Second Teaching Unit / Fourth Learning environment

Essential reading

Competitiveness and economic

and social development

Content

1 Competitiveness

2 Economic development

3 Social development

4 Conclusions

Keywords: competitiveness, social innovation index, peace index, human development index, sustainability index.
1. Competitiveness
The term competitiveness has been used by companies and countries to determine how they can
adapt to the world’s changes and maintain profitability over the years. Nevertheless, the concept of
competitiveness can be defined as “a set of institutions, policies and factors that determine the level
of productivity of a country” (Cann, 2016). But why is competitiveness so important? And why this
concept is used to measure every country? Well, competitiveness can be understood as a way to
measure productivity and well-being. A competitive country is one that has a growing economy and,
therefore, high levels of income and human welfare. The World Economic Forum designs a chart
every year that ranks each country according to the index com competitiveness:

Table 1. Top 10 Competitive economies 2016-2017 according to the WEF

Country Ranking
Switzerland 1
Singapore 2

United States 3

Netherlands 4

Germany 5

Sweden 6

United Kingdom 7

Japan 8

Hong Kong SAR 9

Finland 10

Source: The World Economic Forum

Switzerland’s economy is resilient, its labor market is strong and flexible, and the business
environment is highly sophisticated and innovative, that is why it remains the indisputable leader of
the ranking.

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Michael Porter, a Harvard professor, studied the concept of competitiveness and established five
forces or elements that affect it. For example, Porter explains that the suppliers have the power of
negotiation when they have the monopoly of the raw materials. In addition, customers are more
demanding now than the previous years. Globalization has given customers the opportunity to choose
substitutes products, forcing companies to be even more competitive.

Competition among
existing competitors

Threat of new Power of customers

entrance

Threat of susbtitute
Power of suppliers
products

Figure 1. Elements of competitiveness in companies

Source: designed by the author

Each of these elements must be analyzed by the company to create successful strategies that
lead the country to economic growth and development. But from a country´s point of view there
are other factors that affect competitiveness, like the level of corruption, adequate infrastructure,
access to education and health, the financial environment and the technological advances. The World
Economic Forum, on its Global Competitiveness Report, measures the level of competitiveness of
each country.

Peru, for example, in the global competitiveness report occupies position number 72 out of 137
economies, and in Latin America is above countries like Uruguay (76), Brazil (80), Guatemala (84)
and Argentina (92).

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The improvements in Peru were in infrastructure, health and primary education and technological
readiness and innovation (Andina, 2017). The Human innovation index shows Peru in position 87 out
of 188 countries with an average of 0.740 out of 1.00. This means that the country must work in
gender inequality and household for poor people. This index measures a country´s social development
in aspects like education, health, and purchasing power. However, Peru has a great score and position
in the Economic Freedom Index ranking, its stands at 43 out of 170 economies worldwide and is the
7th in Latin America. The decrease in corporate taxes attracted many investors between 2015 and
2016. Also, the reforms in terms of international barriers make it easier for Peruvian companies
to export.

+ -
1. Economic freedom 1. Corporate taxes
2. Attraction of 2. International barriers
foreign investors

Figure 2. Elements of Peru´s economic freedom

Source: designed by the author

Economists have always measured economic growth and competitiveness using the Gross Domestic
Product (GDP), but in current times this measurement has been revaluated because the GDP
doesn’t measure other aspects of people’s lives.

2. Economic development
According to the Business Dictionary (2018), economic development is the adoption of new
technologies, the transition from agriculture-based to industry-based economies, and the
improvement of life conditions.

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This means that a country’s economic development can´t be measured only with its GDP. For
that reason, is important to analyze other indexes created to determine a country´s economic
development. Thus, the concept of development must include freedom for the people in all aspects.

In this sense, the development of any country is going to be determined by the policies and the
correct management of its government. In fact, countries with low levels of development have
poverty, poor governance, corruption, a lack of economic opportunities, and poor education
and health.

2.1. Economic freedom index

Can you imagine living in a country where the government controls every transaction? This is what
happens in some countries, like Venezuela, where there is control over the foreign exchange market,
and there is also a price control that regulates the profit margins of the companies, but there is no
management of the budget of the companies by presidential order. This is an example of a country
with no economic freedom. This index was created to measure the impact of free markets all over the
World, backing up the idea that the relationship between economic freedom and progress is positive
(The Heritage Foundation, 2018).

