Measures to Increase Competitiveness / Supply side policies

Question 1

Measures to Increase Competitiveness / Supply side policies 1

Answer 1

• Education and Training. This increases labour productivity and makes labour markets more flexible. Education can take several years to have an effect, but is important for increasing long term productivity
• Investment in infrastructure. E.g. better transport links. This helps reduce costs for firms and improves productivity in the economy. However, it is expensive, takes time and there is a danger of government failure – spending on the wrong kind of infrastructure.
• Privatisation and deregulation. This aims to increase efficiency from the incentives of competition and the private sector profit motive.

Question 2

Measures to Increase Competitiveness / Supply side policies 2

Answer 2

• Devaluation in exchange rate. This gives a temporary boost to competitiveness, as exports are cheaper. However, it doesn’t deal with underlying issues of competitiveness such as productivity and wage costs. Devaluation can also lead to inflation, which undermines competitiveness in the long run.
• Limiting wage growth. Lower wage costs are important for improving competitiveness in many industries. However, it can be difficult for the government to limit wages. Also, it may be better to try to increase labour productivity rather than rely on low wages to increase competitiveness.