The WEF Global Competitiveness Report 2019 was recently released: it ranks 141 economies in terms of competitiveness using 103 indicators covering 12 pillars (institutions, infrastructure, ICT adoption, macroeconomic stability, health, skills, product market, labour market, the financial system, market size, business dynamism and innovation capability). These competitiveness factors are key drivers of productivity.
According to the 2019 data, Singapore is the most competitive global economy overtaking the US which this year will have to settle for second place. That said, with the ideal frontier score at 100, there is a global competitiveness deficit in the sense that while Singapore ranked #1 with a score of 84.8 it still falls ~15 points short of the ideal! The average global competitiveness index score for the 141 countries is 60.7, ~40 points below the optimum. The US slipped into second position despite being an ‘innovation powerhouse’ and ranking the highest in the business dynamism pillar but this year increased trade tariffs, declining life expectancy and low digital skills were drags on the overall rating.
Nevertheless, one needs to also consider the longer-term picture and despite the four main central banks injecting US$10tn between 2008 and 2017 productivity has been in the doldrums since the GFC. Even before this it was slowing down but the crisis may have contributed to the weakness through ‘productivity hysteresis’. Importantly, the report states that ‘Although loose monetary policy mitigated the negative effects of the global financial crisis, it may have also contributed to reducing productivity growth by encouraging capital misallocation.’ Moreover, the report suggests fiscal policy has been underutilised and advocates its better usage: ‘fiscal policy that prioritizes stimulating productivity-enhancing investments in infrastructure, human capital and R&D can indeed help the economy to return to a higher growth trajectory, complemented by structural reforms that make it easier to innovate and enable responsible and inclusive businesses to thrive.’
Investing to boost competitiveness and productivity is important for sustaining longer term growth: creditor nations with NFA/asset buffers have greater scope to engage in fiscal policy whilst debtors are constrained.