The United States fell two places to number four in the World Economic Forum (WEF) global competitiveness rankings released in a report earlier this month. Last year, after several years at the top of the rankings, the United States fell to second place behind Switzerland.
The Global Competitiveness Report 2010–2011 is the latest of WEF’s annual reports on the key factors that determine economic growth and explain why some countries are more successful than others in raising income levels and opportunities for their populations. The report includes comprehensive listings of the main strengths and weaknesses of countries, making it possible to identify key priorities for policy reform.
A key feature of the report is the Global Competitiveness Index (GCI), which ranks 139 countries based on these twelve pillars of competitiveness: institutions, infrastructure, macroeconomic environment, 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.
In writing about the United States’s continued decline in its rankings, WEF notes that some of the nation’s weaknesses have deepened since last year. For example, the evaluation of institutions has continued to decline; the United States ranks 54th in the public’s trust of politicians and 68th in wastefulness of government spending. Additionally, WEF notes that the United States continues to build up large sums of debt and had done so even before the global economic crisis. Now, the significant stimulus spending that accompanied the economic crisis has combined with repeated fiscal deficits to rapidly increase the level of public indebtedness. In the report, the United States ranks 117th in government budget balance, 122nd in government debt, and 130th in national savings rate.
Without a clear commitment to getting spending under control in the medium term, the report warns that countries such as the United States will compromise their future ability to make pro-growth investments in areas such as infrastructure, health, and education, which are necessary for sustained development and competitiveness over the longer term.
“Policymakers 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,” said Klaus Schwab, founder and executive chairman of WEF. “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.”
WEF credits the United States for having companies that are highly sophisticated, innovative, and supported by an excellent university system that collaborates strongly with the business sector in research and development. When these qualities are combined with the scale opportunities afforded by the sheer size of the nation’s domestic economy—which is the largest in the world by far—the United States continues to be very competitive.
In education, the United States receives high marks for the percentage of individuals who enroll in higher education, but it does not place within the top ten in any other education indicator. Overall, WEF ranks the quality of the U.S. education system twenty-six, but, as shown in the table to the right, most of United States’s education indicators fare much worse.
“Workers who have received little formal education can carry out only simple manual work and find it much more difficult to adapt to more advanced production processes and techniques,” the report reads. “Lack of basic education can therefore become a constraint on business development, with firms finding it difficult to move up the value chain by producing more sophisticated or value-intensive products. For the longer term, it will be essential to avoid significant reductions in resource allocation to these critical areas, in spite of the fact that government budgets will need to be cut to reduce public debt brought about by the present stimulus spending.”
The report adds that quality higher education and training is “crucial” for economies that want to move up the value chain beyond simple production processes and products. “In particular, today’s globalizing economy requires countries to nurture pools of well-educated workers who are able to adapt rapidly to their changing environment and the evolving needs of the production system,” the report reads.
The rankings are calculated from both publicly available data and the Executive Opinion Survey, a comprehensive annual survey conducted by WEF and its network of leading research institutes and business organizations located in the countries covered by the study. This year, over 13,500 business leaders were polled in 139 economies.
The complete report, which includes the United States’s ranking in each indicator, is available athttp://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2010-11.pdf.