07 Jun 2004  Research & Ideas

The Competition of Countries

To be successful in a global world, countries need to build on comparative advantages, says HBS professor Richard H. K. Vietor. But exploiting natural resources isn't the only answer.

 

Countries, like companies, need development strategies to succeed in a world of growing globalization.

Professor Richard H. K. Vietor is an expert on business regulation and the international political economy. Vietor has taught at Harvard Business School since 1978, and most recently has been involved in a large-scale field study of best practice in environmental management.

Having just completed a case text on competing countries, Vietor discusses globalization and national development strategies.

Cynthia D. Churchwell: What differences have you found in the ways countries approach globalization, and which strategies have you found to be the most effective?

Richard H. K. Vietor: Each country—especially successful countries—deploys distinctive strategies for economic development. These strategies must fit their unique social, physical, and political context and build on comparative advantages.

Singapore and Japan offer great examples of successful development strategies. Neither country has any natural resources. Both started out extremely poor, but over thirty years put together strategies that successfully generated immense levels of exports, savings, and investment.

Countries, like companies, must find a means of creating total factor productivity if they are to grow.

Some other countries, meanwhile, have grown quite slowly for decades, despite great locations and immense deposits of natural resources. In these instances, particularly, successful development of institutions had failed—or at least lagged, significantly.

Q: What similarities between the globalization of corporations and countries have you noticed?

A: Countries, like companies, must find a means of creating total factor productivity if they are to grow (and be profitable—the country equivalent is rising real per capita income). Capital formation (investment) and the development of human resources are key to this process.

Q: Were you surprised by anything you've discovered?

A: I am constantly surprised—surprised about corruption and the waste of resources, surprised about quality of leadership, and surprised by the power of effective institutional design.

Q: What do you see as the most formidable globalization challenges nations have to face? What is the role of corporations within these challenges?

A: For countries to remain competitive, they must maintain low unit costs or successfully move assets (capital and human assets) into higher and higher value-added enterprises. This, I believe, is roughly analogous to large corporations.

But countries have additional challenges, without much analogy. They must manage sound fiscal and monetary policy—which few indeed manage over long periods of time. They must manage political stability. And they must manage equitable distribution of income.

Q: What research do you have planned next?

A: Having just published a case text on competing countries, I am about to start a book on this same subject: how countries compete in the global economy. Hopefully, I can finish by the late fall of next year.

After that, I have in mind another project on U.S. economic management since the New Deal—through the exchange-rate collapse of Nixon, the demise of U.S. competitiveness under Ford and Carter, the Reagan Revolution, economic recovery under Clinton, and Bush's immense present challenges.

About the author

Cynthia Churchwell is a business information librarian at Baker Library, Harvard Business School, with a specialty in the international economy.