Special Report

The Best Economies in the World

After sliding for four consecutive years, the United States moved up two places for the second year in a row in the World Economic Forum’s competitiveness rankings, from fifth last year to third in 2014. A combination of factors, including improving business sophistication and institutional frameworks, helped the United States improve, despite perceptions of inefficient government and a weak macroeconomic environment.

The WEF’s Global Competitiveness Report defines competitiveness as the “set of institutions, policies, and factors that determine the level of productivity of a country.” In order to assess competitiveness, the WEF divided the 144 nations it surveyed into one of three classifications, depending on their stage of development.

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According to the WEF’s report, “Factor-driven” economies are the least developed, typically relying on low-skilled labor and natural resources. More developed countries are considered “efficiency-driven” economies because they focus on improving economic output by increasing production efficiency. The most developed economies, which rely on innovation and technological changes to drive growth, are considered “innovation-driven” economies. Nations may also fall between these classifications.

A country’s competitiveness and economic development is highly correlated with its Gross Domestic Product. All of the 10 most competitive countries had among the 25 highest GDPs per capita last year. Norway, Singapore, and Hong Kong SAR are all among the five highest in terms of GDP per capita.

The least competitive countries, on the other hand, were unable to generate world-leading economic output. Three countries — Mauritania, Burundi, and Sierra Leone — had a GDP per capita of less than $10,000.

In an interview with Margareta Drzeniek, Director and lead economist of the Global Competitiveness and Benchmarking Network for the World Economic Forum, she explained that the WEF measures 12 pillars in order to see “which of the drivers actually drive productivity in a country and what are their strengths and weaknesses.”

As Drzeniek noted, economic development relies on good institutions and education. Institutions “influence investment decisions and the organization of production” while playing a “key role in the ways in which societies distribute the benefits and bear the costs of development strategies.”

In fact, the most competitive economies rank highly in these areas. Every country except for the United States ranks in the top 25 for the provision of basic economic requirements, such as institutions, infrastructure, and education. The most competitive countries maintain a high level of quality for road networks and transportation infrastructure and primary education.

Maintaining strong nationwide institutions and infrastructure often requires a great deal of investment. The most competitive nations all have the means to borrow large sums of money to stay competitive, which can be measured by high levels of government debt. Six of the most competitive countries had debt equivalent to at least 75% of GDP, exceptionally high compared to other countries reviewed. Japan’s general government debt, most notably, was worth more than 240% of its GDP.

With only a few exceptions, the world’s least competitive countries have relatively low debt levels. In these poorer nations, access to financing is often a challenge not just for businesses but also for governments.

Still, the least competitive nations face larger impediments than debt. When discussing fundamental prerequisites for any nation, Drzeniek noted that “any nation requires fairly strong leadership.” In the least competitive countries, leadership issues can “prevent progress for countries’ competitiveness due to countries not making investment or functioning well.” Most have experienced a major regime change in the past two decades.

To identify the most and least competitive economies in the world, 24/7 Wall St. reviewed the WEF’s Global Competitiveness Report for 2014-2015. The WEF has generated a Global Competitiveness Index (GCI) since 2005, which includes weighted average measurements for 114 components making up 12 pillars. Weights for various pillars depend on the country’s stage of development. All GDP figures, as well as figures on government debt as a percentage of GDP, were provided to the WEF by the International Monetary Fund.

These are the best economies in the world.

10. Sweden
> GCI score (1-7): 5.408
> GDP per capita: $42,146.88 (12th highest)
> Debt as a pct. of GDP: 41.4% (68th lowest)
> Pct. of residents using Internet: 94.8% (3rd highest)
> Biggest problem in doing business: Tax rates

Sweden is the 10th most competitive economy in the world, falling four spots from a year ago. Unlike much of Europe, the country weathered the recent global financial crisis well, maintaining low levels of debt and strong credit ratings throughout the turmoil. With its world-leading education system, Sweden promotes an innovative economy, with 300.8 patent applications per 1 million residents last year, more than all but three other countries reviewed.

