Enhancing independent innovation capability: the core of national competitiveness

The capability of independent innovation is the core of the national competitiveness and a major choice for China to face future challenges. It is also the strategic principle that will lead China in the future development of science and technology and the fundamental way to realize the goal of building an innovative nation.

One of the most important macroeconomic indicators of independent innovation capability evaluation is national competitiveness. The study on the evaluation of national competitiveness can be traced back to Sun Tzu’s The Art of War, dating back more than 2,500 years. However, the study from an economic point of view should begin with the famous theory of “Absolute Advantage” put forward by Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations. Later on, David Ricardo’s “Comparative

Advantage” theory replaced the “Absolute Advantage” theory and became the guiding theory for the evaluation of national competitiveness. However, it was Michael Porter who truly made “National Competitiveness” a formal concept of economics in his The Competitive Advantage of Nations in 1990. The national “diamond mode” presented in the book provided for the first time an effective operational tool for analyzing and evaluating national competitiveness. Since the 1980s, the World Economic Forum (WEF) and the Lausanne Institute for International Management Development (IMD) have successively developed their own national competitiveness evaluation system and released their own research reports every year—this is the famous Global Competitiveness Report (GCR) and the World Competitiveness Year Book (WCY).

Literature review on national competitiveness: from comparative advantage to competitive advantage

Competitiveness concept of “comparative advantage”

This view originated from David Ricardo and was developed later on. This view holds that the reason why trade occurs between countries is that countries have different comparative advantages. That is, trade countries export their products with relatively low cost and comparative advantages, and import products with high domestic cost and inferior advantages.

An important aspect of a country’s international competitiveness is its competitiveness in foreign trade, that is, the capability of the domestic products, industries, and enterprises to exploit their market in foreign markets and get profit. The competitiveness of foreign trade and thus the strength of international competitiveness depend on the differences in labor, resource endowments, human capital, research and development, information, technological progress, or economies of scale in a given country or region. In these areas, the advantaged countries or regions are more competitive than other countries or regions. That is, the international competitiveness of a country can be reflected and measured by its foreign trade competitiveness. The internal factors that affect foreign trade activities can be used to explain the strength of a country’s international competitiveness.

Foreign trade competitiveness refers to the capability of a country or region to occupy market shares and obtain long-term profits in foreign markets, and it is a reflection of the competitiveness of a country’s export expansion. It is one of the major manifestations of a country’s international competitiveness. At the same time, as one of the important components of the national economy of a country, foreign trade itself influences the strength of the country’s international competitiveness. The success of a country’s foreign trade helps to improve the economic performance of a country and contributes to the improvement of its domestic economic strength. Its export competitiveness is usually closely linked to its domestic economic growth.

However, the concept of national competitiveness based on the theory of international trade, taking the competitiveness of a country’s foreign trade as its national competitiveness, is obviously one-sided and biased. The connotation of national competitiveness is much more complicate than that of foreign trade competitiveness.

Competitiveness concept

The Competitive Advantage of Nations is a book that reflects Michael Porter’s view of national competitiveness. He combines international trade and investment with competitive strategy theory to form a theory of national competitive advantage. Porter’s national competitive advantage refers to a country’s capability to create and maintain competitive advantage in a certain field for its enterprises or industries. He believes that the key to the acquisition of a country’s industrial competitive advantage lies in integration role of four basic elements (factor conditions, demand factors, supporting industries and related industries, and enterprises’ strategy, structure and competition) and two auxiliary factors (opportunities and the government). These factors form a mutually reinforcing system through interactions, namely, “the National Diamond System” or “Porter’s Diamond”.

Porter’s theory of national competitive advantage went beyond the theory of comparative advantage, which makes up for the shortcomings of international trade theory, especially the determinants of the country’s competitive advantage, and provides a very useful analytical tool for us to analyze the basis of each country’s competitive advantage, and predict the development direction of competitive advantage and the long-term development potential. His competitive advantage theory and competitive strategy theory have great theoretical value and practical guiding significance for enterprises and industries to participate in competition and gain competitive advantage. But Porter’s theory only establishes a basic nature for the country’s competitive advantage. The analytical framework must be applied in conjunction with the actual situation of each country. Therefore, it is more suitable for qualitative analysis of national competitiveness. However, there is a lack of analytical tools for quantitative evaluation.

National competitiveness evaluation system of WEF&IMD

WEF&IMD, since the establishment of the national competitiveness evaluation system in the 1980s, has developed from concept to theory and from statistical methods to analytical methods. The two institutions have been constantly seeking more systematic and scientific description and analysis of complex economic processes and adhering to the integrated research model of social politics and economic processes. The total output, total trade volume, and total investment of countries and regions currently participating in this evaluation system account for more than 95% of the world’s total, including all major countries and regions in the world’s economic activities. The World Economic Forum’s The Global Competitiveness Report, based on the growth of medium- and long-term per capita GDP in the next five to ten years, established a systematic evaluation system for multi-factor decisions. It is a combination of the neoclassical economic growth theory, the technological progress of the biochemical economic growth model, and a large number of empirical research literature. The Swiss Lausanne Institute for International Management Development’s World Competitiveness Year Book starts from the definition of national competitiveness; emphasizes the country’s overall status, strength, and development potential; takes into account balances of four kinds of relationships of economic and social development—namely, conditions and competitive processes of international competitiveness; the domestic economy and the global economy; introduction, absorption, and export expansion; personal risk and social cohesion—strengthens the development and application of evaluation principles of market economy theory in system description, and establishes a comprehensive evaluation system of system science.

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