Debt, financial crisis hurt U.S. competitiveness

Graphic show the U.S. fell in rank among 139 countries in an annual report on global competitiveness.
By Howard Schneider
Washington Post Staff Writer
Thursday, September 9, 2010

Large deficits and a weakened financial system have made the United States less competitive in the global economy, the World Economic Forum said in its annual review of the competitiveness of countries.

The United States slipped from second to fourth in the survey, behind Switzerland, Sweden and Singapore. It had fallen from first place the year before.

The study includes statistical measures as well as a survey of business owners to compare countries. In the United States, the entrepreneurs cited access to credit and government regulation among their chief concerns.

But it was government debt and the country's overall economic outlook that pushed the United States down in the rankings, said Irene Mia, senior economist at the forum, a Geneva-based think tank that sponsors the annual gathering of world leaders in Davos, Switzerland.

"The U.S. has very important strengths, but macroeconomic stability was a problem beforehand and the crisis exacerbated it," Mia said.

Government debt affects a country's competitiveness by limiting its ability to respond to crises or make infrastructure and other investments that could boost future productivity. It may also lead to higher interest rates.

Along with broad statistics about each of the 139 countries included, the survey examined areas such as the strength of institutions and laws, the quality of infrastructure, public health and education, and levels of technology and innovation.

The United States, for example, scored high on items related to the efficiency of labor markets, innovation and higher education. But it received mediocre scores on how some of its institutions function, ranking 55th in the strength of corporate reporting requirements, 84th in the cost to business of crime and violence, and 125th in the business costs of terrorism.

The impact of the recent financial crisis and recession had a deep influence on this year's edition of the study, with countries hit by recent shocks, such as Greece, Ireland and Spain, all tumbling in the competitiveness rankings because of high debt and uncertainty about future growth.

Government debt and deficits have emerged as a chief concern among developed world economies, as a decline in tax receipts during the recession and an increase in spending on stimulus programs combined to require record levels of government borrowing. Crafting an "exit strategy" - cutting annual deficits without undermining economic growth by doing so too quickly - has become a main focus of policymakers in Europe and the United States.

By contrast, several emerging market economies jumped quickly in their competitiveness ratings, as governments kept debt down and invested in infrastructure and institutional reform.

Indonesia vaulted from 54th to 44th place in the survey, and the World Economic Forum cited steady improvement in the country's schools as a prime reason. Vietnam went from 75th to 59th in the rankings; the forum cited it for having one of the most efficient labor forces in the world and investing comparatively large amounts in research and development.

China, at 27th, was among the most competitive of the developing economies, benefitting particularly from a high savings rate, rising research investment and improvements in school enrollment.

Chad is rated the least competitive of the countries surveyed, while Nigeria and Pakistan experienced the largest declines in competitiveness. The forum noted security problems in both countries and cited the fact that Nigeria was now running an annual budget deficit despite its oil wealth.

Because the study is partly based on surveys of business owners, Mia said that the general outlook or mood of a country can influence the results - turning up in times of greater confidence or down in periods of doubt.

There's a cultural and political hew as well. China, run by a communist party known for doling out or denying favors to business owners, has the world's 22nd most trustworthy government, according to the forum's survey. The United States, a democracy with a built-in skepticism of officialdom, ranks 54th.

© 2010 The Washington Post Company