The attempt to define the term “competitiveness of nations” has reached the phase of decreasing returns. Fortunately, the literature seems to be converging slightly, a tendency, we hope to accelerate. We propose (1) defining competitiveness as “the ability of a country or location to create welfare.” We maintain (2) that a comprehensive evaluation contains an output evaluation and a process evaluation. We claim (3) that the output evaluation (competitiveness achieved) is closely related to a welfare assessment, with a specific slant and stepwise operationalisations. Furthermore, (4) process evaluation (investigating the ability) is related to the analysis of production and technology functions, adding qualitative elements like strategies, and the strengths and weaknesses of a country. This consensus is at variance with the concept of price competitiveness; it sidelines the importance of external balances, while the productivity approach to competitiveness is nested within. Dangerous obsessions and wrong policy conclusions can never be excluded, but are much less likely if we use this approach to competitiveness—as compared to concepts focusing on price competitiveness or on external balances. Specifically, the greater competitiveness of one country must not necessarily go hand in hand with lower competitiveness in other countries. In advanced countries specifically, policies promoting the ability to create welfare will create positive spillovers into other economies. Copyright Springer Science + Business Media, LLC 2006competitiveness, welfare evaluation, innovation, Lisbon strategy, F10, F15, F43, O31, O40, O57,

After a period of decline in interest and premature predictions of demise, industrial policy is back on the scene. A variety of trends have contributed to the renewed interest. In the developing world, there has been a pushback against the market-fundamentalist approach, typically associated with the Washington Consensus. Even when growth rates have been high, economies in Sub-Saharan Africa and Latin America have experienced unsatisfactory rates of productive transformation and shortfalls in generating quality jobs in manufacturing or modern services. This has created a demand for proactive government policies to diversify and upgrade economies beyond simply freeing up markets. In the advanced economies, generalized labor market malaise and the lingering effects of the financial crisis have produced similar effects. Low growth dynamics occurred especially in the euro zone, as countries with trade and budget double deficits with a common currency struggled to come out of the crisis. The continuing decline in the employment shares of manufacturing in the USA and Western European countries and the increasing competitive threat posed by China on world markets have pushed in the same direction. 1 Interest in 2 Warren (2019) and Rubio (2019). 3 Bofinger (2019), Altmaier (2019). 4 See the Alstrom-Siemens case, in which the firms argued to need a merger for remaining competitive with Chinese rail equipment. The merger was rejected by the EU Commission in spring 2019. A Franco-German Manifesto for a European Industry Policy for the twenty-first century see BMWI (2019). 5 Rodrik (2016).

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industrial policy, competitiveness, innovation strategy, dynamic market failures, D78, L16, L52, N60, O25, O38,