[Congressional Record Volume 142, Number 139 (Tuesday, October 1, 1996)]
[Extensions of Remarks]
[Pages E1890-E1891]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     ESTABLISHING A NATIONAL COMPETITIVE ADVANTAGE THROUGH DYNAMIC 
                              COMPETITION

                                 ______
                                 

                        HON. MAURICE D. HINCHEY

                              of new york

                    in the house of representatives

                      Tuesday, September 24, 1996

  Mr. HINCHEY. Mr. Speaker, professors Nathan Mao and Winstan Yang have 
called to my attention an interesting discussion of the Republic of 
China's economic competitiveness written by ROC Vice President/Premier 
Lien Chang. Vice President Lien's discussion takes the form of a review 
of Michael Porter's book, ``The Competitive Advantage of Nations.'' He 
found that the book has much to say about Taiwan's future role in the 
global economy. I hereby ask permission that Vice President/Premier's 
review of ``Establishing a National Competitive Advantage Through 
Dynamic Competition'' be printed in the Record.

     Establishing a National Competitive Advantage Through Dynamic 
                              Competition

             (By Lien Chan, Vice-President/Premier, R.O.C.)

       The nearly 600,000-word book, ``The Competitive Advantage 
     of Nations,'' by Harvard University professor Michael E. 
     Porter is an examplar of works on the leading edge of 
     contemporary academic thought that can influence current 
     government policy.
       A book is considered a classic if its author raises 
     profound questions and offers penetrating insights that 
     enlighten the reader. One may disagree with some of its 
     theses but must give serious consideration to their 
     implications.
       At this juncture when the whole country is vigorously 
     working toward attaining supreme global competitiveness, 
     reading Porter's epochal masterwork, ``The Competitive 
     Advantage of Nations,'' greatly bolsters our confidence and, 
     during the process of government policymaking, helps us 
     confront the following major questions:
       What is a national competitive advantage?
       What role should government play vis-a-vis industry 
     regarding international competition?
       How should government and industry work together to create 
     a national competitive advantage?
       How can industry seek an industrial competitive advantage?
       What efforts should be made with the private sector to 
     cultivate a healthy, aggressive, and full competitive 
     macroenvironment?
       Reading this book has made me keenly aware that the pattern 
     of economic competition has changed with the times.
       Traditionally, competition was static, and success or 
     failure hinged on production factors. Modem competition is 
     dynamic, and new technologies, new products, new market 
     demarcations, new production processes, and new management 
     concepts are constantly emerging to change and even undermine 
     a national and industrial competitive advantage.
       This book also reminds me of some of the theses proposed 
     many years ago by Bruce R. Scott, also a professor at 
     Harvard. After comparing the United States, France, and some 
     developing nations, including the Republic of China, Scott 
     formulated his ``dynamics of comparative interest.'' He 
     maintained that some postwar countries, such as Japan and the 
     Republic of China, have advanced and prospered rapidly 
     because they were able to transcend the concept of static 
     comparative interest and break through their resource 
     limitations through scientific and technological innovation, 
     enlarging the scale of production, and actively expanding 
     foreign trade. Scott particularly cited Japan as an example. 
     The Japanese understand that comparative interest can be 
     created and renewed through the enhancement of skills, 
     capital, and the workforce. In addition, an environment 
     conducive to economic development can be established through 
     institutional reform.
       These experiences confirm that in the midst of modern 
     dynamic competition, it is paramount to raise national, 
     social, industrial, and private-sector competitiveness.


                             diamond system

       Over the past dozen years, Porter has published three books 
     on ``competitive advantage.'' The first two focused on 
     industry, while this one concerns nations. This change is 
     quite meaningful. Porter discovered that a nation's 
     macroenvironment crucially affects industrial 
     competitiveness; it can either help or hinder industrial 
     development. He astutely pointed out that the relationship 
     between national and industrial competitiveness directly 
     correlates with how the nation stimulates industrial 
     improvement and innovation.
       After spending three years comparing the industrial 
     development of ten nations (the United States, Germany, 
     Sweden, Switzerland, Denmark, Italy, the United Kingdom, 
     Japan, South Korea, and Singapore), Porter proposed his well-
     known Diamond Theory.
       He argued that two sets of determinants affect the 
     industrial competitive advantage and, despite the rushing 
     tide of strong globalization, the importance of these factors 
     in determining national competitive advantage has not 
     diminished, but in fact has become more definite.
       Among the first set of fundamental determinants are:
       Factors of production, including human resources, physical 
     resources, knowledge resources, capital resources, and 
     infrastructure;
       Demand conditions;
       Related and supporting industries; and
       Firm strategy, structure, and rivalry.
       The second set comprises two additional variables:
       Chance; and
       Government.
       Porter described the rhombic relationship formed by the 
     four determinants in the first set as a national ``diamond.'' 
     He emphasized that a country cannot rely on unique 
     competitive advantages such as low-cost labor. Such reliance 
     is risky because it can be replaced by even cheaper labor in 
     less developed nations. When this situation occurs, the 
     diamond may be said to be in ``static disequilibrium,'' and 
     the competitive advantage cannot be maintained. Accordingly, 
     Porter points out, a nation's competitive advantage should be 
     firmly rooted in a durable diamond configuration. That is, 
     both set of determinants should develop in relation and 
     coordination with one another, stimulating and upgrading each 
     other in the process. This kind of national diamond can be 
     said to be in a state of dynamic development. It is the 
     optimal combination for continual national progress.
       Professor Porter also enumerated four stages of national 
     competitive development:
       a factor-driven stage;
       an investment-driven stage;
       an innovation-driven stage; and
       a wealth-driven stage.
       In order to move from one stage to the next, the government 
     and private sector must carry out a complete metamorphosis of 
     industrial infrastructure, international distribution the 
     financial system, technological standards, and conventional 
     ways of thinking. On top of this, I personally believe that 
     even more profund consideration should be given to the 
     cultural ethics and values behind the initiating and 
     sustaining forces for the creation and distribution of wealth 
     and value.
       In their research on the culture of capitalism British 
     scholar Charles Hampden- Turner and Dutch scholar Alfons 
     Trompenaars once declared that different cultures engender 
     different cultural ethics and values, and thereby diverse 
     ways of creating and distributing wealth. Thus, to be able to 
     comprehend the success of similar systems adopted by 
     different countries, one must have a profound understanding 
     of the cultural ethics and social values of these nations. 
     This is a point all of us should consider and study 
     further. However, in the transitional stage of national 
     development, it is indisputable that the government should 
     act as healthy promoter and courageous challenger. Porter 
     has said with great profundity that the world today needs 
     great leaders and great executives rather than great 
     housekeepers.


