13 Economic geography and the new discourse of regional competitiveness
Ron Martin
The new discourse of competitiveness
Although it may have had some earlier predecessors (see Reinert 1995), the term âcompetitivenessâ is really only a recent one. It entered general economic parlance in the mid 1980s, mainly through the writings of business school gurus, especially Michael Porter. But since then it has become a prominent, even hegemonic, discourse amongst policymakers the world over. Economists and experts everywhere have elevated âcompetitivenessâ to the status of a ânatural lawâ of the modern capitalist economy, and assessing a countryâs competitiveness and devising policies to enhance it have rapidly become officially institutionalised tasks.
What explains this new concern with competitiveness? There is little doubt that the popularity of the notion in policy circles is inextricably linked to the ascendancy and diffusion of pro-globalisation, pro-market neoliberal political ideologies among the advanced nations and many of their leading economic advisors. Under this credo, globalisation is not only an ineluctable process, it brings with it expanding trade and increasingly intense competition between firms and between nations (the âthreatâ from India and China being increasingly invoked in this context), necessitating the pursuit of efficiency, flexibility and technological innovation in order to compete and survive in the global marketplace:
A new era of competition has emerged in the last twenty years, especially in connection with the globalization of economic processes. Competition no longer describes a mode of functioning of a particular market configuration (a competitive market) as distinct from oligopolistic and monopolistic markets. To be competitive has ceased to be a means to an end; competitiveness has acquired the status of a universal credo, an ideology.
(Group of Lisbon 1995: xii)
This new focus on competitiveness is by no means the sole preserve of neoliberal apologists, however; the belief that economic life in todayâs globalised and technologically-driven world is distinctly more âcompetitiveâ has in fact gained widespread acceptance, even in left-of-centre political circles. The difference is that in the latter, âcompetitivenessâ (like globalisation) is often seen in a negative light, as an ultimately self-defeating imperative, whereas for the neoliberal it is a positive, indeed necessary feature of the free-market order.
An intriguing feature of this new discourse of competitiveness is that whilst initially a national-level concern, it has also stimulated considerable interest in regions and cities. One expression of this is a new policy emphasis on the âregional foundationsâ of national competitiveness. In the United Kingdom for example, the Blair governments have repeatedly stressed the need to raise the competitiveness of the countryâs regions and cities in order to improve the nationâs economic growth and productivity. Similarly, the European Commission sees the improvement of regional competitiveness across the Union as vital if it is to secure the goals set down in the Lisbon Agenda (of making the European Union the most dynamic knowledge-based economy by 2010):
If the EU is to realise its economic potential, then all regions wherever they are located . . . need to be involved in the growth effort . . . Strengthening regional competitiveness throughout the Union and helping people fulfil their capabilities will boost the growth potential of the EU economy as a whole to the common benefit of all.
(European Commission 2004: viiâviii)
Likewise, in the United States, research bodies such as the Washington-based Progressive Policy Institute and Harvardâs Institute for Strategy and Competitiveness, have highlighted the importance of high-performing regions and cities for the competitiveness of the national economy. This new-found focus on regions and cities reflects a belief, again linked especially with neoliberal thinking, that the pursuit of âcompetitivenessâ requires close attention to the microeconomics of supply, and to the need to remove supply-side rigidities, barriers and related weaknesses in the economy. And this in turn, has promoted greater interest in regions and cities, where, it is believed, many supply-side problems reside and where policies aimed at their removal are best delivered and implemented.
At the same time, many regional and city authorities have themselves become increasingly concerned about the relative âcompetitive standingâ of their local economy compared to that of other regions and cities, and with devising strategies to move their area up the âcompetitiveness league tableâ. Regional âbenchmarkingâ, constructing rankings of regions and cities by this or that âcompetitiveness indexâ, has become a widespread practice. As globalisation has advanced, and nation-states have redrawn and withdrawn their spheres of economic intervention and regulation â or even lost some of their economic sovereignty to the onward march of globalising forces â so regional and city authorities see their local areas as both more exposed to the global economy and with greater autonomy to carve their own future within it. Comparing themselves with other âcompetitorâ regions and cities elsewhere has thus become one way of assessing their performance, their strengths and weaknesses.
All this resonates closely with the claim by many geographers (and others besides) that we are witnessing a (re)surgence of regions and cities as the loci of wealth production and economic governance in the world economy (see, for example, Best 2001; Ohmae 1995; Scott 1998, 2001; Storper 1997). How we conceptualise the regional and urban competitiveness is thus highly relevant to this alleged reassertion of regions, and economic geographers should, in principle, be well placed to provide some valuable insight. For the notion of âplace-â or âterritorial-competitivenessâ would seem to be closely linked to what, traditionally, has been a central issue for economic geographers: namely, the pervasive phenomenon of geographically uneven development.
