Rethinking Competitiveness: Is Central America Ready?

Rethinking Competitiveness: Is Central America Ready?

Mauricio Garita-Gutierrez (Universidad del Valle de Guatemala, Guatemala)
DOI: 10.4018/978-1-4666-8820-9.ch008
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Abstract

The present chapter analyzes the different areas concerning competitiveness. This analysis is based on the two visions of competitiveness. The first vision establishes that the only form of competitiveness is to engage in lowering costs and therefore establishing a competitive advantage through costs. The second vision is a more integral one that sees a competitive advantage in the capacity of the workers in the specialization of labor. This second vision enforces the idea of investing in education and health to compete in more profitable markets. Based on these visions, the question to ask is: Is Central America ready?
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2. Defining Competitiveness

Competitiveness is often defined by the productivity in the use of human, capital and natural resources. (Porter, 2005) The purpose of competitiveness is to reach prosperity for a country in the shortest time possible. To engage in the definition of competitiveness one must understand the definition of productivity. Productivity can be defined as the rate at which goods are produced and the work is completed. (Mirriam-Webster, 2014)

To sum up the definition of competitiveness, it is to produce more goods with the use of human, capital and natural resources. This idea of competitiveness is found in the works of Adam Smith, specifically in his book “The Wealth of the Nations”, and in the discussions of David Ricardo. Both authors were very critic to the idea of mercantilism, an economic model that focused on exporting goods to other countries with the exploitation of the markets. The main idea of the theory was based on the idea that the benefit for a country that is exporting to another is to have an absolute advantage. This absolute advantage refers to the concept of being able to create more products in less time, an idea that is similar to the definition of competitiveness. (Laguna, 2003)

Being in an absolute advantage will create a more competitive country. The country then will have certain dominance over its competitors based on its productivity. David Ricardo added that to engage in a higher productivity a country must have lower labor costs, a market structure and relative immobility of the factors. (Chacholiades, 1992) In this sense, David Ricardo added the importance of costs to the definition of Adam Smith. David Ricardo stated that is important to control the different factors, labor, capital and land, to be competitive. But these factors should be controlled through their costs. In conclusion, according to David Ricardo if a country has lower labor, capital or land it will be more competitive and as a consequence it will create more income.

Porter (2005) criticizes this approach and defines that competitiveness will create productivity and that productivity will support higher wages, attractive returns to capital and a higher standard of living. This definition takes into account the advances in technology that had led to a better understanding for competitiveness.

Despite the different ideas on competitiveness, there is still an important amount of support to the idea of David Ricardo. International commerce theory still supports that a country will continue to produce based on the idea of intensively using the factor which the country has relative abundance. The importance of cheaper inputs to guarantee lower prices has lead to creation and acceptance of cheap labor. (Inter-American Development Bank, 2010)

To this idea, Porter (2012) mentioned in a conference in Mexico the following statement:

A nation or a region is competitive to the extent that the different business are capable of competing successfully in a global economy meanwhile they can raise wages and human living for the average citizen.

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