                      national reinvention project

       According to Porter's four stages of national competitive 
     development, Taiwan may be between the second, or investment-
     driven; stage and the third, or innovation-driven, stage. In 
     promoting national competitiveness at this time, we hope to 
     build our base on the strengths of the private sector, and 
     thereby push forward comprehensive reform and accomplish the 
     goal of national modernization. However, after comparing 
     several countries for the growth or diminution of their 
     national competitiveness, Professor Porter has proposed a 
     concept mirroring the situation that deserves our vigilance.
       Professor Porter believes that in the first three stages of 
     economic development, national competitiveness grows 
     continuously, while at the forth stage, or turning point, the 
     economy may decline. After entering the wealth-driven stage, 
     domestic competitive activities diminish; management 
     strategies change from aggressive to conservative; industrial 
     re-investment willingness decreases; major businesses 
     manipulate government protection policies to insulate 
     themselves from their competitors. The first generation of 
     entrepreneurs, who became rich from scratch die out and are 
     replaced by a new generation used to operating within the 
     system. Personnel do not work hard due to their high incomes. 
     Labor-management relations stiffen as each party tries to 
     retain its own vested interests. At this stage, people are 
     far more interested in other professional fields rather than 
     industry. The educational concept of pragmatism gradually 
     disappears. The negligence of education by society and family 
     results in a deterioration of educational standards. The 
     proportion of investment in the factors of production is 
     greatly reduced.
       Hovever, investment in other areas increases. The 
     government tends to heavily tax rich people, further reducing 
     their willingness to invest. Business capital exceeds 
     internal deeds, yet such businesses are not willing to risk 
     investment in setting up new businesses, but instead change 
     their goals to merging with or buying up other businesses. 
     Porter states that wealth-driven stage will lead to economic 
     recession since existing wealth is not sufficient to support 
     the needs of the economy. The ambitions of investors,

[[Page E1891]]

     managers, and people change, innovation based on sustained 
     investment disappears, and economic improvement is sluggish. 
     National economic goals during this stage differ from before. 
     Emphasis is placed on pursuing social welfare, but may people 
     overlook the fact that social welfare is based on continual 
     economic progress. I feel that these alarming observations 
     are very meaningful.
       Raising national competitiveness is for us the core of our 
     reform, and is in line with professor Porter's ideas. 
     However, we have not just established a national diamond of 
     ``dynamic development,'' we have in fact instituted a project 
     of national reinvention from a much broader angle. This task 
     of raising national competitiveness is unique in concept and 
     action, and deserves further elaboration for those people 
     concerned about national competitiveness. First of all, it is 
     global. Today, we are a member of the global village and 
     neither can nor will exclude ourselves from international 
     competition. Therefore, we must fully join in the 
     globalization trend. There are many yard sticks and 
     authoritative agencies for assessing international 
     competitiveness, such as the International Institute for 
     Management Development in Switzerland, and the World Economic 
     Forum. They differ in the categories they evaluate and rank, 
     and many factors tend to be subjective, but this is no excuse 
     for our not pursuing competitiveness. If we want to compete 
     in this world, we need to keep an eye on these evaluation 
     factors, make judgments according to our own need, and decide 
     on which evaluation categories we shall strive for. This way 
     we can avoid being subjective and meet out real needs.
       Second, it is comprehensive. When we talk of competitive 
     advantage, many people immediately associate it with such 
     economic meanings as an increase in national financial might 
     or a boots in productive power.
       Undoubtedly, these factors constitute a major portion of 
     what national competitive advantage means. However, we 
     believe that competitive advantage means more than just 
     economic issues; education, public safety, the quality of 
     life, and technical might are all part of the concept. In 
     particular, at this present stage.

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