Avoid intervening in factor and currency markets. By intervening in factor and currency markets,
governments hope to create lower factor costs or
a favorable exchange rate that will help companies
compete more effectively in international markets.
Evidence from around the world indicates that these
policies— such as the Reagan administration's dollar
devaluation— are often counterproductive. They
work against the upgrading of industry and the search
for more sustainable competitive advantage.
The contrasting case of Japan is particularly instructive, although both Germany and Switzerland
have had similar experiences. Over the past 20 years,
the Japanese have been rocked by the sudden Nixon
currency devaluation shock, two oil shocks, and,
most recently, the yen shock— all of which forced
Japanese companies to upgrade their competitive advantages. The point is not that government should
pursue policies that intentionally drive up factor
costs or the exchange rate. Rather, when market
forces create rising factor costs or a higher exchange
rate, government should resist the temptation to
push them back down.
Enforce strict product, safety, and environmental
standards. Strict government regulations can promote competitive advantage by stimulating and upgrading domestic demand. Stringent standards for
product performance, product safety, and environmental impact pressure companies to improve quality, upgrade technology, and provide features that
respond to consumer and social demands. Easing
standards, however tempting, is counterproductive.
When tough regulations anticipate standards that
will spread internationally, they give a nation's companies a head start in developing products and services that will be valuable elsewhere. Sweden's strict
standards for environmental protection have promoted competitive advantage in many industries.
Atlas Copco, for example, produces quiet compressors that can be used in dense urban areas with
minimal disruption to residents. Strict standards,
however, must be combined with a rapid and streamlined regulatory process that does not absorb resources and cause delays.
Sharply limit direct cooperation among industry
rivals. The most pervasive global policy fad in the
88
competitiveness arena today is the call for more co-operative research and industry consortia. Operating
on the belief that independent research by rivals is
wasteful and duplicative, that collaborative efforts
achieve economies of scale, and that individual companies are likely to underinvest in R&D because they
cannot reap all the benefits, governments have embraced the idea of more direct cooperation.
In the United States, antitrust laws have been modified to
allow more cooperative R&D; in Europe, megaprojects such as ESPRIT, an information-technology
project, bring together companies from several countries. Lurking behind much of this thinking is thefascination of Western governments with— and fundamental misunderstanding of— the countless cooperative research projects sponsored by the Ministry
of International Trade and Industry (MITI), projects
that appear to have contributed to Japan's competitive rise.