Who's Tops in the Global Game?
By Mark Scott
Which country is best placed to ride out the global recession? That question is at the heart of this year's World Competitiveness Yearbook, an annual report published by IMD business school in Lausanne, Switzerland. Researchers ranked 57 of the world's leading economies based on four categories of competitiveness: economy, government efficiency, business efficiency, and infrastructure. And for the 16th consecutive year, the U.S. came out on top, despite the financial crisis and deep economic downturn there. European countries held on to half of the top 20 spots, while emerging economies such as China and Qatar continued to gain ground on their Western rivals.
To be successful on the global stage, particularly as the world struggles with its worst economic situation in decades, countries have to combine open markets and investment incentives with a flexible labor market and a well-educated workforce.
Note: Figures for per capita GDP and real GDP growth are for 2008.
Competitiveness: The U.S. and Europe Are Tops
Developed countries still enjoy huge advantages in economic competitiveness, based on their advanced infrastructure, education, and laws
The global financial crisis seemingly shifted economic power away from hard-hit Western countries such as the U.S. and Britain to cash-rich emerging economies such as India and China. But while the West is limping along today, economic power may shift back when growth resumes. Why? Among the nations of the world, developed countries still enjoy considerable advantages in fundamental economic competitiveness—whether based on the quality of their infrastructure and educational systems or the sophistication of their business laws and bureaucracy.
That's the conclusion of the 2009 World Competitiveness Yearbook, an annual report published by IMD business school in Lausanne, Switzerland. Based on a detailed analysis of economic output, government and business efficiency, skills, and infrastructure, the researchers ranked 57 of the world's economies to determine which are best placed to succeed in the 21st century economic race.
Topping the list for the 16th consecutive year, unchanged from its No. 1 ranking in the 2008 report, was the U.S.—despite a tough economic situation and rising unemployment. With its world-class higher-education system, enormous and diverse economy, and powerful infrastructure, the U.S. continues to be the world's biggest economic engine and top destination for foreign direct investment.
The U.S. shared top billing with plenty of other developed and competitive countries whose economies also are shaky these days. Among the top 20 on the list, only oil-rich Qatar, ranked 14, and China, ranked 20, can be considered emerging economies.
Flexible and Adaptable
What makes countries like Denmark and Japan more competitive than the likes of Slovakia and Brazil? Some of the credit goes to efficient domestic policies, ranging from the level of taxation to the time required to start a business. Though many top-ranked countries have labor market protections, relatively high taxes, and sizable bureaucracies, they are nevertheless more flexible and adaptable to the rapidly evolving global economy than many emerging countries. They also usually benefit from less corruption, more stable public finances, and generally better and more widely available education.
"Countries at the top of this year's rankings are better prepared to adapt to the current turbulent [economic] times," says Stéphane Garelli, director of IMD's World Competitiveness Center. "The business communities don't fear change, and governments should be able to enact reforms quickly."
That's not to say today's leading countries will stay ahead forever. Garelli warns that creeping complacency—particularly in sustaining R&D investment and maintaining education standards—could undermine the Western world's current dominance. Government intervention in the financial sector also could hurt entrepreneurship. And emerging economies' cash reserves targeted at improving domestic infrastructure may soon allow China and India to close the gap on that score.
Yet for naysayers who forecast the declining business influence of North America and Western Europe, the IMD competitiveness reports during recent years provide for interesting reading.
Nordic Edge
Take Sweden. The Scandinavian country jumped from No. 14 in 2005 to No. 6 in this year's rankings. What gives this small state, with a population of just 9.2 million, an edge over India and its population of 1.1 billion? According to IMD's Garelli, Sweden's widespread social programs, combined with a strong education system and vibrant entrepreneurial scene, mean Sweden ranks among the top 10 countries in the world on more than half of IMD's competitiveness categories. In contrast, India, which is ranked No. 30 this year, scores high marks only for the size of its domestic economy and its low labor costs.
The competitiveness divide isn't limited to countries in different continents. Many of Asia's more developed economies, such as Hong Kong and Singapore, continue to outpace the likes of Malaysia and Thailand. Central to their success is a large domestic pool of cash-rich entrepreneurs supported by governments that remain business-friendly despite the souring of the global economy. Hong Kong, for instance, still tops IMD's rankings for international trade and investment, while Singapore remains a world-beater in smart business regulation.
