Globalization and Regionalization in

International Relations -

Competitiveness in the Global

Economy

Dr hab. Tomasz Dołęgowski, Prof.. SGH,
SGH – Warsaw School of Economics – World Economy
Faculty

Lecture - concept

• The meaning of global economy

• Globalization. Global capitalism, alliance

capitalism and the knowledge-based economy

• The concept of competitiveness

• Institutions and economic growth

• The competitiveness policy

• Sectoral approach

• The ethical and axiological aspects of

globalization and competitiveness

• Globalization and Regionalization in Int.

Relations

• Inspirations: J. Dunning, F. Fukuyama,

institutional economists, modern catholic

social teaching.

Some of the purposes

• Purpose of lecture: to examine the forces determining

the competitiveness of corporations and countries

(regions, regional alliances of countries) and the role

which governments have played in shaping these

events.

• We shall pay particular attention to the

competitiveness of U.S. and Europe (also their

multinational companies), as well as Pacific rim

countries.

• We shall examine the nature, extent of and reasons

for the internationalization of business (via trade,

foreign direct investments and cooperative alliances)

and the way in which this has impacted on the

competitiveness of the countries (and regions within

countries) in which they operate.

• We shall also analyze the actions of governments in

affecting the location of investment by domestic and

foreign based MNEs, and in creating and sustaining

the competitive advantages of their indigenous

resources and capabilities.

Global Economy: Some

theoretical aspects

•

Global Economy: system of world-scale,

long-term economic links between

countries.

•

Traditional international economy:

domination of foreign trade.

•

Modern global economy: foreign trade

+ regional integration + development

of transnational corporations (TNC,

MNC).

•

From traditional theories of foreign

trade to modern theories of

transnational production and theories

of localization.

Global Economy – some theoretical

aspects

• International Economics – International

Economic Relations (macro approach) and

International Business (more micro approach).

• Foreign Trade and Foreign Direct Investments.

• Foreign Trade Theory: includes macro and micro

aspects.

• International Business: Foreign Trade +

International marketing + International

Management + International Finance. Particular

concentration on FDI (Foreign Direct

Investments) and Transnational Corporations:

the important actors of modern global

economy.

• International Economics: part of the economics

dealing with international transactions in

goods, services, financial flow and movement of

the factors of production.

Competitiveness in the Global Economy

Global Economy: system of world-scale, long-

term economic links between countries.

Globalization – definitions:
Globalization refers to the growing

interdependencies of countries worldwide
through the increasing volume and variety of
cross-border transactions in goods and
services, and of international capital flows;
and also through the rapid and widespread
diffusion of all kinds of technology. (IMF 1997)

Globalization: Extending and deepening the

economic interdependence between nations;

Today’s globalization is characterized by

unprecedented degree of free and fast
movement of capital around the whole globe,
and by the global institutions of a financial
superstructure. Capital has acquired
predominance over other factors of
production, economic activities are
coordinated by globally integrated financial
and capital markets.

Globalization

Globalization

Selected sources of globalization:
• Technological progress (in industry,

telecommunication, IT, transportation);

• Deregulation and liberalization;
• Political changes.

Globalization: microeconomic (TNC’s)

and macroeconomic (international
cooperation, regional integration)
aspects.

Globalization

Debate on relations between globalization and

regionalization:

• Is regionalization (regional integration) a part of

globalization process?

• Or rather it is a way to balance and to control

globalization?

Interpretations of Globalization and global economy:

• just extending and deepening the economic

interdependence between nations

• or rather domination of capital and big

corporations, economic imperialism of financial

capital, delocalization as well as weak position of

governments.

The concept of the network economy.

Globalization-future

• Theories about the future of globalization:
• a/ The theory of F. Fukuyama (the end of history)
• b/ S. Huntington (The clash of civilizations).
• In XIX century oposition between K. Marx and M.

Weber: directions of development.

• c/ The “Triade” concept (K. Ohmae)
• d/ The theory of modernization vs. the theory of

dependence (e.a. concept of I. Wallerstein: core -

periphery – semi-periphery)

• e/ The future of the traditional nation – state:

from the theory of “global network economy” to

traditional concept of W. Link (state will be also

in the future the main actor in global game)

• B. Barber: Jihad vs. Mac World (?)

Globalization - modern capitalism – J.

Dunning

Modern global economy according to J. H.
Dunning:

•Global capitalism (global scale of
operations, global actors…)

•Alliance capitalism (alliances between
companies, countries)

•Knowledge-based capitalism (the role of
science, education, services – the role of
human capital and social capital).

