Entrepreneurship, innovativeness, competitiveness of economy, and economic growth – macroeconomic opportunities

Over the years there have been many definitions of international competitiveness of an economy. The majority complement each other or express the same content in different words. The literature on the subject distinguishes between the term of international competitiveness understood as a long-term competitive ability of the national economy and the term of competitive position (statistical approach). A competitive position (otherwise known as outcome competitiveness) primarily concerns a share of a given country’s economy in international trade. This term is narrower than that of international competitive ability. A competitive position or in other words international competitiveness of the national economy at a given moment is nothing else but the sum of international competitiveness of basic economic entities functioning in the area of such a country (Bienkowski 1995, 32). International competitive ability is a broad term and denotes a longterm ability of the national economy to cope with international competitiveness. J. Bossak understands the term of international competitive ability in the same way. According to him competitive economy in the international system is

an economy which, on the one hand, adjusts its social and economic objectives and mode of action not only to internal circumstances but also international conditions but, on the other hand, it is able to start effective actions which not only creatively use changes occurring in the world’ economy structure to stimulate its own development, but also affect changes in conditions of competition in the way ensuring more benefits from participation in the international division of labour.

(Bossak 1984, 42)

T. Barker and J. K. Kohler understand international competitiveness in a similar way (1998,1-12): “Country’s competitiveness is the degree to which it can, under free and fair market conditions, produce goods or services meeting the test of international markets, while simultaneously maintaining and expanding the real incomes of its population over the longer term.”

On the other hand, in their definition the European Commission experts draw attention to such aspects as the society’s standard of living and employment: “Competitiveness of a nation is the ability of an economy to provide its population with high and rising standards of living and high rates of employment on a sustainable basis” (European Commission 2001).

K. Schwab and X. Sala-i-Martin (2013) say that: “Competitiveness is the set of institutions, policies, and factors that determine the level of productivity of a country.” B. R. Scott and G. C. Lodge (1985) define international competitiveness in the following way: “National competitiveness is a country’s ability to create, produce, distribute, and/or sendee products in international trade while earning rising returns on its resources.”

International competitive ability understood as presented in the above definitions is determined by the following factors:

  • a) Resources of production factors and effectiveness of their utilisation (land and natural resources, labour, capital).
  • b) Resources, level of development and effectiveness of technical knowledge utilisation, utilisation of knowledge in the field of organisation, management, and marketing.
  • c) Efficiency of the social and economic system and economic policy together with its possible effect on the international economic environment.

Considering the above-described factors determining international competitive ability of an economy we can mention the following measures of it:

  • a) Indicators of the general rate of economic development of a given countiy: GDP growth rate, unemployment rate, inflation rate, condition of the state budget, current account balance, balance of payments, exchange reserves, internal and external debt.
  • b) Indicators informing about structural changes and changes in the effectiveness of utilisation of particular factors of production and the freedom of movement of factors of production domestically and overseas.
  • c) Indicators informing about the degree of involvement in international trade (see Misala 1995, 14-15).

While considering the issue of measures of international competitive ability it is worthwhile to quote W. Bienkowski’s definition, which points to the necessity of analysing and measuring this ability in a dynamic way. According to him “a measure of a competitive ability increase is often not so much improvement in a competitive position, but sustainable ability of a given economy to develop advantageously over the longer term (i.e. with sustainable accumulation level) which results in such a strucmre of exports which corresponds (complies with) to long-term changes in the global demand strucmre” (Bienkowski 1995, 34).

International competitive ability of an economy is a broader term than innovativeness. The important factors of competitive ability of an economy include technological resources, development level and effectiveness of utilisation of technical knowledge, and knowledge in the field of organisation, management, and marketing. These are the areas of activities which can be broadly described as innovativeness of the economy.

Innovativeness means a set of innovative actions which can take place in industry and services. They can refer to both products (creating new products or significant modification of the existing ones) as well as production processes (improvement) and manufacturing methods (developing new technologies and production techniques). Moreover, innovativeness also encompasses changes upgrading effectiveness and efficiency of enterprise operations, thus it refers also to the spheres of organisation and management, marketing and finance.

