Did you see it coming? Some thought they did.
Switzerland is now the most competitive economy in the world. According to the World Economic Forum’s Global Competitiveness Report just released on September 8, 2009, the US is now the world’s second most competitive economy followed by Singapore. Sweden and Denmark complete the top five.
I could say there’s some consolation that we were edged out by only a tenth of a point, but the long predicted decrease in our nation’s competitiveness as reflected in its rank in the Global Competitiveness Index (CGI) should give us reason to take stock of both cause and effect. Have the predictions of the National Academies’ Rising Above the Gathering Storm report finally come true? Does the Rand Foundation really wear rose colored glasses as reported by the Information Technology Innovation Technology Foundation? Or can we disregard these warnings and assume that when the global economic crisis subsides the US will once again be the most competitive economy in the world? How important is our competitive rank? Like an athlete, is competitive success about training harder, or as I do on my bike, is it about going back to basics?
The GCI is just one indicator, but the research is well done and a close look at its pillars reveals very useful information about current US competitiveness. The most striking changes are in Basic Requirements and Financial Markets. The US dropped six points in Basic Requirements to 28th out of 133 countries surveyed. Basic Requirements is a sub-index of the GCI associated with low-innovation, factor-driven economies. Its four pillars are Institutions, Infrastructure, Macroeconomic Stability and Health and Primary Education. The global financial crisis resulted in a loss of a full 33 points in Macroeconomic Stability which brings the US down to 93/133. Can you imagine that puts us right between Gambia (92) and the Dominican Republic (94)?
Indicators within each pillar reveal more of the details. Strength of Auditing and Reporting Standards fell by 19, Efficacy of Corporate Boards by 8 and Protection of Shareholders Interests by 14. Troubling losses also occurred outside Basic Requirements. Soundness of Banks fell by 68 points. That puts us at 108/133, just behind Tanzania! Rounding out financial markets, Regulation of Securities and Exchanges fell by 27 points. Two other noticeable changes were a 15 point drop in Business Impact of Rules on Foreign Direct Investment and a 9 point drop in Foreign Direct Investment and Technology Transfer. Whether or not one agrees with these specific measures, it is clear that weak financial markets have taken a toll on U.S. competitiveness.
Despite these losses, the US retains its competitive advantage in the Innovation and Sophistication Factors sub-index. So we can coast, right? No, it’s actually in this pillar that we get our best indicators of how to assess US competitiveness against the National Academies and the ITIF predictions. Overall we lost some ground, but we did gain in one key indicator. We’re now fifth, up one since last year, in Availability of Scientists and Engineers. We lost the top rank to Switzerland in Quality of Scientific Research Institutions. We lost two places in Company Spending on R&D and we’re down one to third place in Utility Patents.
So did we see it coming? Well, we didn’t expect the financial crisis and that’s where the numbers seems to have affected our rank the most. On what we did see, the work of the National Academies and ITIF provide solid indicators of what may become long term trends if not properly addressed through science and technology policy. The good news is that’s already taking place. We haven’t lost much ground yet on these important indicators, but when it comes to competition losing ground is a serious issue. Whether riding my bike, or in national competitiveness there’s usually one safe bet: go back to basics.
I think that the criteria are debatable. A new ranking appears every few months, applying similar but slightly different criteria, and of course it will be different (with some occasional surprises). This being said, Switzerland and the Scandinavian countries, Singapore, and a few other (small countries) have consistently been performing well in the innovation rankings, and I have come to believe that this is rather good news for the US: I have no proof of this but it may be relatively easier for a small country to score higher than for a large behemoth. If that is true, then the position of the US is still very enviable… It would be more worrying if another large country – say China – would score in the top 10!
@cdn
Great points, thanks for the perspective.
Are we really surprised by this? Switzerland throughout history has always been a strong economic power as has Sweden and Denmark. In a time of economic turmoil, bailouts and infusions thus increasing the deficit, the United States has to balance itself back out. I would think that next year, we will again rise to the top of the list.
Nice post. Thank you so much for points.
More power to them and to the US. Competition is healthy and we need to pick up the pace and make #1 again. I believe that small business owners as well as the big corps play a huge role in competition and growth. Power to the entrepreneur.
Thanks so much for sharing this information with us. It raises a lot of interest and debate. I am curious about the trend over, say the past 5 years. Obviously, we were no. 1, but at what level? Also, is it fair to compare a country the size of Switzerland with a complex, diversified country like the US? Has the economic downturn effected the US more than Switzerland and other small countries?
Still, I find troubling our loss in Quality of Scientific Research Institutions.
One of the interesting things that we all should consider is the regional competitiveness of our major geographic areas. On a local and regional levels cities and areas of the country are competing to become business and intelligence incubators, which in turn fuel the national competitiveness capacity. It may seem trivial but housing is an important component of this. The ability to provide affordable housing to the right people and in the right areas (Creative centers, down town areas, diverse and vibrant neighborhoods) impacts talent attraction and retention. I have written a few articles about this on my personal blog { Link } and I point out the impact that quality affordable housing can have on attracting intellectual talent to a city trying o grow its innovation capacity.
Thanks for your nice information and sharing all these.