•From the land-based capitalism
(economy), via industrial capitalism to
modern capitalism (global, alliance and
knowledge-based)

Globalization – J. H. Dunning

The Changing World Economic

Scenario:

The increasing importance of all

forms of intellectual capital in both
the asset-creating and asset-
exploiting activities of firms.

The growth of cooperative ventures

and alliances between, and within,
the main wealth-creating
institutions.

The liberalization of both internal and

cross-border markets.

The emergence of several new major

economic players in the world
economy.

Globalization – J. Dunning

The unique features of global capitalism:

• Cross-border transactions are deeper, more

extensive and more interconnected than they

have ever been.

• Resources, capabilities, goods, services are more

spatially mobile than they have ever been.

• Multinational enterprises (MNE’s) play a more

significant role as creators and disseminators of

wealth, than they have ever done before; and

they originate from, and produce in, more

countries than ever before.

• There is more real and financial volatility in cross-

border markets – and particularly in capital and

exchange markets – than there has ever been.

• The advent of the digital environment and

electronic commerce is completely changing the

character and location profile of transactions.

J. Dunning - Globalization

Some paradoxes of the emerging global

economy:

• a/ cooperation and competition (coexistence)
• b/ globalization and localization: the paradox

of space

• c/ the role of governments: the paradox of

“less, yet more”, of centralization and

decentralization

• d/ human consequences of globalization:

paradox of benefits and disbenefits.

Other:
• globalization vs. global governance
• Globalization supports and does not support

democracy.

J. Dunning - Globalization

Actors of the global economy:

• States

• Markets

• International regional blocks

• International (transnational) organizations

• Transnational corporations

• Non-governmental organizations.

The world production and exchange:

• The world production

• The world exchange: (movement of goods,

movement of services, movement of capital,

movement of labor -people).

• New economy, e-finance (e-economy, e-business).

Dunning - Globalization

Global Economy: Important international institutions and

organizations:

Global:

• United Nations

• OECD

• UNCTAD

• IMF/World Bank

• UNC TNC

• WTO

• ILO.
Regional:

• European Union

• NAFTA

• Mercosur

• ASEAN

• EFTA and CEFTA.

Dunning - Globalization

Forms of Macro-organization

(coordination) in modern
global economy:

• Markets
• Hierarchies
• Governments
• Alliances
• Mixed (hybrids).

Theories of foreign trade and

foreign direct investments

International trade theories:

• Theory of absolute trading advantages (costs) (A. Smith)

• Theory of comparative trading advantages (costs) (D.

Ricardo)

• The Heckscher-Ohlin factor-proportions Theory (explains

the country’s trade in terms of its factor endowments: of

labor and capital). A country has comparative advantage

(is able to export those products) in which its most

abundant factor is used relatively intensively

• Neo-factor theories: add new factors (human capital,

natural resources)

• Neo-technology theories (e.g. technological gap).
Theories of Foreign Direct Investments:

• Traditional neo-classical approach

• Location theories

• Oligopolistic theories

• Internalization theories

• International Product Life Cycle

• J.H. Dunning Eclectic Paradigm (OLI).

Competitiveness -

introduction

• Competitiveness – the ability

to compete (long-term)

• Competitiveness – the ability

to compete and to generate
long-term and sustainable
growth of organization
(company, sector, region,
country, group of countries,
system…)

Competitiveness -

introduction

• According to the World Competitiveness

Report competitiveness is the ability of a

country or a company to, proportionally,

generate more wealth than its

competitors in world markets.

• The World Competitiveness Yearbook

1996 presents new definition.

Competitiveness is the ability of a

country to create added value and thus

increase national wealth by managing

assets and processes, attractiveness and

aggressiveness, globality and proximity,

and by integrating these relationships

into an economic and social model.

Competitiveness

COMPETITIVENESS (national competitiveness) is an

ability of a country (national economy) to the long-

term, effective and sustainable growth in the

conditions of the open economy. In effect the structure

of economy and export follows the structural changes

(tendencies) of the global economy.

Determinants of competitiveness:
• amount and structure of resources
• efficiency of resources exploitation
• economic system and institutions
• international (global) economic environment.

Competitiveness

Competitiveness – how to measure it?
Competitive position and competitive ability.

• Competitive position – ex post – share in the

world trade, trade turnover and balance, rate

of exchange, terms of trade… - more “static”

approach

Competitiveness ability – more “dynamic”

approach:

• Competitiveness (long – term

competitiveness, competitive ability): the

main economic indicators (rate of growth,

inflation, internal and foreign debt, domestic

and foreign trade equilibrium), indicators of

structural changes in economic development,

economic efficiency, labor efficiency,

indicators of position in international trade.

