The relevance of the concept of competitiveness

The concept of competitiveness is one of the most frequently used terms related to the assessment of the state of the national economy, its development prospects, and the effectiveness of economic policy. It is also widely used in political debate and economic analysis (both short-term and long-term).

Economic competitiveness is a multidimensional and complex category. Its internal and external aspects as well as static and dynamic ones interfere and interpenetrate each other. The analysis of the competitive position at the macroscale is the subject of interest of many entities (^{Fagerberg, Srholec & Knell 2012}; ^{Orłowski, 2018}).

The competitiveness of the economy is an extremely relevant issue today. A necessary condition here is to define what competitiveness determines (in terms of factor and system competitiveness) and how these strengths are assessed from the perspective of business environments and the world of science. Confronting the strategic political vision with the interests of both domestic and international enterprises allows, on the one hand, to correct the adopted direction of reforms early enough, and, on the other hand, to consolidate strengths and identify weaknesses (^{Agénor, Canuto, Jelenic, 2012}; ^{Köhler et al., 2019}).

In most countries, shaping the international competitiveness of the economy is one of the priority goals of the national economic policy, therefore it is reasonable to indicate certain internal and external factors that determine the situation in the countries selected for analysis to the greatest extent. At the same time, it should be made a reservation that the considerations contained in this study constitute only a synthetic fragment of knowledge.

The term competitiveness has been dissected in the academic literature ever since it became a focus of the policy debate in the late 1980s and early 1990s (^{Chaharbaghi & Feurer, 1994}; ^{Krugman, 1994}; ^{Porter 1990}; ^{Porter, Ketels & Delgado, 2008}; ^{Ketels, 2016}) and evolved intensively. For the purposes of this study, a fairly widely accepted definition has been adopted that the country's competitiveness is understood as its ability to permanently provide a high level of income to its inhabitants, thanks to its share in the global market and the ability to sell competitive goods on it (sold cheaper thanks to lower production costs or bringing a higher margin of added value) (^{Hsieh, 2015}; ^{Edler, Boon, 2018}; ^{Flejterski & Majchrzak, 2018}; ^{Orłowski, 2018}). The different views on what competitiveness is and what value it has for economic development that emerged in the 20th century never really became the basis for reaching a consensus among researchers (Voinescu & Moisoiu, 2015; ^{Castro-Gonzáles, Peña-Vinces & Guillen, 2016}; ^{Ketels, 2016}; ^{Deleidi, Mazzucato, 2021}). Defining and measuring competitiveness remains a subject of interest as well as debate: policy makers need to understand how competitive their country is relative to others, and how their competitive position evolves overtime. As such, well-known indicators of country performance have been developed over the years. Taking into account the lack of clarity as to the definition of the concept of competitiveness, it is worth remembering that this concept is broad and can be applied to various aspects, which also determines the different definitions (^{Castro-Gonzáles, Peña-Vinces & Guillen, 2016}; ^{Fagerberg & Hutschenreiter, 2020}; ^{Falciola; Jansen & Rollo, 2020}).

Competitiveness measurement dilemmas

Countries' competitiveness can be measured in two ways. One is to look for an ex ante competitiveness index that will allow to forecast a more successful development of those countries that are more competitive. The second is the search for the ex post competitiveness index, i.e. the revealed competitive advantage that allowed for such development.

Competitiveness can be measured ex post using simple characteristics of foreign trade (such as, for example, trade balance, share in global exports, exports per capita, terms of trade), which, however, does not always give clear results. Numerous attempts have been made to measure with macroeconomic variables closely related to economic growth (such as GDP per capita, productivity, real income per capita, real exchange rate, the level of unit labor costs, the level of technological competitiveness approximated by expenditure on R&D) (^{Krugman, 1996}; ^{Siudek, Zawojska, 2014}). However, such measures are often criticized (^{Flejterski, Majchrzak, 2018}; ^{Orłowski, 2018}).

An alternative to this approach is to search for measures that define ex ante competitiveness. The most popular research direction at present is the construction of aggregate indicators describing the country's resources, methods of managing these resources, technological advancement, and the quality of institutions (often dependent also on the deeply hidden “soft factors” underlying development, eg. cultural factors).

