Economic competitiveness is a cross-cutting and horizontal issue. Several definitions of the concept have been developed, colloquial to different regions of the world.

Professor Michael Porter of Harvard University's Institute for Strategy and Competitiveness identifies the productivity of an economy as the major driver for competitiveness. Productitivty is defined as the ability of firms and subsidiaries based in a country to get efficient output per dollar of capital per unit of labor. In simpler terms, productivity determines the returns to capital from investment.  Professor Porter gives special emphasis to a range of company-specific factors conducive to improved efficiency and productivity at the micro level.

Professor Michael Enright, director of the Competitiveness Program at the Hong Kong Institute of Economic and Business Strategy, defines competitiveness for firms as the ability to succeed against competitors in ways that lead to higher profits. On the macroeconomic level, Professor Enright says that the ability of a nation to support productivity allows a high and rising standard of living. He says that this usually involves competitiveness in a sufficient range of firms and industries to foster economic growth and development.

Why is competitiveness important?

• Pressures

• Globalization of competition.
• The rise of China and India as competitors.
• The rise of knowledge-based economies and the IT revolution.
• Increasing resource prices.

• Opportunities

• Emergence of new markets.
• Decentralization of production and other activities.
• Fragmentation of production and supply chains.
• Ability to leverage advantages in larger markets.

The quality of the macroeconomic environment and the state of a country's institutions determine its competitiveness ranking.  Factors for competitiveness include an efficient judicial system that allows transparent and low-cost settlement of disputes, fiscal discipline, professional, transparent and effective public institutions and the role of investment and innovation. Strong public institutions and low levels of corruption create an environment for firms to operate in a legal atmosphere in which there is widespread respect for Intellectual Property Rights, contracts and rule of law.  Such an environment provides the confidence necessary for the private sector to adopt new technologies and nurtures a culture of innovation.

Competitiveness is based on and measured with two main instruments, namely, innovation and investment. The development of the appropriate innovation systems and creation of an investment-friendly environment enhances the competitiveness of the economy.

Innovation - in the global perspective - is a new idea turned into commercial benefit. Central to this idea is scientific or technical discovery, as well as improvements to processes, changes to organizations and adjustments to methods of marketing and selling a product or service. Innovation is fundamental to economic competitiveness, not only because it affects productivity and sales, but also because it provides an important source for long term economic growth. In all the developed economies around the globe, governments are increasingly recognizing the importance of innovation and are intensifying efforts to support and catalyze innovation in their economies.

Creating an environment conducive to attracting and mobilizing both foreign and domestic private investment is therefore in many instances an effective approach towards enhancing a country's competitiveness.

Foreign direct investment and private investment bring fresh managerial skills, the latest machinery and technology, additional sources of capital and new distribution systems, thereby enhancing the quality of products and services, creating jobs and promoting long-term economic growth.

Why Competitiveness?   

 First, competitiveness is a driver for world economic growth with benefits for all:

• Competitiveness is not a zero-sum game.

• It offers mutual gains and "win-win" outcomes.

• Healthy and competitive economies benefit everyone; unhealthy and closed economies benefit no one.

• The consumer directly benefits from better quality and lower prices.

• As countries become more competitive and prosperous, competitiveness creates more trading opportunities for developing and developed countries alike, as well as fostering regional economic integration.

 Secondly, competitiveness is a driver for greater social stability:

• As industries sell more goods, they build more factories, and they hire more people.

• Employment and incomes increase.

• People become more prosperous.

• They are able to buy and improve a family home.

• They are able to improve their children's education.

• Parents who have economic hope and see potential for their children have a real stake in peace and stability.

• The more competitive a nation becomes, the more its middle-class grows and prospers, and the more stable it becomes.

• Experience shows that the economic and political values of competitive nations tend to merge over time without the loss of religious, cultural or national identity.

Thirdly, the developed countries, including the US, need strong competitors in order to sustain their own economic prowess:

• While America is a global economic power, its firms and industries need competition to avoid complacency and decline.

• For example, in the 1980s, the American automobile industry needed to be shaken out of its complacency-and Toyota and Honda did so. American carmakers responded with higher quality and more fuel-efficient vehicles.

• China's amazing success in manufacturing drives the U.S. and other countries to move up the value chain.

There are, of course, issues of the fairness of competition, but in general, fair competition benefits all.