A Case Study in Competitiveness: Ask Albert Pujols to Mow Your Lawn
When I teach the economic elements of competitiveness, I use the case of a professional athlete like Albert Pujols, long-time slugging first baseman for the St. Louis Cardinals who will be playing for the Los Angeles Angels next year.
The skills that make Pujols such a tremendous baseball player — upper and lower body strength, eye-hand coordination and quickness — would undoubtedly make him a phenomenal mower of lawns. Indeed, it is no exaggeration to say that Mr. Pujols could probably cut more lawns per day than anyone in St. Louis, Los Angeles or anywhere else for that matter.
Would Mr. Pujols’s lawn-cutting prowess translate into competitiveness in lawn-cutting circles? Nope. Just the opposite. He would surely be among the highest-cost lawn cutters wherever he lives. That’s because his cost for cutting grass depends on what he can earn were he not cutting grass — in this case, playing baseball. He will reportedly earn about $155,000 per game next year. Assuming he could cut, say, 40 lawns per day, that translates into an opportunity cost of close to $4,000 per lawn. So is the fastest mower of lawns in the country serious competition for other lawn cutters? Duh.
It is the latter error writ large to a whole country that ensnares commentators. Unless changes in a country’s overall production abilities are skewed, its competitiveness — that is, opportunity cost — doesn’t change.
Am I am overstating the commentators’ position? No. Consider World Economic Forum’s (WEF) “Global Competitiveness Report,” issued annually for over 30 consecutive years, usually to much media acclaim. Its most recent report (more than 500 pages) claimed to rank the competitiveness of 142 countries, defining competitiveness as “the set of institutions, policies and factors that determine the level of productivity of a country.” In econo-speak, productivity is merely another term for overall production potential or living standards. The WEF offered no hint of opportunity-cost thinking when discussing competitiveness.
Some might think that the fact that people in wealthier countries sell lots of things to people in other countries supports the idea that international competitiveness traces to living-standard differentials. Not true. After all, the same people who sell a lot abroad also buy lots of things from people in other countries. Do we want to say that higher living standards simultaneously undermine competitiveness? That would be silly.
In the final analysis, wealthier nations buy lots of things from the rest of the world because they’re wealthier. These purchases provide foreigners the wherewithal to buy things from them. So people from wealthy nations sell and buy a lot abroad because they’re wealthier. The composition of what is sold and bought turns on the arbiter of competitiveness: opportunity costs, not wealth.
The competitiveness gurus’ lack of attention to economic fundamentals leads them to polar opposite competitiveness “stories” in other venues. For example, it is common to hear pundits intone about people in poor economies having a competitive advantage when they sell in the United States. Say the pundits, lower foreign living standards mean foreigners work for less, dooming any Americans who try to compete with them.
This makes the error of treating our various maladies as prima facie evidence about competitiveness. To wit, how can Americans becoming poorer make Americans less competitive, but foreigners being poorer make foreigners competitive? Hint: it can’t. Being poorer can’t reduce competitiveness for some and increase it for others. That’s because competitiveness doesn’t turn on overall production capabilities. Think Albert Pujols and lawn cutting.
So does this mean that levels and changes in living standards are unimportant? Not at all. Living standards obviously matter. They measure the effectiveness of economic systems and policies. However, positing a link between living standards and competitiveness is asking living standards to answer a question they can’t answer.
If systems and policies cause a nation’s residents to be poorer, let’s just say so — and leave “competitiveness” out of it.
Norman Van Cott, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, is a professor of economics at Ball State University. A version of this essay was published by the Mises Institute.