Can the U.S. hold on again to its No. 1 ranking? IMD's Garelli reckons so for the foreseeable future, despite rising unemployment and government intervention in financial markets. "You can never underestimate the U.S. capacity to reinvent itself," he says.
No. 1 U.S.
Change Since 2008 Ranking: unchanged
Real Per Capita GDP: $45,017
Real GDP Growth: 1.1%
World Competitiveness Rankings
Economy: 1
Government Efficiency: 20
Business Efficiency: 16
Infrastructure: 1
Despite the struggling financial sector, the U.S. still tops the list for direct investment, both from domestic and international investors. The country has been viewed as a safe haven during the credit crunch, but the government's growing deficit and regulatory burden on business may soon hinder U.S. competitiveness.
No. 2 Hong Kong
Change Since 2008 Ranking: +1
Real Per Capita GDP: $43,040
Real GDP Growth: 2.5%
World Competitiveness Rankings
Economy: 3
Government Efficiency: 2
Business Efficiency: 1
Infrastructure: 19
Hong Kong's role as the financial center for the Asia Pacific region gives it a major advantage over rivals. So far, unemployment hasn't hit as hard as in other places, though rising government spending and declining availability of credit could put strains on both the public and private sectors.
No. 3 Singapore
Change Since 2008 Ranking: -1
Real Per Capita GDP: $47,646
Real GDP Growth: 1.1%
World Competitiveness Rankings
Economy: 8
Government Efficiency: 1
Business Efficiency: 4
Infrastructure: 8
Singapore fell one spot in the 2009 rankings, losing ground to local rival Hong Kong. The global recession has stalled direct investment, and falling revenues from struggling financial-services companies have hurt the country's current account balance. To improve competitiveness, the government is investing intensively to improve local education standards.
No. 4 Switzerland
Change Since 2008 Ranking: unchanged
Real Per Capita GDP: $41,068
Real GDP Growth: 1.6%
World Competitiveness Rankings
Economy: 13
Government Efficiency: 3
Business Efficiency: 3
Infrastructure: 4
The U.S. tax evasion scandal at Swiss financial giant UBS and tens of billions in writedowns may have knocked back the country's banking system, but Switzerland still ranks highly for financial services. Government regulation and the Swiss business community's efficiency also remain world-beaters. That has helped to offset the rising cost of exports due to the Swiss franc's strength against other currencies.
No. 5 Denmark
Change Since 2008 Ranking: +1
Real Per Capita GDP: $35,677
Real GDP Growth: -1.0%
World Competitiveness Rankings
Economy: 23
Government Efficiency: 4
Business Efficiency: 2
Infrastructure: 6
An educated workforce, streamlined government regulation, and a highly competent local business community put Denmark near the top of any investor's wish list. The country's economy has taken a battering recently—partly due to the weakness of the Danish kroner against more stable currencies—but analysts expect the small Scandinavian country to rebound far more quickly than its larger European neighbors.
No. 6 Sweden
Change Since 2008 Ranking: +3
Real Per Capita GDP: $36,180
Real GDP Growth: -0.2%
World Competitiveness Rankings
Economy: 20
Government Efficiency: 10
Business Efficiency: 6
Infrastructure: 2
From its No. 14 showing in 2005, Sweden has steadily climbed the competitive league tables to reach the No. 6 spot, up three places since last year. Central to the country's success are its wide-ranging social programs: Education levels remain high, the standard of living is among the best in the world, and Stockholm continues to be a global hub for technology R&D. Not everything has gone to plan, though. The country's banks have large exposure to the faltering Eastern European economies.
No. 7 Australia
Change Since 2008 Ranking: unchanged
Real Per Capita GDP: $34,935
Real GDP Growth: 2.0%
World Competitiveness Rankings
Economy: 15
Government Efficiency: 8
Business Efficiency: 7
Infrastructure: 12
Located near the rising economic giants of the Asia Pacific region, Australia combines a bustling financial-services sector, a business-friendly regulatory environment, and easy access to some of the world's most vibrant developing economies. But growing government debt, combined with a recent drop in foreign direct investment, is starting to hamper the competitiveness of Australia's business community.
No. 8 Canada
Change Since 2008 Ranking: unchanged
Real Per Capita GDP: $35,669
Real GDP Growth: 0.5%
World Competitiveness Rankings
Economy: 16
Government Efficiency: 9
Business Efficiency: 9
Infrastructure: 7
Unlike the U.S. financial-services sector, Canadian banks have weathered the economic downturn relatively unscathed. The country's proximity to the world's largest economy and its large energy reserves have boosted interest from foreign investors. Economists do worry, however, that local companies are cutting back R&D, particularly in the tech sector.
