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Competitiveness and Development


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An analysis of how developing countries can attain competitiveness at a high level of development.

Almost all industrial countries have undergone strategies to maintain, or improve, competitiveness in order to improve the standard of living of their population, particularly during the last quarter-century or so. But how have they treated developing countries? ‘Competitiveness and Development’ explains how developing countries can attain competitiveness at a high level of development, examines the possibilities and constraints in achieving it, and proposes remedial measures at the national and international levels.

The author Mehdi Shafaeddin illustrates how developed countries impose restrictive policies on developing countries through international financial institutions and the WTO, as well as regional and bilateral agreements, thereby limiting their policy space for promoting dynamic comparative advantage in order to achieve competitiveness at a high level of development. Such policies, the author argues, lock developing countries that are at the early stages of development in specialization in primary commodities, or at best simple processing and assembly operations in accordance with their static comparative advantage.

To support this argument, the author critically examines the neoclassical theory of economics, which is the philosophy behind the principle of static comparative advantage as well as the policy stances of international financial institutions and the WTO. The author also reviews the historical experience of developed countries through industrialization, development and achieving competitiveness based on the principle of dynamic comparative advantage. In this context, he explains the importance of trade and industrial policies and the role of government in human resource development, innovation and technological development. To illustrate his case, the author compares the contrasting experiences of China and Mexico since the 1980s, during which time globalization has been intensified.

List of Tables, Figures and Boxes; Foreword; Preface; Acknowledgements; List of Abbreviations; 1. Introduction: Framework of Analysis; 2. Context and Conditions of International Competition; 3. Alternative Theories of Competitiveness; 4. Firm Strategy and New Industrial Organization; 5. External Economies: Organization of Interfirm Relations; 6. Reputation and Trust: A Firm’s Relations with Stakeholders and Others; 7. Innovation and Upgrading; 8. Government Policies; 9. The Experiences of China and Mexico; 10. Summary and Concluding Remarks; Appendices; Bibliography; Index



