Sunday, October 15, 2017

http://dailyasianage.com/news/90414/competitiveness-and-competition-commission

Competitiveness and Competition Commission

M. S. Siddiqui

The World Economic Forum (WEF) has been publishing the Global Competitiveness Report (GCR)
and Global Competitive Index (GCI) since 1979.Centre for Policy Dialogue (CPD) has been carrying
out its study in Bangladesh as local partner. WEF bases the analysis of competitiveness on the GCI,
which is a comprehensive tool that tries to measure the Macroeconomic and microeconomic
foundations of national competitiveness. According to the WEF (2013 report), competitiveness is
"the set of institutions, policies and factors that determine the level of productivity of a country". The
level of productivity, in turn, sets the level of prosperity that can be attained by an economy.

Bangladesh has ranked 106th in Global Competitiveness Index among 138 countries in the recent
report of 2016-17.In the previous year, the country held 107th position among 140 countries.
Bangladesh scored 1.06% higher to 3.80 from 3.76, and it lagged behind the ranking among the
countries surveyed. Corruption and inadequate supply of infrastructure were the top two problematic
factors this year as in the last year although, corruption slightly improved to second position, scoring
16.5 from 18.7 score last year.

Bangladesh is moving towards competitiveness but at a very slower pace while other countries are
moving very fast. The entrepreneurs who were surveyed observed limited progress in infrastructure
facilities during 2015 excepting power sector. Road transport infrastructure is underdeveloped rated
as worse, which is 76% this year from 73% last year. Governance is the weakest part of
Bangladesh's competitiveness as most of the indicators are still in either bad or worse category.

The country's financial sector deteriorated this year as no indicators were found at least well this
year, but in the last year, the survey found two good indicators. All indicators in this sector were
found either bad or worse, according to the report.

The cost of financial services impedes business actively rated 65%, which was 66% last year, all
scoring bad. Limited access to financing has become a major problem placed 3rd this year from 5th
last year. The banking sector in Bangladesh has plenty of money, but the rate of interest and other
service charges are high causing cost of loan very high.

India has made remarkable improvement while Pakistan is the worst performer among the South
Asian countries. India advanced to 39th position from 55th last year while Pakistan came 122th from
126th, according to the report. The top 3 countries are Switzerland being 1st, Singapore 2nd and the
United States occupying 3rd position.

The determinants of competitiveness are many and complex. This attempt has ranged from Adam
Smith's focus on specialization and the division of labor to neoclassical economists' emphasis on
investment in physical capital and infrastructure, and, more recently, to interesting other
mechanisms such as education and training, technological progress, macroeconomic stability, good
governance, the rule of law, transparent and well-functioning institutions, firm sophistication, demand
conditions, market size, and many others.(GCR, 2008).

GEF defines competitiveness as the set of institutions, policies, and factors that determine the level
of productivity of a country. The level of productivity, in turn, sets the sustainable level of prosperity
that can be earned by an economy. According to the OECD countries, the degree to which a country
can, under free trade and free market conditions, produce goods and services which meet the test of
international markets, while simultaneously maintaining and expanding the real incomes of its people
over the long term. The European Commission (EU) defines competitiveness as the ability of an
economy to provide its people with high and rising standards of living and high rates of employment
on a sustainable basis.

The determinant factors of competitiveness are grouped into 12 pillars of competitiveness, each
measuring a different aspect or dimension of competitiveness. Pillar 1: Institutions: Institutions are
determined by the legal and administrative framework within which individuals, firms and
governments interact to generate wealth. However, the role of institutions goes beyond the legal
framework. Pillar 2: Infrastructure:

Extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy,
as it is an important factor in determining the location of economic activity and the kinds of activities
or sectors that can develop within a country. Pillar 3: Macroeconomic environment: The economy
cannot grow in a sustainable manner unless the microenvironment is stable. Macroeconomic
stability captured the attention of the public most recently, when some advanced economies needed
to take urgent action to prevent macroeconomic instability when their public debt reached
unsustainable levels in the wake of the global financial crisis.