It is also home to companies adept at integrating new technology. Ericsson, for example, is the world’s largest manufacturer of wireless telecom products. And Electrolux and IKEA have become worldwide brands, recognized for their innovation. Sweden’s abilities to adopt technologies and develop new breakthroughs were rated better than all but a few other countries.

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9. United Kingdom
> GCI score (1-7): 5.415
> GDP per capita: $38,309.85 (19th highest)
> Debt as a pct. of GDP: 90.1% (18th highest)
> Pct. of residents using Internet: 89.8% (9th highest)
> Biggest problem in doing business: Access to financing

As one of the world’s largest economies, the United Kingdom has a substantial impact on the global economy. The country benefits from a productive workforce, and is extremely attractive to international talent. The United Kingdom’s ability to adopt existing technologies was rated second best among all nations.

Despite improving its position on the index from a year ago, the country’s economic environment remained poorly rated. It is more difficult to obtain a loan in the United Kingdom than in a majority of countries reviewed. During the financial crisis, the Bank of England contributed substantial funds to supporting the banking system. The government still owns large portions of both Lloyd’s Banking Group and Royal Bank of Scotland, two of the nation’s largest banks.

8. Netherlands
> GCI score (1-7): 5.454
> GDP per capita: $42,143.25 (13th highest)
> Debt as a pct. of GDP: 74.9% (27th highest)
> Pct. of residents using Internet: 93.9% (5th highest)
> Biggest problem in doing business: Restrictive labor regulations

The Netherlands was rated among the worst for hiring and firing practices, as well as for wage determination. Apart from labor market problems, Dutch institutions were among the world’s most competitive. For example, only Singapore and Finland had better rated higher education and training. The Netherlands also has one of the world’s most sophisticated transportation systems. Specifically, the country’s port and road infrastructure were rated nearly the best in the world. The Dutch are well known for their biking culture and bicycles outnumber people in the country. Transit by boat and car also benefit from world-class infrastructure systems.

7. Hong Kong SAR
> GCI score (1-7): 5.456
> GDP per capita: $55,383.40 (5th highest)
> Debt as a pct. of GDP: 33.8% (48th lowest)
> Pct. of residents using Internet: 74.2% (30th highest)
> Biggest problem in doing business: Insufficient capacity to innovate

The Special Administrative Region of China, while not technically a country, surpasses even the Netherlands for its infrastructure. While Hong Kong’s businesses excel in technological readiness, capacity for innovation has been on the decline. Still, Hong Kong leads the world in financial market development, driven primarily by financing through local equity markets and strong securities regulations. Political tensions between pro-democracy residents and China’s government have recently been on the rise.


6. Japan
> GCI score (1-7): 5.473
> GDP per capita: $38,297.00 (20th highest)
> Debt as a pct. of GDP: 243.2% (the highest)
> Pct. of residents using Internet: 86.3% (12th highest)
> Biggest problem in doing business: Tax rates

Japan was among the several nations that implemented quantitative easing during the financial crisis — this policy and several other economic approaches were dubbed Abenomics after the country’s prime minister, Shinzo Abe.

The nation has become more competitive, rising three positions in the index since last year, the largest improvement among the 10 most competitive economies. Most notably, Japan leads the world in business sophistication, as it has for the last six years. In particular, both the availability and quality of Japan’s suppliers were rated the best in the world. Currently, Japanese firms identify taxes as the biggest problem in doing business in the country.

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5. Germany
> GCI score (1-7): 5.488
> GDP per capita: $40,756.66 (15th highest)
> Debt as a pct. of GDP: 78.1% (26th highest)
> Pct. of residents using Internet: 83.9% (17th highest)
> Biggest problem in doing business: Restrictive labor regulations

Germany excels in promoting highly specialized small- and medium-sized enterprises, driven mainly by an advanced, innovative business culture. Germany has the third-most competitive concentration of interconnected businesses and suppliers.

