Rethinking Competitiveness

This project documents the competitive situation of a group of selected countries and their constraints to growth. It is a call to rethink competitiveness in a resources-constrained world.

National competitiveness analyses still lack of a clear account of the biocapacity and the resources demand placed by countries. They fail to consider the fundamental link between economy, human population and environment.

This project was created with the support of the Laboratory for System Modelling at the University ofLugano,USI (Switzerland).

Rethinking Competitiveness - Author: Ana Duek and Matteo de Franceschi
Rethinking Competitiveness - Author: Ana Duek and Matteo de Franceschi
Rethinking Competitiveness - Author: Ana Duek and Matteo de Franceschi

Rethinking Competitiveness in a resources-constrained world

The Background

For many years national competitiveness has been measured in terms of the economic growth and long-term prosperity a country is able to achieve. It has been, in fact, closely related to the concept of productivity. Or more precisely, the set of variables (i.e. institutions, policies and primary factors) that determine the level of productivity of a country determines as well its level of competitiveness. Furthermore, the level of productivity also sets the highest sustainable level of competitiveness of a country.

In the past few years, the World Economic Forum started to base its competitiveness analysis on the Global Competitiveness Index (GCI), covering the whole set of factors that determines a more —or less— competitive economy. The components of the CGI are grouped into 12 pillars of economic competitiveness each measuring a different aspect of competitiveness (i.e., institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication and innovation). These pillars have become a well-known tool for policy and business leaders as an important source of information to identify country’s strengths, obstacles and challenges, as well as a guide to define strategies and policies. Both GCI and the 12 Pillars are plotted in the diagram in the most external ring of the circle. According to the GCI value, economies compete in different ways and thus, at different stages. The stages of development of the countries considered are represented at the first inner ring of the diagram in blue.

There are however other aspects that play crucial roles in determining the competitiveness of an economy, especially in determining economic growth and long-term prosperity. Among those aspects are very basic indicators such as, for example, the size of the population (including its growth rates and its density) and the biocapacity of a country. These indicators behave as constraints to economic growth.

Human population and its density is plotted at the most inner space of the diagram. Bubbles and colour ranges provide a clear idea of the total population and its density in each of the countries considered.

Growth in population increases consumption and it also decreases the space available. Although an increase in consumption has critical impacts on a downturn economy, it also implies a need for more resources. A decline of space is, especially in urban areas, commonly translated as deterioration of the average quality of life. The quality of life level has important consequences in terms of competitiveness, thus hampering sustainable prosperity in the long run.

When population is growing, consumption, food production and industrial production are all growing too. This Consumption-Production-Consumption continuous loop requires natural resources. Population and thus economy depend upon natural resources and need sources that provide materials and energy (e.g., water, food, wood, fossil fuels, etc.). The use of natural resources, however, implies emissions that are all absorbed by the planet. This absorption occurs only according to the planet’s ability and capacity to assimilate wastes.

Hence, sustainability becomes crucial. This concept covers the simple fact that when resources are consumed faster than their own restorative capacity they are depleted and put at the risk of total exhaustion. This is also true for the waste emission. Two important measurements are extremely helpful to determine a country’s use and limits of its natural patrimony; they are biocapacity and ecological footprint. Both are represented in the diagram as lines – indicating the level of biocapacity and footprint consumption, and bubbles – indicating a country’s footprint accounting results (i.e., deficit or reserve).

As defined in the Ecological Footprint Atlas 2009, biocapacity (or biological capacity) is the amount of productive area (i.e., land and water) that is available to generate resources and absorb the waste. Countries’ biocapacity differs from each other, making some countries more vulnerable to overshoots. The ecological footprint measures the demand that human activity puts on the biosphere. In other words, it measures the amount of biologically productive area required to produce all the resources an individual, population, or activity consumes, and to absorb the waste they generate, given prevailing technology and resource management practices. While biocapacity offers a clear idea of the national resource constraints, the ecological footprint suggests the environmental impact of national resource consumption.

The earth and its resources —both non-renewable and renewable— are all finite when these resources are over-extracted and its emissions exceed productive and absorptive capacities. As a result, other than the demographic constraint aforementioned, there is also a resource and emission constraint (i.e., ecological constraint).

Nevertheless, demographics and environmental settings of a country are closely interrelated. On one hand, the higher the growth rate of a country’s population, the higher a country’s human ecological footprint. On the other hand, the higher a country’s human ecological footprint, the less sustainable its population is.

The diagram additionally incorporates other well-known comprehensive indicators such as the World Bank’s country classification by income group and the UNDP Human Development Index (HDI). Both are represented in the second and third inner rings of the diagram. The HDI is a single statistic that serves as a frame of reference for both social and economic development. Since HDI takes account of life expectancy and educational attainment of the countries, it comprises information contained in the fourth and the fifth competitiveness pillar. This indicator, however, gives a multidimensional idea of the country’s situation in terms of health, education and income.

The World Bank country classification by income is included in the chart because it divides world economies according to their 2009 Gross National Income (GNI) per capita. Although the use of GNI per capita in the chart might seem redundant, it gives a more precise idea in terms of national income than other indicators (e.g., Gross Domestic Product) and it also allows a better inter-country comparison by reducing the impact of exchange rate fluctuations. This indicator also offers additional information classifying rich countries by their OECD membership.

As a whole, this diagram documents the competitive situation of the selected countries and their constraints to growth. Population and ecological debt provide a clear idea of the country’s long-term potentiality to improve or maintain its competitiveness level.

It has been proved that there is no better solution for poverty alleviation than economic growth. However, infinite economy growth in a finite world is impossible. Sustainable growth needs to be based on the sustainable use of resources. New development pathways are therefore required to reduce the common negative human environmental impacts of a country’s development process. The challenge exists in reaching high levels of prosperity (i.e., economies with high GCI, HDI, GNI, etc.) while ensuring resources sustainability (i.e., lower footprint, ecological reserve, etc.).

The idea and the goals

The idea behind this diagram is very simple and it is to compare competiveness results with the national ecological footprint status by and between countries. This diagram also incorporates other well-known measures and indicators such as the World Bank’s country classification by income group and the UNDP Human Development Index.

This static figure does not intend to make any predictions, but only to present the status of a combination of economic, demographic and environmental factors for some arbitrarily chosen countries. However, looking at the economic-population-environmental information presented in the diagram it is possible to envisage how limits to material growth will shape each nation and world future.

The goal of this diagram is to stimulate the discussion for more comprehensive competitiveness measurements and indicators, leading to the rethinking of competitiveness.

Any prosperity or competitiveness indicator should include the real constraints to productivity growth and national wealth in the long-term. Thus, in order for a competitiveness indicator to reflect sustainability, it requires an integrated view that shows the crucial and complex links among economy, population and environment.

The Data 

This work was developed using data from different public sources, including population statistics from the Population Reference Bureau, national competitiveness index (i.e., GCI) and pillars from the World Economic Forum, countries classification from World Bank, the Human Development Index from United Nations, and national footprint accounts from the Global Footprint Network.

The values and ranges of each of the indicators used are specified in the chart’s legends. Finally, all methodological details of all indicators used are available at the data sources websites.

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