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RESEARCH PRODUCT

The Competiveness of the Spanish Regions

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Competitiveness is a widely popular concept, which has saved in practise, to denote efficient economic behaviour. The wide dissemination of the competitiveness ranking of countries published annually by the World Economic Forum of Davos (Switzerland), or the fact that the European Union defines some of the global problems, which affect the countries of the EU in terms of the competitiveness gap, have footered the use of this expression in the media. The use of the term to denominate some of the objectives of the European Regional policy has also contributed to extending the use of the expression, as well as the work of prestigious consultants, such as Michael Porter, in influential works, such as The Competitive Advantage of Nations (1990). This expansion has been to the detriment of conceptual clarity. While the expression competitiveness was limited to business economics, its meaning remained relatively well determined: the capacity of a company to be competitive can be placed in relation with the possibilities it has to maintain or increase the returns from its assets in the prevailing conditions in open markets. The fact that a company gains a market share at the cost of the other companies which operate in the same sector has served to establish a strong link between the idea of business competitiveness and the idea of rivalry. The growing application of the concept of competitiveness, not to specific companies, but to regions or countries, entails a change of scale, which involves important risks from the analytical point of view. This is due, in the first place, to the fact that, at national or regional level, there is nothing equivalent to business bankruptcy. In the second place, the red numbers in the trade balance of a country or region are not equivalent to the losses reported on the financial statement of a company. Instead of constituting an unarguable symptom of competitive failure, they constitute an indicator of the temporary existence of a macroeconomic imbalance between domestic expenditures and internal production. The conceptual ambiguity also persists when other indicators related to foreign trade are used. Thus, if the improvements in competitiveness are linked to the gains in the relative market share of the exports of a country in the international market, then it must be acknowledged that this does not guarantee an improvement of national welfare. Actually, its significance in this area will depend on the reasons which gave rise to the improvements. This will not have the same connotation in terms of welfare if it responds to the capacity of the domestic companies to supply highly differentiated products, which are attractive for the consumers from other countries, than if it is the temporary fruit of a recession in the domestic market accompanied by the depreciation of the national currency. Something similar occurs with the adoption of the real exchange rate as an indicator of competitiveness (Cellini and Soci, 2002), as the temporary stability of the real exchange rate can conceal an important loss of profitability in the exporting companies when these cannot transfer their increases in costs per unit of the product to their foreign customers. In this case, it would be difficult to maintain that domestic exports remained competitive, even though this is the impression conveyed by the observed trend in the real exchange rate.