Industry Market Trends

Which Country Is the Most Competitive for Business?

Sep 18, 2012

Some nations make it easier to do business than others, and as the global economy continues to struggle, enabling companies to perform effectively and facilitating their grow has become a necessity for maintaining financial strength. Where does the U.S. fall in the worldwide competitiveness rankings, and how can we improve?

The latest global competitiveness rankings from the World Economic Forum, which list the countries of the world in order of their attractiveness to companies and the amount of support available to business activity, highlight some of the key qualities needed for a strong economic climate.

The top 10 most competitive countries, in descending order from most to least competitive, in the 2012-2013 rankings are: Switzerland, Singapore, Finland, Sweden, the Netherlands, Germany, the United States, the United Kingdom, Hong Kong and Japan.

The criteria used to rank the countries include factors such as national government spending priorities - a particular weak point of the U.S. since 2008, the last time it ranked in first place. Today, as the WEF notes, the American government "spends its resources relatively wastefully," placing the U.S. a distant 76th in that category and dragging down its overall ranking considerably.

Other criteria include macroeconomic stability measurements and attention to financial market development. But political factors seem to weigh heavily upon a country's economic competitiveness. On average, developed Western democracies scored highest on the list. Qatar, an outlier in the Arab world in terms of political transparency, ranked 11th.

Some countries were downgraded for displaying a negative political influence on the business climate, which hurt the U.S. as well. The WEF noted that "in addition to the burgeoning macroeconomic vulnerabilities, some aspects of the country's [U.S.] institutional environment continue to raise concern among business leaders, particularly the low public trust in politicians and a perceived lack of government efficiency."

The listing gives some ammunition for those who argue that President Barack Obama hasn't helped American business competitiveness. The U.S. topped the list in 2008-2009, but it has gradually slipped in the rankings since then, dropping from fifth last year to seventh today.

The WEF attributes the slide to "a continued lack of trust in government leaders on the part of the business community as well as businesses' continued criticism of the public and private sectors," according to the Washington Post.

The New York Times' Economix blog puts it more bluntly: "The main reasons the United States has been slipping in the rankings appear related to distrust of and lack of confidence in government leadership."

Looking at some regional trends, Chile, at number 33, is the leader in the Central and South American region, followed by Panama at 40, heavyweight Brazil at 48 and Costa Rica at 57.

In Asia, China comes in at 29, trailing Singapore and Japan in the top ten. Taiwan is at 13 and South Korea at 19. China's government, still officially Communist and with a penchant for centralized control, must be considered a major factor in the country's relatively low ranking among other Asian economies.

And in the former Eastern Bloc, it's no surprise that the most economically competitive country is Estonia, which adopted aggressive free market principles after it broke from Moscow's orbit. The country ranks 34th, the Czech Republic 39th and Poland, another country consciously modeling itself after free market principles, 41st.

Turkey recorded one of the most substantial gains, jumping from 59th place to 43rd, one spot below Italy, due to its surging economic growth. India ranks 59th, again hampered by an over-regulatory government.

In trying to parse out the functional, appreciable difference between, say, Israel at 26 and Ireland at 27, it may be more helpful to group, instead of rank, countries. Identifying those with large developed economies versus developing or emerging economies provides a clearer picture of which nations are more appealing to international businesses and at stimulating domestic economic growth.

While it may be difficult to evaluate competitive differences at a macroeconomic level for countries within the same tier, the latest WEF rankings strongly suggest that confidence in a country's leadership, particularly its political leadership, is the critical factor in providing a strongly competitive climate.

In other words, for the U.S. to stop its yearly slide down the rankings and eventually regain its position at the top, we need to rebuild the relationship between policymaking and the private sector.