The World Economic Forum put out a fascinating new report today, which uses a complex index to rank countries' economic competitiveness. The rankings began in 2004, and this report marks the first time that the U.S. has fallen from the top spot -- replaced by Switzerland, which was ranked second last year.* I found it really interesting to see what global economists think about various countries, especially the U.S. given its recent economic troubles.
First, if you'd like to read the entire report, then check it out here (opens .pdf). At least skimming it is totally worth your time if you have any interest in global business or economics. I was skeptical at first, but the WEF does a pretty good job of creating an index based on a broad range of variables and respondents.
Here's the report's top 20:
The index considers what they call 12 pillars of global competitiveness. They include: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication, and innovation. They also break down countries into one of five stages of economic development from "Factor Driven" (least developed) to "Innovation Driven" (most developed).
The report also contains a detailed profile of each of the 133 nations that it considers. For the U.S., here's the stage of development chart, including a diagram of its robustness of each of the 12 pillars:
And here's an interesting chart showing the most problematic factors for doing business in the U.S., based on global economist responses:
Obviously, much of this is difficult to understand in a vacuum, so if you really want to understand what such charts mean, check out the full report. Context helps.
Speaking of context, which are the areas where the U.S. scored particularly poorly versus other nations? After all, it must not have been all smooth sailing, since it lost the top spot. In fact, its lowest ranking among the pillars came through macroeconomic stability. It was ranked 93rd -- just barely beating out the Dominican Republic (#94) and Albania (#95). Ouch!
Within that pillar, its worst showing was from the "government surplus/deficit" sub-factor, in which it ranked #122. The U.S. tied Kenya and Tajikistan with a score of negative 6.1. Apparently, Washington should try to learn from governments in nations like Timor-Leste (ranked #1), Libya (ranked #2), and Chad (ranked #9) when it comes to fiscal responsibility. The report provides the following analysis regarding this factor:
Macroeconomic imbalances also continue to afflict the United States. Indeed, recent stimulus spending, while meant to head off an even more protracted recession, is increasing the debt burden that will be borne by future generations. According to the latest estimates published by the International Monetary Fund (IMF), the fiscal deficit in 2009 is projected to exceed 13 percent of GDP, the ninth year in a row that the federal budget will have shown a deficit. The IMF also projects deficits at least through 2010, despite the government's pledges to rein in spending after the crisis. In the meantime, the impact of this deficit spending on public debt is alarming, with debt rising sharply from 63 percent of GDP in 2000 to a projected 87 percent of GDP in 2009 and expected to continue to rise in coming years. With the many long-term claims on the budget--such as defense, pensions, and other social payments (including healthcare)--the prospects for sustained fiscal adjustment do not seem bright. It is clear that in order to ensure rising prosperity for future generations, the United States must get its macro house in order rapidly once the crisis subsides.
Another poor showing came from U.S. bank health. The report says:
Access to finance through various channels has become measurably more difficult, and the assessment of bank solvency has dropped from a rank of 40 last year all the way down to 106th this year (on a par with countries such as Albania and Mali).
Such a drop shouldn't be surprising, given the troubles of U.S. banks during the financial crisis. If only we had some way to resolve large financial institutions, perhaps that could help instill better confidence in U.S. banks. After all, banks that can fail have a much greater incentive to stay solvent.
So what does this ranking really mean? Probably very little. After all, it's just the opinions of global economists. But therein may lie the lesson: the U.S. has some room to grow in improving how the rest of the world views its economy. The report is also useful for its own sake, however, in trying to understand how the world perceives the economies of many nations. It's chockfull of fascinating data to that end, which I only managed to present a small fraction of.
* As Felix Salmon points out, this statement isn't quite right. Somewhat ironically, I based that statement on another article I read about the rankings from Reuters making this claim. In fact, the specific index they now use was created in 2004 (per the report), not the rankings themselves. They extend well past that. And the U.S. had not always been on top, as I only checked the past few years and took Reuters at its word beyond that. I apologize for not rigorously enough verifying this data point. The oversight should not have affected the broader piece.