The meaning of competitiveness

I was in Cagayan de Oro City last week for the assembly of the Regional Competitiveness Councils (RCCs) that were organized under the auspices of the National Competitiveness Council (NCC).

Composed of government and private sector representatives, the NCC aims to promote the international competitiveness of the country to attract investments as means to create more jobs and propel the economy to grow much faster than in the past when we were left behind by our neighbors. It is also the aim of each RCC to make their respective region and local government units competitive to have more business of their own.

There is just one thing that needs some explaining though, in order for each of the RCCs and LGUs to know exactly what to do to become competitive: What is meant by competitiveness?

To answer this question, it is better to see how this term is defined by the World Economic Forum which annually produces the Global Competitiveness Report (GCR). In the GCR, the WEF defines competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country.

The level of productivity, in turn, sets the level of prosperity that can be earned by an economy which also determines the rate of return obtained by investments. The higher the productivity of the nation, the higher the rate of returns to investments. In turn, it is investment that finally drives the growth of the nation. In simple words, a more productive economy is one that is more likely to attract more investments and grow faster over time. The faster the economy grows, the more chances also that the people will earn more and improve their standard of living.

Now the other question comes. What are these factors that determine the level of productivity of the nations? To the WEF, these simply consist of what it called the twelve pillars of development. The first group of four pillars comprise what the WEF considers as Basic Requirements for a nation to have to become competitive. These are its institutions, infrastructure, macroeconomic stability, and health and primary education. The second group of six pillars comprise what the WEF called the Efficiency Enhancers. These are the nation’s higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, and market size. Finally, the last group two pillars consist of the nation’s business sophistication and innovation capability.

In the GCY 2013-42, the Philippines was 59th overall out of 148 nations being ranked. This was already 28 places better than in the 2009-2010 ranking when the new Aquino administration came where the country was only placed at number 87.

Which group of pillars were we strong and weak in ranking?

The GCR shows that the Philippines started very poorly at number 95 on Basic Requirements in 2009-10. This markedly improved to number 78 in the present year ranking. Of the four pillars under the Basic Requirements we also find that the Philippines was both very weak in institutions and infrastructure where we placed 113th and 98th, respectively. We managed finally to improve our standing in institutions to 79th in the present year ranking but not on infrastructure where we improved only by two places to number 96.

What does institutions mean?

The GCY refers to institutions as the legal and administrative framework within which individuals, firms, and governments interact to generate wealth. It says that the quality of institutions has a strong bearing on competitiveness and growth of the nation because it influences investment decisions and the organization of production and plays a key role in the ways in which societies distribute the benefits and bear the costs of development strategies and policies.

Let us think for example of doing business in a certain town or city in Cebu. If we find the local government unit inefficient and manned by corrupt officials that also requires many things to be accomplished before one can start business, one can be sure that not many investments will come to that town or city.

As to infrastructure, we know of course that this is also one of the weakest points to the country’s development up to now. That is, for example, why we are building a new MCIA Terminal to make Cebu a more convenient place to visit and invest in. After all, the first thing newcomers and investors see in any land he is interested in is the airport. Show them a spacious and well-functioning airport terminal and you will see a potential source of employment and income to our people.

Unfortunately, the construction of the new MCIA may not start soon. The DOTC has already awarded the right to construct and operate for 20 years the new MCIA Terminal to the winning bidder, the Megawide-GRM Consortium. There is just one hitch. Senator Serge Osmeña insists that the winning bidder violated rules that were used in the bidding process. To stop the awarding, the senator goes to the Supreme Court.

Not a few, of course, questioned the senator’s motives for stopping the awarding. However, I am also one of those who believe that the DOTC has failed to clarify at least one of the issues raised to the full satisfaction of those who questioned its decision. There were three issues raised. Of the first two, about the financial and technical capability of the GMR, these I can leave to the DOTC to decide but not on third issue on conflict of interest.

One high official of the GMR conglomerates is said to be an official also of another company which is part of another consortium that participated in the bidding. Under the DOTC bidding rules for the new MCIA Terminal, this is not allowed. Having decided in the beginning not to question this, or having perhaps overlooked the matter during the bidding, I do not think that the DOTC will just change its position now. Thus, it may be just right for Senator Osmeña to bring this issue to the Supreme Court.