The best-known indicators of this type are: The Global Competitiveness Index published by the World Economic Forum (WEF) and the World Competitiveness Scoreboard published by the International Institute for Management Development (IMD). Both indicators are weighted averages from a number of indicators, aggregated using discretionary weights, both of which are used to rank countries' competitiveness.

There is no doubt that both indicators are calculated and are based on huge statistical material. They are also commonly used for various types of analyzes, as well as in the public discourse. However, it should be noted that the competitiveness measures constructed in this way are not based on a clear theoretical model and are not subject to any verification - a change in the set of indicators or a change in the weights used lead to a change in the value of the entire measure, without the possibility of any verification of the sensibility of such a change.

It can also be noticed that the adoption of a different set of indicators and weights greatly differentiates the results obtained in the construction of the WEF and IMD measures - for example, China, classified in the rather distant 28th place in the WEF ranking, in the IMD ranking is 14th, while 6th Japan in the WEF ranking ranks 30th in the IMD ranking. However, in the case of the countries discussed in this article, there are no fundamental differences: Mexico is ranked 43rd in the WEF ranking and 50th in the IMD ranking, while Poland is ranked 37th (WEF) and 38th (IMD). Both measures ex ante, not ex post, and these are input rather than output indicators - they indicate the extent to which a country is theoretically prepared for a competitive struggle, preparation leads to effects in the form of better development (^{WEF, 2019}; ^{IMD, 2019}).

There are also more and more new alternative concepts for calculating competitiveness (^{Orłowski, 2018}), but for the purposes of this article they will not be analyzed.

Methodological assumptions of the WEF Report on Global Competitiveness

The Global Competitiveness Index published by the World Economic Forum -WEF is the most useful index of competitiveness in this study, which will be discussed later in this article. It enables a comprehensive analysis of the components influencing the country's competitiveness by tracing the subcategories that make up the overall result. Covering 141 economies, the Global Competitiveness Index 4.0 measures national competitiveness - defined as the set of institutions, policies and factors that determine the level of productivity.

Initially, the Global Competitiveness Report was published by the WEF and IMD (International Institute of Management Development), but differences in definitions and how competitiveness was measured (then it was a competitiveness index) led to individual reports being published by those institutions. The World Economic Forum reports, published since 1979, pay particular attention to theoretical and methodological aspects.

Building on four decades of experience in benchmarking competitiveness, the index maps the competitiveness landscape of economies through 103 indicators distributed across 12 pillars (^{WEF, 2019}):

Enabling environment:

Institutions (26 variables). The institutional environment specifies juridical and administrative frameworks in which companies and governments can take actions to generate income and economic wealth. When calculating this indicator, the following are taken into account: security, social capital, public-sector performance, transparency, property rights, corporate governance and future orientation of government. The meaning of a good institutional environment is especially relevant during an economic crisis in the more direct role of the economy.

Infrastructure (12 varables). A well-developed transport and utility infrastructure is necessary for the effective functioning of the economy. Infrastructure is an important determinant when planning the location of businesses and other kinds of operations or sectors, which can develop on the site. A well-developed infrastructure reduces the distance effect between regions, and it supports integrations between them.

ICT adoption (5 variables): It refers to the mobile-cellular telephone subscriptions, mobile-broadband subscriptions, fixed-broadband Internet subscriptions, fibre Internet subscriptions (per 100 pop.), and Internet users (% of adult population).

Macroeconomic stability (2 variables). The economy cannot develop in a balanced way if the macroeconomic environment is not stable while the inflation is high. This issue evokes public interest and discussions about a strategy for reducing budget expenses as well as the growth of public debt and inflation in several countries.

Human capital:

Health (1 variable). Healthy life expectancy is being measured (in years).

Skills (9 variables): Of growing importance for economic development are skills of current and future workforce. The amount and quality of basic education, and school life expectancy years are being calculated. A good basic education and vocational training increases the efficiency of the employees. It would be complicated or impossible for poorly educated employees to adapt to more advanced production processes and techniques. A lack of skilled employees can be an obstacle to the growth of business cooperation, when more and more advanced goods and services are produced. The quality of higher education has an important meaning for economies that demand more than just simple production processes.

