International Competitiveness Definition: International Competitiveness is the ability to sell goods and services at competitive prices in a foreign country Exercise:

Global Competitiveness - Eight factors…? Relative Unit Labour Costs (Total Cost of Employing Labour / Units of Output Labour produces). As £ costs are expressed in $, weaker £ = lower RULC Generally recorded in index value ie 100 in 2000, 105 in 2001 etc. Relative Export Prices = Export prices of UK Goods compared to export prices of main trading partners – expressed as an Index. index = export prices relative to partners = Competitiveness Export vs Import Prices: ie if X prices  vs M prices then likely that UK losing competitiveness.

Productivity (Output/worker) – effects RULC Wage and non-wage costs (H&S, carbon taxes, waste and recycling, employment protection, employer contribution to pensions etc.) Regulation Quality (After-sales service, design, reliability and performance) R&D Taxation Govt Supply Side Policy Govt Exchange Rate Policy Govt Control of Inflation (& Trade Gaps/Business Cycle)

Other costs / effects - besides Labour for Intl Competitiveness – Evaluation Points Land – cheap resources could boost competitiveness Capital – high fixed capital formation ie investment in productive capacity – could boost competiveness and make Labour more productive Innovation – Are some countries just more culturally entrepreneurial than others? Other - Does fluency in English / English as world language confer an advantage on UK, USA, Canada, Australia etc?

The British Problem – poor productivity? UK: Low Inv’t relative to GDP (in comparison to our competitors) – Aging or “shallowing capital” and “Labour Hoarding”? (using too much labour Low spending on R&D Poor UK management / Skills gaps in UK Industry (Hi- tech/Pharm/Construction) Outdated Infrastructure (Example Heathrow debate, Northern Powerhouse?, poor internet roll out?) Topical – will being outside EU reduce “red tape” – promote entrepreurship? Stability of Economic fundamentals in long term => “Macro stability” (Low Inflation, stable banking system, competitive exchange rate and comparable tax structure to competitors)

Global Competitiveness Index http://reports.weforum.org/global-competitiveness-index/heat-map/ Figures from WEF 2014 Switzerland / Singapore / Finland / Germany ….UK 9th

Determinants of Relative Unit Labour Costs Macroeconomic stability – encourages capital investment Level of human capital – skills & education Capital investment – UK has tended to under-invest in long-run infrastructure Labour market flexibility – lack of competition in labour markets raise wage rates (workers bargain harder) – UK unemployment is very low

Problems of sustaining international competitiveness Low wage costs are likely to grow Other costs likely to rise Current account surplus is likely to lead to a rise in the exchange rate

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