Competitiveness is a weasel word
Business Council of Australia president Tony Shepherd managed to use it three times in a five-sentence statement after meeting Rudd last week, but he's not the only one. The bosses of the Australian Chamber of Commerce and Industry and the Australian Industry Group have also been throwing it around when describing what they think Rudd should do.
There's just one problem with this. Lifting Australia's "global competitiveness" may sound sensible, but what it means in economics is very different to what it means in business.
This isn't just some semantic debate. It reflects a deeper misunderstanding of how economies work, and the flawed assumption that if we could just make life easier for individual firms, the economy would be better off.
To a business person, being competitive is crucial. Companies get ahead by beating their rivals.
If Ford can sell more cars, for instance, it will come at the expense of other car makers. It is known as a "zero-sum" game - if one side wins, the other necessarily loses.
But economies are not simply enlarged versions of companies. Imagining that they are falls victim to the "fallacy of composition" - the false assumption that what's true for some individuals is true for the whole.
One of the first lessons in economics is that trade between countries is not a two-way battle, with a winner and a loser. Economics tells us that trade is a "positive-sum" game - both sides can win by specialising in what they do relatively well, rather than trying to thrash each other at everything. Growth in the rest of the world benefits Australia, after all. So there's one big flaw in the "competitiveness" push already.
Second, competitiveness in economics can refer to the prices our exporters receive on global markets. The high dollar has clearly inflicted serious damage on this front, notwithstanding its recent fall. But again, I don't think this is what the business groups are talking about. Very few of them want the government to intervene to lower the dollar.
Third, economics tells us we should encourage "internal market competitiveness" - fierce competition between companies selling to Australians. Governments do this through rules and institutions designed to force companies to compete with each other. Throughout the 1980s and 1990s, for instance, the wave of "microeconomic reform" involved cutting tariffs on imports so local companies had to compete with overseas rivals.
But you'll notice this is not really about making conditions more comfortable for individual companies. While the microeconomic reform push of the 1980s included some changes to industrial relations laws, it was mainly focused on forcing companies to work harder, for the benefit of consumers. These don't sound like the type of "reforms" business groups are pleading for in their meetings with Rudd, either.
So what are the bizoids on about when they lament our lack of "competitiveness"?
In all likelihood, they're probably using this cumbersome word as a way to jazz up something that's notoriously dry: productivity.
Productivity - an economy's output compared with its input of labour and capital - is what really makes us wealthier over time. It's a valid concern. It is the most important ingredient in raising material living standards over the longer term. And it's been weak over the past decade.
But guess what? Higher productivity is not something governments hand down to businesses in the form of favourable labour laws or lower taxes. Instead, productivity is mainly the responsibility of business managers. They, after all, are the ones charged with making sure companies use appropriate technology and are organised in the right way.
There's no easy solution to lifting productivity, but former Productivity Commission chairman Gary Banks last year put together a
"to-do list" of dozens of changes that he reckons would help.
Some of Banks' suggestions would be lapped up by the business community, such as further industrial relations deregulation or a higher GST. Others would be much less popular in the boardrooms of corporate Australia - such as cutting billions of dollars in subsidies handed out to companies as cash grants or tax breaks.
Whatever your perspective on their merits, there's no doubt most of these productivity-boosting changes would be tough. They'd create winners and losers in business and the community. Many are controversial, and probably wouldn't be touched by Rudd or Tony Abbott with a barge pole.
Not once, however, did Banks try to obscure these thorny issues by referring to Australia's "competitiveness". Perhaps the bizoids should take a leaf out of his book. If they want a debate about the difficult changes that might lift productivity, they should acknowledge that this is not just about making things easier for business. And they should ditch the ambiguous weasel words and call a spade a spade.
Frequently Asked Questions about this Article…
Business groups often use “competitiveness” as a shorthand for improving business conditions, but the article warns this is ambiguous. For investors, the key is to recognise whether calls for competitiveness refer to firm-level advantages (zero-sum gains against rivals), economic-wide gains like export prices, or productivity improvements that lift living standards over time.
In business, competitiveness is often zero-sum—one firm winning market share can mean another loses. In economics, competitiveness can mean positive-sum outcomes, such as countries specialising in what they do relatively well so trade benefits both sides. The article highlights this distinction to avoid confusing firm-level success with broader economic health.
No. The article argues that assuming competitiveness means easing conditions for individual firms is a flawed view. Economic competitiveness and productivity improvements typically involve different policies and market disciplines, and many productivity gains are driven by business managers rather than government giveaways.
The article notes that competitiveness in economics can refer to the prices exporters receive on global markets, and that a high dollar has inflicted damage on export prices (despite a recent fall). However, business groups rarely advocate direct government intervention to lower the dollar.
The article suggests business groups may use the catch-all term “competitiveness” to make the dry topic of productivity sound more urgent or appealing. Productivity—output relative to labour and capital—is the fundamental driver of long‑term wealth, and it’s often what these groups actually mean.
According to the article, business managers bear primary responsibility for productivity because they decide on technology and organisational structure. Governments can support productivity through rules and institutions that promote internal market competition (for example, past microeconomic reforms such as cutting import tariffs), but many productivity improvements depend on firm-level decisions.
The article references a ‘to‑do list’ compiled by former Productivity Commission chair Gary Banks that includes measures like further industrial relations deregulation, a higher GST, and cutting subsidies or corporate tax breaks. These policies could boost productivity but would create winners and losers, making them politically and socially contentious.
Treat calls for ‘competitiveness’ as a signal to dig deeper. Ask whether advocates mean firm-level protection, export-price competitiveness, or productivity reforms. Investors should focus on the specific policies proposed, the likely impact on industry competition and margins, and which businesses might gain or lose from the suggested changes.
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