Maybe it shouldn't be surprising, but it still comes as a shock to hear that the United States fell to second place in the overall rankings of the World Economic Forum's Global Competitiveness Report for 2009-2010. Switzerland toppled the U.S. to take first place. Singapore, which moved up two spots to third place, Sweden and Denmark rounded out the top five.
The report cites the U.S.'s weaker financial markets and decreased macroeconomic stability as the reasons for its decline. Despite similar conditions in Europe, European countries take up six of the top ten spots. Britain and Iceland were the losers of the crisis.
While the U.S. didn't fall much -- just one spot to second place -- the drop comes after several years at the top of the rankings. The WEF explains that "Switzerland's performance has remained relatively stable, whereas the United States has seen a weakening across a number of areas."
This didn't really come as a surprise as the U.S. has several imbalances that have been building up, mostly in the financial and public sectors.
Since the financial crisis originated in the U.S., the country was more exposed to some long-standing weaknesses -- more so than Switzerland -- as several declines in relating factors indicate. The assessment of the U.S.'s financial market sophistication, for example, dropped from ninth place last year to 20th overall this year. Meanwhile, in the assessment of banks indicator, U.S. banks fell to 108th place, while Switzerland's ranked 44th.
But the country's greatest overall weakness, the WEF notes, continues to be related to its macroeconomic stability, where the U.S. ranks 93rd, down from 66th last year. The repeated fiscal deficits that led to the high levels of debt, which are further exacerbated by significant stimulus spending, are some main causes of the instability.
And there were other "escalating weaknesses that have taken their toll on the U.S. ranking this year," the WEF continues. The U.S. ranks quite low in several categories, such as the government's ability to maintain arms-length relationships with the private sector (48th), the perception that the government spends its resources wastefully (68th), and the increasing concern related to the functioning of private institutions. For example, the assessment of auditing and reporting standards was down from 20th last year to 39th this year.
Still, the U.S. has many factors that keep it near the top of the list, if not at the top, mainly its size and innovations. It has "highly sophisticated and innovative companies operating in very efficient factor markets." The university system's collaboration with the business sector in R&D ranks first as does its size, which allows for large scale of opportunities. Along with other factors these "continue to make the United States very competitive" and "on a strong footing to ride out business cycle shifts and economic shocks."
The World Economic Forum is an independent international organization. The Global Competitive Report contains a detailed profile for each of the 133 economies featured in the study with global rankings for over 110 indicators, including such factors as government's efficiency or the flexibility of the labor market.
For the full report click here.
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