National innovative ability characteristic of a given economy is a long-term ability to create and commercialise a stream of new innovations. Thus, it means a long-term trend of creative activities in different spheres of economy and practical utilisation of their results/outcomes. It is a function of material and intellectual resources as well as outlays indispensable to the use of these resources (expenditure on basic research, R&D), the state policy in the field of innovativeness, the state's economic policy creating conditions for the development of entrepreneur- ship, innovativeness, and market competition among enterprises (Stern et al. 2000, 1-10; Weresa 2003, 97).

The ability to create innovations has become one of the most important factors of long-term economic growth and development. Innovativeness is based on research and development activities, i.e. on works carried out in laboratories to improve manufacturing processes, upgrade and develop them, and create new technologies and products.

Economies within the frameworks of which enterprises function, characterised by the highest innovative abilities at the end of the 20th and the beginning of the 21st century, achieved the highest growth rates (Japan, Singapore, South Korea, Hong Kong, the United States, Ireland).

Figure 1.1 presents the relationship between entrepreneurship, innovative ability of an economy, and international competitiveness and economic growth.

The relationships between international competitiveness of an economy and innovativeness were clearly revealed together with the emergence of the so-called “new economy” or, in other words, “knowledge-based economy.”

Knowledge-based economy, in other words “new economy” is a term which appeared in the United States at the beginning of the 1990s. It was adopted to define a new type of market economy whose economic growth and structural changes result from technological progress, first of all, in the field of information

The linkage between entrepreneurship, innovativeness, international competitiveness, and economic growth and communications technology

Figure 1.1 The linkage between entrepreneurship, innovativeness, international competitiveness, and economic growth and communications technology (ICT) and its diffusion to other areas of an economy. “New economy” is also defined as an economy in which the main economic actors (economic entities) can obtain information and utilise knowledge by changing their strategic abilities. A small number of considerable structural and institutional changes enables such new abilities, which allow economic entities to achieve positive external benefits. Particular actors in this economic game have unequal positions as far as achieving benefits from new conditions of then- activities is concerned (Petit 2002, 2). This means a growing significance of competitiveness between economic entities.

This type of economy is also characterised by the dominating role of the sector of services in GDP generation and employment. High-tech (advanced) and new technologies play a key role in economic development. Another fairly significant feature is increased competitiveness. This is connected, to a large extent, with deregulation of the economy. The following premises are the basis for the development of “new economy”:

  • a) A higher level of society’s education in well-developed countries, first of all, in the United States.
  • b) Internationalisation of economies characterised, in particular, by the quick development of international trade in sendees.
  • c) Development and diffusion of information and communication technologies.

The electronic revolution in the 1980s and 1990s (another one after World War II) created favourable conditions for the extremely fast growth of production factor productivity, especially labour productivity. Technological changes were accompanied by institutional ones. From a microeconomic perspective they concerned innovations in the organisation and management of enterprises. Such methods used in management as re-engineering, benchmarking, outsourcing, TQM (Total Quality Management), GMP (Good Manufacturing Practice), ISO (International Organization for Standardization), etc. were widely disseminated (Petit 2002, 2).

Development processes in the field of information and communications technology (ICT) resulted in productivity growth of factors of production (including labour), higher economic growth rate and higher GDP, mainly in the developed countries. These effects were first noted in the United States and later in Western Europe and other parts of the world.

The increased productivity of factors of production in modern economies results mainly from accelerated scientific and technical progress (outlays on the development of science and technology, R&D), and quality of human capital as well as entrepreneurship and innovativeness. The very outlays on scientific research measured by their share in GDP do not determine future effects. A mechanism stimulating processing of scientific solutions into practical applications in the form of new manufacturing methods or new products is necessaiy.

While the level of outlays on scientific research can, to a considerable degree, be warranted by the state, the state cannot assume that its effects are used in the economy. The mechanism of market competitiveness enforcing improvement in manufacturing methods and introduction of new products to the market is indispensable to this end. The state can create conditions for efficient market functioning and competitiveness or limit its operations and in many areas of the economy simply replace it. However, as the experience of many countries demonstrates, such actions do not work.