Markets:

Product market (7 variables): Domestic competition as well as trade openness are key factors for an effective economy. The best opportunities for the trading of goods and services rise when government intervention is limited. Competitiveness can be restricted by many factors influencing operations of market structures: concessions, permissions, suboptimal taxes, the level of customer knowledge, the extent of market dominance, trade the complexity of tariffs and non-tariff barriers.

Labour market (12 variables): The efficiency and flexibility of the labour market are necessary to provide the most effective employees for the economy. Employers need the possibility to change employees and payment level without it having social repercussions. Labour market rigidity can be the reason for a slowdown in economic growth in many countries.

Financial system (9 variables). The recent financial crisis highlighted the main role of a solid and well operating financial sector. The economy needs a relevant banking system which offers loans and credit at optimal conditions for entrepreneurs, a properly regulated stock exchange and organized access to venture capital and other financial products. The importance of access to capital has been recently highlighted by the liquidity crisis of experienced entrepreneurs and the public sector in both developing and well-developed countries. The financial system should be reliable and transparent as well as supported by proper legal regulations that protect investors and other entities in the economy.

Market size (2 variables). Large markets allow businesses use economies of scale. Dynamic market trade has a positive aspect for economic growth.

Innovation ecosystem:

Business dynamism (8 variables). The economic environment includes the quality of the national network of business relationships, the quality of business operations as well their strategies. The quality of the administrative requirements, which is measured by the cost of starting a business, time to start a business, and insolvency issues, is important. If recipients and suppliers of the current sector build close geographic groups, their efficiency is much higher, as are the possibilities for innovation, while barriers to entry for new businesses are limited.

Innovation capabilities (10 variables). Interaction and diversity workforce, international co-inventions as well as multi-stakeholder collaboration are becoming a very important factor in competitiveness. In the long-term perspective, the standard of living can only be improved through technological innovation. Less-developed countries can raise their productiveness by adopting an existing technology or by designing innovations in different branches incrementally. For countries which develop innovation, it is no longer sufficient to simply enhance productivity. Companies in those countries must design and develop modern products and processes to maintain their competitive advantage. This means financial investments for research and development, also provided by the private sector. High profile research and development institutions should cooperate extensively with economic entities.

Each indicator shows how close an economy is to the ideal state or „frontier” of competitiveness. In accordance with the WEF framework, the economic competitiveness refers to the country’s ability to achieve high and stable GDP per capita. The holistic character of this approach allows us to compare a wide range of competitiveness indicators between economies.

Indicators are sourced from international organizations, academic institutions and non-governmental organizations. Forty-seven indicators, accounting for 30% of the overall GCI score, are derived from the World Economic Forum’s Executive Opinion Survey (every year based on the opinion of approximately 15,000 business executives).

Overall results for 2019

In 2019, with a score of 84.8 (+1.3), Singapore is the world’s most competitive economy, overtaking the United States, which falls to second place. Hong Kong (3rd), Netherlands (4th) and Switzerland (5th) round up the top five.

Other G20 economies in the top 10 include the United States (2nd), Japan (6th), Germany (7th) and the United Kingdom (9th) while Argentina (83rd, down two places) is the lowest ranked among G20 countries. Asia-Pacific is the most competitive region in the world, followed closely by Europe and North America (^{WEF, 2019}).

The report is a reminder to apply a holistic approach and to better balance short-term considerations against factors whose impact is felt beyond quarterly results and election cycles. For example, the results of the index show that labour and education policies have not been keeping up with the pace of innovation in most countries, including in some of the largest and most innovative economies.

For least developed and emerging economies, their fragile economic foundations make them highly vulnerable to shocks. With extreme poverty reduction decelerating and nearly one-half of humanity still struggling to meet basic needs, the report suggests the need for sustained, productivity enhancing economic growth remaining critical for improved living standards.

In parallel, the unfolding climate crisis requires urgent, decisive and coordinated action by policymakers. Supporting economic growth at all costs can no longer be a sole objective.

Mexico and Poland performance against the performance of their regions in the WEF ranking 2019

In 2019, in the WEF ranking Poland ranks 37th (it was at the same position the year before), and Mexico 48th (it was 46th the year before). The position of both countries in relation to their regions is stable. Neither Poland nor Mexico are among the most competitive countries in their regions, although they maintain their positions and significant progress can be noted in selected areas, while there are also areas that need improvement.

