­va­sion of Afghanistan in 1980, the United States de­creed em­bargo mea­sures. I re­mem­ber the man­ager of the French sub­sidiary of a large US sup­plier of pipe­line com­po­nents who was con­fronted with an im­pos­si­ble quandary. His US par­ent com­pany de­manded that he re­spect the em­bargo. The French gov­ern­ment, how­ever, in­sisted that the sub­sidiary, legally French, should con­tinue its re­la­tion­ship with Rus­sia. Some­times, a man­ager must also be a canny diplo­mat...

In or­der to im­pose its law, the United States has a con­vinc­ing ar­gu­ment: ac­cess to the US mar­ket. Re­cently a num­ber of French banks were fined in the US for help­ing Cuba, Iran or Su­dan by­pass sanc­tions. The same ap­plies to the bank­ing in­dus­try in gen­eral with the ap­pli­ca­tion of the new FATCA law. Ul­ti­mately, if for­eign banks don’t re­spect the new rules, they risk a hefty fine or, worse, los­ing their li­cense in the United States. ■

Ex­trater­ri­to­ri­al­ity is when a na­tion sub­mits, will­ingly or not, to an­other na­tion’s ju­ris­dic­tion. This is the case for em­bassies or, his­tor­i­cally, for­eign con­ces­sions in Shang­hai in the 19th and early 20th cen­turies.

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