Competitiveness

Competitiveness – levels of research:
• Micro - level (company, product…)
• Mezzo – Level (networks, sector level)
• Macro – level (state, region)
• According to some authors also Mega-

level (regional blocks like EU) as well
as Meta level (system).

Controversies concerning

competitiveness (P. Krugman vs. J.
Dunning and M. Porter)

Competitiveness –

traditional and modern

approach

There are at least two groups of

approaches to the concept of

competitiveness:

• Traditional approach –

competitiveness treated as (only) an

economic reality. Concentration on

micro level and foreign trade;

• More modern approach –

competitiveness treated mostly as an

economic reality, but not only – pure

economic competitiveness treated as

a part of broader concept.

Competitiveness discussed on several

levels.

How to make national

economy more

competitive?

• Liberalism vs. Protectionism
J. Dunning: The State should first of all:
• Concentrate on the quality of

institutions and institutional
environment of their economies (in
order to reduce transaction costs)

• Work for increasing the

competitiveness of their factors of
production (resource creator and
improver)

• Improve the quality of infrastructure.

Regional dimension of

competitiveness

• The role of clusters in the promotion of

competitiveness and innovations

J. Dunning – conclusions of “Regions,

Globalization and the Knowledge Economy”:

• Carefully planed and executed locational

strategy of MNEs is becoming and

increasingly important factor influencing

their global competitiveness.

• Growing mobility of firm-specific core

competencies is placing increasing

responsibility on microregional authorities

to ensure the availability and quality of

location-bound complementary assets to

attract the right kind of mobile investment.

Institutions and

competitiveness

• Institutions are the legal,

administrative and customary
arrangements for the repeated human
interactions. Their major function is to
enhance the predictability of human
behavior.

• Institutions as (also) the rules of game.
• Institutions: formal institutions (law,

constitution, property rights), informal
(morality, religion, customs, culture,
ethics), system of enforcement.

Institutions and

competitiveness

• The character of the interacting

institutions (liberties, religion, ethics,
law, economic environment, social
behaviors) determines the character
and the scale of the transaction costs.

• Institutions: important impact on the

character of economic development.
Character of institutions can
stimulate growth, or create barriers on
the way towards more efficient
structures.

Institutions and

transaction costs

• Transaction costs can be defined as the

costs of all resoruces required to

transfer property rights from one

economic agent to another. They

include the costs of making an

exchange (eg. Discovering exchange

opportunities, negotiating exchange,

monitoring and enforcement) as well as

the costs of maintaining and protecting

the institutional structure (judicary,

police, military forces).

• Transaction costs: lack of trust and

confidence, information assymetry…

Institutions and

competitiveness/develop

ment

• „The European Miracle”

• The models of institutional environment and

models of the state/economic development-

Global capitalism vs. regional models of the

system - Unification or co-existence?

• American model of economic system, social

system and corporation (corporate

governance)

• European model (models): submodels

(Scandinavian, continental, mediterean…)

• Asian models (Japan, Korea, China…)

• Individualism vs. Communitarism

• Concept of Social Market Economy and

Ordoliberalism. Economic, social, ethical

implications.

Institutional

Competitiveness

• With institutional competition national

governments have to compete for

internationally mobile resources

• The core of the idea of the competing

institutions, governments and

jurisdictions is that voters can vote with

their feet and that factors of production

can move to other places as well.

Competition among the government

means, that the immobile factors of

production compete for those factors,

which are internationally mobile by

providing favorable conditions of

production.

The main world ranks of

competitiveness

The main world indexes of

competitiveness:

• The World Competitiveness

Yearbook

• The Global Competitiveness Report
• The Index of Economic Freedom
• The Human Development Report

(Index)

• The Transparency International

Corruption Perception Index.

The Competitiveness

Indexes

Competitiveness Factors (The WCY)
• Economic Performance (domestic economy,

international trade, international

investments, employment, prices…);

• Government Efficiency (public finance, fiscal

policy, institutional environment, business

legislation, societal framework);

• Business Efficiency (productivity, labor

market, finance, management practices,

attitudes and values);

• Infrastructure (basic infrastructure,

technological infrastructure, scientific

infrastructure, health and environmental

protection, education).

The Global

Competitiveness Report

GCR:Stages of Competitive Development:
• Factor-driven (institutions,

infrastructure, macroeconomic stability,
health and primary education)

• Investment/efficiency-driven (education,

goods market efficiency, labor market
efficiency, financial market
sophistication, technology, market size)

• Innovation-Driven (business

sophistication, innovations).

