The Best Economies in the World

September 10, 2013

After sliding in the rankings for four consecutive years, the United States moved up two places in the World Economic Forum’s competitiveness ranking, from seventh last year to fifth in 2013. A combination of factors, including improving financial markets and a strong university system, helped the U.S. improve, despite its weak macroeconomic environment.

The WEF's Global Competitiveness Report defines competitiveness as the “institutions, policies, and factors that determine the level of productivity of a country.” In order to assess competitiveness, the WEF divided the 148 nations it surveyed into one of three classifications, depending on their development. Based on the WEF’s report, these are the best economies in the world.

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“Factor-driven” economies are the least developed and rely on low-skilled labor and natural resources. More developed countries are considered “efficiency-driven” economies because they focus on improving economic output through increasing production efficiency. The most developed economies, which rely on innovation and technological changes to drive growth, are considered “innovation-driven” economies. Nations may also fall in between these classifications.

While gross domestic product is not a measure of well-being or competitiveness by itself, competitive nations often have high GDP per capita. This is because the factors that allow nations to compete for new business are the same factors that drive productivity and output.

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Each of the 10 most competitive nations is among the 25 highest for GDP per capita out of the countries measured. The most competitive economy in the world, Switzerland, had a per capita GDP of more than $79,000, good for fourth highest worldwide. At the other end, almost all the 10 least competitive economies have extremely low GDP per capita, six of them below $1,000.

According to Margareta Drzeniek-Hanouz, lead economist at the WEF's Global Competitiveness and Benchmarking Network, “competitiveness is not so much about countries competing in the global marketplace, but rather about the factors -- politicians, institutions -- that countries put into place to raise productivity and thereby grow.” In the case of the United States, Drzeniek-Hanouz highlighted financial market efficiency, labor market efficiency and innovation as factors that make the country globally competitive.

Many of the world’s most competitive nations also have the ability to borrow a great deal to support their spending and investment, which can result in high government debt. Seven of the 10 most competitive nations had at least 50% of GDP in gross general government debt as of 2012. And three of them -- Japan, Singapore and the United States -- had more than 100% of their GDP in debt.

In poorer nations, where access to financing often is not only an issue for businesses but for governments as well, debt levels are typically lower. Just one of the 10 least competitive countries had more than 50% of its GDP in debt.

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To create the Global Competitiveness Index (GCI) score for each country, the WEF ranked more than 100 economic indicators that it grouped into 12 broad categories. Also referred to as pillars, these categories quantify the extent to which a country is competitive. The pillars were then scored from 1 to 7, but each had a different weighting in the final country rank, depending on which classification a nation fell under. Innovation and sophistication accounted for 30% of the score for nations such as the United States, which is an innovation-driven economy, but just 5% of the final score for less-developed nations such as Haiti, a factor-driven economy.

Based on the WEF’s Global Competitiveness Report, which ranks 148 countries, 24/7 Wall St. reviewed the economies with the highest and lowest GCI scores. All GDP figures, as well as figures on government debt as a percentage of GDP and GDP per capita, are stated as purchasing power parity for 2012 and were provided to the WEF by the International Monetary Fund.

These are the 10 most competitive global economies.

10. United Kingdom
> GCI score: 5.37
> GDP per capita: $38,589 (23rd highest)
> Debt as a pct. of GDP: 90.3% (13th highest)
> Pct. of residents using Internet: 87.0% (11th highest)
> Biggest problem in doing business: Access to financing

The United Kingdom, considered to be the eighth most competitive last year, has fallen by two places. The world’s eighth largest economy by GDP has some of the most efficient labor practices -- the U.K. ranks fourth for its ability to attract talent and fifth in overall labor market efficiency. The quality of higher education and training in the U.K. is not groundbreaking, but the country has some of the best management schools and ranks among the top countries around the world in terms of Internet access in schools. The biggest obstacle to doing business is access to financing, overwhelmingly chosen by survey respondents -- well above tax rates and government bureaucracy, both tied for the next most selected factor. During the financial crisis, Britain had to bail out two of the country’s largest banks, Royal Bank of Scotland and Lloyds Banking Group, which remain state-owned.

9. Japan
> GCI score: 5.40
> GDP per capita: $46,736 (13th highest)
> Debt as a pct. of GDP: 237.9% (the highest)
> Pct. of residents using Internet: 79.1% (24th highest)
> Biggest problem in doing business: Tax rates

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Japan received top marks for business sophistication due to an abundance of local suppliers, highly sophisticated production processes and its prominent role in the international distribution of goods and services. Companies in Japan -- the fourth largest economy in the world -- spent considerable amounts on research and development, ranking only behind first place Switzerland. Tax rates were reported to be the most problematic factor for doing business, according to the WEF’s survey. However, tax hikes may be on the horizon as part of the nation’s “Abenomics” plan, pushed by Prime Minister Shinzo Abe, to combine aggressive economic stimulus with structural reform.

8. Netherlands
> GCI score: 5.42
> GDP per capita: $46,142 (14th highest)
> Debt as a pct. of GDP: 71.7% (31st highest)
> Pct. of residents using Internet: 93.0% (4th highest)
> Biggest problem in doing business: Access to financing

Strong infrastructure, few reports of corruption and high-quality health and education systems have made the Netherlands a reliable trade partner and a competitive advanced economy. Port infrastructure in the Netherlands was ranked first out of all countries surveyed. When business leaders polled by the WEF’s Executive Opinion Survey were asked to select the most problematic factor for doing business, the most common reply was access to financing. According to the European Commission, applicants in the Netherlands were denied loans nearly twice as much as the European average, and when applications succeeded, lenders paid much higher interest rates than other EU countries. Financial market development was not the strongest economic indicator for the Netherlands, but the country still ranked 30th out of 148 countries in terms of the availability of financial services.

