The Problem With Competitiveness Is That We Can’t All Win

It’s important to remember that in economic policy just because a strategy is working well for someplace doesn’t mean we’d all be better off if everyone did it. As a domestic example of this, think of Las Vegas. Over the past 60 years, the relevant political leaders have succeeded in creating a major metropolitan area in a not-very-promising location largely by pursuing an idiosyncratic “Sin City” strategy of casino-led development. But it doesn’t follow from that fact that if all American cities legalized casino gambling that they could enjoy Vegas-style growth. There simply aren’t enough people in the United States for a large number of cities to grow as quickly as Vegas has. Nor is there nearly enough demand for casino gambling. Vegas has succeeded. The success is perfectly real. And the success is driven by casinos. But casino-led growth is not a workable general strategy.

This is, I think, the right way to think about Ireland. One small country can cut wages, become “more competitive” and get back on the growth track. What it’s doing, in essence, is capturing a large share of existing global demand just as Vegas captured a large share of demand for casinos. But if Spain and Italy and Portugal and Greece all do this to, then you’re just splitting that demand pie into smaller slices. Worse, Spain and (especially) Italy are big economies so pursuing this strategy would actually reduce the available amount of demand for people to compete over. What’s needed is the reverse, something that actually increases the overall amount of demand.