Economic science, which has been advancing with the accumulation of years of knowledge, has so far reached a consensus on a single issue (and even for this it would be difficult to talk about a complete consensus), “Competition increases productivity.”
Since competition generally creates an environment of struggle, it encourages competitors to innovate and produce more but higher quality products with fewer inputs. For this reason, firms will focus on reducing their costs by focusing on high-tech investments and will work to make these scenarios come true by investing in innovations. At this point, we should draw attention to the fact that innovation creates an accumulation of inherited knowledge. Since each innovation that is produced forms the basis for the next step, it creates inherited know-how and the process progresses relatively easily. There are many examples of this, but the Russian Defense Industry is the best example, and it would not be wrong to say that this sector came to the Russians mostly through the innovations created during the Soviet era and their inheritance.
At this point, the focus should be on the concepts of “innovation” and “R&D.” The sectors and the state should work together on this issue and create investments. The issues to be considered in these studies are as follows;
- Industry-Academia relationship should be well established; industries should consider the costs of innovations as a long-term investment and bear them when necessary. Academia as a knowledge institution should not be removed from this equation and jointly guided studies should be carried out as much as possible.
- The public (government) should never fully shoulder the burden of R&D or innovation investments. The Malaysian Economy will be the biggest example of this situation. In 1980-1983, the Public Sector, which was the source of these investments as much as it could and shouldered the burden of these investments, will have high current account deficits and when it reduces its investments, it will be observed that the private sector does not take on the burden of these investments. For this reason, this process should be carried out and processed with natural resources rather than on an artificial plane. (For details, please see my study titled “Freedom, Development and Crisis Sequences; Malaysia’s Macroeconomic Assessment (1980-2020)”).
So, what can a country that recognizes the benefits of a competitive environment do to increase its competitiveness, and which barriers can it remove in this process to facilitate the entry of firms into its country?
- Higher education and the creation of a highly educated workforce
- Favorable legal structure and property security for the investor, removing unnecessary barriers to legally establishing a company.In short, eliminating the hassle for the entrepreneur
- Supporting entrepreneurship both at the individual and firm level
- Increased government investment in innovation and R&D
The best example of this would be the “Asian Tigers” (even though there are doubts and distortions about the fairness of income distribution). After gaining their independence from colonialism, these countries followed various steps by utilizing human resources despite their scarce resources. They created a highly educated workforce and reduced costs considerably; they made good sectoral choices and used their geopolitical position correctly; they removed the barriers for entrepreneurs to enter the country with appropriate legal infrastructure and supported entrepreneurs with subsidies. In today’s (2022) GDP per capita measurements, Singapore ranks 9th after the US and Hong-Kong ranks 16th, two places ahead of Germany.
Finally, a case study, why is Turkey having problems improving its competitiveness?
Many EMEs like Turkey have problems increasing their competitiveness due to their old interventionist economic attitudes and their politically unstable course. However, we can summarize this situation in three points;
- Constantly fluctuating economic variables and the possibility of instability
- Failure to establish good brand and image management, Turkish firms’ inability to compete in Europe (despite their strong production lines and financial structures)
- Difficulties in formation and ability to acquire new technologies
It is quite obvious that there is a strong correlation between competition and productivity, but firms that tend to break away from competition and become monopolies pose a risk in this situation. As Adam Smith explains in “Market Imperfections”, this competition loses all its characteristics once it becomes a monopoly and causes irreversible damage to both the market structure and production efficiency. For this reason, countries should pay attention to this issue and create the institution of competition within their own markets as much as they can and work to increase their competitiveness in the whole market. Innovation and R&D will form the cornerstones of the future and will provide thousands of alternative answers to the question “How do we use scarce resources with optimum efficiency?”, which is the main question in our field of humanity. I hope that my acquaintances and readers will be part of this process and grant me the grace to share my excitement with them.
Best Regard and Wishes