Yet, the idea of regional competitiveness is a contentious one, a notion around which there is no general consensus. Indeed, as Bristow (2005) puts it:
Regional competitiveness lacks a clear, unequivocal and agreed meaning within the academic literature. It is perhaps not surprising therefore that the policy discourse around regional competitiveness is somewhat confused.
(p. 289)
In fact, at the heart of this confusion are several questions. What, precisely, is meant by the term âregional competitivenessâ? In what sense do regions and cities compete? Are regions and cities meaningful economic units to which the notion of competitiveness can be meaningfully applied? Why should regions and cities differ in competitiveness? What are the policy implications of regional and urban differences in competitiveness? Policy concerns with urban and regional competitiveness have run ahead of answers to these and related questions. A substantial research effort would thus seem to be called for to redress this imbalance and provide a firmer base for policy debate.
Competitiveness: a contentious concept
One source of confusion is that even in economics, the idea of âcompetitivenessâ has attracted considerable debate. For the individual firm it is often taken to mean the ability to create, retain or expand market share for some product or service, on the basis of price, quality, design, delivery, or some other advantage. Firms that progressively lose market share and face declining profitability are deemed to be âuncompetitiveâ, and may ultimately go out of business. But what does the term mean for economic aggregates above the level of the firm? At the national scale, definitions have proliferated (see Cellini and Soci 2002), prompting an early critical salvo by Reich (1990) to the effect that: âNational competitiveness is one of those rare terms of public discourse to have gone directly from obscurity to meaninglessness without any intervening period of coherenceâ.
This is not entirely true, however, since most definitions of national competitiveness refer in some way or another to a nationâs economic âperformanceâ, be this Gross Domestic Product (GDP) per head, productivity, or trade balance. Frequently, reference is made to a ânationâs ability to produce goods and services that meet the test of international markets, while at the same time maintaining high and sustainable levels of income and employmentâ. Yet for writers like Paul Krugman (1996a, 1996b) this appeal to trade performance is itself problematic, since it can all too easily conjure up a neo-mercantilist image of nations competing one against another, in a zero-sum fashion, over shares of particular product or service markets. According to Krugman, the notion of competitiveness is an attribute of firms but not of cities, regions or nations. Others disagree. Michael Porter in his seminal studies of âcompetitive advantageâ deplores the lack of attention to competitiveness in economic analysis (Porter 1990, 1998). He goes on to argue that the national environment affects the competitive position of firms, and that understanding that environment would yield some fundamental insights into how competitive advantage at the firm level is created and sustained (1990: xii).
But if defining the concept of âcompetitivenessâ at the national level is contentious, it is doubly so at the regional or local scale. For one thing, some geographers would argue that confusion surrounding the notion of âregional competitivenessâ also arises because the concept of the âregionâ itself is equally problematic. It may be that regions have become increasingly salient loci in the global economy, but defining and conceptualising regions, it is contended, has simultaneously become increasingly more complex â in part because of the very globalisation that is promoting the new discourse on competitiveness. The problem is that regions are typically not pre-given, fixed, internally-coherent economic units, but highly fuzzy, open and internally discontinuous entities, the various spatial and economic components of which are differently linked into different aspects of the both the national and global economy. There is no pre-existing, singular âessentialâ geographical economic space called the âregionâ: rather there are different regional representations of economic space depending on the specific issue under enquiry and the perspective adopted (Allen et al. 1998: 34). In addition, there is the issue of agency. Regions are not decision-making entities in the same way that firms are, but instead consist of âbundlesâ of firms, organisations, social groups and institutions, all with their own imperatives, dynamics and networks of interactions. And regional authorities typically have little or no direct control or influence over the firms within their areas. Hence, many geographers would have reservations about the idea of âregionalâ competitiveness.
However, just as in a Coasian view of the world, where it is the organisation of productive assets in a firm that gives rise to the analysis of the firm as a unit of production, so nations, regions and cities too can be seen as collections of assets, variously organised, so that it is reasonable to think in terms of the competitiveness of that bundle of assets, even if Krugman is right in advocating caution about making analogies between the firm and the nation or region. Furthermore, although most regional units used for policy and analytical purposes are based on political or administrative boundaries that need bear little correspondence to economic relationships, there are certain features about such âofficialâ regions that do give them some measure of meaning as economic entities. Thus regional authorities often have tax-raising powers and responsibilities for spending on public services, utilities and infrastructure, all of which impact on local firms. Also, as noted above, regional authorities and bodies are becoming increasingly active in other areas of local economic governance, whether as the delivery agents of decentralised national government policies, or as active policy agents in their own right and capacity. It may be that regions are difficult to define as âessentialâ economic units, but the fact is that a process of âregional institutionalisationâ of policy intervention and responsibility appears to be underway that is endowing politically and administratively defined regions with some degree of functional economic meaning. It is as part of this institutionalisation process that regional authorities and bodies are busy devising policies to improve and upgrade the competitiveness and productivity of the businesses, workers and organisations in their jurisdictions. If only because of this rise of the region as an arena of economic governance and intervention, and the increasing trend for policymakers to think of regions as the sites of competitive advantage, it is important to appraise the different senses in which the term âregional competitivenessâ is used.