No. 9 Finland
Change Since 2008 Ranking: +6
Real Per Capita GDP: $34,750
Real GDP Growth: 0.9%
World Competitiveness Rankings
Economy: 40
Government Efficiency: 6
Business Efficiency: 5
Infrastructure: 3
For a country sporting a population of only 5.3 million, Finland punches well above its economic weight, rising a remarkable six places in this year's ranking. Home to cell-phone giant Nokia, as well as a thriving technology scene, the northern European country benefits from one of the best education systems in the world. Local authorities also have bent over backward to keep regulation to a minimum to entice foreign investment.
No. 10 Netherlands
Change Since 2008 Ranking: unchanged
Real Per Capita GDP: $39,215
Real GDP Growth: 2.0%
World Competitiveness Rankings
Economy: 7
Government Efficiency: 14
Business Efficiency: 8
Infrastructure: 11
The financial crisis may have hurt Dutch financial giants such as local banks ABN Amro and Fortis, but the Netherlands still boasts one of the most vibrant entrepreneurial sectors in Europe. The country also has larger economic clout as one of the founding members of the euro zone, the 16-country-strong club of states whose currency is the euro. The Netherlands similarly can rely on a multilingual, highly educated workforce to bolster domestic economic growth.
No. 11 Norway
Change Since 2008 Ranking: unchanged
Real Per Capita GDP: $53,481
Real GDP Growth: 2.0%
World Competitiveness Rankings
Economy: 19
Government Efficiency: 11
Business Efficiency: 10
Infrastructure: 10
With some of the world's largest energy reserves, Norway has built up a significant capital surplus to shelter the local business community from the worst of the global downturn. The country's deep pockets also mean taxes are kept to a minimum. And the educational system is well-financed and focused on turning out a high-qualified workforce, particularly engineering graduates.
No. 12 Luxembourg
Change Since 2008 Ranking: -7
Real Per Capita GDP: $79,379
Real GDP Growth: 0.7%
World Competitiveness Rankings
Economy: 4
Government Efficiency: 16
Business Efficiency: 15
Infrastructure: 17
Luxembourg's heavy reliance on financial services led the country to fall seven places in this year's rankings, to No. 12. The small European country still turns out the highest per-capita GDP of any country in the world, a remarkable $79,379 in 2008. But now, increasing government oversight on the banking sector—particularly in relation to tax avoidance—could hurt Luxembourg, which has positioned itself as a financial center for high-net-worth individuals.
No. 13 Germany
Change Since 2008 Ranking: +3
Real Per Capita GDP: $34,907
Real GDP Growth: 1.3%
World Competitiveness Rankings
Economy: 6
Government Efficiency: 27
Business Efficiency: 19
Infrastructure: 9
Europe's largest economy remains the Continent's industrial and export powerhouse. And its banking system, though somewhat tarnished by the financial crisis, has fared better than that of either the U.S. or Britain. Looking ahead, rigid government regulation and rising unemployment stand as major challenges as Germany tries to increase its global competitiveness, which rose three places this year.
No. 14 Qatar
Change Since 2008 Ranking: N/A, new to list
Real Per Capita GDP: $54,779
Real GDP Growth: 16.8%
World Competitiveness Rankings
Economy: 5
Government Efficiency: 5
Business Efficiency: 24
Infrastructure: 30
This year is the first time IMD has ranked Qatar, and the energy-rich country jumped right to No. 14 in the 2009 list. Fueled by revenue from oil and natural gas deposits, Qatar recorded a 16.8% annual jump in 2008 GDP, the highest of any country in the rankings. To sustain economic growth, local officials are spending billions to foster the local manufacturing and financial sectors, as well as investing in companies overseas.
No. 15 New Zealand
Change Since 2008 Ranking: +3
Real Per Capita GDP: $26,985
Real GDP Growth: 0.2%
World Competitiveness Rankings
Economy: 30
Government Efficiency: 7
Business Efficiency: 21
Infrastructure: 21
Though far smaller than its neighbor Australia, New Zealand has gained a global reputation for business-friendly regulation, including low tariff barriers and straightforward rules to start a company. The country also remains one of the most efficient agricultural producers in the world, but contracting credit conditions have left many small farmers struggling to make ends meet.
