Top Countries in Global Competitiveness

Despite this year's global market turmoil, many of the same countries, including the U.S., remain atop the World Economic Forum ranking

The global economy has been under threat for more than a year, and events in recent months have taken matters to a crisis stage. But judging by the World Economic Forum's annual Global Competitiveness Report, you would hardly know it. So far the financial meltdown has had little effect on the relative competitiveness of the world's most advanced countries, according to the ranking.

Of the record 134 countries surveyed this year, the majority at the top of the list remain European, while the U.S. continues to hold on to the No. 1 spot and Canada squeezes into the top 10. As in previous years, Singapore and Japan are the only Asian countries included at the top of the list, though Hong Kong comes close, at No. 11.

The results show that despite market turmoil in recent months that has brought some of the world's most powerful companies and even countries to their knees (BusinessWeek.com, 10/10/08), a range of nonmarket attributes such as education, regulation, and infrastructure still account for the advantages some nations enjoy over others.

More Than Financial Markets

The annual study from the Geneva-based World Economic Forum (WEF) assigns a score to a broad range of criteria affecting economies' business climates. It then categorizes them into 12 "pillars," including the size and efficiency of markets, innovation, infrastructure, business sophistication, and the quality of health and education. "The stability of the financial markets is one of them, but it's not the most important," says Jennifer Blanke, a senior economist at the WEF who oversees the study. "Those countries that have strengths in the other areas will bounce back quickly."

The European bloc remains strong, with six countries in the top 10. Switzerland, thanks to its high level of business sophistication and capacity for innovation, retained the second-place ranking it earned in the WEF's 2007 ranking (BusinessWeek.com, 11/6/07). The Nordic countries—Denmark at No. 3, Sweden at No. 4, and Finland at No. 6—continue to punch above their weight in this sphere as well. All share relatively healthy macroeconomic environments, run budget surpluses, carry very low levels of public indebtedness, and have some of the best functioning and most transparent institutions in the world.

Germany, however, despite its significant market size, has been dragged down two spots to seventh place this year due to its rigid labor markets. And Britain fell out of the top 10 entirely, sagging from ninth to 12th place, owing to a low national savings rate, increasing dependence on (now shaky) financial services, and eroding trust in political leadership.

Singapore Rises, Japan Slips

The two Asian nations in the top tier, Singapore and Japan, saw diverging fortunes. The strengthening of Singapore's institutional framework combined with a world-class infrastructure earned it a promotion to fifth place this year, up from seventh in 2007. Ninth-ranked Japan still holds its own as the world's second-largest economy, with commendable investment in research and development, but it fell one position vs. last year due to lingering high debt levels and mistrust of its financial institutions.

"The surprise was that the U.S. is still on top," Blanke says. The world's largest economy remains second-to-none in productivity and enjoys a flexible labor market, a very sophisticated business culture, and many of the world's best universities. Robust structural features help it to absorb economic shifts and downturns in business cycles.

But what hurt the U.S. this year was a weak macroeconomic environment. Like Japan, its debt levels are among the highest in the world. With so much money owed to creditors, the U.S. has less wealth to reinvest in its own future—and less wiggle room to address the current financial market crisis. "That's a warning sign we have been seeing for a while," Blanke says.

What About Emerging Economies?

Emerging countries with swelling economies are struggling to edge their way up the list. Burgeoning economic powerhouses such as Brazil, Russia, India, and China (the so-called BRIC countries) all rank among the top half of countries surveyed by the WEF, but their climb up the list is bogged down by a variety of factors. India, for example, boasts an impressive availability of scientists and engineers as well as top-notch research institutions. But these schools are limited to a very elite few. "At the end of the day, what we're really looking at is prosperity," Blanke says.

Of the BRIC countries, China is moving the fastest, jumping four places on this year's ranking, to No. 30. That's thanks in large part to the strides China continues to make in innovation, a surplus in its government budget, and above all the size of its domestic market. "It's huge and growing," Blanke says.

Still, these emerging markets have a way to go to before they enter the big leagues. Blanke predicts that at their current rate, it will take 10 years or more for them to challenge the top ranks of the world's most competitive economies. "They are going to do amazingly well, but they all require much more investment based on their populations," Blanke says.

For a slide show of this year's top countries, see "Who's Winning the Race?"

For a complete table of the rankings from this and previous years, click here.

For last year's WEF winners, see "Who's Ahead in Global Competition?"

For an alternative ranking of global competitiveness, see the most recent annual study from Swiss business school IMD, "The World's Most Competitive Countries."