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Published 15 September 2012
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EAN13 9780857289117
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Competitiveness and Development
The Anthem Other Canon Series
Anthem Press and The Other Canon Foundation are pleased to presentThe Anthem Other Canon Series. The Other Canon – also described as ‘reality economics’ – studies the economy as a real object rather than as the behaviour of a model economy based on core axioms, assumptions and techniques. The series includes both classical and contemporary works in this tradition, spanning evolutionary, institutional and PostKeynesian economics, the history of economic thought and economic policy, economic sociology and technology governance, and works on the theory of uneven development and in the tradition of the German historical school.
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Competitiveness and Development
Myth and Realities
Mehdi Shafaeddin
Foreword by Erik S. Reinert
Anthem Press An imprint of Wimbledon Publishing Company www.anthempress.com This edition first published in UK and USA 2012 by ANTHEM PRESS 7576 Blackfriars Road, London SE1 8HA, UK or PO Box 9779, London SW19 7ZG, UK and 244 Madison Ave. #116, New York, NY 10016, USA
Copyright © Mehdi Shafaeddin 2012
The author asserts the moral right to be identified as the author of this work.
All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book.
British Library CataloguinginPublication Data A catalogue record for this book is available from the British Library.
Library of Congress CataloginginPublication Data Shafaeddin, S. M. (S. Mehdi), 1945 Competitiveness and development : myth and realities / Mehdi Shafaeddin ; foreword by Erik S. Reinert.  p. cm. Includes bibliographical references and index. ISBN 9780857284600 (hbk. : alk. paper) 1. Competition. 2. Economic development. I. Title. HB238.S53 2012 338.9dc23 2012024106
ISBN13: 978 0 85728 460 0 (Hbk) ISBN10: 0 85728 460 6 (Hbk)
This title is also available as an eBook.
To Shahnaz, my wife, for her love and patience
List of Tables, Figures and Boxes Foreword Preface Acknowledgements List of Abbreviations
1. Introduction: Framework of AnalysisApproaches to Competitiveness The Schumpeterian Approach The Schumpeterian/Penrosian Firm Implications for Competitiveness The Firm as a Coordinating Agency Strategy Productivity Implications for Developing Countries The Theme and Plan of the Book
2. Context and Conditions of International CompetitionIntroduction Changes in Economic Philosophy Globalization Other New Methods of Production Barriers to Entry Implications of WTO Rules for Competitiveness The Emergence of China Conclusions
3. Alternative Theories of CompetitivenessIntroduction The Theory of Competitive Advantage (TCA) of M. Porter Critique of the TCA Interaction between Organization and Innovation (Lazonick’s Theory) Increasing Return to Scale and Competitiveness: Further Explanation The Theory of Productive Power of F. List
xi xiii xvii xix xxi
1 4 8 12 13 14 20 21 21 22
27 27 28 29 33 34 37 45 47
49 49 50 59 60 64 68
viii COMPETITIVENESS AND DEVELOPMENT The Theory of Capability Building (TCB) Conclusions 4. Firm Strategy and New Industrial OrganizationIntroduction Factors in Competitiveness Strategy The Flexible Manufacturing System (FMS) and Japanese Techniques Applicability of Japanese Techniques in Other Countries Conclusions 5. External Economies: Organization of Interfirm RelationsIntroduction External Economies: General Issues Investment Coordination Dynamic External Economies of Learning Attitude to Work and Atmosphere Creation External Economies of Reputation Clustering for Collective Efficiency Production Sharing Conclusions 6. Reputation and Trust: A Firms Relations with Stakeholders and OthersIntroduction External Economies of Reputation Trust Trust among Firms and in a Cluster, Network and Strategic Alliance Public–Private Partnership (PPP) Conclusions 7. Innovation and UpgradingIntroduction I. UPGRADING AND INNOVATION: GENERAL ISSUES Concepts Features and Characteristics of Innovation Impact of Innovation Innovation and Export Competitiveness The National System of Innovation (NSI) The Role of the Firm and Other Institutions in R&D Intangible Capital as an Important Element of NSI Globalization and NSI II. INNOVATION BY FOLLOWERS AND LEADERS Myths and Realities Process–Product–Proprietary Grid
71 76 79 79 80 84 90 99 104 107 107 108 108 110 111 111 112 128 132
135 135 135 138 140 142 143
145 145 146 146 148 149 151 151 157 159 163 166 167 168
The Culture of a Firm Strategy for Innovation Conclusions
8. Government PoliciesIntroduction Typology of Countries Theories of Supply Expansion Acceleration of Supply Capacity: Kaleckian Approach The Need for and Modalities of Trade and Industrial Strategies Technological and Upgrading Policies The Impact of Technological Policies Possibilities and Constraints Political Constraints The Need for Changes in WTO Rules and Practices of IFIs and Conclusions
9. The Experiences of China and MexicoIntroduction The Comparative Economic Performance of the Two Countries The Development in Comparative Advantage of China and Mexico Some Qualifications: Comparative Advantage in Production Government Policies on Upgrading and Competitiveness China’s Sources of Growth of Exports and GDP, and of Competitiveness Policies on Science and Technology (S&T) and R&D Comparison with Mexico Human Development and Training Other Measures to Build Up Capabilities of National Enterprises The Role of FDI The Case of HighTechnology Industries Conclusions
10. Summary and Concluding RemarksAnalytical Framework International Context and Conditions of Theories of Competitiveness Enterprise Strategy and Organization Organization of Interfirm Relations Reputation and Trust Innovation and Upgrading Government Policies Comparative Experience of Mexico and China Policy Implications for Other Developing Countries The Need for Further Research
ix 171 171 172
175 175 176 177 182 188 193 195 197 200 200 205
207 207 208 211 212 224 229 238 245 247 249 250 251 256
259 260 260 261 262 263 265 265 266 267 270 273
Appendices Main GATT/WTO Agreements Competition Policy
Bibliography Index
275 275 279
283 303