Overregulation of the economy (including the labour market) manifesting itself in excessive numbers of bureaucratic restrictions in the form of regulations governing activities in different areas of the economy, obligations and prohibitions, bans or licensing economic activity leads to a limited number of stimuli fox- innovativeness and entrepreneurship, reduced productivity of factors of production, and high production costs. The latter are also the consequences of fiscalism in the state’s economic policy going hand in hand with overregulation of the economy. From a macroeconomic perspective it is demonstrated in the form of a high share of taxes and parafiscal levies in GDP and, on the other hand, also the state’s expenditure in GDP (the so-called fiscalism index). From a microeconomic perspective fiscalism means for enterprises a high burden of taxes, different types of levies of social character, and administrative charges. High fiscal charges reduce the rate of internal savings in GDP and thereby they negatively affect economic growth. On the other hand, high state expenditure triggers the effect of crowding out, which means less investment and private consumption.

Administrative intervention manifesting itself in an excessive number of restrictive legal regulations governing every detail of business activities reduces flexibility of enterprises as regards adjusting to market signals and changes that occur in the global economy.

Protectionism in foreign trade also has an adverse effect on competitiveness and innovativeness of an economy. It leads to disturbances in market mechanisms of production factor allocation in the economy, reduction of stimuli for effective management in enterprises and stimuli for technical and technological progress. Enterprises are deprived of competitive pressure from abroad (Bukowski 2003, 45—47).

The above-mentioned factors (overregulation of an economy, fiscalism, and protectionism) result in petrification of economic structures, lower entrepreneurship and innovativeness, and reduced management effectiveness, which is reflected in reduced productivity rates of factors of production, low economic growth rate and, consequently, lower competitiveness of economy in relation to other countries (Bukowski 2007, 242-252).

It is particularly important to ensure openness of property rights. An open system of property rights means that no restrictions are used for making, utilising, and deriving benefits from economic activity. This system embraces different forms of property as equal. However, one must bear in mind that in the situation of business freedom and competitiveness, private property is a factor strengthening development of the private sector, which is more effective, efficient, and innovative than the public sector based on non-capitalist property (Bossak and

Bienkowski 2004, 64). Hence an important role is played by privatisation processes in the economy. These processes lead to broadening the scope of economic freedom. As J. Bossak puts it:

privatization of the economy means broadening the scope of economic freedom and competitiveness and decreasing market regulation, including property rights, finance, labor, and foreign co-operation. Broadening the scope and intensity of the market mechanism impact increases selective and location functions of the market and consequently mobility of resources (especially labor) and promotes better economic effectiveness.

(Bossak and Bienkowski 2004, 64)

Macroeconomic policy based on deregulation of economy and liberalisation of its economic links with abroad as well as the creation of conditions for mechanisms of competition between enterprises can to a much higher degree promote long-term economic growth based on utilisation of innovativeness. Creating institutional conditions for flexible market functioning including labour market, and for ensuring a high degree of economic freedom and free operation of competition mechanisms between domestic and foreign enterprises, is of key significance here. The state’s economic policy can only correct the effects of interplay of market mechanisms but cannot replace them. It is important to reduce the level of fiscalism in economic policy measured by the share of taxes, social insurance contributions, and other parafiscal charges in GDP.

Possibilities of conducting reforms based on deregulation and liberalisation of economic life are seriously limited, which does not mean that they cannot be overcome. After all, some countries succeeded in this respect, for example the United States, Ireland, Great Britain, Slovakia (although in the latter case the future of the reforms is seriously threatened by the plans of the new government). Recently, processes of this type occur also in Japan. The Lisbon Strategy also leads toward deregulation of economies.

The state can actively support the processes of economic growth by guaranteeing openness and protection of property rights and a broad scope of economic freedom and support for entrepreneurship and innovativeness. In particular it should care about the development of infrastructure, education of societies, development of education at different levels, financing of scientific research (first of all basic research, which is the basis of progress in the sphere of technology and education, and adjusting societies and economy to the challenges from foreign enviromnent in the long run).

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