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 1. Hong kong

2. Singapore

3. New Zealand
Top 10 countries economic

4. Switzerland
freedom index

5. Australia

6. Ireland

7. Estonia

8. United Kingdom

9. Canada

10. United Arab

Emirates

Figure 3. Top 10 countries economic freedom index

Source: The Heritage Foundation (2018)

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“Hong Kong is free because it has a better right to higher wages, longer lives, a better environment
-all of that comes with economic freedoms” (Feulner, 2016).

2.2. Global peace index

The global peace index measures a country’s capacity of maintaining its inhabitants safe. So,
development can also be measured through a country’s level of peace. Violence, homicides, and
internal conflicts are enemies of the development of a country.

A country can’t grow in any sense if there is constant war. Take Syria, for example. This country has
delayed its economic and social growth due to the constant war they are going through. Every day
children drop out of schools and people are killed. In addition, the country is losing international
confidence and companies are not thinking of investing in Syria. Many people are running away of
their homes and looking for refuge in other countries.

Did you know that…?

The safest country in the World is Iceland.

Colombia has suffered for almost 60 years an internal conflict that has been one of the causes of
the country’s slow development. This conflict has also made the government spent a lot of money
on weapons that could have been spent on education or health. In South America the most peaceful
countries are Chile (ranked 24 worldwide), Uruguay (ranked 35) and Argentina (ranked 55).
Colombia is ranked 11 in South America, but is 146 in the general ranking (Institute for Economics
and Peace, 2017).

Thus, peace is usually contributing to the economic development and to people’s happiness. Colombia
has seen many positive changes on this front after signing a peace agreement with one of the rebel
groups. Investors regained confidence due to the stability that showed the country. In addition, it is
expected that Colombia will have more money to spend in education, health, and innovation rather
than war. The rural areas that were affected with the conflict are now free to cultivate the land and
produce goods to be exported.

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 More economic
and social growwth

Less war

Figure 4. Positive effects of peace

Source: designed by the author

Economically, Colombia will also have benefits that will help the country’s development.

Acceleration of the
economic growth

More inclusive
financial system

Less victims
and better quality
of life

Better distribution
of land property

Figure 5. Colombia’s benefits wth the peace agreement

Source: designed by the author

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 2.3. Dow Jones sustainability index

Another important index used to measure a country’s development is the Dow Jones Sustainability
Index. It appeared in 1999 with the objective of analyzing a country’s economic governance, risk
management, climate change mitigation, and social and environmental performance. The idea of
this index is to exclude countries from listing on the stock exchange if they don’t demonstrate a
sustainable activity.

Nowadays a sustainable company is more competitive than one that doesn’t care about the
environment. The fact that a country has many sustainable companies is a sign of a growing
environmental culture of its population.

Bancolombia Argos

Suramericana
Davivienda Investment
Group

Nutresa Éxito
Group Group

Figure 6. Colombian companies in dow jones sustainability index

Source: designed by the author

3. Social development
Social development refers to the need of “putting people first”. Poverty isn’t only low income. it has
to do with exclusion, vulnerability, powerlessness, and exposure to violence (The World Bank, 2017).

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In this sense, a developed country does not only have a high GDP or offers high income jobs, it is also
empowers women, has gender equality, and inclusion, among others.

Basic human needs Foundation of Well- being

- Nutrition and medical care - Access to basic knowledge
- Water and sanitation - Acces to information and
- Shelter communication
- Personal safety - Environmental quality

Opportunity
- Personal rights
- Personal freedom and choice
- Tolerance and inclusion
- Access to advanced education

Figure 7. Social development characteristics

Source: designed by the author

3.1. Social innovation index

To understand this index is important to understand the concept of social innovation. According to
The Economist (2013), social innovation refers to any new project or activity that meets a social need
and improves people’s lives. This index measures the capacity of a country to promote innovative
products and services that help eradicate poverty, hunger and unwanted maternity, among others.

