This section outlines four different ways to do the above by making some concrete policy suggestions based upon the existing literature. The Concern About Competition Porter (1990) argues that national prosperity primarily depends on a to nation’s ability innovate and implement new technologies and not on things like factor endowments, inflation or interest rates. The key variable that determines innovation and the implementation of new technologies is domestic competition because it creates the incentives for companies to develop at a faster pace. This means that companies are better off if they are challenged and have to face strong competition. This implies that protective measures such as market entry barriers, like tariffs or special support in the form of subsidies, are counterproductive. The policy implications for governments, that result from is not to do their domestic economy any Porter’s critique, favors by protecting and insulating it. Instead, they should provide the right incentives for companies to invest and compete. These incentives include clearly defined property rights which are backed up by a strong and law based legal framework (North and Thomas 1976). How Political Elites Use and Create the Mirage of Competitiveness Krugman (1994) identifies a closely related issue: international competitiveness. He points out that states are very different from companies, which is why the intuitive comparison between countries and companies with regards to competition is nonsensical. The reason is that countries have no clearly definable bottom line. For example, if a there are two companies that are competing in the same market and one of them is far more competitive then it is reasonable that in the long run the other company will close up shop and cease to exist. This usually does not happen to states. If China becomes more productive than the United States one day, this does not mean that the US would decide to call it quits and no longer exist. The most likely effect this
This section outlines four different ways to do the above by making some concrete policy suggestions based upon the existing literature. The Concern About Competition Porter (1990) argues that national prosperity primarily depends on a nation’s ability to innovate and implement new technologies and not on things like factor endowments, inflation or interest rates. The key variable that determines innovation and the implementation of new technologies is domestic competition because it creates the incentives for companies to develop at a faster pace. This means that companies are better off if they are challenged and have to face strong competition. This implies that protective measures such as market entry barriers, like tariffs or special support in the form of subsidies, are counterproductive. The policy implications for governments, that result from Porter’s critique, is not to do their domestic economy any favors by protecting and insulating it. Instead, they should provide the right incentives for companies to invest and compete. These incentives include clearly defined property rights which are backed up by a strong and law based legal framework (North and Thomas 1976). How Political Elites Use and Create the Mirage of Competitiveness Krugman (1994) identifies a closely related issue: international competitiveness. He points out that states are very different from companies, which is why the intuitive comparison between countries and companies with regards to competition is nonsensical. The reason is that countries have no clearly definable bottom line. For example, if a there are two companies that are competing in the same market and one of them is far more competitive then it is reasonable that in the long run the other company will close up shop and cease to exist. This usually does not happen to states. If China becomes more productive than the United States one day, this does not mean that the US would decide to call it quits and no longer exist. The most likely effect this
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