Hey guys
I was wondering, what is the Austrian position on the term “competetiveness” relating to a country?
I have always thought the term was somewhat bogus, since the theory of comparative advantage dismisses the notion that countries compete…Still it is widely used in the mainstream economics, but the term to me just seems like a bad synonym of productivity. I think Krugman wrote a some great essays on the topic, though I know he is not much of an Austrian !
Hope you can help me
I think the term “competitive advantage” that you hear in mainstream economics probably comes from The Wealth of Nations (Smith). He talks about the competitive advantage of English wool manufacturers over French (for example) or the competitive advantage of French Silks over English ones. His take on it was that whilst to a certain degree the fertility of the soils, weather conditions etc. were responsible for this (for example in contributing to the superiority of English wool), in no small way this was also determined by the level of education of the people and the sophistication of the capital infrastructure that they have in place… he talks about French farmers, for example, as compared to Polish farmers and notes that although Polish farmers get paid less the French farmers are able to bring their products to market cheaper, because they have superior infrastructure (or at least that was true back when Smith was writing in the 1800s).
Basically, if you want to undestand what the mainstream economists are talking about, you’d do well to read Adam Smith. Most mainstream economists haven’t read Smith, of course (they just read selected and selective modern regurgitations of his writings in school text books) but Smith has quite a few insightful things to say, despite the well justified misgivings that Austrian economists might have about his theories of value. Smith ran down a dead end road trying to work out how to calculate the inherent value in objects - it wasn’t until Menger that a sophisticated and realistic theory of value emerged.
I am not sure of the Austrian position, but I think that you are right in that “competitiveness” of a country is a bogus term because of David Ricardo’s Theory of Comparative Advantage: http://en.wikipedia.org/wiki/Comparative_advantage. (I think that Rothbard indicates that this theory developed elsewhere perviously, but Ricardo seems to be credited with it.)
At best, one can say that a country has a competitive advantage in producing a particular object, such as the case of wool that Jimmy sites above, but not competitiveness overall. Even if a country appears to have no clear competitive advantage in producing anything, it would have a comparative advantage in producing something.
Adam Smith and David Ricardo’s contribution to economics was demolition of the Mercantalist mindset the existed beforehand. But, again as Jimmy mentions above, where Ricardo let us down was in his Labour Theory of Value, which led the world directly to Marx and Communism, and the totalitarian horrors that that ideology produced.