The Role of Governments in Fostering National Competitiveness

There are many definitions which try to explain what national competitiveness is. For the sake of our discussion the definition proposed by Shewkar and Luo seems to be sufficient enough: „Country competitiveness is the extent to which a country is capable of generating more wealth than its competitors do in world markets.” (Shewkar&Luo p.126). What concerns the role of government in fostering nation’s competitiveness, we can find two contrasting views. One view is that governments should act as helpers and supporters to its industry, the other view – governments should employ a “laissez-faire” policy and allow the forces of market or as Adam Smith calls it “the invisible hand” to do the business. Neither view seems to be completely correct in the contemporary economy. As Michael Porter puts it: “Government’s proper role is as a catalyst and challenger, it is to encourage - or even push - companies to raise their aspirations and move to higher levels of competitive performance.” (Porter p.184.) The view that government indeed plays a crucial role in determining nation’s competitiveness seems somewhat more convincing. The question still is what are the methods and tools that governments could use to influence that competitiveness? In order to structure this answer, Porter’s “diamond” of national competitiveness is a useful framework. By focusing on factor conditions, demand conditions, the state of related and supporting industries and firm strategies, structure and rivalry we can identify ways in which government can intervene to enhance the productivity and hence competitiveness of the nation.…