Michael B. Sauter, Thomas C. Frohlich, Sam Stebbins and Evan Comen
The global economy is projected to grow by 3.3% this year, considerably slower than in 2014. According to the International Monetary Fund (IMF), growth among advanced economies such as the United States appears to be picking up slightly, while growth in emerging markets and developing economies is slowing.
The World Economic Forum (WEF) Global Competitiveness Report defines competitiveness as the “set of institutions, policies, and factors that determine the level of productivity of a country.” For the WEF, healthy economies promote long-term sustainable growth and provide a high standard of living for residents. In order to assess competitiveness, the WEF classified the 140 nations it surveyed according to three stages of development. The nations surveyed account for 98.3% of the world’s economic output.
Since national economic growth tends to follow common stages of development, the WEF weighted its index to avoid penalizing countries in the earliest stages of growth. In other words, maintaining competitiveness at one stage of development is very different than being competitive in another.
In the earliest stage, economies are factor driven, which means sustainable growth depends primarily on relatively unskilled labor and natural resources. When productivity and wages grow under this model, a country advances into an efficiency-driven economy in which higher education and product quality become more important for economic health. In the most advanced economies, known as innovation-driven nations, technology and sophisticated production techniques are necessary to maintain competitiveness.
The United States is often unfavorably compared to other developed nations. Critics cite the country’s high incarceration rates, bloated health and education costs, and lower life expectancy. Despite these issues, the United States is one of the most competitive global economies in the world, according to the WEF. While the country is weighed down by factors such as health and the quality of K-12 education, competitiveness in the U.S. is bolstered by the high share of college-educated residents, a high capacity for innovation, availability and adoption of the latest technologies, and by overall economic prosperity. The United States has the second highest GDP per capita in the world.
While GDP per capita is commonly used as a measure of economic success, it frequently fails to capture the true health of an economy. In an email to 24/7 Wall St., experts at the WEF explained that GDP per capita “does not reflect issues that relate to the long-term sustainability of that GDP level. High GDP per capita might be due to conditions that cannot be necessarily maintained in the long-term such as availability of natural resources and high public spending.”
Still, a country’s competitiveness is highly related to its economic output. All of the 10 most competitive countries had among the 25 highest GDPs per capita in 2014. Four of the 10 — Hong Kong, Singapore, Switzerland, and the United States — had among the 10 highest GDP per capita, at no less than $50,000. The opposite tends to be true among the least competitive countries.
While the WEF did not take geographical proximity into account in its index, geographic conditions nonetheless seem to influence economic development. Several of the most prosperous economies are clustered in northern Europe, while the least competitive nations are far more likely to be in Africa or South America. As experts at the WEF noted, “Economies in the same region often share common history, culture, [and] access to common markets.” The advantages — or disadvantages — of the presence of natural resources or climate also play a major role in the development of national economies.
To identify the most and least competitive nations in the world, 24/7 Wall St. reviewed The Global Competitiveness Report 2015-2016 from the WEF. The report uses an index consisting of 114 measures organized into 12 pillars to assess the economic prosperity, or competitiveness, of 140 countries. All GDP figures, including debt as a percentage of GDP, were provided to the WEF by the International Monetary Fund (IMF). All data, unless otherwise specified, are from the most recent available year.
> 2014 GDP: $2.55 trillion > Life expectancy: 81.0 years > Gov’t debt as % of GDP: 89.5% > Patent applications per 1 million people: 89.9
The United Kingdom is one of largest economies in the world and is a leader in many measures of innovation and efficiency. Home to Oxford University, University College of London, Cambridge, and other major institutions, the U.K. has the second best research universities in the world, second only to Switzerland. The U.K has potential to bring in outside investors, with the fourth best investor protection of any country. It also had the fourth best capacity to attract talented workers. Maintaining strong institutions and quality infrastructure often requires a great deal of investment, and like many other competitive nations, the UK has the means to borrow large sums of money. The country’s debt was equal to nearly 90% of its GDP, one of the highest general government debt levels worldwide.
> 2014 GDP: $448.25 billion > Life expectancy: 81.7 years > Gov’t debt as % of GDP: 41.5% > Patent applications per 1 million people: 312.5
Sweden ranks as the ninth most competitive economy in the world. Being technologically advanced is important to a nation’s competitiveness, and the Scandinavian nation is one of the most advanced in the world. For example, 92.5% of the country’s residents use the Internet, seventh-most in the world. The nation’s citizens and corporations were among the most likely to harness new technologies to improve efficiency. The country for availability of the newest technologies as well. Sweden is also one of the most innovative nations in the world. The country files an average of 312.5 patents per million residents, the third-most in the world.
> 2014 GDP: $221.04 billion > Life expectancy: 80.8 years > Gov’t debt as % of GDP: 59.6% > Patent applications per 1 million people: 294.0
Finland slid from fourth to eighth place in the GCI this year, partially due to declining economic conditions. Last year, Finland’s economy contracted for the third year in a row, largely due to a decrease in exports, particularly technology and paper. Despite the decline in trade, Finland remains one of the world’s most competitive nations with a strong foundation for sustainable long term growth. Finland’s institutions, for example, are the most transparent and protective in the world, and is superlative for its property rights, lack of organized crime, and ethical business practices. A prominent education system also accounts for Finland being one the most competitive world economies. Finland has provided the highest quality primary education in the world. In addition, Finnish students routinely perform among the best in the world on international standardized tests such as the Programme for International Student Assessment (PISA).
