Developed countries continue to play the leading roles in economic competitiveness thanks to better infrastructure, a better education system and developed commercial law.
The global financial crisis has resulted in shifting economic power to emerging countries rich in currency reserves such as India and China.
But this handover could be short-lived because the West will resume its place as soon as the crisis is over. Of all nations, developed countries enjoy considerable advantages in terms of fundamental economic competitiveness. These are due to the quality of their infrastructure, their excellent educational system and the sophistication of their commercial law and bureaucracy.
This is the conclusion of the 2009 Global Competitiveness Study by the Swiss business school IMD. Based on a detailed analysis of economic output, government efficiency, business, skills and infrastructure, the researchers compared the world’s top 57 economies to determine which is the best. positioned to succeed in the competitive economy of the 21st century.
Occupying the 1st place for a 16th consecutive year, the United States, despite a difficult economic situation punctuated by a rise in unemployment, sits at the top of the hierarchy. With its educational system unparalleled in the world, a diversified economy and a powerful infrastructure, the United States remains the world’s leading economic power and the leading destination for foreign direct investment.
The United States shares the headliner with many developed countries whose economies are sluggish these days. Among the top 20 on the list, only Qatar (14th) rich in the petro dollar and China ranked 20th can be considered as emerging countries.
Flexible and adaptable
What makes countries like Denmark and Japan more competitive than Slovakia and Brazil? Some of these differences are based on the effectiveness of national policies, ranging from the level of taxation to the time needed to start a business. Although many developed countries have protectionist labor market policies, relatively high taxes and levies, with a bloated bureaucracy, they are nevertheless more flexible and adapt more quickly to changes in the world economy than many emerging countries. They generally benefit from greater stability in public finances, and generally have a better quality education.
The countries that are at the top of this year’s ranking are the best prepared to face the current economic crisis according to Stéphane Garelli, director of the IMD competitive world center”. he adds that in these countries the economic communities are not afraid of change and the governments should be able to implement reforms very quickly.
This does not mean that these will remain first forever. Garelli warns that rampant complacency, “particularly in R&D investment and maintaining education standards” could undermine the current dominance of the Western world. Increased government intervention in the financial sector could also hurt entrepreneurship. And emerging economies’ cash reserves earmarked for infrastructure improvements will soon allow China and India to close the gap on this score.
For those predicting the declining influence of North America and Western Europe, the IMD Competitiveness Reports from the past few years provide some interesting insights.
The Scandinavian cover
Take Sweden. This Scandinavian country went from 14th place in 2005 to 6th this year. What gives this small country of 9.2 million people an advantage over India with its 1.1 billion people?
According to Garelli, the generalization of Swedish social programs, combined with an excellent education system and an entrepreneurial dynamic, justifies the ranking of Sweden among the top 10 in the world, on more than half of the categories of competitiveness of the IMD. By contrast, India, which is ranked No. 30 this year, only gets high marks for the size of its domestic economy and low labor costs.
The competitiveness divide is not limited to countries located on different continents. Many developed Asian economies such as Singapore or Hong Kong continue to outperform countries such as Thailand or Malaysia. Their success lies in the existence of a large class of wealthy entrepreneurs supported by governments despite the current economic gloom. Hong Kong, for example, tops the IMD ranking in international trade and investment, while Singapore is the world leader in smart business regulation.
Asked whether the United States will continue to hold the top spot in future rankings, Garelli replies, “Yes, despite rising unemployment and government intervention in financial markets. Never underestimate America’s ability to reinvent itself.