Competitiveness indexes -

leaders

• WCY: USA, Hong-Kong, Singapore,

Switzerland, Denmark, Sweden,

Australia, Canada, Finland, Nederlands

• GCR: Switzerland, USA, Singapore,

Sweden, Denmark, Finland, Germany,

Japan, Canada, Neederlands

• IEF:Hong-Kong, Singapore, Australia,

New Zealand, Ireland, Switzerland,

Canada, USA, Denmark, Chile

• TI: New Zealand, Denmark, Singapore,

Sweden, Switzerland, Finland

• HDI: Norway, Australia, Iceland, Canada.

Indexes - opinions

Competitiveness Indexes: Main problems of

evaluation

• Soft data (qualitative information): the

results of evaluation have a risk of

reflecting culture – bound perceptions

rather than facts;

• weighing of competitiveness factors

(importance of various factors may differ

across countries);

• erroneous policy prescriptions: some

factors are loosely related to

competitiveness.

Example: openness is highly-valued, but is

specific mostly for small countries…

The Paradigm of Locational

Competition and competitiveness

(Siebert):

• Locational competition is geographic competition,

competition between places, between cities, between

regions, and between countries. These spatial compete

with each-other for mobile production factors in factor

markets, i.e. for mobile capital, technical know-how,

highly qualified labor.

• Countries compete with their taxes, their infrastructure

and their institutional setups. Mobile capital can leave a

country when conditions there become unfavorable, for

example when taxes are raised. Taxation drives capital

out of the country, whereas infrastructure attracts

capital. Obviously there is a trade-off between these two

effects.

• In addition to tax competition and competition in

providing public goods (infrastructure competition),

there is also competition between institutional rules, i.e.

between product standards, permitting procedures, or

other legal regulations (institutional competition).

• Locational competition will have its impact on national

economic policies. Governments will be forced to look at

international benchmarks for their own policies.

Social capital

• The important role of human

capital and social capital

• Social capital: the level of trust

in the society/economic life as

well as ability to cooperate

• The authors: F. Fukuyama, D.

Coleman

• Social capital and efficient

institutions reduce the

transaction costs.

Competitiveness

according to Timo

Hamalainen

Key

determinants

of

national

competitiveness (T. Hamalainen):

• Productive resources

• Technology

• Organizational efficiency

• Product market characteristics

• International business activities

• Institutional framework

• The role of government

Timo Hamalainen

Paradigm shift of the world economy:

from the technological paradigm to

the macro-organizational paradigm.

• Two often-neglected competitiveness

and

growth

factors

(groups

of

factors): organizational arrangements

and government role.

• The current paradigm shift tends to

challenge

both

markets

and

governments

as

organizational

arrangements. This requires a new

division of labor among public, private

and

third

sector

organizational

arrangements.

Timo Hamalainen

• The societies that will most rapidly

adjust their socio-economic systems to
the changed technoeconomic
environment will perform best in the
years to come due to the increasing
returns associated with systemic
adjustment.

Timo Hamalainen

• Interesting evolution of T.

Hamalainen: from
competitivenss to social
innovations and the concept of
sustainable well-being (treated
as a part of new open industial
policy).

The examples of the most

competitive economies

• Finland: the level of institutions,

social capital, infrastructure,
sustainable development, education.
Quality of government, corporate
governance and the private sector
(social dialogue on the national and
corporate level)

• Competitive corporations
• The role of specific institutions

(state, public-private partnership) –
SITRA

European Union – Lisbon

Strategy

Lisbon Strategy: EU should be in 2010 the most

competitive region in the world. Sources of EU

Competitiveness: Knowledge-based economy,

innovations, sustainable development.

• Basic aspects of Lisbon Strategy:

• Education and human capital

• New technologies

• Information society

• New employment and mobility policy

• Productivity of labor (particularly in services)

• Investments in infrastructure (Trans European

Networks)

• Synergy between competition policy, industrial

policy and sustainable growth/development

policy.

EU – Lisbon Strategy

• Question: The current visions

(concepts) of the future EU and

EU competitiveness policy vs.

the concepts of Constitutional

Political Economy and the Theory

of Institutions.

• The links between

competitiveness policy and

cohesion policy (regional policy)

– implications for the Central

Europe.

EU – Lisbon Strategy

• Competitiveness of the European Union: The

Lisbon Strategy- sources of the weaknesses

• Relative weakness of the most EU countries. Big

differences between EU countries (high

competitiveness of Finland and Ireland);

• Economic and the quality of life performances of

EU countries lower than US (30%) and Japan

(13%);

• Relative low productivity of labor, high labor

costs, high unemployment, low mobility of labor;

• High fiscalism (high taxes);

• High costs of services;

• Low level of innovations;

• overregulation;

• High costs of common agriculture policy.

