Wednesday, 27 May 2009

International competitiveness

From Scoop comes this news release from The New Zealand Council for Infrastructure Development,
The New Zealand Council for Infrastructure Development has welcomed the appointment of the eight member National Infrastructure Advisory Board

“Developing our national infrastructure is key to improving New Zealand’s international competitiveness”, says NZCID Chief Executive, Stephen Selwood.
I have already commented on the usefulness, or otherwise, of the Infrastructure Advisory Board.

My concern here is different, it has to do with this idea that "infrastructure is key to improving New Zealand’s international competitiveness". This statement is meaningless at best, dangerous at worst. Infrastructure isn't key to improving New Zealand’s international competitiveness since countries don't compete. Even Paul Krugman has got this idea, he summed up the problem with such thinking in the title of one of his essays - written when he was still an economist - Competitiveness: A Dangerous Obsession. An obsession Mr Selwood would seems to share.

We don't compete with other countries, this is a false analogy that comes from thinking that countries are like firms, they're not. As Paul Krugman, in a different essay, put it A Country Is Not a Company. The point is that Coke and Pepsi, for example, do compete, one gains at the others expense, but New Zealand and Australia don't, their loss is not our gain. International trade is not a zero-sum game. To see this, note that while Coke may wish to put Pepsi out of business, so that Coke can increase their sales and prices and therefore profits, New Zealand would not gain if we put Australia "out of business".

Why? Well in the Coke/Pepsi case, Coke gain a lot, in terms of sales and profits, from not having Pepsi to complete with and lose little since Pepsi doesn't buy much , if anything, from Coke. Or Coke from Pepsi. This is not true of the New Zealand/Australia example. We may gain some sells if Australia stopped producing, but we would lose much more. Australia is our biggest export market and if they "went out of business", they would stop importing, and that would hurt us a lot. Also they are suppliers of much of our useful imports and that would stop too, which would hurt us even more.

Countries trade, they don't compete.

So if people wish to justify having a National Infrastructure Advisory Board let that justification not be based on a false analogue.


bk drinkwater said...

It's to be hoped that by international competitiveness, Selwood is speaking about how attractive New Zealand is as a destination for foreign capital investment; and that he's not so much speaking about a competition per se, but rather that we remain/become comparable to other nations on that front.

I'm not optimistic.

Anonymous said...

Remember Selwood is paid to say those things by companies that own and invest in infrastructre.

A veneer of independence has cleverly been built up with the name of the organisation but really, it is an industry front. It's sad how this is not reported every time his comments are.