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International Competitiveness

Economics (Year 12) - Global Interdependence

Christian Bien

Australia Slips Further in Competitiveness (ABC News)

ABC News discusses how a survey in 2012 shows Australia's ranking of international competitiveness has fallen due to a growing skills shortage, bureaucratic red tape and a high Australian dollar.

What is International Competitiveness?

International competitiveness is the degree to which a country's goods and services can meet the test of international markets while simultaneously maintaining and expanding the incomes of its people in the long term. Basically, think of a country as a shop that sells goods or services. Other countries are competitor shops on the same shopping strip. International competitiveness is the ability for a shop to be able to compete with other shops while continuing to make a growing profit, in other words, being competitive does not come at an economic cost. 

Except nowadays, the shopping strip isn't located on one street, it is in fact the entire world! 

International competitiveness is determined by the following factors: 

  • Labour wages

  • Inflation

  • Labour productivity

  • Exchange rate

  • Infrastructure

  • Legal & Regulatory System

Is Australia Competitive?

Australia has the following uncompetitive characteristics: 

  • High labour wages, with a minimum wage setting of $20.33/hr (2021) compared to the United State's $7.25 USD (~$10 AUD/hr); and

  • Recent low inflation of 1.1% (March 2021), but this is in line with most major economies. 

Australia, however, has the following competitive characteristics: 

  • High levels of Labour Productivity ($83,190 per person);

  • Somewhat high exchange rates between 0.70-0.80 USD per $1 AUD;

  • Sufficient and reliable infrastructure;

  • Reliable and efficient transport network, high levels of investment in education and health infrastructure; and 

  • Effective and efficient political and regulatory system - governing bodies such as ASIC and ACCC have effective powers in enforcing the law and ensuring smooth free markets. 

In a Deloitte Manufacturing Competitiveness research study, Australia was ranked 21 out of 40 countries, with a prediction to be downgraded to number 22 in 2020. While Australia has seen high wages and a high exchange rate, Australia in the long term has maintained a high level of labour productivity, an efficient regulatory system and reliable infrastructure to ensure Australian exports remain competitive. International competitiveness, however, varies by industry. Industries such as mining, are highly competitive due to the investment in capital deepening ensuring a high capital-to-labour ratio.

A Closer Look: Government Efficiency in Australia

Image: Transparency International's 2020 Corruption Perception Index, 

Source: Transparency International. Australia is said to have high levels of government efficiency, with strong institutions of law and order to promote trade and commerce and thus, international competitiveness. 

Examples of high government efficiency include: 

  • Low protectionism for foreign trade; 

  • Relatively fast start-up times to register a business - an ABN and business name can be obtained instantly online with a fee;

  • Strong and enforceable intellectual property laws encourage research and development; - High credit rating for government debt (between AA and AAA for both State and Federal debt); and 

  • Strong rule of law with respect for law and order institutions - i.e low levels of corruption and bribery. This has led to Australia as 14th in terms of government efficiency around the world in the IMD's World Competitiveness Yearbook (Source: Aus Trade). In 2020, Transparency International's Corruption Perception Index rated Australia the 11th least corrupt country in the world, ahead of the United States at 25th place but below New Zealand at 1st place.

How Governments Can Make or Break International Competitiveness: Sri Lanka Post COVID

The above video goes through how Sri Lanka's economy is collapsing amid a sequence of external factors met with poor policy decisions.

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