The US has surrendered its status as the world’s most competitive economy after being overtaken by Hong Kong and Switzerland, according to the International Institute for Management Development (IMD) world competitiveness centre.
The Lausanne, Switzerland-based institute, which annually produces a world competitiveness ranking, comments that the sheer power of the US economy is no longer sufficient to keep it at the top of its prestigious table – which it has led for the past three years.
The centre, a research group within IMD business school, has published the annual ranking since 1989, based on an assessment of the competitiveness of countries. The 2016 edition ranks Hong Kong first, Switzerland second and the US third, with Singapore, Sweden, Denmark, Ireland, the Netherlands, Norway and Canada completing the top 10.
Professor Arturo Bris, director of the IMD world competitiveness centre, said a consistent commitment to a favourable business environment was central to Hong Kong’s rise while Switzerland’s small size and its commitment to quality have allowed it to react quickly to keep its economy on top.
“The US still boasts the best economic performance in the world, but there are many other factors that we take into account when assessing competitiveness,” he added. “The common pattern among all of the countries in the top 20 is their focus on business-friendly regulation, physical and intangible infrastructure and inclusive institutions.”
The institute’s commentary notes that as a leading banking and financial centre, Hong Kong encourages innovation through low and simple taxation and imposes no restrictions on capital flows into or out of the territory. It also offers a gateway for foreign direct investment (FDI) in mainland China, the world’s newest economic superpower, and enables businesses there to access global capital markets.
While Hong Kong and Singapore enjoy first and fourth position respectively, the research suggests Asia’s competitiveness has declined markedly overall since the publication of last year’s ranking. Taiwan, Malaysia, Korea Republic and Indonesia have all suffered significant falls from their 2015 positions, while mainland China declined only narrowly retaining its place in the top 25.
The study suggests that some of the most impressive strides in Europe have been made by countries in the East; particularly Latvia, the Slovak Republic and Slovenia. Western European economies have also continued to improve, with researchers highlighting the ongoing post-financial-crisis recovery of the public sector as a key driver.
However, 36th-placed Chile is the sole Latin American nation outside the bottom 20, while Argentina, in 55th, is the only country in the region to have improved on its 2015 position.
Each ranking is based on analysis of over 340 criteria derived from four principal factors: economic performance, government efficiency, business efficiency and infrastructure.
Responses are collated from a survey of more than 5,400 business executives, who are asked to assess the situation in their own countries, are also taken into consideration.
“One important fact that the ranking makes clear year after year is that current economic growth is by no means a guarantee of future competitiveness,” said Professor Bris. “Nations as different as mainland China and Qatar fare very well in terms of economic performance, but they remain weak in other pillars such as government efficiency and infrastructure.”
Data gathered since the first ranking was published in 1989 also lend weight to fears that the rich are getting richer and the poor poorer. “Since 1995 the world has become increasingly unequal in terms of income differences among countries, although the rate of increase is now slowing,” said Professor Bris.
“The wealth of the richest countries has grown every year except for the past two, while the poorer countries have seen some improvement in living conditions since the millennium.
Unfortunately, the problem for many countries is that wealth accumulation by the rich doesn’t yield any benefits for the poor in the absence of proper social safety nets.
“Innovation-driven economic growth in poorer countries improves competitiveness, but it also increases inequality. This is obviously an issue that demands long-term attention.”