Government institutions and the achievement of competitive advantage

Abstract

The principle of comparative advantage, based on nations' relative factor endowments, has been influential in shaping the pattern of world trade. Over the past decades, however, the view has gained currency that international trade can now be explained by other factors such as innovation, economies of scale and investment in research and development. This has been referred to as "competitive advantage". Through their "industrial policies", governments play a role in identifying opportunities in so-called "strategic" sectors and in influencing the factors which allow the development of international competitive advantage in export sectors. In this thesis, the industrial policies of various countries are studied and compared. The United Kingdom has tended to follow an ad hoc industrial policy where there has been both respect for firms' autonomy and at other times experiments with national planning. In the United States, the relationship between government and business has been described as "adversarial" and this has produced a generally hands-off approach by federal governments. Japan and France, on the other hand, have sought to play a central role by indicating lines of national development and by working closely with the private sector in influencing investment and production decisions. A central factor in both Japan and France has been a pilot institutional apparatus which has sought to act as an interface or bridge between the public and private sectors. Despite numerous short-lived experiments in the general context of a "negative" assistance-oriented industrial policy, New Zealand has not developed a comprehensive policy or strategy to encourage export-oriented firms develop international competitive advantage. Several organisations have been established to provide guidance and to make plans for industrial and agricultural growth. However, such attempts have not succeeded for a variety of reasons. As government attempts to enable firms to achieve competitiveness, the models of Japan and France are examined. On the basis of these countries' experience, it is suggested that the existence of a central agency provides a source of competitive advantage in acting as a forum for consultation, analysis and the elaboration of informed, long-term "visions". It is, therefore, proposed that a Competitiveness Development Agency (CDA) be created in New Zealand and made responsible for the achievement of competitive advantage within targeted sectors to allow New Zealand firms to compete in the international marketplace. It is envisaged that the CDA would receive high-level political support and would act as government's central organisation in consulting with the private sector and other public sector organisations. The CDA would indicate in which sectors it is believed that New Zealand can achieve international competitive advantage and would recommend action to attain such objectives.