by Gary Jones
FLC Washington, DC Representative
The U.S. remains the world's most competitive economy, just ahead of Switzerland, Denmark, Sweden and Germany (rounding out the top 5 in order), with arguably "the most productive and innovative potential in the world."
Factors such as our highly innovative companies, efficient factor markets, outstanding university system and strong collaboration between academia and industry in R&D are but a few reasons for this statement.
Such are the findings of the latest Global Competitiveness Report (2008), developed annually by the World Economic Forum (WEF), which ranks 131 countries on a series of factors it believes contribute to the competitive potential (i.e., productive) of a country. Given the current interest in U.S. competitiveness (the recent passage and signing into law of the America COMPETES Act, discussed in earlier columns, being only one manifestation of that interest), I thought I would highlight how the U.S. fares in this one study—particularly focusing on the innovation aspect as addressed by the WEF.
The Global Competitiveness Report incorporates two indices: the Global Competitiveness Index (GCI), the source of the preceding statements, and the Business Competitiveness Index (BCI). Our focus here is on the GCI, although I am happy to point out that the U.S. ranks first overall on the BCI as well.
The GCI defines competitiveness as "the set of institutions, policies, and factors that determine the level of productivity of a country." Essentially, more competitive economies produce higher income for their citizens and experience greater rates of growth.
According to the GCI, there are 12 "pillars of competitiveness," each with underlying components that are used to rank the 131 countries in the study. These pillars include institutions, infrastructure, macroeconomy, health and primary education, higher education and training, market efficiency for goods, financial market sophistication, technological readiness, market size, business sophistication and innovation. Each pillar is comprised of various component factors. Let's focus on the innovation, higher education and training, and primary education pillars and their underlying components. The innovation pillar assesses whether an economy exhibits an environment that is conducive to innovative activity and supported by both the public and private sectors. Not surprisingly, the U.S. ranks high overall on the innovation pillar (1st of 131 countries), with strong component rankings on high corporate spending on R&D (2nd), quality scientific research institutes (2nd), significant collaboration between industry and academia in research (1st), government procurement of advanced technology products (5th), and overall capacity for innovation (9th). We also perform well on intellectual property protection and number of utility patents. One component area of concern is that we rank 12th in the availability of scientists and engineers, an issue highlighted often in the ongoing debate surrounding the current H1-B visa limit of 65,000.
We also do very well generally on the higher education and training pillar—where the U.S. ranks 5th overall. This pillar assesses the ability of an economy to develop and nurture an educated workforce, one capable of meeting the evolving needs in a rapidly changing technological environment. However, and also not surprisingly given much of the attention recently on the declining comparative strength of U.S. K-12 students in science and math, we rank 34th in health and primary education. This category combines the idea that a healthy workforce combined with access to quality basic education is vital to a competitive economy. Granted, it's not easy to separate these two factors (e.g., is it health or primary education that puts Tunisia (22nd) and Cyprus (18th) ahead of the U.S. in this category?), the fact that we rank 34th in this category is cause for concern.
Despite the generally positive news expressed in this report for the U.S. overall, the report does identify several factors beyond education that require attention. Of these, the one that may be the source of greatest concern is the macroeconomic stability pillar (which assesses issues such as national debt, inflation, savings rate among others), where we currently rank 75th in the pool of 131 countries.
This is just one of many reports that appear periodically attempting to assess comparative national competitiveness. While it is nice to see we are still #1 (or at least rank very high) in many areas, particularly related to innovation, it is just as important not to miss the message conveyed by any lower rankings we may have in other areas.
One final note: While the report identifies "government procurement of advanced technology products" as a component factor in the innovation pillar, there is really no accounting for the research conducted at federal labs, something one hopes might be considered in future assessments.
The report can be found on the World Economic Forum website (http://www.gcr.weforum.org).
Gary can be reached at gkjones@federallabs.org.
