Competitiveness of Businesses

On the basis of selected economic theories we could incorporate the concept of competitiveness to mercantilism doctrine, which was the economic doctrine of the 18th century and was based on the idea that the wealth of the country is dependent on increasing the amount of precious metals in the country. It is also based on the idea that national economies compete with each other while striving for the same goals. From mercantilism therefore we can choose several aspects of economic thinking, which are considered as the basis for competitiveness.

• the increase in exports

• the objective of increasing national productivity

• increasing national wealth by increasing competition between nations

Critics accuse the direction that has shortcomings in terms of instruments through which the country is becoming internationally competitive. In addition to mercantilism we know the classical theory of international trade, in which we mention the names of two economists - Adam Smith and D. Ricardo. The two economists in their theories did not use the word competitiveness directly but used terms such as absolute or comparative advantage that applied in the theory of absolute costs. A. Smith wrote in 1776 work "Inquiry into the Nature and Causes of the Wealth of Nations", focusing mainly on international trade in terms of international division of labor. In this work author seeks to rebut mercantile theory. The work encompasses three key ideas:

1; that the world recognize the inherent advantages that the country has in the production of certain goods can sometimes be so great that compete with such a country is economically inefficient

2; if such a country is able to supply goods cheaper than if we produced it ourselves, it is more advantageous to buy such goods, and to use our factories more effective way

3; the only factor that is accurate measure of the value of goods is the labor factor, and so this is its actual price

The nation is, therefore, in Adam Smith's work competitive if it can produce its products with a lower cost than other countries. The other mentioned economist D. Ricardo, extended Smith's theory on 1817  in his book entitled "Principles of political economy and taxation". He incorporates into his work and the fact that users of international division of labor may become a country that does not contain an absolute advantage in any product. He uses the theory of comparative costs. Its main idea is the theory that each country specializes in the production for export of such products that may be lower costs to produce than in other countries. D. Ricardo also points to the fact that each country is internationally competitive in at least one sector of its production. The theory of comparative costs further elaborated and generalized neoclassical economist of school G. Haberler. Value of the goods does not depend only on the value of work, but the value of the substitution costs as well. Besides Haberler,to the neoclassical school belonged Ohlin B. and E. Heckscher, who created the model considering the essence of the neoclassical theory of international trade. This model is focused on the foundation factors, the first factor is the work and are represented as well as the second factor which is capital. Comparative cost theory enriched by new ideas:

• specialization of countries is based on factors of production facilities of the country, different cost ratio is subject to variations in the price of production factors in the production of various goods.

• that model here is an international movement of production factors and countries use the same technology so productivity differences are caused only on production factors of a country

• countries trading together even when the factor have similar amenities,because they seek to achieve economies of scale

Ohlins and Heckschers model in his theory further developed neoclassicism T. Rybczynski. The economist pointed to the ever ongoing changes in the economy and based on that he formulated the thesis that growth of one of the factors behind unchanged conditions causes the growth of the volume of production of goods that are produced by this factor and also leads to a reduction in the volume of production of other goods. The competitiveness of national economies, national states and regions of the world evaluates the Organisation for Economic Cooperation and Development, the World Bank and International Monetary Fund. The most widely used approach of this century is called the "market share", which explains the OECD national level of competitiveness as the extent to which the country is able to produce goods and services that will stand the test of international markets, in parallel maintaining and increasing incomes of its citizens in the long run. World Economic Forum competitiveness ranking compiled annually among 144 countries, which include Slovakia as well, which was ranked on the 71st place. Ministry of Economy in Slovak Republic escalated Operational Program Competitiveness and Economic Growth, which aims to ensure sustainable economic growth and employment. You can read about Slovak economy in the next blog.