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 Policy and
institutional Financing Entrepreneurship Society
framework

Figure 8. Social innovation index pillars

Source: designed by the author

3.2. Human development index (HDI)

This index was created highlight that people and their capabilities should be the ultimate variable to
assess the level of development of a country (United Nations Development Programme, 2016). This
Human Development Index measures a country´s development from a social perspective by analyzing
three dimensions:

Long and healthy life Knowledge Decent standard

of living

Life expectancy Expected eyars GNI per capita ($)

at birth of schooling

Life expectancy Education index GNI index

index

Figure 9. HDI Dimensions

Source: designed by the author

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 3.3. Gini index

The Italian economist Conrrado Gini created this index to measure the distribution of the income
within an economy. If the distribution is zero the country presents perfect equality, if the distribution
is near 100 the country presents total inequality.

To measure a country’s inequality you have to include three dimensions: income, consumption
and wealth. In the list of the top five countries, you can find Ukraine, Slovenia, Norway, the Slovak
Republic. and the Czech Republic.

Poverty rates

Income and well-being

Human capital and inequality

Figure 10. Gini ndex dimensions

Source: designed by the author

4. Conclusions
A country’s development can’t be measure only by its GDP. Economic growth is not the only factor
that determines people’s happiness and improvements. Other indexes were developed to measure
different aspects of a country’s development, such as the income distribution, the capacity of the
country to create innovative products and services that meets people’s needs, the high-quality
education, life expectancy, sustainable business, or just feeling safe in its territory.

Social and economic dimensions are important measurements of the governmental policies, the
distribution of the budget and transparency. Most of the developed countries are at the top of these
indexes, like the United Kingdom, Switzerland, Canada or the United States.

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Colombia still needs to work on many of these dimensions to be at the top of the list someday.
Aspects like feeling safe within the country, high-level education, health standards and innovation are
a challenge to Colombian politicians. However, the peace agreement is positive to Colombia because
it creates a sense of confidence among investors.

Today, economists are measuring social and economic development with the Gini index, the Human
Development Index, the Sustainability Index, the Economic Freedom Index, the Global Peace Index,
the Social Innovation Index, in addition to the GDP. Each of these indexes measures aspects related
with personal rights, safety, and access to education and technology. It also measures the distribution
of the income within social classes to determine the level of inequality in a country.

Aspects like war are not favorable to any economy because it only contributes with child mortality,
school dropout, fear, refugees, and political and economic instability.

The real job of a country is to guarantee the best conditions of life of its population and to develop
their capacities, since is the only to become successful.

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References
Andina. (September 29 2017). Peru shows gains in 4 pillars of global competitiveness index 2017-18.
Andina Agencia Peruana de Noticias. Retrieved from de http://andina.pe/ingles/noticia-peru-shows-
gains-in-4-pillars-of-global-competitiveness-index-201718-684723.aspx

Business Dictionary. (2018). Economic development. Business Dictionary. Retrieved from http://www.
businessdictionary.com/definition/economic-development.html

Cann, O. (September 27 2016). What is competitiveness?. World Economic Forum. Retrieved from
https://www.weforum.org/agenda/2016/09/what-is-competitiveness/
Feulner, E. (February 1 2016). In CNBC. Hong Kong is World's Freest Economy; US Slips on
Freedom Score. Retrieved from https://www.cnbc.com/2016/02/01/hong-kong-is-worlds-freest-
economy-us-slips-on-freedom-rank.html

Institute for Economics and Peace. (2017). Global peace index 2017. New York: Institute for
Economics and Peace.

The Economist. (2013). Old problems, new solutions: measuring the capacity for social innovation across
the world. Retrieved from https://www.eiuperspectives.economist.com/sites/default/files/Social_
Innovation_Index.pdf

The Heritage Foundation. (2018). 2019 Index of economic freedom. Heritage. Retrieved from https://
www.heritage.org/index/

The World Bank (2017). Social development. The World Bank. Retrieved de http://www.worldbank.org/
en/topic/socialdevelopment/overview

United Nations Development Programme. (2016). Human development index (HDI). United Nations.
Retrieved from http://hdr.undp.org/en/content/human-development-index-hdi

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 TECHNICAL INFORMATION

Module: Globalization and Competitiveness

Second Teaching Unit: Economic globalization
and development
Fourth Learning environment: Competitiveness and
its effect on social and economic development

Author: Sandra Milena Chicas Sierra

Academic advisor: Claudia Rocío Puentes Mendoza

Graphic designer: Brandon Steven Ramírez Carrero
Assistant: Eveling Patricia Peñaranda Izquierdo

This material belongs to the Politécnico Grancolombiano.

Total or partial reproduction is prohibited.

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