The Darwin And Wallace Of The World Economy
October 1 1990 by Donald N. Frey
THE COMPETITIVE ADVANTAGE OF NATIONS By Michael Porter, Free Press, 855 pp., $35.00.
THE BORDERLESS WORLD By Kenichi Ohmae, Harper Business, 224 pp., $21.95.
The nearly simultaneous publication of The Borderless World by McKinsey & Co.’s Ken Ohmae and The Competitive Advantage of Nations by Harvard’s Michael Porter makes for an interesting juxtaposition of differing views on the world organization of competitive economic or business units. The two highly challenging books are also very different in content and style, with Porter somewhat ponderous and pedantic while the much shorter Ohmae book is more anecdotal and personalized.
While reading The Competitive Advantage of Nations, I was reminded not only of Adam Smith, but also of Arnold Toynbee’s A Study of History (the one-volume version, not the 12-volume one). Sweeping generalizations derived from specific data and case histories were evident in both books. Porter’s book covers economic success (growth) or failure of nations; Ohmae’s covers national political, cultural, or social success (expansion) or shrinkage of hegemony and power. I found Porter’s book challenging, fascinating, at times exhilarating, and even exhausting.
The core of Porter’s thesis for a nation’s economic success is the “diamond,” the four sides of which are defined as: factor conditions (skilled labor and infrastructure), demand conditions (home demand for the industry’s product or service), related and supporting industries (the presence or absence of competitive supplier industries), and firm strategy, structure, and rivalry.
These sides of the diamond have varying strengths and in combination can generate competitive advantage (or disadvantage). Not all four sides need be overwhelming for complete success but significant strength in, say, at least two of them seems to be necessary for economic advantage. Porter applies the diamond concept to individual companies, industrial sectors, “clusters” of similar companies, and nations.
Porter illustrates his applications with an enormous amount of data and information gathered by many coworkers from around the world. The stories or cases in themselves make the book worth reading. The recitations of the beginnings of the German printing press industry or the growing importance of the services industries in international trade give valuable insights.
In Ohmae’s view nations are already becoming a collection of regions of widely varying economic capability, which compete in their expertise with similar regions elsewhere, including those in other nations. He takes this view to an extreme, defining the world as “borderless.” I don’t believe in this extreme view. There are companies that, while multinational, retain the characteristics of their national origin. In my view neither author makes his case, with the truth lying somewhere in between, and a careful reading of both books indicates some common ground.
Ohmae and Porter disagree on the role of national governments. Ohmae believes nations are to protect their people as a whole by allowing them to make “their own economic and social choices-not to protect or even promote companies or industries.” He particularly castigates the present Japanese government for being an anachronism. Porter believes that national governments do affect national economic advantage-both positively and negatively. He particularly stresses federally funded R&D as a positive effect. Ohmae, in largely ignoring federal R&D, probably reflects the very low level of direct Japanese governmental support.
Porter cannot really explain (nor can Toynbee) the beginnings of the competitive advantage of nations, or companies or clusters within them, through revealed truths or first principles. Further, his theses are not really predictive-neither in results from actions to be taken nor from unexpected events. I do not know anyone who knows how to predict where the
I strongly recommend both books as very informative reads. Utilizing the famous statement from Louis Pasteur, “Chance favors the prepared mind.” Reading Porter and Ohmae importantly helps prepare the mind.
Donald N. Frey is a professor at