National Competitiveness Assessment: Concept, Measurement, Performance, and Policy

In this blog, I present an assessment of Ireland’s national competitiveness and an overview of policy measures to secure its competitive advantage.

1 The concept of competitiveness

The concept of competitiveness was initially developed at the firm level in the 1970s, and there has been an evolution from firm level analysis to the evaluation of territorial competitiveness since the 1990s. There are remarkable differences between firms and places in the ways they ‘compete’. In the view of the National Competitiveness Council (NCC) in Ireland, there are four main types of competitiveness outputs (i.e. the metrics of current competitiveness): business performance, costs, productivity and employment.

2 The measurement of competitiveness

Area competitiveness is the result of a complex interaction between input, output and outcome factors and thus it cannot be measured by ranking any one variable in isolation. They have been a large number of exercises measuring the competitiveness of localities, regions and nations. Given the space limits, this section outlines the following three approaches.

2.1 The Global Competitiveness Index (GCI)

The GCI 2015-16 by the World Economic Forum provides an overview of the competitiveness performance of around 140 economies. It combines 114 indicators which are grouped into 12 pillars: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, good market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.

2.2 The World Competitiveness Yearbook (WCY)

The WCY 2016 by the Institute for Management Development (IMD) presents competitiveness performance for 61 economies. It comprises more than 340 criteria, which are either hard data from statistics or soft data from survey results, grouped into the following four factors: economic performance, government efficiency, business efficiency, and infrastructure.

2.3 Ireland’s Competitiveness Scorecard (ICS)

ICS 2016 by the NCC analyses over 140 indicators grouped into the following four factors in a ‘Competitiveness Pyramid’: essential conditions, inputs, outputs, and objective. With a special focus on Ireland, ICS compares its performance mainly with OECD and EU countries. Different from the GCI and WCY, the NCC does not “attempt to create a single quantifiable measure of competitiveness – rather, each indicator is examined individually.”

3 Ireland’s competitiveness performance

Ireland’s competitiveness performance between 2007 and 2016 in both the GCI and WCY is shown in Table 1 below. As pointed out earlier, the total number of economies included in these two rankings is rather different from one another. This table is intended to reveal how Ireland’s ranking has evolved in recent years.

Table 1: Ireland’s global competitiveness rankings, 2007-16

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
GCI 22 22 22 25 29 29 27 28 25 24
WCY 14 12 19 21 24 20 17 15 16 7

As Table 1 shows, in both rankings, Ireland has consistently been among one of the most competitive economies in the world. In 2016, Ireland was ranked 24th (out of 140) in the GCI and 7th (out of 61) in the WCY. An overall impression is that Ireland’s competitiveness declined significantly between 2008 until 2012, but has been improving since.

Figures 1a and 1b show in more detail how Ireland’s ranking in the main factors has evolved.

Figure1a
Figure 1a
Figure1b
Figure 1b

As Figures 1a and 1b use somewhat different headings for the main factors, it is not straightforward to compare across the rankings, a task which would need much more detailed data analysis. Nevertheless, it is clear from both figures that Ireland performs relatively well in business efficiency and innovation, but consistently faces challenges in basic requirements and infrastructure during the period.

4 Policy measures to secure Ireland’s competitive advantage

While the GCI and WCY are useful in ranking Ireland against its international counterparts, the ICS provides much more detailed analysis focused on Ireland. In order to clarify the policy measures to secure Ireland’s competitive advantage, one needs to understand both the strengths and weaknesses in Ireland. On the one hand, we will need policy measures to maintain those aspects where Ireland shows strengths; on the other hand, we will need policy measures to address those aspects where Irelands shows weaknesses. This section focuses on the latter type of measures based on the NCC’s Ireland’s Competitiveness Challenges reports.

Table 2: Main challenges in Ireland’s competitiveness, 2014-16

2014 2015 2016
1 Addressing cost competitiveness Increasing capital investment Investing in infrastructure
2 Investing in economic infrastructure Broadening our enterprise and export base Ensuring cost competitiveness
3 Broadening our enterprise and export base Enhancing Ireland’s position from an investor perspective Enhancing talent and skills
4 Enhancing talent and skills Providing affordable property Supporting innovation and productivity
5 Improving access to finance Enhancing talent and skills Broadening our enterprise and export base
6 Rebuilding the trust of citizens in the public bodies Increasing labour market participation

Table 2 above summarises the main challenges faced by Ireland, which in consequent require specific policy measures to address. There are many challenges occurring repeatedly over the three-year period as highlighted, and they can be labelled as ‘systematic challenges’, including addressing cost competitiveness, investing in infrastructure, broadening the enterprise base, and enhancing talent and skills. Thus, the main policy measures are as below:

  • To address cost competitiveness, the policy focus needs to be on cost reductions in key business inputs such as labour costs, energy costs, and property costs;
  • To improve the conditions of infrastructure, the policy focus needs to be on transport (road, public transport, airport, and seaports), energy, telecoms and related services;
  • To broaden the enterprise base, the policy focus needs to be on supporting foreign investment, increasing the capacity of Irish firms, and supporting entrepreneurship;
  • To enhance skills, the policy focus needs to be on meeting the demand for skills required by the enterprises and training both employed and unemployed workers.

There are always new challenges emerging as the economy grows, and they also need persistent policy attention whenever they occur.

(This blog is part of the written exercise I undertook for a job interview in August.)

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