Where Does the United States Rank Among the World’s Most Competitive Economies?

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

The U.S. economy has taken a real knock over the past few years. The financial crisis and housing crash of 2008; the relentless onslaught of trillion-dollar government deficits; and the inevitable rise of China have all combined to tip the U.S. economy from its top perch as the world’s #1 most competitive economy.

The annual Global Competitiveness Report issued by The World Economic Forum — the organization that sponsors the annual conference of the global uber elite at Davos each year — has done its share to contribute to that perception.

Every September, the Forum ranks the world’s 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 based on these factors, the U.S. economy is on the skids.

U.S.A. — Fifth and Falling

When the World Economic Forum issued its rankings in September 2008, the United States was still top dog, ranked as both the biggest and most competitive economy in the world.

By 2011-2012, the United States had tumbled down the rankings, landing at fifth 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 rising government debt, and declining public faith in political leaders and corporate ethics.

Indeed, it seems that “bigger” is no longer “better” in the forum’s eyes, as the top of the rankings are dominated by small countries that are the very images of efficiency. In the most recent rankings, Switzerland held onto the top spot for the third consecutive year. Singapore moved up to second place, bumping Sweden down to third. Finland moved up to fourth place, rising from seventh last year. Germany, Europe’s economic powerhouse, was sixth, followed by the Netherlands and Denmark. Japan came in ninth and Britain was 10th.

Shifting in the Ranks

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For all of the handwringing about tectonic shifts among the competitive ranks of the world’s leading economies, when I compared rankings of the World Economic Forum’s 2011 data with that of a decade ago in 2001, not much had changed. Singapore moved up from #10 to #2. The United States dropped from #2 in 2001 to #5 in 2011. Switzerland rose from #5 to #1. Finland dropped from #1 to #4. There had been some shifting in the ranks, but the players were still basically the same.

Three Major Trends

In looking farther down the rankings, three major trends became apparent — two obvious, one 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 #1. Rival city-state Hong Kong went from #18 to #11. Taiwan rose from #23 to #13. South Korea also rose from #28 to #24.

Asia’s continuing strength also showed itself in Japan’s surprising rise from #15 to #9. Current investor favorite Indonesia outranked all but one of the BRICs (Brazil, Russia, India and China) — rising from #55 to #46. The “Fifth Asian Tiger,” Malaysia, also rose from #37 to #26.

2. Europe Dying…

Europe’s debt crisis and economic decline have dominated global financial headlines like never before. Certainly, the rankings confirm 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. After 13 years of a Labor government, the United Kingdom fell from #7 to #10. France dropped from #12 to #18. The biggest falls were recorded in Europe’s PIGS (Portugal, Italy, Greece and Spain). Portugal dropped from #30 to #45. Italy plummeted from #24 to #43. Spain was close behind, dropping from #23 to #36. Greece plunged an eye-popping 47 places from #43 to #90.

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3. China and the BRICs Overrated…

The most surprising trend is among the highly touted BRIC economies. As a group, the BRIC economies, except for China, have actually become less competitive in the rankings. While China rose from #47 to #26, India fell from #36 to #56. Current BRIC darling Brazil plummeted from #30 to #53. Russia fell slightly from #58 to #66. For all of the ink that is spilled about their inevitable rise, there is a remarkable disconnect between the competitiveness of the BRIC economies and their perceived status.

For all of its current challenges, the United States remains the world’s largest economy — larger than the next three economies — China, Japan and Germany, combined. The United States also remains more competitive than each of these economies — although just barely so in the cases of Germany and Japan.

That said, the downward trend of the past four years is evident. Even the United States cannot rest on its historical laurels.

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