The Shifting Fortunes of the World’s Most Competitive Economies

The World Economic Forum — the organization that sponsors the annual conference of the global uber elite at Davos each year — just issued the latest edition of its annual Global Competitiveness Report. Much like U.S. News & World Report does for its annual college rankings, the study ranks countries based on a range of criteria. In this case, the criteria include macroeconomic policies; the strength of public and private institutions; the quality of education and infrastructure; and the efficiency of markets for goods, labor and capital.

The World’s Most Competitive Economies: Today’s Top Ten

And much like U.S. News‘ annual college rankings, the report always causes a bit of a stir. This year, much was made about the fact that the United States fell two places to #4. It turns out that the lack of macroeconomic stability, budget deficits, and weak public faith in the political leadership all weighed on the U.S. ranking. Those with a political bent were quick to point out that for as much as the Bush administration tarnished the image of the United States abroad, outside observers still consistently ranked the U.S. economy as the most competitive in the world. Others point to the irony that even as the U.S. government now is paying many federal workers more than Wall Street pays Ivy League law school graduates to toil 16 hours a day, Fidel Castro is firing a huge chunk of Cuba’s government workers and cutting their salaries.

But when the dust settles, the top 10 most competitive economies pretty much stay the same year after year. Compared with 2009, there were no newcomers in the World Economic Forum’s top 10. Switzerland topped the World Economic Forum’s ranking, with Sweden #2, and Singapore rising to #3. As always, the Nordic countries did well with Sweden, Finland and Denmark among the top 10. A rival ranking — the 2010 World Competitiveness Yearbook by Switzerland’s IMD business school — came out with a very similar top 10 list in May. That list had Singapore ranked as the world’s most competitive economy, toppling the United States from its number one position for the first time in 16 years.

The World’s Most Competitive Economies: What Has Changed in Ten Years?

Year-to-year fluctuations in competitiveness rankings can be dismissed as noise — especially as rankers often tinker with criteria annually just to shake things up a bit. But looking at changes over time are revealing. To this end, I compared rankings of the World Economic Forum’s 2010 data with the rankings from 2001 — the latest data readily available on its website.

Little Change in the Top Ten

Much like college rankings, the top ten most competitive economies in the world have remained largely unchanged — though there has been some shuffling in the ranks. The United Kingdom and Australia both have fallen out of the top ten and were  replaced by (perhaps surprisingly) Japan and Canada. Singapore moved up from #10 to #3. The United States dropped from #2 in 2001 to #4 in 2010. Switzerland rose from #5 to #1. Finland dropped from #1 to #7.

For all the handwringing about tectonic shifts among the competitive ranks of the world’s leading economies, the past decade has shown more evidence that, as far as the top ten economies are concerned, “the more things change, the more things stay the same.” But there were important shifts in the rankings over the past decade looking farther down the table — some of which are at stark odds with conventional wisdom.

BRICs Overrated…

The trend among the highly touted BRIC economiesBrazil, Russia, India and China — was distinctly negative. All of the BRIC economies, except for China, fell in the rankings — and often by a substantial number. While China rose from #47 to #27, India fell from #36 to #51. Current BRIC darling Brazil plummeted from #30 to #58. Russia fell slightly from #58 to #63. The irony is that the stock markets’ returns over the same period were just about the reverse, with Brazil and Russia making the most money for investors.

Asia Rising…

The trends in the competitiveness rankings confirmed the rise of Asia over the past decade.

Just look at the highly touted Asian Tigers. Singapore rose from #10 to #3. Rival city-state Hong Kong went from #18 to #11. Taiwan rose from #23 to #13. South Korea also rose from #28 to #23. Starting from almost nothing 50 years ago, these economies have taken rightful places as some of the world’s most competitive economies.

Asia’s continuing strength also showed itself in Japan’s surprising rise from #15 to #6. Indonesia, the “new BRIC,” actually outranked all but one of the original BRICs — rising from #55 to #44. The “Fifth Asian Tiger,” Malaysia, also rose from #37 to #26.

Europe Dying…

If Asia’s relative rise over the last decade is as clear as day, so was the continued relative decline in the competitiveness of both Western and Eastern Europe. The sole exception is export powerhouse Germany which remained steady — ranking at #4 or #5. But after 13 years of a Labor government, the United Kingdom fell from #7 to #12. France dropped from #12 to #15. Europe’s PIGS fared the worst. Portugal dropped from #30 to #46. Italy plummeted from #24 to #48. Spain was close behind, dropping from #23 to #42. Greece plunged an eye-popping 40 places from #43 to #83.

The former Communist nations of Eastern Europe also fared poorly. While Poland and the Czech Republic stayed basically steady at around #39 and #35, respectively, Hungary’s drop was a PIGS-like #26 to #52. Slovakia also dropped from #39 to #60, its progressive foreign investment laws and flat tax laws notwithstanding.

Latin America Disappointing…

Nor can fans of Brazil and Latin America derive much good news from this comparison over the past decade. As I noted, Brazil dropped from #30 to #58 — an astonishing fall that rivals that of the worst of Europe’s PIGS. Latin America’s second-biggest economy, Mexico, did slightly better, at least in relative terms, falling from #51 to only #66. Crisis-ridden Argentina tumbled from a lousy #53 to an absolutely miserable #87. Among the major Latin American economies, only free-market maven Chile was able to maintain its position over the past decade, at around a ranking of #30.

The Rest of the World Mixed…

Finally, here’s a quick word about two other areas mostly off the radar screens of U.S investors — Africa and the Arab countries. The largest African economies, South Africa and Nigeria, plummeted in the rankings over the past decade. South Africa fell from a respectable #25 to an Eastern Europe-like #54. For all the talk of Sub-saharan Africa’s improving prospects, Nigeria’s ranking fell off a cliff from #67 to #127.

The top-ranking Arab countries — Qatar, Saudi Arabia and the United Arab Emirates — all made it into the world’s top 25 in 2010, with rankings of #17, #21 and #25, respectively.

How much progress have these Arab countries made during the past decade?

Quite a lot, it seems. The World Economic Forum did not even bother including them in its 2001 study.

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