7. Hong Kong (SAR)
> GCI score: 5.47
> GDP per capita: $36,667 (25th highest)
> Debt as a pct. of GDP: 32.4% (42nd lowest)
> Pct. of residents using Internet: 72.8% (33rd highest)
> Biggest problem in doing business: Insufficient capacity to innovate

Hong Kong has the best infrastructure, according to the WEF, with the most consistent electricity and some of the best roads and rail networks in the world. The special administrative region of China is extremely healthy, reporting only 1.4 infant deaths per 1,000 live births, the lowest such rate in the world, and an average life expectancy at birth of 83.4 years, the highest in the world. Hong Kong also was judged to have the most developed financial market in the world. Financial services in the region are some of the most available and affordable in the world. Additionally, the pay received by workers in the city is widely held to be directly related to their productivity, a strong indicator of Hong Kong’s efficient labor market. Despite these reportedly high levels of convenience and economic freedom, residents of Hong Kong reported the greatest hindrance to doing business was an insufficient capacity to innovate.

6. Sweden
> GCI score: 5.48
> GDP per capita: $55,158 (8th highest)
> Debt as a pct. of GDP: 38.0% (62nd lowest)
> Pct. of residents using Internet: 94.0% (3rd highest)
> Biggest problem in doing business: Restrictive labor regulations

Sweden has fallen slightly on the competitiveness index in the past three years, from third in 2011 to sixth this year. However, the country still ranks first in technological readiness, the WEF’s measure of how nations incorporate existing technologies to improve efficiency, with Swedish companies absorbing new technologies better than those in any other country. People living in Sweden also are among those using the Internet the most, and mobile subscriptions there are among the highest in the world. Ericsson, a large Swedish telecommunications company, has remained relevant in a very competitive global wireless technology industry. In line with Sweden’s strong scores in technology categories, the country also had the highest concentration of patent applications of all other countries assessed in the WEF report, at nearly 303 per million residents.

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5. United States
> GCI score: 5.48
> GDP per capita: $49,922 (11th highest)
> Debt as a pct. of GDP: 106.5% (9th highest)
> Pct. of residents using Internet: 81.0% (20th highest)
> Biggest problem in doing business: Tax regulations

The United States still faces a weak economic environment, largely due to the nation's massive government deficit and debt burden. In spite of this, the U.S. was more competitive this year than it was a year ago, up from seventh place to fifth. The U.S. ranked seventh for the availability of financial services, and it was one of the top five nations for the availability of venture capital and the ease of raising money through equity markets. The U.S. also ranked as one of the top countries for attracting and retaining talent. The world’s largest economy is also home to many highly sophisticated businesses, with U.S. companies handling international distribution of their goods and services across the world.

4. Germany
> GCI score: 5.51
> GDP per capita: $41,513 (21st highest)
> Debt as a pct. of GDP: 82.0% (19th highest)
> Pct. of residents using Internet: 84.0% (16th highest)
> Biggest problem in doing business: Tax regulations

Germany consistently scores well in all major categories the WEF uses to measure competitiveness. In addition to being one of the world’s largest economies, Germany provides its residents with an extremely well-developed infrastructure, top-quality higher education and training, and a sophisticated and innovative private sector. The local availability of research and training services is better in Germany than in all but one other country, behind only Switzerland. Germany also scored in the top 10 in six out of the nine factors in the infrastructure category, including for the quality of its rail and port infrastructure and fixed telephone lines. Germany has a very sophisticated business climate as well, with nine out of 10 factors in this category ranked in the top 10, including a first-place position for value chain breadth.

3. Finland
> GCI score: 5.54
> GDP per capita: $46,098 (16th highest)
> Debt as a pct. of GDP: 53.3% (48th highest)
> Pct. of residents using Internet: 91.0% (7th highest)
> Biggest problem in doing business: Restrictive labor regulations

Finland ranks as the top country in the world for innovation and is also one of the top countries in the world for business sophistication. Finland had the third-best score for company R&D expenditure, and its capacity for innovation ranked second out of 148 countries. Scientists and engineers residing in the country also were considered to be more widely available than comparable professionals in any other country. The WEF gave Finland first place in higher education and training, which is not surprising given the country’s well-regarded education system.

2. Singapore
> GCI score: 5.61
> GDP per capita: $51,162 (10th highest)
> Debt as a pct. of GDP: 111.0% (8th highest)
> Pct. of residents using Internet: 74.2% (29th highest)
> Biggest problem in doing business: Restrictive labor regulations

Singapore has some of the highest quality institutions, as well as some of the best infrastructure and education systems in the world, according to the WEF. The citizens of Singapore have the most trust in their politicians, the most transparent government policymaking and the most efficient legal framework for settling disputes. Singapore’s air transport infrastructure was rated the best out of 148 countries. The tiny country takes its higher education very seriously as well, with a first-place ranking in the quality of math and science education. Singapore’s labor market is reported to be more efficient than that of any other country due in part to its ability to attract talent.

1. Switzerland
> GCI score: 5.67
> GDP per capita: $79,033 (4th highest)
> Debt as a pct. of GDP: 49.1% (59th highest)
> Pct. of residents using Internet: 85.2% (13th highest)
> Biggest problem in doing business: Inadequately educated workforce

Switzerland topped the list this year as the world’s most competitive economy. The small alpine nation was among the best in the world for both business sophistication and innovation. It was also the top country in the world for local supplier quality and for the amount businesses spent on research and development and university-industry R&D collaboration. Some of the largest pharmaceutical companies in the world are based in Switzerland and contribute to the country’s strongest competitiveness indicators.

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