The top of the rankings continues to be dominated by highly advanced Western economies and several Asian tigers. For the sixth consecutive year Switzerland leads the top 10, and again this year Singapore ranks as the second-most competitive economy in the world. Overall, the rankings at the top have remained rather stable, although it is worth noting the significant progress made by the United States, which climbs to 3rd place this year, and Japan, which rises three ranks to 6th position.
Switzerland tops the Global Competitiveness Index again this year, keeping its 1st place for six years in a row. Its performance is stable since last year and remarkably consistent across the board: the country ranks in the top 10 of eight pillars. Switzerland’s top-notch academic institutions, high spending on R&D, and strong cooperation between the academic and business worlds contribute to making it a top innovator. Switzerland boasts the highest number of Patent Cooperation Treaty applications per capita in the world. The sophistication of companies that operate at the highest end of the value chain constitutes another notable strength (2nd). Productivity is further enhanced by an excellent education system and a business sector that offers excellent on-the-job-training opportunities. The labor market balances employee protection with flexibility and the country’s business needs (1st). Public institutions are among the most effective and transparent in the world (7th), ensuring a level playing field and enhancing business confidence. Competitiveness is also buttressed by excellent infrastructure and connectivity (5th) and highly developed financial markets (11th). Finally, Switzerland’s macroeconomic environment is among the most stable in the world (12th) at a time when many European countries continue to struggle in this area. A potential threat to Switzerland’s competitive edge might be the increasing difficulties faced by businesses and research institutions in finding the talent they need to preserve their outstanding capacity to innovate. Since 2012, the country has dropped from 14th to 24th on the indicator measuring the availability of engineers and scientists. Respondents to the Executive Opinion Survey 2014 cited the difficulty of finding qualified workers as the single most problematic factor for doing business in the country. The recent acceptance by Swiss citizens of an initiative aimed at limiting the ability of European Union (EU) workers to immigrate by reintroducing quotas could exacerbate the problem and erode Switzerland’s competitiveness advantage.
Singapore ranks 2nd overall for the fourth consecutive year, owing to an outstanding and stable performance across all the dimensions of the GCI. Again this year, Singapore is the only economy to feature in the top 3 in seven out of the 12 pillars; it also appears in the top 10 of two other pillars. Singapore tops the goods market efficiency pillar and places 2nd in the labor market efficiency and financial market development pillars. Furthermore, the city-state boasts one of the world’s best institutional frameworks (3rd), even though it loses the top spot to New Zealand in that category of the Index. Singapore possesses world-class infrastructure (2nd), with excellent roads, ports, and air transport facilities. Its economy can also rely on a sound macroeconomic environment and fiscal management (15th)—its budget surplus amounted to 6.9 percent of GDP in 2013. Singapore’s competitiveness is further enhanced by its strong focus on education, which has translated into a steady improvement of its ranking in the higher education and training pillar, where it comes in 2nd, behind Finland. Singapore’s private sector is also fairly sophisticated (19th) and becoming more innovative (9th), although room for improvement exists in both areas, especially as these are the keys to Singapore’s future prosperity.
The United States goes up in the rankings for a second year in a row and regains the 3rd position on the back of improvements in a number of areas, including some aspects of the institutional framework (up from 35th to 30th), and more positive perceptions regarding business sophistication (from 6th to 4th) and innovation (from 7th to 5th). As it recovers from the crisis, the United States can build on the many structural features that make its economy extremely productive. US companies are highly sophisticated and innovative, and they are supported by an excellent university system that collaborates admirably with the business sector in R&D. Combined with flexible labor markets and the scale opportunities afforded by the sheer size of its domestic economy—the largest in the world by far—these qualities make the United States very competitive. On the other hand, some weaknesses in particular areas remain to be addressed. The business community continues to be rather critical, with trust in politicians still somewhat weak (48th), concerns about favoritism of government officials (47th), and a general perception that the government spends its resources relatively wastefully (73rd). The macroeconomic environment remains the country’s greatest area of weakness (113th), although the fiscal deficit continues to narrow and public debt is slightly lower for the first time since the crisis.
