SSTI: U.S. Slips from First Place in Global Competitiveness Rankings

SSTI: U.S. Slips from First Place in Global Competitiveness Rankings

The United States fell from its position as the most competitive national economy according to the World Economic Forum's (WEF) recently released annual Global Competitiveness Report. Switzerland took the top spot as the U.S. fell to a close second place in the weighted ranking system. The report attributed the switch in positions to a number of growing weaknesses that have plagued the U.S. over the past year, while the Swiss economy remained relatively stable. Though the U.S. continues to perform well in measures of innovation, the country declined in indices of its institutional effectiveness and macroeconomic stability. The U.S.'s persistent fiscal deficits and trade imbalances were noted as a particular threat to the nation's mid- and long-term competitiveness.

The Global Competitiveness Report ranks 133 countries based on the institutions, policies and factors that, according to WEF, determine the level of national productivity and prosperity. The indices and data compiled in the report are organized into 12 'pillars' of competitiveness. These pillars are weighted and used to determine a country's final ranking.

Because the importance of these pillars differs by the stage of economic development, the report assigns each country a category based on gross domestic product (GDP) and the ratio of mineral exports to exports as a whole. A country's category determines how the pillars are weighted in calculating the overall ranking. WEF sorts national economies into three stages of progress:

• Factor-driven economies compete based on unskilled labor and natural resources. For these countries, four pillars are weighted more heavily: institutions, infrastructure, macroeconomic stability, and health and primary education.
• Efficiency-driven economies, which compete by improving production processes and increasing product quality, are weighted toward the pillars of higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness and market size.
• Innovation-driven economies, including the U.S. and Switzerland, are evaluated primarily on the pillars of business sophistication and innovation.

WEF reports that the U.S. continues to perform well in its weighted categories, ranking first in innovation and fifth in business sophistication. In fact, the U.S. was ranked first in the combined innovation pillars (including both innovation and business sophistication), and in the weighted pillars for efficiency-driven economies. Still, the country's overall score fell due to declining performance in the areas characterized in the report as 'basic requirements'. The economic crisis of the past year caused the U.S. to drop from 66th to 93rd in macroeconomic stability, an area in which the U.S. already was struggling. A weakening opinion of U.S. private institutions, including auditing and reporting standards, also hurt the country's rank.

Switzerland, on the other hand, remained stable across the board and placed third highest in each category. The country has mostly resisted the ill-effects of the economic crisis, particularly in comparison with the U.S. and other European countries (banking giant UBS being a notable exception). Only the country's low university enrollment rate was noted as a cause for concern. Finishing out the top ten were Singapore, Sweden, Denmark, Finland, Germany, Japan, Canada and the Netherlands - all of which were in the top ten last year. Countries that rose the most in this year's ranking include: Taiwan (from 17th to 12th), United Arab Emirates (31st to 23rd) and Azerbaijan (69th to 51st).

The report suggests that the U.S. should address certain fundamental issues, such as fiscal stability and public and private institutional practices, to bolster its competitive prospects. WEF omits many factors that are emerging as vital elements in assuring long-term competitiveness, including investment in strategic industries, quality of life and environmental and business sustainability. Despite WEF's focus on traditional economic indicators, the report highlights some of the long-term economic trends that, if ignored, could undermine efforts to grow the U.S. innovation economy. "The Global Competitiveness Index 2009-2010: Contributing to Long-Term Prosperity Amid the Global Economic Crisis" is available at:
http://ssti.staging.10floor.com/email/449321.1/LH/www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/index.htm