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The ‘dangerous obsession’ with cost competitiveness … and the not so dangerous obsession with competitiveness

Abstract : Judging solely by the continued prevalence of the term in policy-makers’ discourse, Paul Krugman's now famous warnings as to the ‘dangerous obsession’ of competitiveness have fallen on deaf ears. In this paper I argue that this is, at least in part, because policy-makers (as distinct, perhaps, from business school gurus) never understood competitiveness in quite the manner he assumed. I suggest that Krugman largely misdiagnosed the problem of competitiveness, directing us to the link between competitiveness and protectionism that was always less prevalent and more tenuous than he imagined. As a consequence he overlooked other more pertinent and problematic aspects of the discourse of competitiveness that persist relatively unchallenged in spite of his warnings. More specifically, I seek to show that Krugman's understanding of competitiveness is insufficiently differentiated and rests on inferences drawn from an overly stylised model of competition for market share in product markets that exhibit a high demand price elasticity and in which success is associated exclusively with strategies of cost containment. As I show through a series of extensions to his model, this leads him to fail to see that it is the privileging of cost competitiveness specifically, rather than the pursuit of competitiveness per se that is the dangerous obsession from which we most need protecting today.
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Submitted on : Wednesday, July 17, 2019 - 12:43:34 PM
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Colin Hay. The ‘dangerous obsession’ with cost competitiveness … and the not so dangerous obsession with competitiveness. Cambridge Journal of Economics, 2012, 36 (2), pp.463 - 480. ⟨hal-02186579⟩

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