No. 16 Austria
Change Since 2008 Ranking: -2
Real Per Capita GDP: $37,913
Real GDP Growth: 1.8%
World Competitiveness Rankings
Economy: 18
Government Efficiency: 24
Business Efficiency: 12
Infrastructure: 13
Austria's success is based on a highly efficient business community, strong environmental and business regulation, and an emphasis on education. The country's banks have become heavily dependent on Central and Eastern Europe—one reason it slipped two places in the ranking this year—but Austria's diversified economy, including a fast-growing energy sector, has helped to deflect the worst of the economic downturn.
No. 17 Japan
Change Since 2008 Ranking: +5
Real Per Capita GDP: $33,403
Real GDP Growth: -0.7%
World Competitiveness Rankings
Economy: 24
Government Efficiency: 40
Business Efficiency: 18
Infrastructure: 5
Japan remains home to some of the world's most well-known companies. Toyota, Sony, and Honda are only the most famous on a long list of top-tier brands that help make Japan one of the world's leading R&D centers. Domestic banks haven't been so lucky: Many are still recovering from the Asian financial crisis a decade ago. But after years of sluggishness, Japan is becoming more globally competitive again, jumping five places in this year's ranking.
No. 18 Malaysia
Change Since 2008 Ranking: +1
Real Per Capita GDP: $13,538
Real GDP Growth: 4.6%
World Competitiveness Rankings
Economy: 9
Government Efficiency: 19
Business Efficiency: 13
Infrastructure: 26
Over the past five years, Malaysia has steadily increased its global competitiveness. The secret to its success? Keeping overhead to a minimum. The Asian country ranks in the top 10 for both labor market efficiency and cost effectiveness for doing business. That has allowed Malaysia to overcome relatively lower levels of employee education and below-average basic infrastructure
No. 19 Ireland
Change Since 2008 Ranking: -7
Real Per Capita GDP: $42,993
Real GDP Growth: -2.4%
World Competitiveness Rankings
Economy: 37
Government Efficiency: 12
Business Efficiency: 17
Infrastructure: 22
Pity the formerly high-flying Irish: The global downturn and bursting of a domestic real estate bubble has declawed the Celtic Tiger and caused Ireland's competitiveness ranking to plunge seven places. Government spending has skyrocketed to fill the gap left by struggling banks, but the quality of business regulation, such as corporate taxation and investment incentives, still remains at the top of global rankings.
No. 20 China
Change Since 2008 Ranking: -3
Real Per Capita GDP: $5,825
Real GDP Growth: 9.0%
World Competitiveness Rankings
Economy: 2
Government Efficiency: 15
Business Efficiency: 37
Infrastructure: 32
After more than a decade of export-led growth, China's focus has shifted toward domestic consumption. The government's huge cash reserves, strict control of business regulation, and $586 billion stimulus package are expected to keep annual GDP growth around the 8% level despite the steep decline in overseas demand for Chinese goods. China slipped three places this year over concerns about pollution, corruption, and the rising cost of capital.
No. 21 United Kingdom
Change Since 2008 Ranking: unchanged
Real Per Capita GDP: $35,347
Real GDP Growth: 0.7%
World Competitiveness Rankings
Economy: 11
Government Efficiency: 30
Business Efficiency: 28
Infrastructure: 16
After the U.S., Britain has been one of the countries most affected by the fallout from the economic crisis. London's status as a financial hub has come under threat, while government spending will remain high until at least 2015 as local officials try to jump-start the domestic economy. Yet despite these setbacks, the country's world-leading R&D centers and business-friendly regulation still make Britain a leading destination for foreign investment, and its competitiveness ranking is unchanged from 2008.
No. 22 Belgium
Change Since 2008 Ranking: +2
Real Per Capita GDP: $35,183
Real GDP Growth: 1.1%
World Competitiveness Rankings
Economy: 10
Government Efficiency: 37
Business Efficiency: 23
Infrastructure: 15
Home to the European Union's headquarters, as well as those of dozens of other international organizations, Belgium draws on a multilingual, well-educated workforce that most countries can only dream of. But recent political problems, especially the inability of national politicians to form governing coalitions that last more than a year, are casting a shadow over Belgium's business-friendly credentials.