Prospects for

competitiveness:

• Europe, America and the

Pacific Rim (Asian countries) –
who will be the leader in XXI
century?

• Regional integration outside

Europe: NAFTA, MERCOSUR… -
prospects for competitiveness.

National competitiveness-

corporate competitiveness

• From cost competitiveness to the role

of quality and crucial unique

competences

• Particularly: role of time – based

competition and competitiveness

(Just-in-time), lean management,

TQM.

Modern concepts:

• key - competences competition and

competitiveness;

• added-value chain;

• logistic supply chain;

• network models.

TNC-transnational

corporations

Forms of company internationalization:
• Foreign trade, establishing

representative office, licenses,
franchising and joint-ventures,
establishing of subsidiaries, alliances,
mergers, acquisitions, creation of
common multinational enterprises.

• From national corporations and foreign

trade to multinational corporations,
transnational corporations, global
corporations (global corporate
strategies).

Transport policy and

competitiveness

• Infrastructure, Transport and Logistics:

implications for company indicators,

competitiveness on sector level,

competitiveness of regions, national

economies

• Particularly interesting implications of

high speed trains for development

(regions)

• competitiveness of air

companies/airports (the case of alliances)

• Transport and sustainability

(controversies).

• Criteria: economic criteria, technology,

organization, time…

Competitiveness, ethics

and sustainable

development

• Ethics in Economy and Business Ethics

vs. Modern reflection about

competitiveness

• Ethical reflection – old and new (ethical

reflection older than economy)

• Intellectual sources of ethical

reflection in business and economy:

utilitarian theory (A. Smith), kantian

theory, virtue ethics, religious

philosophy (catholic, protestant)

• Utilitarian theory: support for

capitalism, stockholder approach

• Kantian – stakeholder approach.

Competitiveness, ethics and

sustainable development

• The concept of CSR (Corporate

Social Responsibility) and
Sustainable development
(economic development,
ecological development, social
development)

• CSR: underlines the role of

stakeholders: owners, managers,
workers, suppliers, clients, local
community, environment…

For and against CSR

• The debate between M. Friedman

(the main social function of the

corporation is to bring profits,

market as a school of virtues)

and stakeholder approach (eg. E.

Freeman, N. Bowie – corporation

as a moral community)

• CSR – oriented global initiatives:

codes of conduct, activity of

Global Compact, Caux Round

Table…

Caux Round Table

• Ethical capitalism: private interest

and common good. Ethical

leadership in business and society

• Kyosei principle: „To live and work

for the common good”

• Human dignity and dialogue between

stakeholders, on civilizational level,

business – governments…

• Arcturus innovations matrix –

instrument to make organization

more competitive and ethical

The main principles of

Catholic Social Teaching

• Freedom and human dignity
• Personalism
• Principle of solidarity
• Principle of subsidiarity
• Common good
• Oposition against liberal

individualism and collectivism
(marxism).

Catholic social teaching on

competitiveness and global

economy – John Paul II

The main principles of John Paul II

Teaching:

The role of work: cooperation with God,

participation in creation and

redemption, dignity of work

Positive opinion about business, market

and democracy – within the law and

morality

The role of freedom, rule of law,

participation, solidarity

Encyclical letters: Laborem exercens,

Centesimus Annus.

John Paul II and Michael Novak

• Common points with ordoliberals as

well as M. Novak („The Spirit of
Democratic Capitalism”, „The Universal
Hunger for Liberty”, „Business as a
Vocation”, „On Cultivating Liberty”)

• Importance of relations: market –

democracy -free society – rule of law –
morality – religion. Democracy and
market need the moral and legal
backgrounds. The role of spiritual
inspiration.

Benedict XVI

• Benedict XVI: Caritas in Veritate:
• The idea of Integral Development:

development of each person and
the whole person

• Concentration on adequate

antrophology

• The role of trust (social capital?)
• The state – market – civic society
• Support for CSR, microcredits,

etical investing

Implications for Poland

and Central Europe

• Legacy of difficult history and old

system

• 20 years of Transformation: successes

and problems

• Debate about the European strategy
• Debate about institutions, tradition

and modernization. Relations between
freedom, competitiveness and
solidarity

• What to do withe the legacy of

„Solidarność” and John Paul II?

Final questions

• How to make national economy and

corporations more competitive?

• The role of institutions, social capital and

moral values in competitiveness –

creation process

• How to improve institutions and social

capital?

• Should the state be rather active or

passive player?

• How to make European Union more

competitive and responsible?

• CSR and Sustainable development vs.

Competitiveness – allies or enemies?