Pillar 4: Heath and primary education: Poor health leads to significant costs to business, as sick
workers are often absent or operate at lower levels of efficiency. Basic education increases the
efficiency of each individual worker. Moreover, often workers who have received little formal
education find it much more difficult to adapt to more advanced production processes and
sophisticated techniques. Pillar 5: Higher education and training: Quality higher education and
training is crucial for economies that want to move up the value chain beyond simple production
processes and products. Pillar 6: Goods market efficiency:

Countries with efficient goods markets are well positioned to produce the right mix of products and
services given their particular supply and demand conditions, as well as to ensure that these goods
can be most effectively traded in the economy. Pillar 7: Labor market efficiency: The efficiency and
flexibility of the labor market are critical for ensuring that workers are allocated to their most effective
use in the economy and provided with incentives to give their best effort in their jobs. Pillar 8:
Financial market development:

Inefficient financial sector allocates the resources saved by a nation's citizens, as well as those
entering the economy from abroad, to their most productive uses. A thorough and proper
assessment of risk is therefore a key ingredient of a sound financial market. Moreover, financial
markets need appropriate regulation to protect investors' another actors in the economy at large.
Pillar 9: Technological readiness: Technology is increasingly essential for firms to compete and
prosper. The technological readiness pillar measures the agility with which an economy adopts
existing technologies to enhance the productivity of its industries. Pillar 10: Market size:

The size of the market affects productivity since large markets allow firms to exploit economies of
scale. In the era of globalization, international markets have become a substitute for domestic
markets, especially for small countries. Pillar 11: Business sophistication: Business sophistication
concerns two elements that are intricately linked: the quality of a country's overall business networks
and the quality of individual firms' operations and strategies. These factors are particularly important
for countries at an advanced stage of development when, to a large extent, the more basic sources
of productivity improvements have been exhausted. Pillar 12: Innovation:

Although less-advanced countries can still improve their productivity by adopting existing
technologies or making incremental improvements in other areas, for those that have reached the
innovation stage of development this is no longer sufficient for increasing productivity.

The pillars of competitiveness are not independent. On the contrary, they tend to reinforce each
other, whereas a weakness in one area often has negative impact on others. Moreover, while all
pillars described above matter to ascertain extent for all economies, they affect them in different
ways depending on their stage of development such as Factor-driven, Efficiency-driven and
Innovation-driven stages.

GCI assumes that in the first stage of development the economy is factor-driven and countries
compete based on their factor endowments. At these three Stages of Competitive Development,
Factor-driven economy that is macro economy, political, and legal stability with efficient basic
infrastructure and lowering the regulatory costs of doing business. The investment-driven economy
should be local competition, market openness and incentives and rules encouraging productivity as
well as cluster development and then finally Innovation-driven economy would be with advanced
skills, advanced infrastructure, incentives and rules encouraging innovation and cluster upgrading.

Sustaining competitiveness at factor-driven stage of development lies primarily on well-functioning

public and private institutions (pillar 1), a well-developed infrastructure (pillar 2), a stable
macroeconomic environment (pillar 3) and a healthy workforce that has received at least basic
education (pillar 4).

While a country becomes more competitive, productivity will increase. Countries will then move into
the efficiency-driven stage of development. At this stage, competitiveness is increasingly driven by
higher education and training (pillar 5), efficient goods markets (pillar 6), well-functioning labor
markets (pillar 7), developed financial markets (pillar 8), the ability to reap the benefits of existing
technologies (pillar 9), and a large domestic or foreign market (pillar 10).

Finally, as countries move into the innovation-driven stage, companies should compete by producing
new and differentiated goods using the most sophisticated production processes (pillar 11) and by
innovating new ones (pillar 12).

Bangladesh recently has formed a Competition Commission (BCC) and they are reportedly planning
to prohibit anti-competitive activities and market syndication for ensuring a healthy business
environment and consumer benefits.

According to BCC, A handful of unscrupulous businessmen artificially increase the prices of

essential commodities for their petty interest. Most probably BCC will go for Mobile Court as action
of Mobile Court is very popular within the government. These may be job of Consumers
Commission, District Administration and any other relevant government department. They are going
to a wrong direction.

BCC should go an advocacy plan to promote competitiveness and to advice on economic policy of
the government on the basis of GCI and globally acclaimed 12 pillars competitiveness. Bangladesh
is at factor-driven stage and needs focus more on macro economy, political, and legal stability with
efficient basic infrastructure and lowering the regulatory costs of doing business.

The writer is a Legal Economist. E-mail: mssiddiqui2035@gmail.com