Saturday, February 16, 2008

The 12 Pillars of Competitiveness

First pillar: Institutions
The institutional environment forms the framework within which private individuals, firms, and governments interact to generate income and wealth in the economy. The institutional framework has a strong bearing on competitiveness and growth.

Second pillar: Infrastructure
The existence of high-quality infrastructure is critical for ensuring the efficient functioning of the economy, as it is an important factor determining the location of economic activity and the kinds of activities or sectors that can develop in an economy. High-quality infrastructure reduces the effect of distance between regions, with the result of truly integrating the national market and connecting it to markets in other countries and regions.

Third pillar: Macroeconomy
The stability of the macroeconomic environment is important for business and, therefore, is important for the overall competitiveness of a country.

Fourth pillar: Health and primary education
A healthy workforce is vital to a country’s competitiveness and productivity

Fifth pillar: Higher education and training
Quality higher education and training is crucial for economies that want to move up the value chain beyond simple production processes and products.

Sixth pillar: Goods market efficiency
Countries with efficient goods markets are positioned to produce the right mix of products and services given supply-and-demand conditions, and such markets also ensure that these goods can be most effectively traded in
the economy.

Seventh pillar: Labor market efficiency
The efficiency and flexibility of the labor market are critical for ensuring that workers are allocated to their most efficient use in the economy.

Eighth pillar: Financial market sophistication
An efficient financial sector is needed to allocate the resources saved by a nation’s citizens to its most productive uses.

Ninth pillar: Technological readiness
This pillar measures the agility with which an economy adopts existing technologies to enhance the productivity of its industries.

Tenth pillar: Market size
The size of the market affects productivity because large markets allow firms to exploit economies of scale.

Eleventh pillar: Business sophistication
Business sophistication is conducive to higher efficiency in the production of goods and services.This leads, inturn, to increased productivity, thus enhancing a nation’s competitiveness.

Twelfth pillar: Innovation
The last pillar of competitiveness is technological innovation.Although substantial gains can be obtained by improving institutions, building infrastructure, reducing
macroeconomic instability, or improving the human capital of the population, all these factors eventually seem to run into diminishing returns.The same is true for the efficiency of the labor, financial, and goods markets. In the long run, therefore, when all the other factors run into diminishing returns, standards of living can be expanded only by technological innovation. Innovation is particularly
important for economies as they approach the frontiers of knowledge and the possibility of integrating and adapting exogenous technologies tend to disappear.

Based on those pillars, Indonesia now in 54th position among 131 countries.

The question is, in what pillar(s) we can contribute to accelerate Indonesia competitiveness? ?

*taken from The Global Competitiveness Report 2007-2008

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