> 2014 GDP: $397.51 billion > Life expectancy: 83.8 years > Gov’t debt as % of GDP: 6.9% > Patent applications per 1 million people: n/a
While Hong Kong is a territory of China, it is able to operate as a semi-independent nation. In fact, the territory is one of the most prosperous financial capitals in the world, and serves as a portal to international commerce and a hub of technological development. The nation’s current leader, CY Leung, is called the chief executive. So it is not surprising that Hong Kong rates as highly favorable to business. Hong Kong has one of the most favorable financial markets in the world, trailing only New Zealand in market efficiency. Hong Kong also has the best infrastructure in the world. For example, its transportation system was rated among the best for ease of access and physical condition. It also has the best electricity and telephone networks in the world. No country has a higher rate of mobile telephone subscriptions, for example.
> 2014 GDP: $4.75 trillion > Life expectancy: 83.3 years > Gov’t debt as % of GDP: 246.4% > Patent applications per 1 million people: 334.9
Japan is home to one of the healthiest workforces in the world. Life expectancy for Japan’s 127.1 million residents exceeds 83 years, higher than in any of the other 10 most competitive nations. After Switzerland, Japan ranks second globally in corporate spending on research and development. Japanese businesses are not the only entities investing in development. Most competitive nations have accumulated significant debt investing in public institutions and infrastructure. Partially due to the nation’s recent policy of government stimulus spending and quantitative easing to spur inflation, no country has accumulated more debt than Japan relative to its GDP. Japan’s debt is equivalent to 246.4% of its $4.75 trillion GDP. Heavy corporate and government investment may have bolstered national innovation. Japan applies for more patents per capita than any other nation, with an average of 334.9 patent applications per 1 million residents. While Japan is a global leader by many measures, the Pacific island nation lags behind 82 other nations in female workforce participation.
> 2014 GDP: $798.59 billion > Life expectancy: 81.1 years > Gov’t debt as % of GDP: 68.3% > Patent applications per 1 million people: 208.9
The Netherlands moved up from being the eighth most competitive nation last year to rank as the fifth most competitive nation in the world this year. Though the country’s GDP is still below 2008 levels, the competitiveness of the Dutch economy was bolstered by strong performance and improvements in education and infrastructure — each ranking as the third best in the world. The Netherlands, which borders the North Sea, has the highest score in quality port infrastructure in the world. Like all of the most competitive countries, the Netherlands is far from perfect. According to the WEF, in the most business friendly countries, wage levels are more often determined by individual companies. In the Netherlands, however, wages are often set by a centralized bargaining process, which can limit the flexibility of corporations in determining wages of their workers. The Netherlands ranks especially poorly for flexibility in wage determination, and restrictive labor regulations present the biggest obstacle for doing business in the Netherlands and is said to have hindered progress.
> 2014 GDP: $3.72 trillion > Life expectancy: 81.0 years > Gov’t debt as % of GDP: 73.1% > Patent applications per 1 million people: 225.2
Germany is the fourth most competitive country in the world. Though the country’s score remained unchanged from the previous year, Germany climbed up one spot on the WEF’s annual report. Like most competitive countries, Germany borrows large sums of money to invest in institutions and infrastructure. Though the current levels of debt mark a reduction from the previous year, government debt in the country stands at 73% of GDP. Business is Germany’s greatest asset. The country ranks third in the world for its sophisticated business practices, and for using the latest technologies in production processes. As in many of the most competitive nations, government presented the biggest hindrance to German competitiveness. When asked to name the biggest impediments to doing business, Germans were most likely to cite inefficient government bureaucracy and complex tax regulations.
> 2014 GDP: $17.42 trillion > Life expectancy: 78.8 years > Gov’t debt as % of GDP: 104.8% > Patent applications per 1 million people: 160.3
The United States, one of 38 innovation-driven economies worldwide, remains in third place this year. The United States has the second largest market size of any country, just behind China. The U.S. labor market is also among the most flexible in the world, which means it can withstand wage fluctuations and workers can easily move from one economic activity to another. The United States also performs well in measures of innovation and business sophistication. American industries have the second best collaboration with universities in the world. While the American university system is part of one of the most innovative higher education institutions, the country trails other developed nations in other measures of education. The U.S. primary school system, which encompasses kindergarten through middle school, is rated worse than 28 other nations.
> 2014 GDP: $452.69 billion > Life expectancy: 82.3 years > Gov’t debt as % of GDP: 98.8% > Patent applications per 1 million people: 127.0
The Republic of Singapore is a small city state off the southern coast of Malaysia, separated from Indonesia to the south by the Singapore Strait. Just 255 square miles in area and home to just 5.3 million people, the very densely populated Singapore also has one of the most advanced economies in the world. Singapore trails only one other country in competitiveness for the fifth consecutive year. The country’s higher education and training system — an essential component of a healthy labor market and competitiveness more generally — overtook Finland this year as the best in the world. When asked to identify the most problematic factors for doing business in Singapore, country residents identify restrictive labor regulation as the greatest obstacle.
> 2014 GDP: $472.83 billion > Life expectancy: 82.7 years > Gov’t debt as % of GDP: 46.1% > Patent applications per 1 million people: 320.8
For the seventh consecutive year, Switzerland was rated the world’s most competitive economy. Switzerland — like Singapore and the United States that round up the top three — performs very well in most competitiveness measures. The country’s infrastructure is rated better than that of any other country. As in Northern Europe and the United States, however, the quality of Switzerland’s infrastructure declined over the past year. The country leads the world in several other measures as well, particularly innovation, which is assessed based on the presence of major research institutions and patent applications, among other factors. Switzerland trails only Britain and the United States in the average rating of top tier universities, and there are 320.8 patent applications per 1 million Swiss residents, far higher than in the vast majority of countries.