No. 23 Taiwan
Change Since 2008 Ranking: -10
Real Per Capita GDP: $30,254
Real GDP Growth: 0.1%
World Competitiveness Rankings
Economy: 27
Government Efficiency: 18
Business Efficiency: 22
Infrastructure: 23
Over the last five years, Taiwan has slipped 12 spots in the competitive rankings, to No. 23, including a 10-place drop this year. Growing competition from regional rivals, especially mainland China, has hurt the island's relative competitiveness. But don't count Taiwan out: A versatile workforce, combined with state-of-the-art infrastructure, still make it one of Asia Pacific's leading economies.
No. 24 Israel
Change Since 2008 Ranking: -4
Real Per Capita GDP: $26,642
Real GDP Growth: 4.0%
World Competitiveness Rankings
Economy: 38
Government Efficiency: 23
Business Efficiency: 20
Infrastructure: 18
With a thriving entrepreneurial sector, Israel racks up a major share of venture capital investment in the Europe/Mideast/Africa region. Strong links to Silicon Valley and a tech-savvy workforce have ensured Tel Aviv is an R&D hub for many international companies. Recently, global automaker Renault Nissan invested in an Israeli electric car project, one of the world's first nationwide attempts to replace gas-powered cars.
No. 25 Chile
Change Since 2008 Ranking: +1
Real Per Capita GDP: $14,176
Real GDP Growth: 3.2%
World Competitiveness Rankings
Economy: 35
Government Efficiency: 13
Business Efficiency: 14
Infrastructure: 36
Holding the world's largest reserves of copper, the South American country amassed huge pools of capital during the recent commodity bubble. Yet unlike some of its more fiscally irresponsible neighbors, Chile has maintained tight controls over its purse strings. That has allowed local officials to spend significant sums in the last 18 months to counteract the global economic downturn and helped slightly lift Chile's global competitiveness ranking.
No. 26 Thailand
Change Since 2008 Ranking: +1
Real Per Capita GDP: $8,013
Real GDP Growth: 2.6%
World Competitiveness Rankings
Economy: 14
Government Efficiency: 17
Business Efficiency: 25
Infrastructure: 42
Like its neighbor Malaysia, Thailand has improved its global competitiveness by keeping a tight lid on overhead. Labor and business costs are some of the lowest in all the countries surveyed. To compete against larger rivals, Malaysia must now increase its overall productivity levels, which rank near the bottom among the countries in this year's study.
No. 27 South Korea
Change Since 2008 Ranking: +4
Real Per Capita GDP: $25,268
Real GDP Growth: 2.2%
World Competitiveness Rankings
Economy: 45
Government Efficiency: 36
Business Efficiency: 29
Infrastructure: 20
Given its economic success and technical sophistication, it's surprising that Korea isn't higher-ranked in competitiveness. It enjoys one of the highest rates of broadband penetration in the world and has a technology infrastructure superior to regional rivals China and Japan. But while the local business community is highly efficient, a heavy burden of government regulation continues to hamper foreign investment.
No. 28 France
Change Since 2008 Ranking: -3
Real Per Capita GDP: $33,693
Real GDP Growth: 0.7%
World Competitiveness Rankings
Economy: 17
Government Efficiency: 46
Business Efficiency: 42
Infrastructure: 14
France boasts one of the most educated workforces in the world and ranked No. 5 in the survey for foreign direct investment. Yet Europe's third-largest economy fares less well in crucial issues such as labor flexibility and bureaucratic hurdles to start a business. France also faces a worryingly high deficit as officials try to prop up local industrial sectors.
No. 29 Czech Republic
Change Since 2008 Ranking: -1
Real Per Capita GDP: $24,688
Real GDP Growth: 3.2%
World Competitiveness Rankings
Economy: 25
Government Efficiency: 31
Business Efficiency: 36
Infrastructure: 25
The global recession has hit Central and Eastern Europe hard, but the Czech Republic has weathered the storm better than some of its neighbors. A relatively strong manufacturing base closely tied to Western European markets has been a major factor in the Czech Republic's better-than-average economic performance, as have recent government attempts to streamline business regulation.
No. 30 India
Change Since 2008 Ranking: -1
Real Per Capita GDP: $2,874
Real GDP Growth: 7.1%
World Competitiveness Rankings
Economy: 12
Government Efficiency: 35
Business Efficiency: 11
Infrastructure: 57
The economic power of India's 1.1-billion-strong population will only grow in time. So far, the country has benefited from a large, IT-savvy workforce that has led major international companies to start operations from Bangalore to Mumbai. Analysts also hope the recent reelection of Prime Minister Manmohan Singh will provide greater political stability that could encourage needed bureaucratic reform, infrastructure buildout, and additional foreign investment.
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