'Competitiveness' is not an Economic Concept | Keith Rankin

Tuesday, 10 March 2015, 10:56 am
Opinion: Keith Rankin

On Q+A on Sunday, Kim Campbell (CEO of the Employers and Manufacturers Association) expressed the 'popular' productionist view of economics to a tee (http://tvnz.co.nz/q-and-a-news/kim-campbell-supports-labour-s-campaign-cut-back-acc-levies-video-6249884).

By 'popular' I mean the view of economics held by most businesspeople, politicians and journalists; and by some economists, especially economists working for these businesspeople or politicians. Campbell said that high ACC (Accident Compensation) levies are "just one more thing that makes us less competitive", along with a "high minimum wage". He used the words 'competitive' and 'competitiveness' frequently in this six-minute interview.

In this popular view of competition, the economy is a contest of production, whereby different companies (and indeed countries) compete to supply stuff (goods and services) to an exogenous market. (We can imagine this market as being some kind of gold-yielding basin in the middle of the Indian Ocean.) Success in disposing of goods is rewarded by receipt of 'money', money being understood as wealth. Thus the object of production (in popular economics) is to make money by producing and disposing of stuff. (Does it sound like alchemy? Converting ordinary stuff into money.)

Proper economists have a name for this popular economics. It is called 'mercantilism'. Few practitioners of popular economics even know this word. Their education is usually lacking knowledge of the history (let alone the philosophy) of the social science of economics.

'Competitiveness' is a zero-sum concept. Mercantilism is zero-sum productionist economics whereby the aim is to make 'money'. Economics, however – actual economics – is not a zero-sum discipline.

Actual economics is about living-standards. And it is about market forces. In actual economics, that repository of goods and services – the aforementioned oceanic basin – is endogenous, meaning that economics is first-and-foremost about demand, not supply. We make goods for a purpose, for reasons, not for their own sake. Goods and services, not money, represent our needs and wants.

In popular economics, a country becomes competitive through lower wages. And by being competitive, a country gets to sell more of its stuff; gets to exchange relatively more goods and services for money, while some other country gets to exchange relatively fewer goods and services for money.

In actual economics, money is a means to an end, not an end in itself. In actual economics, wealth is what money will buy, not money held or hoarded. In successful economies, money must circulate freely, and not be held by individual persons, firms or countries as an expression of their wealth.

In a successful global economy, money is a form of wealth only in the sense that it is a social technology that works through its circulation throughout the world. That's the key; a successful national economy is a component of a successful global economy. A successful global economy is one that satisfies as well as possible our requirements for goods and services, and for free time through which to live good lives. It is a productive economy, not a competitive economy. And we note that productivity is a ratio of outputs to inputs; thus productivity can be raised through fewer inputs (eg reduced labour supply; more free time) as much as it can be raised by more output of stuff.

Our economic success is not established by our country outselling another country. And economic success is not established by workers and the environment bearing costs that businesses (seeking low costs for themselves, on the altar of 'competitiveness') prefer not to pay.

ENDS

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Keith Rankin

Political Economist, Scoop Columnist

Keith Rankin taught economics at Unitec in Mt Albert since 1999. An economic historian by training, his research has included an analysis of labour supply in the Great Depression of the 1930s, and has included estimates of New Zealand's GNP going back to the 1850s.

Keith believes that many of the economic issues that beguile us cannot be understood by relying on the orthodox interpretations of our social science disciplines. Keith favours a critical approach that emphasises new perspectives rather than simply opposing those practices and policies that we don't like.

Keith retired in 2020 and lives with his family in Glen Eden, Auckland.

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