Finland continues to exhibit a strong performance across all the analyzed dimensions, despite its drop of one place to 4th position. This decline is mainly driven by a slight deterioration of its macroeconomic conditions (43rd), which has led some rating agencies to downgrade the outlook of this Nordic economy. More precisely, Finland suffers from higher, though still manageable, deficit and public debt level, and its savings rate has slightly decreased. Nevertheless, the country continues to boast well-functioning and highly transparent public institutions (1st), at the very top in many of the indicators included in this category, and high-quality infrastructure (19th). The functioning of its products market is also good (18th), financial development is very high (5th), and the country manages to use its existing talent efficiently (7th) despite some persistent rigidities in its labor market, most notably in terms of wage determination (143rd), which is regarded as one of the most problematic factors for doing business. Its biggest competitiveness strength lies in its capacity to innovate, where the country leads the world rankings (1st). Very high public and private investments in R&D (3rd), with very strong linkages between universities and industry (1st) coupled with an excellent education and training system (1st) and one of the highest levels of technological readiness (11th) drive this outstanding result.
Germany drops one place to 5th position this year. The small drop is the result of some concerns about institutions and infrastructure and is only partially balanced out by improvements in the country’s macroeconomic environment and financial development. Moreover, Germany’s education system is assessed less positively than it was in previous years (16th, down from 3rd) because the indicator measuring the country’s tertiary enrollment rate became available. Overall, Germany weathered the global economic crisis of recent years quite well thanks at least partly to its main competitiveness strengths, which include highly sophisticated businesses (3rd) and an innovation ecosystem that is conducive to high levels of R&D innovation (6th). Companies spend heavily on R&D (5th) and can rely on an institutional framework, including collaboration with universities (10th) and research labs (8th), to support their innovation efforts. Innovation is also supported because companies, which are predominantly medium-sized, often operate in niche markets and are located in close geographical proximity to each other (3rd on cluster development). This fosters the exchange of learning among businesses and facilitates the development of new goods and services. High-quality infrastructure (7th) and excellent on-the-job training (6th) complement these strengths. The top-notch German on-the-job training system ensures that technical skills for companies are widely available and that skills match the needs of businesses. Germany’s economy could be more competitive if its labor markets were made even more efficient. In recent years, labor market efficiency has improved markedly, rising from the 53rd position in 2012 to 35th this year. However, some recent decisions, such as the introduction of a minimum wage, could reverse this positive trend. In the context of declining population growth, a more holistic approach to immigration and more incentives for women to remain in the labor market are going to be crucial for the country to ensure a supply of talent. Last but not least, continued efforts toward strengthening its fiscal situation will be key to reducing the country’s high public debt (118th).
Up three places to reach 6th position overall, Japan posts the largest improvement of the top 10 economies, thanks to small improvements across the board. Japan continues to enjoy a major competitive edge in business sophistication (1st for the sixth consecutive year) and in innovation (4th, up one position). High R&D spending (2nd), excellent availability of talent (3rd), world-class research institutions (7th), and a high capacity to innovate (7th) are among Japan’s strengths. Indeed, in terms of innovation output, these strengths pay off: the country has the second-highest number of patent applications per capita in the world. Further, companies operate at the highest end of the value chain, producing high-value-added goods and services. However, the country’s overall competitive performance continues to be dragged down by severe macroeconomic challenges (127th). For the past five years, its budget deficit has been hovering around 10 percent of GDP, one of the highest ratios in the world, while public debt now represents more than 240 percent of the country’s GDP. At least the country’s battle against deflation has started bearing fruit: prices in 2013 increased for the first time in five years—by a low 0.4 percent. Another area of concern is the situation in the labor market (22nd). Japan ranks 133rd in the indicator capturing the ease of hiring and firing workers. In addition, the participation of women in the labor force (88th) is one of the lowest among OECD members.
