“Competitive”: the EBRD’s transition concept

The notion of a “competitive” economy lies, as it always has, at the heart of the transition process and is one of six desirable qualities of a sustainable market economy, alongside inclusive, green, well governed, resilient and integrated. “Competitive” represents a core characteristic underpinning the move from a state-driven, top-down mechanism to one that is more flexible and responsive to market signals.

A competitive market economy has, first, market structures ensuring competition among firms, with any given market having both enough players and rules to make it easy to enter and exit.

Second, firms have the capacity to generate added value by producing more or innovating.

Third, firms have incentives to compete and make commercially sound decisions. This supports efficient allocation of labour, capital or natural resource wealth and other scarce resources in the economy.

Many factors may be associated with competitiveness: the World Economic Forum’s Global Competitiveness Index identifies more than 100 relevant variables.

Our definition, importantly, is closely tailored to the qualities of a market economy as a decision-making system. It focuses on dynamic economic structures that promote competition and diversification, widen choice, improve the quality of goods and services and provide fair prices. These structures are achieved through supporting new enterprises, especially small and medium-sized enterprises; reducing burdens on businesses; strengthening value chains; avoiding inappropriate protection against international competition; and ensuring effective competition policy regimes and appropriate arrangements for corporate insolvencies.

To foster competitiveness, the EBRD also focuses on adding value, whether through skilled workers or the use of new sophisticated technologies.

Channelling finance effectively to entrepreneurs who are willing to take risks complements this picture. Adoption of best available technology, product and process innovation, improving business standards and upgrading skills all contribute to improved competitiveness and rising per capita incomes.

Finally, commercialisation of state-owned enterprises plays an important role in strengthening market discipline. While private ownership has progressed considerably in the EBRD regions, many areas remain dominated by state-owned or state-influenced enterprises.

More generally, equity often remains in short supply and a risk-taking culture is present only in relatively isolated pockets. Yet these breathe life into a successful market economy. Since the financial crisis, restructuring companies for greater efficiency has become a precondition for restarting growth. In regulated areas such as municipal utilities, where the goal is high-quality public service provision, market-oriented disciplines and incentives such as movement towards cost-reflective tariffs are vital to improve efficiency.

Many of the EBRD’s investment operations will support the “competitive” transition quality, which remains the basis for private-sector development and central to our transition mandate.