The concept of competitiveness is mainly applied within business and industry. But it can also be used to shine a light on the performance of local and regional economies.
Place-based competitiveness focuses on how well local firms compete in national and global markets. From a position of place, a competitive lens asks us to consider how our place enables or constrains its businesses to compete.
Global Competitiveness or Countries and Cities
The World Economic Forum regularly assesses the global competitiveness of countries and has developed a useful tool for assessing and ranking national competitiveness.
In recent times, it has focused on the competitiveness of cities, which it defines as:
“a set of factors – policies, institutions, strategies and processes – that determine the level of sustainable productivity of a city”.
Thus, local, regional and state governments can influence economic growth through their policies, rules and strategies.
The Nobel Prize-winning economist, Paul Krugman argues that, actually, nations do not compete against each other, firms and cities do. Thus, city officials and private firms need to understand the factors that increase trade and investment.
Cities, towns and regions must understand how they compete with other cities, towns and regions in the world. They are competing for residents, businesses and investment. Yet, they can’t provide any of these, without a dynamic and competitive private sector.
Local business and investment create local jobs, improve local skills, build local prosperity, and enhance the quality of life. Governments create the conditions for this to occur in a sustainable and inclusive way.
Competition Among Places
The World Bank defines a competitive city, and here we can include towns and regions, as one that “successfully facilitates its firms and industries to create jobs, raise productivity and increase the incomes of citizens over time”.
This approach identifies four elements to nurture a competitive city:
- Prioritising firm-level performance (i.e., focus on improving the productivity of local businesses and industries);
- Considering the determinants of that performance;
- Determining the policy levers available to improve performance; and
- Combining the scope and capacity of the city public administration with private partnerships and intergovernmental leverage.
As local firms become more productive, they generate higher incomes and earnings. This is spread through the local economy in different ways: as increased wages that workers spend at local stores and restaurants; as new investments in the productive capacities of firms, equipment and workers and the formation of new businesses; and as higher tax revenues that pay for more of the public goods on which prosperity depends (e.g., infrastructure, education and transportation, amongst others).
Thus, while the private sector drives economic growth, the government has an influence on the pace and pattern of this growth.
Local, regional and state governments and business must work together to improve the prospects for economic growth.
The Brookings Institution describes two basic components to economic development:
- Engagement with markets and market actors to create growth; and
- Purposeful organising of the right assets and capacities to improve, sustain and extend that growth to more participants.
Thus, “leaders need to get both the markets right and the civics right to put their metro areas on the path to deep prosperity”.
Levers for stimulating economic growth: going beyond our inherited position
The Organisation for Economic Cooperation and Development (OECD) describes how economic performance varies considerably among regions because of several factors. This includes the region’s geography, demographics, specialisation, productivity, physical and human capital, infrastructure and its capacity to innovate. While these factors can reinforce each other, they may also counteract one another.
Economic growth is directly affected by strategic positioning. Strategic positioning goes well beyond physical location and assets.
While our physical position in the world is inherited –– we can’t really pick up and move to a different location –– how we act and respond to our geography is something we can alter.
Positioning is concerned with the ability of the firms and clusters in local and regional economies to locate within national and international markets and to objectively assess their ability to compete in these markets.
There is a range of factors influencing a local or regional economy’s position in markets. This includes historical factors that have shaped the growth of the economy. The current structure of the local economy and the capacity of local businesses and clusters to successfully compete in markets also affects the economy’s performance.
It is important to understand these trends within the context of national and global markets. This helps us to identify barriers to expanding the local economy’s participation in these markets and identifying new opportunities in emerging and growing markets.
This requires a detailed and systematic assessment of the influences on economic growth. Based on this assessment, a series of local actions can be taken by public and private actors to maximise the ability of local firms to compete and grow.
See the MyPlaceMatters Guide to Assessing Your Local Economy.
Transformative Local Economic Change
The Brookings Institute describes how transformative economic change requires “developing a sense of urgency and high visibility”.
“[This] starts with an economic narrative grounded in hard data and clear-sighted assessment of the region’s competitive strengths and weaknesses – gauging how it really stacks up in the global economy and where there are challenges and market failures to address”.
This requires good data. Good, objective data can dispel illusions and overcome complacency. Establishing a common economic narrative brings leaders and the community together to mobilize action.
Building on Comparative Advantages and Developing Competitive Advantages
To become more competitive, local and regional economies need to build on their comparative advantages and help local businesses and industries develop their competitive advantages. In addition, firms can achieve collaborative advantage through pooling resources, capabilities and capacity to manage or respond to a common issue or desired outcome.
Comparative advantage reflects your relative market strength or specialisation. Efforts to develop city, local and regional economies are most successful when they focus on building on these strengths. Businesses can use a local and regional economies comparative advantage become more competitive through the combination of factors such as knowledge, resources, skills, and the ability to innovate.
Because there are so many opportunities for growth, it is important to focus on those in which your city, locality or region has an advantage – and a capacity to realise this advantage. These advantages are rarely inherited; they are created.
While rich farmlands or mineral resources provide a basis for growth, how you manage these resources and add value to them determines your potential to grow.
Economies grow by increasing their share in national and international markets and through competition. Your local businesses and industry clusters need to become more competitive and more productive. They will achieve this my collaborating to find ways to develop their competitive advantage.
By working together to remove barriers and respond to market opportunities, city, local and regional government authorities and businesses can enhance the area’s comparative advantages and improve the capacity of business to drive growth.
So, think about existing or emerging industries in your local or regional economy. How do these compare with other localities or regions? Then think about how local firms and industries can become more competitive.
- What are the industries to focus on into the future?
- In which markets will those industries compete and what is the size of the market opportunities?
- What capabilities are required to secure those market opportunities and grow (e.g., business and industry capabilities, business conditions and enabling environment, workforce capabilities, infrastructure capabilities)?
- What systems, structures, measures etc. are required to organise and drive local and regional industry growth?