This section presents the main findings of the GCI 2015–2016, starting with an analysis of selected overarching topics and then drilling down into regions and selected countries. Tables 1–5 report the rankings for the overall GCI, the three subindexes, and their corresponding pillars. Detailed scorecards for all the economies in the sample are available in the data section of this Report.⁶

Not settling for the new normal

The collapse of Lehman Brothers in 2008 triggered a crisis of historical proportions, sending the global economy into freefall. Governments around the world resorted to short-term solutions to stabilize the economy and stimulate growth—but growth remains subdued seven years on, beyond the typical duration of a business cycle. In 2015, global growth is projected at 3.3 percent, its lowest rate since 2009—the trough of the crisis—and one of the lowest since 2000.⁷ Unemployment, especially among youth, remains elevated. This suboptimal situation is often referred to as the new normal.

Although many possible explanations for this situation have been advanced—including Lawrence Summers’ “secular stagnation” argument,⁸ the aging of populations in most advanced economies and some emerging countries, and declining capital investment—slowing productivity growth is undoubtedly part of the story, especially in emerging markets.⁹ In the last decade, productivity in most regions has grown more slowly than in the decade before (Figure 2).

There is no general agreement on the factors driving the slowdown in productivity growth. However, commonly suggested explanations include: technological inventions of the last decade, such as social networks and the sharing economy, having a more limited effect on productivity than the Internet revolution of the previous decade (and also creating value of a kind not captured in national accounts and hence not showing up in productivity data);¹⁰ barriers to knowledge diffusion that prevent smaller companies from assimilating knowledge from larger firms;¹¹ and a slowdown in the growth of global trade, which is only partly explained by the slowing growth in GDP. Other structural factors at play include a slower pace of trade liberalization or even the introduction of trade barriers, and a slower expansion of cross-border value-chain trade.¹² Box 2 discusses the links between trade and competitiveness. Factors that contribute to the GCI can also help to explain the slowdown in productivity growth: these include lack of infrastructure, rigid labor and goods markets, underdeveloped financial markets, inefficient use of talent, lack of access to or poor quality of education, slow adoption of technologies, and low innovation rates.

Raising productivity growth increases potential output and can contribute to boosting overall growth. In emerging markets and developing countries in particular, there is scope for raising productivity through structural reforms. The GCI results reveal that considerable room for improvement exists in every country in all areas that drive productivity (Figure 3), and in each instance this constitutes a potential source of productivity gain.

Another explanation for low economic growth, particularly in Europe, is that lending has not yet fully recovered since the financial crisis (Figure 4). Despite very low interest rates, banks are reluctant to lend because of the uncertain environment and, arguably, also because of much stricter regulations that were implemented in the wake of the financial crisis to stabilize the banking sector. Small- and medium-sized enterprises are being particularly affected.¹³

Competitiveness improves resilience

A number of risks, including geopolitical tensions and currency and commodity price fluctuations, could derail the still weak recovery, should they materialize. Trends since 2007 support the hypothesis that competitiveness contributes to an economy’s resilience, providing another reason to prioritize productivity growth now.

Countries rated as more competitive before the crisis tended either to withstand it better (e.g., Germany, Switzerland) or bounce back more quickly. For example, the United States started growing again by 2010, while Greece took until 2014 to return to positive territory, its economy having contracted by 25 percent in the meantime. Figure 5 compares the growth trajectory of the five most and five least competitive advanced economies as identified in the 2007–2008 Global Competitiveness Index.¹⁴ The growth differential between the two groups averaged around 4 percent between 2010 and 2013.

The contribution of competitiveness to resilience appears to hold for economies at most stages of development.¹⁵ Figure 6 reports average growth over the period 2008–14 for the GCI 2007–2008’s three most and least competitive economies in each of the five income groups. In each group, the most competitive economies have grown significantly more since the beginning of the crisis.

Leveraging the human factor

According to International Labour Organization (ILO) estimates, the global unemployment rate in 2014 was 5.9 percent—some 201 million people—with youth unemployment running at 13 percent.¹⁶ Unemployment spiked in almost every country after the crisis, but individual countries have widely different trajectories. From a peak in 2010, the most competitive economies have managed to bring unemployment down toward pre-crisis levels. In less competitive countries, unemployment has remained well above pre-crisis levels.

Figure 7 depicts the evolution in unemployment rate over the period 2007–14 in selected advanced economies. At the left of the chart, for example, Greece’s trajectory shows the unemployment rate soaring. In the bottom-right of the chart, by contrast, Switzerland’s consistently high GCI results coincide with a relatively steady unemployment rate.

Although the relationship between unemployment and competitiveness is complex, both rely heavily on the adequacy of the education system and the efficiency of the labor market: by educating, training, and rewarding people appropriately, a country ensures that its workers have the skills to attain productive employment and that it can attract and retain talent. This is true for both advanced economies and developing ones, because talent generates ideas that in turn power innovation, and because strong vocational skills remain an important source of comparative advantage.

Table 6 presents the performance of selected advanced economies on indicators of education and labor market efficiency. The world’s three most competitive economies—Switzerland, Singapore, and the United States—score well in the vast majority of these indicators. Southern European countries where unemployment has spiked, such as Spain and Italy, perform poorly on most. Some countries with positive overall performance but shortcomings in at least one dimension—such as Germany, the Republic of Korea, and Japan—may still have positive unemployment trajectories, but they are also exposed to the risk of creating a two-tier labor market that discriminates between permanent employees and others.

While the shortcomings in advanced economies are most likely to center on higher education, the skills gap, as well as labor market and wage-setting rigidities, in less-developed countries the issues center on public health and basic education. Even in countries where primary and secondary education is almost universal, the quality of that education can be mediocre and curricula are not adapted to the needs of businesses. The difficulty of finding jobs in the formal sector reduces the incentives for workers to invest in their own education.