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THE ATLANTIC CENTURY: New Report Ranks the United States Sixth in Global Competitiveness

“It has become almost a cliché to point out that the rise of advanced transportation and communication technologies have provided firms much more locational freedom and that the market for an increased share of goods and services in now international.”

The United States ranks sixth out of forty countries and regions in innovation-based, global competitiveness according to a recent report from the Information Technology and Innovation Foundation (ITIF). More disturbing, the report The Atlantic Century: Benchmarking EU and U.S. Innovation and Competitiveness ranks the United States last in the improvement it has made in international competition and innovation capacity over the last decade.

“It has become almost a cliché to point out that the rise of advanced transportation and communication technologies have provided firms much more locational freedom and that the market for an increased share of goods and services in now international,” the report reads. “But these and other factors have dramatically increased the pressures on nations to be globally competitive—and the global economic recession will only heighten such pressures.” In its analysis, ITIF uses sixteen indicators to determine a global competitiveness score. The sixteen indicators are grouped into six broad categories: human capital, innovation capacity, entrepreneurship, IT infrastructure, economic policy, and economic performance.2

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As shown in the table to the right, Singapore has the highest global competitiveness score, while Sweden is close behind.” The report also points out that nations such as Brazil, Russia, India, and China—which get much of the attention as competitors in the innovation economy—actually score at the bottom of the rankings. “This does not mean that these and other low-ranking nations do not have some innovation strengths—they do—but as a share of their overall economies, these strengths are still quite minimal,” the report reads. “The main attraction of these nations remains their low costs, not their innovative infrastructures, and this situation will likely remain for many years, at least until they raise productivity in a wide range of sectors.”

By ranking the United States sixth in global competitiveness, the ITIF report is out-of-line with reports from the World Economic Forum (WEF) and the International Institute for Management Development (IMD), both of which rank the United States as number one. However, as the ITIF notes, both the WEF and IMD rely on opinion surveys for many of their indicators. In contrast, the ITIF report exclusively uses hard data. “The advantage of opinion surveys is that they can gauge factors where hard data are not available,” the ITIF report reads. “But because of limited knowledge, combined with likely respondent biases, the risk of using opinion surveys is that they can be a better reflection of a nation’s reputation, than its actual position.”

As evidence, the ITIF report points to the United States ranking for corporate investment in research and development (R&D), for which the WEF relies on an executive opinion survey while the ITIF uses actual R&D investments as reported to governments. The United States ranks third as judged by the WEF and fifth according to the ITIF. “One likely reason for this discrepancy is that the United States has long been a leader in corporate R&D,” the report reads. “But in the last decade, that position has declined, but the perception of that decline among executives appears to have lagged.”

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Another key difference between the ITIF report and similar reports done by the WEF and IMD is that the ITIF report also examines the progress that countries have made over the last decade. Remarkably, ITIF finds that all of the thirty-five other countries included in the report have made faster progress toward the new knowledge-based innovation economy in recent years than the United States.3 As shown in the table to the right, China ranks first with a “change score” of 19.5.4 Meanwhile, the United States, with a change score of 2.7, ranks last, performing worse than Greece (5.1) and Brazil (3.7).

“Many in the United States still persist in believing that the United States is number 1 and that it is its destiny to remain so…[regardless] of what it does,” the report reads. “But both the fact that the United States is no longer number 1 and is progressing more slowly than every other nation examined here suggests that riding on past laurels is a risky strategy for the United States, or for that matter any nation.”

The United States’ performance in the “higher education attainment” indicator is a good example of the nation “riding on past laurels.” According to the report, the United States led the world for many years in higher education attainment. But today, Russia—where 56 percent of adults aged twenty-five to thirty-four own a tertiary degree—claims the top spot. Canada (54 percent) and Japan (53 percent) are second and third, respectively. At 39 percent, the United States has fallen into a tie for ninth with France. And when the report measures how much nations have improved the percentage of adults who own a college degree, the United States ranks last among the twelve countries with available data, with only a 3 percent change from 1999 to 2005. Poland, with a 117 percent change, ranked first, followed by South Korea (46 percent), and Ireland (41 percent).

Moving forward, the United States should think of itself more like a “big state” rather than fifty individual states, the report argues. It recognizes that most state governors know that their states are in intense competition for internationally mobile talent, technology, and investment. The report also recognizes that too few Washington, DC policymakers and economists realize that a similar competition is going on between the United States and other nations.

The report offers five recommendations on how nations can pursue a competitiveness and innovation agenda. Specifically, it suggests that nations: 1) put in place incentives for firms to innovate within their borders; 2) be open to high-skill immigration; 3) foster a digital economy and expand public investments in health care, education, and other areas; 4) support institutions such as universities that are critical to innovation; and 5) ensure that regulations and other related government policies support, not retard, innovation. “Nations that will succeed, particularly higher income nations that cannot compete on the basis of low costs, will have to work to compete on the basis of innovation,” argues the report.

The complete report is available at here.

2) The sixteen indicators are: higher education attainment in the population ages 25–34; the number of science and technology researchers per 1,000 employed; corporate investment in research and development (R&D); government investment in R&D; share of the world’s scientific and technical publications; venture capital investment; new firms; e-government; broadband telecommunications; corporate investment in information technology; effective marginal corporate tax rates; ease of doing business; trade balance; foreign direct investment inflows; real GDP per working-age adult; and productivity.
3) The countries included in the report are Australia, Austria, Belgium, Brazil, Canada, China, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, India, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Malta, Mexico, the Netherlands, Poland, Portugal, Russia, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, the United Kingdom, and the United States.
4) The change score represents the change a country made between the base year (generally 1999 or 2000) and current year (the latest year for which data are available).

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