The sophisticated business environment is also bolstered by strong innovation. German businesses invest heavily in research and development, helping them boast the fourth-most sophisticated production process. Additionally, they maintain the sixth-highest level of control over international distribution of goods. Like many other countries still recovering from the recession, Germany’s competitiveness score was hurt most by its high level of public debt.

4. Finland
> GCI score (1-7): 5.501
> GDP per capita: $36,700.27 (21st highest)
> Debt as a pct. of GDP: 57.0% (49th highest)
> Pct. of residents using Internet: 91.5% (7th highest)
> Biggest problem in doing business: Tax rates

This year, Finland ranked high across all major factors of competitiveness. In addition to possessing highly transparent public institutions and extensive infrastructure, Finland has the strongest health and education systems of any nation reviewed. Nearly 99% of Finland’s primary school-aged population is enrolled in its top-rated school system. In higher education, a well-trained staff helps to provide the second best math and science education of the countries reviewed. University and industry collaboration in research and development was also ranked the highest.

Finland’s strong commitment to education also likely contributes to its status as the world’s most innovative economy. Yet Finland’s economic competitiveness is limited due to its relatively small market size. Finland’s GDP is projected to total only $194 billion in 2014, according to the IMF, less than half the size of neighboring Sweden.

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3. United States
> GCI score (1-7): 5.544
> GDP per capita: $54,609.47 (6th highest)
> Debt as a pct. of GDP: 104.5% (10th highest)
> Pct. of residents using Internet: 84.2% (16th highest)
> Biggest problem in doing business: Tax rates

The United States continued to advance in competitiveness for the second year in a row, up an additional two places from last year. The greater level of competitiveness was mainly the result of improvements in core institutions and the macroeconomic environment. However, the United States still trails 32 countries in its ability to provide basic economic requirements, including infrastructure, health, and primary education.

The business community finds compliance with government regulations challenging and costs associated with crime and violence high. Yet much of the United States’ strength is in its sheer market size — it has the largest domestic market of all countries in the world. Additionally, the United States ranked fourth for its very sophisticated business environment and competitive labor market.

2. Singapore
> GCI score (1-7): 5.645
> GDP per capita: $64,628.48 (3rd highest)
> Debt as a pct. of GDP: 103.8% (11th highest)
> Pct. of residents using Internet: 73.0% (33rd highest)
> Biggest problem in doing business: Restrictive labor regulations

In addition to boasting one of the world’s lowest unemployment rates, the small island of Singapore is projected to have one of the highest GDP’s per capita in the world in 2014. Perhaps its economic success stems from its ability to consistently provide essential economic requirements. Singapore has the strongest overall environment for institutions, infrastructure, macroeconomics, health, and education of any other country reviewed. Notably, Singapore scored highly for its transportation infrastructure — an important feature for any country relying so heavily on exports, which made up more than 178% of GDP. With a heavy reliance on exports, it’s no surprise that local supplier interaction is very limited, ranked 85th. Additionally, only 79% of women are included in Singapore’s workforce, a lower percentage of women than in 75 other countries.

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1. Switzerland
> GCI score (1-7): 5.704
> GDP per capita: $47,303.25 (7th highest)
> Debt as a pct. of GDP: 49.4% (60th highest)
> Pct. of residents using Internet: 86.7% (11th highest)
> Biggest problem in doing business: Inadequately educated workforce

For the sixth year in a row, Switzerland was rated the world’s most competitive economy. Switzerland performs consistently well across all competitiveness factors and ranks first in many. Switzerland’s labor market is extremely strong and productive, ranked first in the world. While the country ranked first in its ability to attract an extremely high level of talent, efficient hiring and firing practices likely help the small nation compete on a global scale. A well-trained labor force, coupled with a high level of innovation, help make Switzerland’s business sector among the world’s most sophisticated. Unlike other global economies on the list, Switzerland also maintains one of the most stable macroeconomic environments. Yet the country might not have enough qualified workers to meet its continuing growth and global competitive needs.

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