Which lends itself to various coexisting interpretations as well as ways of measuring and comparing it across sectors and geographical regions.
It goes without saying that competitiveness is a multi-faceted concept affected by a wide range of factors.such as the macroeconomic and institutional environment,product and process innovation,the size and composition of investments,the quality of human resources (itself conditioned by education,social capital etc.) and infrastructure,developments in factor costs (influenced by the economy’s structural features,both in labour and capital markets) and factor producytivity.
Acknowledging the multi-faceted nature of competitiveness, a series of national and international agencies have in recent years started to offer comparative data based on a multitude of different criteria.
The annual publications of the Global Competitiveness Report compiled by the World Economic Forum,as well as the World Competitiveness Yearbook published by the IMD,receive a lof publicity in recent years.
The first report ranks Greece in 47th place (among 117 countries) for 2005-6 in terms of the Global Competitiveness Index,in 46th place in terms of the Growth Competitiveness Index and in 40th place in terms of the Business Competitiveness Index.
For its part,the World Competitiveness Yearbook for 2006 places Greece in 42nd place (out of total of 61 countries and regional economies),up 8 positions from 2005.An equally dismal picture emerges from such publications as the annual `transparency`report released by Transparency International,which puts Greece at the bottom of EU rankings,as well as by most appraisals of Greece’s progress toward the 17 Lisbon agenda targets,whose increasingly unrealistic goal is to make the EU the most competitive economy in the world by 2010.
A similar methodology,although not based on the use of questionnaires filled out by top business executives in each country,was applied by the National Competitiveness and Development Council (NCDC) in preparing the Annual Competitiveness Report 2005,in which Greece was compared on the basis of several dozens of indicators,covering economic environment,social cohesion,environmental protection,productivity and overall competitiveness improvements.
Comparisons were made to nine other countries,as well as to the EU-15 average.
According to the competitiveness definition adopted by the NCDC,competitiveness is `the ability to maintain and improve living standards and real cohesion,to protect and improve environmental conditions and to continuously raise productivity – under conditions of globalization`
Despite the usefulness of the information contained in these multi-dimensional surveys,the methodology applied by them is subject to a series of biases that concern the choice of sample countries,the reliability and comparability of data answers,where interviewee’s perceptions of the ideal standard against which real practice is appraised is expected to vary significantly across countries),the weighing of individual components etc.
It comes as no surprise therefore,that the WEF and IMD methodologies have received wide-spread criticism over the past years.
Cost and Price Competitiveness
If we are thus willing to sacrifice the data wealth offered by multivariate approaches,we can examine competitiveness through developments in nominal and real effective exchange rates.
A country’s nominal effective exchange rate (NEER) aims to track changes in the value of that country’s currency relative to the currencies of its principal trading partners and is calculated as the weighted average of the bilateral exchange rates with those currencies.
But competitiveness also depends on costs and price trends,so the real effective exchange rate (REER) aims to asses a country’s price or cost competitiveness relative to its principal competitors in international markets.
I t corresponds to the NEER,deflated by some price /cost deflator.
This is the broad outline of the European Commission methodology in its quarterly Price and Cost Competitiveness series.
Whereas Greek nominal effective exchange rate variations were reviewed in section 2,the following paragraphs will focus on cost and price competitiveness indices.
After all,Greek competitiveness vai-a-vis euro-zone members,which absorb the majority of the country’s exports,is no longer subject to exchange rate fluctuations,and Greece has relinquished autonomous monetary policy authority to the European Central Bank.
Diagram 4.1 uses data on four different price and cost indicators to monitor the 2005 annual change in each country’s relative price and competitiveness vs the average of euro-zone countries.
Unit labour costs for the whole economy (ULCE) are complemented by the GDP deflator (PGDP),the deflator of exports and goods services (PX) and the harmonized index of consumer prices deflator (HIPC).
Whereas countries such as Finland,Germany and France made substantial improvements in both their price and cost competitiveness in 2005,Greece continued the erosion of its competitive position,by recording increases in relative costs and prices.
Several other euro-zone members such as Portugal,Austria and the Netherlands displayed ambiguous movements in their cost and price indices.
Contrary to 2004 however,when the overheated Greek economy registered the highest rate of unit labour cost increases (6.0%) in the Euro-zone,last year saw the largest costs hikes taking place in Ireland,and the largest price rise happening in Spain.
In Greece,this year’s annual report by the Governor of the Bank of Greece places the unit labour cost increase for 2005 at 2.2%.down from 4.4% in 2004,and the moderation in public sector wage increases as the primary driving force behind this development.
