Bridges Weekly Trade News Digest • Volume 12 • Number 35 • 23rd October 2008

US Tops Competitiveness List

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The World Economic Forum released its annual Global Competitiveness earlier this month, detailing and ranking the strengths and weaknesses of 134 countries that account for 98 percent of the world economy.

The US once again topped the list as the most competitive country despite the recent financial crises, followed by Switzerland, Denmark, and Sweden. European countries continued their domination of the top ten, with Finland, Germany, and the Netherlands also taking spots on that coveted list. The UK, however, dropped three places and out of the top ten due to its weakened financial markets. China, up four positions from last year, slid into 30th place-well ahead of other emerging economies. Overall, Asia had a good showing, with Hong Kong, Japan, Korea, and Taiwan all in the top 20.

The report cited the US’ infrastructure and competitive labour and goods markets as the primary reason that country has been able to maintain its competitiveness and survive economic shocks. Though there are worries about its macroeconomic stability and financial markets, which may be a problem in the long run, its innovation has carried it through. Switzerland held onto its number two spot in much the same way as the US, as its economy is similarly characterised by its innovative capacity and a sophisticated business culture. The Nordic countries of Denmark, Sweden and Finland (ranked sixth), attained their high rankings through similar strategies of creating a stable macroeconomic environment and placing a heavy emphasis on education, but Denmark gained a higher level of competitiveness through its flexible and efficient labour markets-a stark contrast to the inflexible labour markets of Sweden and Finland.

The report also provided in-depth analysis of the economies of Costa Rica, China, and Saudi Arabia, among others.

Costa Rica was presented as a success story of Latin America. Due to an early emphasis on education, and policies aiming to diversify the economy away from commodities and towards value-added products, Costa Rica has climbed nine places since 2006 to achieve its current ranking of 59th. In addition, its thriving eco-tourism industry and recent progress in macroeconomic stability have given it a leg up, though it still faces major challenges in infrastructure development and inflation.

China, as one of the largest economies in the world, has made vast strides in developing and diversifying its economy and improving its overall competitiveness. But the country will have to face many obstacles if it is to develop further. The report said that China must focus on improving the basics of competitiveness-institutions, infrastructure, public health, and all levels of education-while maintaining a stable macroeconomic environment. The country’s unsophisticated financial market, which suffers from a lack of government protection of both borrowers’ and lenders’ rights, will also require reforms.

Saudi Arabia, another rapidly growing economy, faces its own challenges. Since 2004, when the country began its ambitious program to become one of the most competitive countries by the end of the decade, Saudi Arabia has improved many facets of its economy, including its institutional framework and the efficiency of its good markets, and has moved up eight places in the Competitiveness Index since last year, placing 27th. But the report said that the country must still address many problems, especially its poor education system, which has made the private sector dependent on foreign labour. Other obstacles to development that the report cited include large barriers to trade, a lack of foreign competition, and unsophisticated financial sector.

The report comes amid turbulent financial times. “Today’s volatility underscores the importance of a competitiveness-supporting economic environment that can help national economies to weather these types of chocks in order to ensure solid economic performance going into the future,” Xavier Sala-i-Martin, a co-author of the study, said in the preface to the report.

The Global Competitiveness Index is based on a measurement of each countries development of the 12 pillars of competitiveness, which include infrastructure, institutions, education, and technological readiness.

ICTSD reporting.