Who's No. 1 in Global Competitiveness?

October 11, 2011

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Debt crises and ailing growth have hurt the world's advanced economies, including the U.S., whose long-standing leadership position is increasingly uncertain. Here we look at the shifting landscape of global competition and which countries are outperforming others

The economic climate in certain countries has established more favorable conditions for business activity, while many others have struggled to maintain and cultivate their competitiveness. Some of the largest and most advanced economies in the world are increasingly being challenged by rapidly expanding markets, particularly in Asia — a trend that has been ongoing for several years.

In 2011, major concerns about debt, political institutions, persistently high unemployment and lingering financial vulnerability served as key factors in catalyzing changes in global competitiveness. These issues have been especially influential for economic performance in the United States, which has fallen in competitiveness rankings for the third year in a row.

According to the World Economic Forum's (WEF) latest annual Global Competitiveness Report, Switzerland is the world's most competitive country for the third consecutive year, followed by Singapore, Sweden, Finland, the U.S., Germany, the Netherlands, Denmark, Japan and the United Kingdom.

The WEF bases its rankings on a set of 12 factors: legal and administrative institutions; infrastructure, including transportation networks and telecommunications; macroeconomic conditions (i.e., inflation, stimulus or deficit spending); health and primary education; higher education and training; goods market efficiency; labor market efficiency, financial market development; technological readiness; market size; business sophistication; and innovation.

Switzerland topped the list again this year due to "its continuing strong performance across the board," including the highest rankings for innovation, technological readiness and labor market efficiency. The country displays a high level of collaboration between its academic and business institutions, robust spending on research and development (R&D) and high productivity in the workforce.

Meanwhile, the U.S. dropped to fifth place, after falling to fourth place last year and second place in 2009. Although U.S. companies remain sophisticated and innovative, supported by strong educational and R&D capabilities, a number of structural weaknesses continued to erode competitiveness in 2011.

"A lack of macroeconomic stability continues to be the United States' greatest area of weakness," the WEF explains. "Over the past decade, the country has been running repeated fiscal deficits, leading to burgeoning levels of public indebtedness that are likely to weigh heavily on the country's future growth."

Moreover, the U.S. business community is highly critical of public and private institutions, with a low level of trust in the nation's politicians, elevated concerns about government interference in the private sector and a belief that the government is wasteful with its resources. The corporate community generally considers today's policymaking to be less transparent and regulation to be more burdensome than before.

While European economies continued to dominate the rankings this year, taking seven of the top 10 spots, the factors influencing their competitiveness have been growing slowly, while emerging markets are once again making rapid gains.

"After a number of difficult years, a recovery from the economic crisis is tentatively emerging, although it has been very unequally distributed: much of the developing world is still seeing relatively strong growth, despite some risk of overheating, while most advanced economies continue to experience sluggish recovery, persistent unemployment and financial vulnerability, with no clear horizon for improvement," Klaus Schwab, founder and executive chairman of the WEF, said in an announcement of the findings.

Among advanced economies, the devastating earthquake in Japan and concerns over public debt in the most developed countries severely damaged business and investor confidence this year, causing part of the slowdown in competitiveness. However, these issues were less influential in many of the leading emerging markets.

"China, ranked 26th and up one place from a year earlier, was the highest placed of the large developing economies. Among the other major emerging economies, South Africa was 50th, Brazil 53rd, India 56th and Russia 66th," the New York Times reports. "Among major Asian economies, Japan ranked ninth and Hong Kong 11th. Qatar was the highest ranked country in the Middle East, at 14th, followed by Saudi Arabia at 17th. The United Arab Emirates stood at 27th."

However, not every assessment of global competiveness is in line with the WEF's rankings. In the International Institute for Management's (IMD) World Competiveness Yearbook, which tracks 59 countries, the U.S. is tied with Hong Kong as the most competitive economy in the world, up from third place last year and supplanting Singapore for the top spot.

Rounding out IMD's top 10 are: Singapore, Sweden, Switzerland, Taiwan, Canada, Qatar, Australia and Germany.

"The world of competitiveness becomes more national. 'World Competitiveness 2.0' is thus characterized by a greater self-reliance of countries. It increasingly emphasizes re-industrialization, exports and a more critical look at delocalization," St├ęphane Garelli, director of IMD's World Competitiveness Center, said in an announcement of the results. "This trend is triggered by the rise in commodity and transport prices and higher labor costs in emerging economies. National champions are favored everywhere and borders re-surface — again!"

According to the IMD, the U.S. regained its position as the most competitive country in the world due to its extremely high level of business efficiency. In most advanced economies, business efficiency greatly outpaces government efficiency, while many of the largest emerging markets, including India and Brazil, are "struggling" to reach healthy efficiency levels.

Whether ranked at first place or fifth place, the U.S. remains one of the most competitive countries for business activity, and it is still the world's largest domestic economy, which alone makes it an attractive market for companies and places it far ahead of its nearest emerging market competitors.

"[T]he U.S. still is very competitive in the types of products that demand a high level of technology, engineering and capital to produce," TIME's Curious Capitalist blog notes. "In such industries, wages don't matter quite as much, and the U.S. can capitalize on its clear advantage over emerging markets like China in expertise, technology and innovation."

Earlier

Who's on Top: 2010 Global Competitiveness

How Nations Measure Up: Global Rankings

Resources

The Global Competitiveness Report 2011-2012 The World Economic Forum, September 2011

The Global Competitiveness Index 2011-2012 Rankings The World Economic Forum, September 2011

U.S. Competitiveness Ranking Continues to Fall; Emerging Markets are Closing the Gap The World Economic Forum, Sept. 7, 2011

U.S. Slips to Fifth Place on Competitiveness List by Matthew Saltmarsh The New York Times, Sept. 7, 2011

The World Competiveness Scoreboard 2011 The International Institute for Management, May 2011

...2011 World Competitiveness Rankings and the Results of the "Government Efficiency Gap" The International Institute for Management, May 17, 2011

Can China Compete with U.S. Manufacturing? by Michael Schuman Curious Capitalist (TIME), March 10, 2011

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