Featured in the top 10 since 2012, Hong Kong SAR retains its 7th position. It tops the infrastructure pillar, reflecting the outstanding quality of its facilities across all modes of transportation. The economy also continues to dominate the financial market development pillar, owing to the high level of efficiency, trustworthiness, and stability of its system. As in the case of Singapore, the dynamism and efficiency of Hong Kong’s goods market (2nd) and labor market (3rd) further contribute to its excellent overall positioning. Hong Kong is also one of the most open economies in the world. In order to enhance its competitiveness, Hong Kong must improve on higher education (22nd) and innovation (26th, down three places this year). In the latter category, the quality of its research institutions (32nd, down one) and the limited availability of scientists and engineers (36th, down four) remain the two key issues to be addressed. In building a truly innovation-driven economy, Hong Kong can rely on its high degree of technological readiness (5th).
As in the last edition, the Netherlands retains its 8th place this year and depicts a stable competitiveness profile. Overall, the country continues to depict a set of important competitiveness strengths that allow its economy to remain highly productive. An excellent education and training system (3rd), coupled with a strong adoption of technology (9th), including ICTs (8th), and an excellent innovation capacity (8th) result in highly sophisticated businesses (5th) that manage to compete at the very high end of international value chains. In addition, efficient institutions (10th), world-class infrastructure (4th), and highly competitive (5th) and open products markets (6th) complete the impressive list of the country’s assets. Notwithstanding these strengths, the otherwise excellent Dutch performance is somewhat hindered by some persistent rigidities in its labor market, especially in terms of hiring and firing practices (123rd) and wage determination (135th)—these rigidities are regarded as the most problematic factor for doing business in the country. Furthermore, the current weaknesses of its financial system (80th), which are a consequence of the housing bubble, have made access to credit (48th) more difficult.
The United Kingdom climbs one spot to the 9th place. Overall, the country improves its performance thanks to gains derived from lower levels of fiscal deficit and public debt. In addition to these more favorable macroeconomic conditions, the United Kingdom continues to benefit from an efficient labor market (5th) and a high level of financial development (15th), despite the recent difficulties in parts of its banking system (89th) and the fact that the difficult access to loans (82nd) remains the most problematic factor for doing business in the country. In addition, the country benefits from an ICT uptake that is one of the highest in the world (2nd) and that, coupled with a highly competitive (5th) and large market (6th), allows for highly sophisticated (6th) and innovative (12th) businesses to spring up and develop. In addition to continuing to improve its macroeconomic conditions (107th), the country should look into effective ways to raise the overall quality of its education system (23rd), most notably in the areas of mathematics and science (63rd), which will be crucial to continue fostering innovation in the country.
Sweden, despite a rather stable competitiveness profile across all areas, falls four places this year to round up the top 10 rankings. Overall the country boasts important strengths across the board, with strong institutions (13th) that are regarded as transparent and efficient, excellent infrastructure (22nd), and healthy macroeconomic conditions (17th) that include low levels of fiscal deficit and public debt, allowing the country to maintain its triple-A rating throughout the recent financial and economic crisis. Moreover, and perhaps more importantly, Sweden has managed to create the right set of conditions for innovation and unsurprisingly scores very high in many of the dimensions that are key to creating a knowledge-based society. More precisely, the Swedish education and training system (14th) is of high quality and seems to deliver the right set of skills for an innovation-based economy; ICT adoption (3rd) is among the highest in the world; and, in terms of innovation capacity (6th), firms are among the best performing. In addition, the country has also formed highly competitive markets (21st), which produce the right set of incentives to quickly transform those knowledge assets into new products and services with higher value-added. Going forward, the country should address its labor market regulations (59th) and the potential distortions that a high tax rate system (119th) may create, as these two elements are considered the two most problematic factors for doing business in the country.