Is the United States the Global Economy’s Comeback Kid?

The United States is obsessed by rankings. Walk by any magazine rack, and you’ll see that it is the issues with the rankings of colleges, hospitals, football or basketball teams that are the most thumbed through.
Sadly, in the game of global competitiveness, these rankings tell a sad story about the U.S. economy.

The World Economic Forum — the organization that sponsors the annual conference of the global uber elite at Davos — recently 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.

The trend of the past five years for the United States has been less than stellar, with the U.S. economy tumbling from #1 in 2008 to #7 in 2012. The global financial crisis, the housing crash of 2008 and four consecutive years of $1 trillion-plus deficits toppled the U.S. economy from the top spot as the world’s most competitive economy.

But this year’s rankings show some encouraging signs that the U.S. economy has bottomed.

Like an aging former tennis champion, the world’s former #1 economy is on the mend and may turn out to be the global economy’s “comeback kid.”

“U.S.A.!:” Back in the World’s Top 5

When the World Economic Forum issued its rankings in September 2008 — just days before the bankruptcy of Lehman Brothers — the United States was still #1, ranked as both the biggest and most competitive economy in the world.

Four years later, the United States had tumbled down the rankings, landing in seventh place in the 2012 rankings.

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 2013 rankings, Switzerland held onto the top spot for the fifth consecutive year. Singapore kept its position in second place, and Finland stayed at third. Despite it being at the epicenter of European economic crisis, Germany, Europe’s economic powerhouse, rose to fourth, followed by the United States. The Netherlands, Sweden, United Kingdom, Hong Kong and Japan jostled positions somewhat but all remained in the top ten.

You can download the full rankings by clicking here.

Although hardly gushing with praise, the World Economic Forum noted in its report that the U.S. turnaround reflects “a perceived improvement in the country’s financial market as well as greater confidence in its public institutions.”

Shifting in the Ranks Since 2001

Let’s compare 2013’s results with the rankings in 2001, the first year of the rankings.

Much like colleges or sports teams, the top 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, and rose back to #5 by 2013.

Northern Europe and Switzerland have been consistently good performers, while the United States has consistently slid 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 12 years — one obvious, two perhaps surprising.

1. Asia Rising…

The trends in the competitiveness rankings confirm the rise of Asia over the past decade.

There is no better example of this ascent than the highly touted “Asian Tigers.” From a standing start 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 #7. Taiwan rose from #23 to #12. South Korea also climbed to go from #28 to #15. Despite being mired in economic crisis for the past 20 years, Japan has risen from #15 to #9. The “Fifth Asian Tiger,” Malaysia, also rose from #37 to #24. Indonesia jumped to #38, making it the most improved of the G20 economies since 2006.

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 I set foot in Germany or Sweden, I find less obvious signs of economic crisis or stagnation than when I wind myself through all the homeless sleeping in the streets of booming San Francisco.

That’s because there is huge 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.

That said, after steep falls in 2012, it appears that some of Europe’s PIGS (Portugal, Italy, Greece and Spain) have bottomed. Yes, over the past year, Portugal dropped from #49 to #51. Italy dropped from #42 to #49. But Spain was actually rose from #36 to #35. Greece rose from a low #99 in 2012 to #91 this year. It is that kind of turnaround that will make brave investors big money.

As far as global competitiveness goes, Europe is, indeed, a tale of two economies.

3. China and the BRICs Overrated…

The most surprising trend is among the once highly-touted but now out-of-favor economics of the BRICs (Brazil, Russia, India and China). Among the BRICs, all but Russia 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 #60. Former BRIC darling Brazil plummeted from #30 to #56 — falling eight notches just in the past year. Russia rose from lousy #67 in 2011 to a slightly more bearable #64.

For all of the talk of the BRICs’ 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. Until 2011, the United States was also more competitive than each of these rivals. That changed in 2012, when the United States was overtaken by Germany for the first time.

The good news is that the United States’ drop from #1 in 2008 to #7 in 2012, and bounce back to #5 by 2013 shows that after a long period of competitive decline, the U.S. economy may be regaining its mojo.

Next year’s World Economic Forum rankings will reveal whether it can keep it up.

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