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The U.S. Loses Some Competitiveness

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Remember the big economic meeting in Davos Switzerland put on annually by the World Economic Forum? I didn’t previously know this, but they publish a HUGE report called, “The Global Competitiveness Report”. This beast is 515 pages this year and contains an incredible amount of information and analysis. Here is the link to their most recent report:
Because Wikipedia is one of the finest inventions in the 21st century, I will use their recap of what this report is and what it attempts to accomplish:
“The report ranks the world's nations according to the Global Competitiveness Index. The report states that it is based on the latest theoretical and empirical research.  It is made up of over 90 variables, of which two thirds come from the Executive Opinion Survey, and one third comes from publicly available sources such as the United Nations. The variables are organized into nine pillars, with each pillar representing an area considered as an important determinant of competitiveness. The report notes that as a nation develops, wages tend to increase, and that in order to sustain this higher income, labor productivity must improve in order for the nation to be competitive. In addition, what creates productivity in Sweden is necessarily different from what drives it in Ghana. Thus, the GCI separates countries into three specific stages: factor-driven, efficiency-driven, and innovation-driven, each implying a growing degree of complexity in the operation of the economy.”
There is a minor error in wiki’s description, which I would like to clear up. There are “12 pillars of competitiveness” in the 2010-2011 report as opposed to 9 mentioned by Wiki.
The twelve pillars of competitiveness are:
  1. Institutions
  2. Infrastructure
  3. Macroeconomic environment
  4. Health and primary education
  5. Higher education and training
  6. Goods market efficiency
  7. Labor market efficiency
  8. Financial market development
  9. Technological readiness
  10. Market size
  11. Business Sophistication
  12. Innovation 
There is no possible way that I can do any sort of justice to this exhaustive report but I would like to point out a few of their views on some key countries, specifically the top 4 countries. This entire report provides a great rubric to evaluate where you allocate capital throughout the globe. It would be an excellent exercise for any global investor to review this work and assess their current allocation. But additionally it provides some important food for thought in terms of domestic politics. 
So with that said here are the top 4 rankings. 
The United States:
“The United Statescontinues the decline that began last year, falling two more places to 4th position. While many structural features that make its economy extremely productive, a number of escalating weaknesses have lowered the US ranking over the past two years. US companies are highly sophisticated and innovative, supported by an excellent university system that collaborates strongly with the business sector in R&D. Combined with the scale opportunities afforded by the sheer size of its domestic economy—the largest in the world by far—these qualities continue to make the United States very competitive. Labor markets are ranked 4th, characterized by the ease and affordability of hiring workers and significant wage flexibility.”
“On the other hand, there are some weaknesses in particular areas that have deepened since our last assessment. The evaluation of institutions has continued to decline, falling from 34th to 40th this year. The public does not demonstrate strong trust of politicians (54th), and the business community remains concerned about the government’s ability to maintain arms-length relationships with the private sector (55th) and considers that the government spends its resources relatively wastefully (68th).There is also increasing concern related to the functioning of private institutions, with a measurable weakening of the assessment of auditing and reporting standards (down from 39th last year to 55th this year), as well as corporate ethics (down from 22nd to 30th). Measures of financial market development have also continued to decline, dropping from 9th two years ago to 31st overall this year in that pillar. A lack of macroeconomic stability continues to be the United States’ greatest area of weakness (ranked 87th). Prior to the crisis, the United States had been building up large macroeconomic imbalances, with repeated fiscal deficits leading to burgeoning levels of public indebtedness; this has been exacerbated by significant stimulus spending. In this context it is clear that mapping out a clear exit strategy will be an important step in reinforcing the country’s competitiveness going into the future.”
In Comparison it is worth noting who beat the United States.
"Switzerland retains its 1st place position, characterized by an excellent capacity for innovation and a very sophisticated business culture, ranked 4th for its business sophistication and 2nd for its innovation capacity. Switzerland’s scientific research institutions are among the world’s best, and the strong collaboration between the academic and business sectors, combined with high company spending on R&D, ensures that much of this research is translated into marketable products and processes, reinforced by strong intellectual property protection and government support of innovation through its procurement processes. This strong innovative capacity is captured by the high rate of patenting (158.95 per million inhabitants) in the country, for which Switzerland ranks 7th worldwide on a per capita basis."
"Public institutions in Switzerland are among the most effective and transparent in the world (5th), receiving an even better comparative assessment this year than in past years. Governance structures ensure a level playing field, enhancing business confidence; these include an independent judiciary, strong rule of law, and a highly accountable public sector. Competitiveness is also buttressed by excellent infrastructure (6th), a well-functioning goods market (4th), and a highly developed financial market (8th) as well as a labor market that is among the most efficient in the world (2nd, just behind Singapore’s). And Switzerland’s macroeconomic environment, after weakening slightly last year, has bounced back and is among the most stable in the world (ranked 5th) at a time when many countries are struggling in this area."
