Published September 07, 2012
| 24/7 Wall St.
For most of the 20th century, the United States has been considered the world’s economic superpower. And up until four years ago, the World Economic Forum would agree. In 2008, it ranked the U.S. as the most globally competitive economy in the world. This year, when the group published its annual Global Competitiveness Report, the U.S. ranked seventh.
Like other competitive economies, the U.S. performs well in almost all the economic measures that the report considers. However, in recent years the country’s political conflicts and growing debt have become a problem. Public confidence in elected officials has dropped following the debt ceiling crisis in 2011 and the current struggle over the “fiscal cliff,” Kevin Steinberg, chief operating officer of the WEF, told 24/7 Wall St. in an interview.
According to the WEF, competitiveness reflects the level of productivity of a country, based on its institutions, policies and economic factors. In its study, the WEF groups the 144 countries it surveys into one of three economic categories. “Factor-driven” economies are the least developed and rely on low-skilled labor and natural resources. More developed countries are considered “efficiency-driven” economies because they turn to improving output. The most developed economies, which focus on improving technology and new product and idea development, are considered “innovative.”
To create the Global Competitiveness Index (GCI) score for each country, the WEF ranked more than 100 economic indicators divided into 12 broad categories, referred to as pillars, that quantify the extent to which a country is competitive. The economic indicators and pillars were then scored 1 to 7. To rank the countries, some economic measures were weighted more heavily than others, depending on how the economy was categorized.
In the case of Burundi, which was ranked the least competitive globally, 65% of the country’s competitiveness ranking was based on economic measures that reflect what the WEF calls “basic requirements,” such as a country’s infrastructure and institutions. Only 5% of the ranking was determined by “innovation and sophistication” factors, which are used to rank the most developed countries.
In the case of Switzerland, the most competitive country, basic requirements accounted for only 20% of the ranking, while 30% was based on innovation and sophistication factors, like the availability of scientists and engineers and local supplier quality and quantity.
The most competitive countries generally had high scores among most economic measures, ranking among the best in technological readiness, business sophistication, and higher education. In the case of innovation, nine of the 10 countries with the highest ranks were among the most competitive economies overall. Switzerland received the highest ranking on company spending on research and development along with the highest mark for university-industry collaboration on research and development.
Conversely, the least competitive countries generally fared poorly across the board. In addition to innovation and efficiency, the worst countries had among the lowest scores in basic requirements, like institutions, infrastructure, health and primary education. At least five of the least competitive countries all ranked in the bottom 10 for infrastructure and health and primary education. The least competitive country, Burundi, had the seventh highest infant mortality rate. The second least competitive country, Sierra Leone, had the highest rate.
However, there were exceptions. Many of the competitive countries had less than stellar scores on macroeconomic environment, an economic measure reflecting the broader economy, because of high debt levels. According to Steinberg, public debt “is definitely an obstacle for many of the highly developed and competitive countries.” In addition to the U.S. he pointed to Japan, a highly developed economy that has been driven into debt due to high entitlement spending.
Based on WEF’s Global Competitiveness Report, which ranks 144 countries that make up almost 99% of the world’s GDP, 24/7 Wall St. reviewed the economies with the highest and lowest Global Competitiveness Index scores. Data from the World Bank and the World Health Organization were used to provide additional information on some economies.
These are the 10 most and least competitive global economies.
The Most Competitive Economies in the World
> GCI score: 5.40
> GDP per capita: $45,920 (18th highest)
> Debt as a pct. of GDP: 229.8% (the highest)
> Individuals using Internet: 79.5% (17th highest)
> Infant mortality rates: 2.4 per 1,000 live births (7th lowest)
Japan has the world’s third-largest gross domestic product and generates large domestic and export demand for the goods and services it produces. According to the WEF, Japan exports a diverse array of products and services from all along the value chain–from low value products to high value goods such as semiconductors and auto parts. The country’s production processes are ranked first in the world for technological sophistication. Japan was ranked second for company research and development spending, one of the leading contributors to innovation, above the U.S., which ranked seventh in this category.
9. Hong Kong SAR
> GCI score: 5.41
> GDP per capita: $34,049 (26th highest)
> Debt as a pct. of GDP: 33.9% (52nd lowest)
> Individuals using Internet: 74.5% (25th highest)
> Infant mortality rates: 1.3 per 1,000 live births (the lowest)
Few nations have the quality of infrastructure found in the city of Hong Kong. Railroads, ports and air transportation — all vital for economic efficiency and attracting economic activity — were rated highly by the city’s residents. Despite its extremely small size, Hong Kong still had the 40th-highest GDP of all 144 economies studied by the WEF. According to the foundation, this special administrative region of the People’s Republic of China has the world’s most-developed financial market, beating out much larger countries such as the United States, which was ranked 16th, and China itself, which was ranked 54th.
Also Read: Ten Countries Where Young People Can’t Find a Job
8. United Kingdom
> GCI score: 5.45
> GDP per capita: $38,592 (22nd highest)
> Debt as a pct. of GDP: 82.5% (18th highest)
> Individuals using Internet: 82.0% (14th highest)
> Infant mortality rates: 4.6 per 1,000 live births (29th lowest)
Of the major indicators measured by the WEF, the United Kingdom scored the best in labor market efficiency, ranking fifth. It was ranked fourth for limiting “brain drain,” reflecting that highly educated residents are choosing to stay in the country. While the country scores well in many areas, it also has weaknesses. Like many of the other countries in Europe, the U.K. faces a challenging macroeconomic environment. Notably, its debt is 82.5% of GDP, placing the U.K. in the top 20 of all 144 countries. Despite austerity measures underway, the country’s Office of Budget Responsibility notes that finances are “clearly unsustainable” over the coming 50 years, and tax increases, spending cuts or a combination of both will be necessary in the future to maintain long-term fiscal health. Of course, tax hikes may not go over well with residents. Taxes, along with access to financing, were considered the greatest obstacle to doing business in the U.K.
7. United States
> GCI score: 5.47
> GDP per capita: $48,387 (14th highest)
> Debt as a pct. of GDP: 102.9% (9th highest)
> Individuals using Internet: 77.9% (20th highest)
> Infant mortality rates: 6.5 per 1,000 live births (41st lowest)
The U.S. has the world’s largest GDP and is also the world’s second-largest exporter, trailing only China. In addition to being big, the country ranks in the top 10 for innovation. Collaboration between research universities and private industry on research and development was especially strong, ranking third in the world only behind Switzerland and the U.K. The U.S. also ranked fifth for the availability of engineers and scientists, another measure that further supports future innovation. However, the country’s competitiveness may be undermined by a government deficit that, at 9.6% of GDP in 2011, was proportionally one of the largest in the world.
> GCI score: 5.48
> GDP per capita: $43,742 (20th highest)
> Debt as a pct. of GDP: 81.5% (19th highest)
> Individuals using Internet: 83.0% (12th highest)
> Infant mortality rates: 3.4 per 1,000 live births (17th lowest)
Germany was ranked third in the world for business sophistication by the WEF, seven spots ahead of the U.S. The country ranked first for its ability to produce a broad range of goods and services across the value chain — from low value goods like foodstuffs to high value goods like cars. Germany also ranked eighth in developing business clusters, meaning groups of interconnected businesses that are located in close proximity to each other. According to the WEF, clusters drive innovation, a category in which Germany did better than all but seven other countries. One way the country supported innovation was high spending on research and development, where Germany ranked fourth.