by Frank Thomas September 7, 2012
The World Economic Forum´s 2012-2013 report is out with its annual ranking of 144 nations … The Global Competitiveness Index. For the EU 17, there’s a large difference between best-and-worst-performing countries due to four depressed southern countries. Still, six European countries were ranked in the top ten most competitive world economies … the Netherlands in the top 5! The results are:
(1) Switzerland (1)
(2) Singapore (2)
(3) Finland (4)
(4) Sweden (3)
(5) The Netherlands (7)
(6) Germany (6)
(7) U.S. (5)
(8) UK (10)
(9) Hong Kong (11)
(10) Japan (9) ____________________________________________________
Briefly, the 2012-2013 report says: “The Netherlands continues to progress in rankings moving up to 5th place this year from 8th place in 2010-2011. The improvement reflects continued strengthening of its innovative capacity as well as the heightened efficiency and stability of its financial markets. The Dutch businesses are highly sophisticated (4th) and innovative (9th), and the country is rapidly harnessing new technologies for productivity improvements (9th).
Its excellent education system, ranked 5th for health and primary education and 6th for its higher education and training, and efficient markets – especially its goods marketing (6th) – are highly supportive of business activity. And although the country has registered fiscal deficits in recent years (-5% of GDP in 2012 vs. -9.6% U.S. but a general national debt at a healthy 66% of GDP vs. 103% U.S.), its macroeconomic environment is more stable than that of a number of other advanced economies. Last but not least, the quality of its infrastructure is among the best in the world, reflecting excellent facilities for maritime, air, and railroad transport, ranked 1st, 4th, and 9th, respectively.”
The Netherlands can still do better in its investment in R&D and stimulation of startup firms. More investment is needed in basic and applied research knowhow and in the joint cooperation between universities and business firms. But the relatively highly educated Dutch population is a powerful plus factor along with a country rank of 12 (vs. 47 for U.S.) in the quality of math and science education.
The overall competitive index for each country reflects a ranking based on 12 Pillars … and each Pillar in turn reflects a number of social-economic factors also ranked (see pg. 288 for Netherlands). ________________________________________________________
TABLE 2: Rank Based On 144 Countries
1. Institutions 7 41
2. Infrastructure 7 14
3. Macroeconomic Environment 41 111
4. Health and Primary Education 5 34
B. EFFICIENCY ENHANCERS
6. Goods Marketing Efficiency 6 23
7. Labor Market Efficiency 17 6
8. Financial Market Development 20 16
9. Technological Readiness 9 11
10. Market Size 20 1
C. INNOVATION AND SOPHISTICATION
12. Business Sophistication 9 6 ________________________________________________________
As noted, the World Economic Forum’s report gives a detailed weighted country ranking and scores (1 to 7) for specific social-economic factors affecting each of the 12 pillars. The cumulative weighted results in TABLES 1 and 2 confirm that European countries in mid and northern Europe (including UK) and Switzerland in the south do extremely well in the competitiveness test… the same European countries U.S. conservative politicians (Romney and Ryan leading the band) demagogically blanket-label as examples of “Economically Unstable, Spendthrift Socialism.”
In contrast, the report highlights many escalating, unaddressed weaknesses that have lowered the U.S. overall ranking in recent years. The U.S. has one of the worst rankings for macroeconomic instability at 111th, down from an equally weak 90th ranking last year! Numerous business complaints include: political disputes and polarization, government’s inability to maintain arms-length relationships with the private sector, automatic spending cuts prolonging the deep recession, wasteful government spending. On the positive side, U.S. firms receive excellent ranks for being highly sophisticated and innovative. This reflects an excellent university system that collaborates well with the business sector.
One BIG difference in the Goods Marketing Efficiency pillar is that the Netherlands’ net exports as a percentage of GDP were 93.9% vs. 85.1% for imports, a net positive of 8.8% (and Germany’s net positive of 5.3% ) compared to U.S.’s negative net exports of -4.0%. This relatively huge disparity in net exports has long existed between the U.S. and mature EU countries. As noted in my previous writings, (e.g., “Our Fiscal-Economic Quagmire: Some Solutions”) we are steadily returning to exorbitant U.S. monthly trade deficits of $60 billion. This has long been causing a systemic, unstable imbalance in our economic model for growth where GDP = Consumption + Private Investment + Public Investment + Net Exports.
We are trapped in a self-destructing viscious circle of extreme GDP growth dependence on Consumption at 70% of GDP growth (vs. 58-60% of GDP in Europe plus far higher gross national Savings) combined with stagnant wage growth for the past three decades … all requiring more consumption to compensate for the negative GDP growth effects of rising trade deficits and poor public and private investments. This and outsourcing our manufacturing base knowhow has been driving mainstream America to buy ever cheaper products from China and India. Result? Constant gigantic trade deficits … an economic Catch-22 also forcing up consumer credit card debt to irresponsible levels, helping to feed the next financial crisis. Then add to the financially destabilizing mixture our grossly unaffordable Defense Spending in excess of 5.5% of GDP vs. 1.9% for the rest of the world including Europe.
The conclusion is that these inherently out-of-balance factors in our economic model are undermining our national financial liquidity and flexibility to invest in infrastructure and education … pressuring our very high current national debt at 103% of GDP to go ever higher. It's clear the U.S. paradigm of high consumption/ consumer credit debt and huge net export trade debt -- incited and worsened by a middle-class wage and a manufacturing-knowhow race to the bottom -- are contributing to our run-down infrastructure and weakening economic competitiveness, as noted in the World Economic Forum report. Sadly, partisan, power-hungry, winner-takes-all political gridlock makes impossible any audacious, balanced, CAN DO, best-idea initiatives … cooperative actions giving real hope of sustainably resolving serious societal problems and the self-destructive imbalances in our economic model in the interest of ALL Americans.