"While Switzerland demonstrates many competitive strengths, the university enrollment rate of 49.4 percent continues to lag behind many other high-innovation countries, placing it 48th on this indicator. With an eye to the future, efforts should be made to boost higher education attainment to ensure sufficient national talent to continue contributing to productivity improvements."
"Sweden has moved ahead of Singapore and the United States to claim 2nd position this year. The country benefits from the world’s most transparent and efficient public institutions, with very low levels of corruption and undue influence and a government that is considered to be one of the most efficient in the world: public trust of politicians is ranked a high 3rd. Private institutions also receive excellent marks (ranked 3rd), with firms that demonstrate the utmost ethical behavior (ranked 1st), strong auditing and reporting standards, and well-functioning corporate boards. Goods and financial markets are also very efficient, although labor markets lack flexibility. Combined with a strong focus on education over the years (ranked 2nd for higher education and training) and the world’s strongest technological adoption (ranked 1st in the technological readiness pillar), Sweden has developed a very sophisticated business culture (2nd) and is one of the world’s leading innovators (ranked 5th). These characteristics come together to make Sweden one of the most productive and competitive economies in the world."
"Singapore maintains its position at 3rd place, still the highest-ranked country from Asia. The country’s institutions continue to be assessed as the best in the world, ranked 1st for both the lack of corruption in the country and government efficiency. Singapore places 1st for the efficiency of its goods and labor markets and 2nd for its financial market sophistication, ensuring the proper allocation of these factors to their best use. Singapore also has world-class infrastructure (ranked 5th), with excellent roads, ports, and air transport facilities. In addition, the country’s competitiveness is buttressed by a strong focus on education, providing individuals with the skills needed for a rapidly changing global economy. In order to strengthen its competitiveness further, Singapore could encourage even stronger adoption of the latest technologies as well as policies that enhance the sophistication of its companies."
My take:
Immediately my thoughts jump to our relative weakness in the United States: our government. We had a great political system back in the day when politicians (Democrats and Republicans) had some sense of morals and accountability. Back when working for the Government was considered being a public servant.  At some point we lost our way. Now becoming a politician is seen as a rather smart career choice that can be quite prosperous for people with the loudest voice, most friends and money, and lowest sense of right and wrong. 
My solution: term limits. While I believe we have a frivolous government spending problem in this country (which apparently we are ranked rather poorly in, at 68th, by this report as can be seen above), it would serve one well to ask why that is the case. In my opinion, it is because politicians are not public servants anymore. They are servants to their own ambitions regardless of what it means for the good of the country. Why else do politicians support subsidizing the ethanol industry despite any person with a reasonable understanding of economics telling them it is a very poor idea? Even friends of mine that are much more focused on social justice and humanitarian issues (a.k.a. liberals) think the ethanol policy is foolish when the world (including the United States) is full of hungry people. So why do it? That’s easy enough to answer–The Iowa Caucus. Unfortunately, there are numerous examples like this throughout our recent history, spread all over the Country on the city, state and national level, in which politicians (probably knowingly) support policy that is horrible from the get go just to maintain their political positions and fulfill their aspirations. Do you really think President Obama bailed out the Labor Unions while stiffing the bond holders (made up largely of pension funds) because he thought it was economically the right thing to do?
Come November, and hopefully well into the presidential election, voters should use these 12 pillars of competitiveness to sift through the BS that politicians from all parties will be throwing.  Asking the political candidates what their plans and ideas will do to improve our position in any of these 12 areas. Maybe then there can be some change for the better. Perhaps voters can ask some relevant tough questions using this rubric instead of focusing on irrelevant hot button issues which so often get voters riled up while keeping fools in office.  
We are at a crossroads. We cannot afford such a poor set of policy markers forever. We are starting to slip.  While Obama argues the Republicans offer no new alternatives, that alone does not justify continuing down a bad path. A path that apparently over 60 percent of voters believe we shouldn’t be on. The campaign slogan of the Obama administration goes, “Yes We Can” which immediately makes me think of the scene from Jurassic Park in which the skeptical scientist played by Jeff Goldblum says, “Yeah, but your scientists were so preoccupied with whether or not they could, they didn’t stop to think if they should.” Democrats and Republicans need to get a grip on themselves and come up with some actionable plans to improve on these 12 pillars, namely themselves. If we can get a tolerable form of government that doesn’t resemble politically ambitious, anti-business, cronyism just maybe we can once again find ourselves at the top of the food chain. Thanks for reading.

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