In Europe, the Netherlands (4th), Switzerland (5th), Germany (7th), Sweden (8th), the United Kingdom (9th) and Denmark (10th) all feature in the top 10. The region’s most improved country is Croatia (63rd).

In Latin America and the Caribbean, Chile (33rd) is the most competitive economy thanks to a stable macroeconomic context (1st, with other 32 economies) and open markets (68.0, 10th). It is followed by Mexico (48th), Uruguay (54th), and Colombia (57th). Brazil, despite being the most improved economy in the region is 71st; while Venezuela (133rd, down 6 places) and Haiti (138th) close out the region.

Contrasts are often stark even within sub-regions or between two neighbouring countries. For instance, in the EU, Germany’s overall competitiveness score (81.8) is 20 points higher than Greece (62.6). There are approximately 20 points between the GCI performance of Colombia (62.7) and Venezuela (41.8) as well as between the Dominican Republic (58.3) and Haiti (36.3).

Design

To meet the objectives of the study, an analysis of the international competitive position of two economies was carried out: Mexico and Poland. From among many variables, those which are most important for the competitive position were selected. Data from the international competitiveness ranking prepared by the WEF in 2019 were used to conduct this study comprehensive data for the Mexican and Polish economies were used, presenting them against a wider global and regional background.

Participants

Two economies were considered in the analysis: Mexico and Poland.

Instruments

The competitiveness analysis uses data on 103 variables arranged in 12 categories (or pillars), with a radar chart drawn up, showing graphically the similarities and differences between countries. A list of the competitive strengths and weaknesses of both economies was also compiled. The use of data from the ranking prepared by the WEF was purposeful and sufficient due to its extensive and comprehensiveness.

Procedures

In the initial stage of the analysis, the data for both countries in the 2019 WEF ranking were identified and a graph was drawn up to compare the achievements in the main categories. Then, a list of the best and least developed variables was made, presented in the form of tables. Having made advantage of the most popular reports issued by international organisations (WEF and IMD) and referring to statistical data on the Mexican and Polish competitiveness the author identified a great deal of the most important weaknesses and strengths of their economic systems. Finally, conclusions were drawn as to the areas where increasing competitiveness requires a specific state policy and as to possible benefits in terms of cooperation between Mexico and Poland.

List of strengths and weaknesses of the competitiveness of Mexico and Poland

Below is a list of the strongest and weakest elements of the competitiveness of the Mexican and Polish economies (Table 2 and Table 3). The strongest points were those categories in which a given economy reached at least the 25th position on the list of world economies, while the weakest points were those categories in which the economies were ranked below 100th (141 economies of the world were taken into account in the ranking).

Mexico reached top categories (over 26th in the global ranking) in the case of 8 variables, while Poland in the case of 17 variables. In the case of Mexico, 23 variables were distinguished which place the country below the 100th position on the list of countries in the world, in the case of Poland there are 17 variables. Table 2 and 3 shows below the information in detail:

Based on the lists of strengths and weaknesses of the competitiveness of Mexico and Poland, challenges in the nearest future can be identified.

First, economic, and social policies for an accelerated recovery from the lockdown effects of the Covid-19 pandemic should be implemented. In the case of Mexico the economy seems to be more seriously affected by the pandemic which requires deeper reflection on how to get out of the crisis - in Poland the GDP is expected to decline by 4.2%, while in Mexico as much as 7.5% (The World Bank ^{Group, 2020}).

In both countries a policy aimed into improvement of the relationship with relevant economies in the world is needed as well as stable, predictable and user-friendly legislation. In Mexico and in Poland - although to different extent - broader and easier access to healthcare can improve competitiveness in the category of human capital and workforce quality.

In the case of Mexico decisive action is needed to improve the sense of security and efficiency of the judiciary and to ensure a stable business environment. Promotion of structural reforms on education and energy can be a key element of the competitiveness performance in the future. Such conclusions are consistent with the results obtained in their research by other researchers dealing with the directions of development and effectiveness of public policy in Mexico (^{Cárdenas-Cabello, 2020}).

Poland is strong in education and security categories, but still there are several improvements needed in enhancing digital skills, vocational training and R&D investments to boost employability and productiveness. Also in this case, the conclusions and results of the study are coherent with those presented by the European Union institutions responsible for shaping the competitiveness policy (^{Europarl, 2021}).