Economic forum report shows a decline in U.S. competitiveness

The United States fell from first to sixth place in competitiveness, according to an annual report from the World Economic Forum, released in September 2006.

The forum, an independent international organization that engages leaders in partnerships to shape global, regional, and industry agendas, is under supervision of the Swiss federal government. And in fact, Switzerland now tops the forum's list as the ranking competitive leader, followed by a sweep of Scandinavian countries and Singapore to replace the United States.

The World Economic Forum defines competitiveness as "that set of factors, policies, and institutions that determine the level of productivity of a country."

Further, "Raising productivity—i.e., making better use of available factors and resources—is the driving force behind the rates of return-on-investment which, in turn, determine the aggregate growth rates of an economy. Thus, a more competitive economy will be one that will likely grow faster in the medium and long term."

This year, the forum revised the methodology for measuring competitiveness, reflecting the evolving dynamics of international economies by moving to a Global Competitiveness Index "that provides a holistic overview of factors critical to driving productivity and competitiveness."

Competitive Index factors are as follows:

• Institutions
• Infrastructure
• Macroeconomics
• Health and primary education
• Higher education and training
• Market efficiency
• Technological readiness
• Business sophistication
• Innovation

Because economies are at different stages of development, these factors are weighted differently for what the forum defines as the three major stages of development: factor-driven; efficiency-driven; and innovation-driven.

Taking into account the forum's Competitive Index, the U.S. remains a world leader in market efficiency, innovation, higher education and training, and business sophistication, although the existence of huge defense and homeland security spending, continued plans to lower taxes, and long-term health care and pensions costs are deemed areas of concern.

"With a low savings rate, record-high account deficits, and a worsening of the U.S. net debtor position, there is a non-negligible risk to both the country's overall competitiveness, and, given the relative size of the U.S. economy, the future of the global economy," says the report.

By contrast, "Switzerland's top ranking reflects a combination of world-class capacity for innovation, and the presence of a highly sophisticated business culture. ...Business activity in [Switzerland] benefits from a well-developed institutional framework, characterized by respect for the rule of law, an efficiently working judicial system, and high levels of transparency and accountability within public institutions. Flexible labor markets and excellent infrastructure facilities are two healthy features of the business environment."