Who's on Top: 2010 Global Competitiveness

Dramatic changes in worldwide business activity have created a new dynamic in global competitiveness. Recent research indicates that the United States is slipping in international rankings, ceding ground to traditionally strong economies in Western Europe and large emerging markets in Asia. Find out why the world's historical leader in competitiveness is falling behind in the wake of the global economic crisis, and how other countries stack up.

Some countries perform better than others in setting favorable conditions for business, whether through the skills and education of their workforce, health care costs, government regulations, market efficiency or similar criteria. In today's post-recession world, competitiveness has become more important than ever before, as countries race to revitalize their business communities.

This year, macroeconomic conditions, shifting confidence in public and private institutions and ongoing instability in financial markets have contributed to major realignments in worldwide competitiveness rankings. These problems are especially apparent in the United States, which has slipped in key rankings since last year.

The World Economic Forum (WEF) defines competitiveness as "the set of institutions, policies and factors that determine the level of productivity of a country." More specifically, these criteria are based on 12 key pillars: 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.

According to the WEF's 2010 Global Competitiveness Report, Switzerland is the world's most competitive country for the second consecutive year, followed by Sweden, Singapore, the U.S., Germany, Japan, Finland, the Netherlands, Denmark and Canada.

Switzerland topped this year's competitive rankings due to its powerful capacity for innovation and sophisticated business culture. Strong collaboration between the academic and business sectors, as well as high research and development spending, drive the creation of marketable products, while Switzerland's government and regulatory structures remain transparent and supportive of business endeavors.

The U.S., which fell to second place in 2009, dropped to fourth place this year. Although the U.S. maintains high productivity, efficient labor markets and is by far the world's largest domestic economy, growing distrust of its public and private institutions, as well as concerns about the government's role in supporting the private sector, have contributed to the recent decline in competitiveness.

"A lack of macroeconomic stability continues to be the United States' greatest area of weakness (ranked 87th)," the WEF report explains. "Prior to the crisis, the United States had been building up large macroeconomic imbalances, with repeated fiscal deficits leading to burgeoning levels of public indebtedness; this has been exacerbated by significant stimulus spending. In this context, it is clear that mapping out a clear exit strategy will be an important step in reinforcing the country's competitiveness going into the future."

The interconnectedness of global markets means that governmental policies, especially in the U.S., are critical to establishing a competitive business environment that can attract companies and encourage business activity rather than having firms move abroad.

"Policy-makers are struggling with ways of managing the present economic challenges while preparing their economies to perform well in a future economic landscape characterized by uncertainty and shifting balances," Klaus Schwab, founder and executive chairman of the WEF, said in an announcement of the findings. "In such a global economic environment, it is more important than ever for countries to put into place the fundamentals underpinning economic growth and development."

The U.S. also fell in the rankings from the International Institute for Management's (IMD) World Competitiveness Yearbook, which tracks 58 countries based on 327 criteria, calculating their overall competitiveness scoreboard by combining four factors: economic performance; government efficiency; business efficiency; and infrastructure.

According to the IMD rankings, Singapore is the most competitive nation in the world, followed by Hong Kong and the U.S., which was No. 1 last year. Rounding out the top 10: Switzerland, Australia, Sweden, Canada, Taiwan, Norway and Malaysia.

An accompanying statement from the IMD explains that Singapore and Hong Kong beat out the U.S. due to their resilience in the face of the economic crisis and their ability to take advantage of the strong expansion currently occurring in Asian markets. In the first quarter of 2010 alone, Singapore's economy grew by 13 percent.

Budget shortfalls and increasing deficit problems are major factors in driving down the IMD competitiveness rankings of the U.S. and other historically dominant economies, including Germany (16th place), the United Kingdom (22nd place) and Japan (27th place) — all of which fell in the rankings this year.

"Nowadays, budget deficits are soaring and it is estimated that the average debt of the G20 nations, for example, will climb from 76 percent of their combined GDP in 2007 to 106 percent in 2010," the IMD explained in an announcement of the findings. "Although the 'great recession' is over, the consequences of the crisis will continue to be felt for quite some time."

Elevated debt obligations are also significantly weakening macroeconomic conditions in the developed world, particularly among European economies. Both collateral issues and the capacity to repay those obligations are resulting in bad debt.

"In short, countries such as Greece, Portugal and Spain have a credibility problem today not only because they have a debt crisis, but also because they lack the means to adequately repay (growth rate, current account balance, investments abroad, etc.)," the IMD added. "Other 'sinners' (mostly the large industrial nations) have less of a credibility problem: in their case, debt is a cost that will limit their competitiveness and the purchasing power of their people."

The People's Republic of China continues to lead the way among large developing economies. China moved up two positions to reach 27th place in the WEF rankings this year, as well as climbing from 20th to 18th place in the IMD rankings.

"China shares with mid-range European countries the relative handicap of rigid institutions and very low innovation," the WEF explains. "But the country is quickly catching up on infrastructure and market efficiency and will increasingly benefit from its expanding market size."

Earlier

What's Driving Global Manufacturing Competitiveness?

Manufacturing Recovery Depends on Global Competitiveness

How Nations Measure Up: Global Rankings

Resources

The Global Competitiveness Report 2010-2011

The World Economic Forum, Sept. 9, 2010

United States Falls in Competitiveness Rankings

The World Economic Forum, Sept. 9, 2010

The World Competitiveness Scoreboard

The International Institute for Management, May 19, 2010

...IMD World Competitiveness Yearbook 2010

The International Institute for Management, May 19, 2010

IMD 2010 World Competitiveness Yearbook Rankings

The International Institute for Management, May 19, 2010



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