There are in fact two interrelated questions that research needs to address: does thinking in terms of competitiveness throw light on how we define and analyse regional economies? And does a regional (geographical) perspective help us to understand competitiveness? Both questions are worthy of serious attention by economic geographers, and both have direct policy implications.
Thinking about regional competitiveness
Empirical observation amply testifies to the fact that some cities and some regions (however defined) do better â in terms of average prosperity, employment, standard of living, growth or some other measure of âperformanceâ â than others. Geographers have long highlighted spatial disparities and uneven development of this sort. Geographers have not traditionally thought of such disparities in performance explicitly in terms of competitiveness, although notions of âplace competitionâ have woven their way through the economic geography literature. For example, much of traditional location theory, in economic geography and in regional science, was concerned with deriving the spatial structure of the economy as the outcome of a particular model of competition (such as perfect competition), under specific assumptions as to the production function of firms (especially the assumption of diminishing returns to inputs), the geographical distribution of resources and consumers, transport costs, and the movement of labour and capital between places. Given that the dual focus of much of this work was on the ârelative attractivenessâ of locations to firms and workers and on inter-firm competition across space (Sheppard 2000), the implication was that locations and places do âcompeteâ in some sense, for example for capital, labour and markets. Nevertheless, overall, the main aim of this work was on explaining the location of industry and deriving equilibrium economic landscapes of activities, markets and prices, not with unravelling the nature of regional or place competitiveness as such.
Similarly, Marxian economic geography also reverberates with implicit notions of âcompetition between placesâ. One of the key arguments of this approach was that in response to changes in technology, costs, and market conditions, capital constantly shifts from region to region in order to exploit geographical variations in the opportunities for profitability. In seeking the most profitable locations in this way, capital in effect âplays offâ different regions according to their relative advantages for accumulation, so that development in certain regions tends to be at the expense of that in others. Again, in a sense, regions are seen as competing one against another. Further, this process is viewed as being relentless, denying the creation of an equilibrium economic landscape, and continually reshaping the relative advantage of different places as far as capital is concerned. As in the case of location theory, however, the notion of regional competitiveness is not itself the focus of analysis.
It is only in the last few years that the subject of âplace-â or âterritorial-competitivenessâ has begun to attract serious attention in its own right (see, for example Begg 2002; Boschma 2004; Bristow 2005; Camagni 2003; Kitson et al. 2006; Krugman 2003; Malecki 2004; Porter 2001; Storper 1997; Urban Studies 1999). But, somewhat ironically, it has not been geographers but economists â especially those that have âgone geographicalâ, notably Michael Porter and Paul Krugman â who have led the new discourse of regional and urban competitiveness and brought the idea to the attention of policymakers.
According to Porter (2001) a ânew economics of competitionâ is emerging that is associated with six transitions: from macroeconomic policies to micro-economic policies that recognise that the âdriversâ of prosperity are based at the sub-national level; from a concern with current productivity to emphasising innovation, as the basis of sustained productivity growth; from the economy as a whole as the unit of analysis to a focus on âclustersâ (groups of interlinked specialised activities, often geographically localised); from internal to external sources of company success, recognising that the location of a company can affect the capabilities it can draw upon; from separate to integrated economic and social policy; and from national to regional and local levels as the locus of analysis and policy intervention. Indeed, in Porterâs view, economic geography assumes a pivotal role in understanding this ânew competitionâ:
The more that one thinks in terms of microeconomics, innovation, clusters and integrating economic and social policy, the more the city-region emerges as an important unit. Issues or policies that span nations or are common to many nations will be increasingly neutralised, and no longer sources of competitive advantage. However, it is not a matter of one unit of geography supplanting another . . . The task is to integrate the city-region with other economic units, and to adopt a more textured view of the sources of prosperity and economic policy that encompasses multiple levels of geography.
(ibid.: 141)
As for Krugman, in what is a major departure from his previous dismissal of âcompetitiveness talkâ, he now argues that the notion may after all have particular relevance at the regional level
Success for a regional economy, then, would mean providing sufficiently attractive wages and/or employment prospects and return on capital to draw in labour and capital from other regions. It makes sense, then, to talk about âcompetitivenessâ for regions in a way one wouldnât talk about it for larger units.
(Krugman 2003: 19)
Underpinning these discussions of regional and city competitiveness by economists such as Porter and Krugman is a rethinking of trade and a rediscovery of increasing returns.
Standard (mainstream) economic theory would suggest that the capacity of a region to compete is shaped by an interplay between the attributes of region (or cities) as locations and the strengths and weaknesses of the firms and other economic agents active in them. If markets worked perfectly, it might be expected that inter-regional cost differentials would adjust to give rise to a pattern of regional trade in which compa...
