The Global Guru: “U.S.A.! U.S.A!” — We’re #7!?

After the United States regained its title as the top medal-winning country in the London Olympics of 2012, many Americans felt justifiable pride. Throw in the fact that, according to data compiled by www.collegesports360.com, U.S. and foreign athletes associated with U.S. colleges and universities won 281 medals in London, 135 of them gold. The United States also could boast that its colleges produced more gold, silver and bronze medals than the top three countries — the United States, China and Great Britain — won combined.

Sadly, the U.S. economy over the past few years has been unable to chalk up similar successes. The global financial crisis, the housing crash of 2008 and the relentless onslaught of trillion-dollar government deficits have all combined to tip the U.S. economy from its top perch as the world’s #1 most competitive economy in four short and painful years.

Last week, the World Economic Forum — the organization that sponsors the annual conference of the global uber elite at Davos — issued its annual Global Competitiveness Report.

Every September, the forum ranks the world’s 144 economies, based on 12 pillars — institutions, infrastructure, macroeconomics, health and primary education, goods and market efficiency, higher education and training, labor market efficiency, technological readiness, financial market development, market size, business sophistication and innovation.

And the news for the United States is not good.

Once off the Olympic playing fields, Uncle Sam is on the skids.

“U.S.A.!” — #7 and Falling

When the World Economic Forum issued its rankings in September 2008 — just days before the bankruptcy of Lehman Brothers — the United States was still top dog, ranked as both the biggest and most competitive economy in the world.

Four years later, in 2012, the United States had tumbled down the rankings, falling two more positions from 2011’s #5 ranking, and landing in seventh place. The report still praised the United States for its productivity, highly sophisticated and innovative companies, excellent universities and flexible labor market. But it also cited “a number of escalating weaknesses,” such as wasteful government spending and a general lack of macroeconomic stability.

With the top of the rankings dominated by small countries that are the very images of efficiency, “bigger” is no longer “better” in the forum’s eyes. In the most recent rankings, Switzerland held onto the top spot for the fourth consecutive year. Singapore kept its position in second place, and Finland rose to third place, bumping Sweden down to fourth. The Netherlands continued to progress upward in the rankings, moving up to fifth place this year.

Despite it being at the epicenter of European economic crisis, Germany, Europe’s economic powerhouse, maintained its sixth position, followed by the United States and the United Kingdom. Hong Kong rose to ninth position and Japan fell to 10th.

Shifting in the Ranks

Let’s compare today’s results with the rankings in 2001. Although the players are largely the same, Singapore moved up from #10 to #2. Switzerland rose from #5 to #1. Finland dropped from #1 to #3. The United States dropped from #2 in 2001 to #7 in 2012. Northern Europe and Switzerland were consistently good performers, while the United States continued its downward slide in the rankings over the past 10 years.

Three Major Trends

In looking farther down the rankings, three major trends became apparent over the past 10 years — one obvious, two perhaps surprising.

1. Asia Rising…

The trends in the competitiveness rankings confirmed the rise of Asia over the past decade. There is no better example of this ascent than the highly touted “Asian Tigers.” Starting from virtually nothing 50 years ago, these economies have taken rightful places as some of the world’s most competitive economies. Singapore rose from #10 to #2. Rival city-state Hong Kong went from #18 to #9. Taiwan rose from #23 to #13. South Korea also climbed to go from #28 to #19. Asia’s continuing strength further showed itself in Japan’s surprising rise from #15 to #10. The “Fifth Asian Tiger,” Malaysia, also rose to go from #37 to #25.
2. Europe: A Tale of Two economies…

Europe’s debt crisis and economic decline have dominated global financial headlines. American politicians warn us that we don’t want to “become like Europe.” Yet, when American tourists set foot in Germany or Sweden, it is hard to find obvious signs of economic crisis or stagnation.
That’s because it’s important to make a distinction between top-performing Northern Europe and Scandinavia countries and economic laggards in Southern and Eastern Europe.
Northern Europe, Germany and Switzerland make up six of the top 10 in the global rankings. And that has been consistent throughout the financial crisis.
At the same time, the World Economic Forum rankings confirm the continued relative decline in the competitiveness of Southern and Eastern Europe.
The biggest falls were recorded in Europe’s PIGS (Portugal, Italy, Greece and Spain). Portugal dropped from #30 to #49. Italy plummeted from #24 to #42. Spain was close behind, dropping from #23 to #36. Greece plunged an eye-popping 56 places from #43 to #99.

Europe is, indeed, a tale of two economies.
3. China and the BRICs Overrated…

The most surprising trend is among the highly touted BRIC economies. Among the BRICs, all but Brazil became less competitive in this year’s rankings. Surprisingly, this reflects a decade long trend — except for the case of China. While China rose from #47 to #29 since 2001, India fell from #36 to #59. Current BRIC darling Brazil plummeted from #30 to #48 — despite this year’s slight rise. Russia fell slightly from a bad #58 to a worse #67.

For all of the talk of the BRIC’s inevitable rise, there is a remarkable disconnect between the current global competitiveness of the BRIC economies and the promise of the future.

The bottom line?

The United States remains the world’s largest economy — larger than the next three economies — China, Japan and Germany, combined. Up until last year, it was also more competitive than each of these rivals.

That changed this year with the United States having been overtaken by Germany for the first time.

By this measure, and its drop from #1 in 2008 to #7 in 2012, the accelerating downward trend in the competitiveness of the U.S. economy over the past four years is painfully obvious.

At its current rate of decline, the United States will drop out of the top 10 rankings in two years.

And that’s not the kind of “change you can — or want to — believe in.”
Sincerely,

Nicholas A. Vardy
Editor, The Global Guru