Centre on Regulation and Competition WORKING PAPER SERIES

The concepts of competition and its derivatives, competitiveness and competitive advantage feature as highly on the current development agendas and policy debates of developing countries as they do in the developed world, yet they are sufficiently opaque to make any discussion of the relationship between economic development and competition a matter to be negotiated with some difficulty. In this short essay we review some recent thinking on the connection between competition and development as a prelude to a study of wider concerns about innovation, income distribution, competition and development policy. The position we take is that the problems of competitiveness and economic development are isomorphic by virtue of being examples of the phenomenon of economic evolution. Economic evolution is a theory of how the world changes or rather how it changes in such an uneven fashion. We review ideas on the history of the concept of competition and go on to develop an evolutionary approach to competition and competitive advantage. We then review a number of important contributions to the development literature including those associated with the idea of innovation and technology policy. We conclude that competition is central to the development process but that competition is a process not a state of affairs. Consequently competition policy is not reducible to a simpleminded concern with the exploitation of market power, rather in its fundamentals it is a matter of the creativity of an economic system. “Always history is being made; opinions, attitudes and institutions change, and there is evolution in the nature of capitalism” (Knight, 1933, p. 184). INTRODUCTION The concepts of competition and its derivatives, competitiveness and competitive advantage feature as highly on the current development agendas and policy debates of developing countries as they do in that of the developed world. As organizing concepts aimed at informing policy, they are indispensable yet they are sufficiently opaque to make any discussion of their relation to economic development a matter to be negotiated with ‘some difficulty’. Economists write about competition; business scholars about competitive advantage and the term competitiveness in used by both camps but each uses these notions in very different ways. The common ground between these different approaches appears to be barren yet each perspective is indispensable for reaching an understanding that cuts to the heart of the questions that define the problem of development.