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Innovation, market efficiency contribute most to US standing, says new WEF report

GENEVA, Switzerland – 11/27/07 – The US economy has regained its ranking as the world's most competitive, largely as a result of its efficient markets and corporate innovation, according to a major report published by the World Economic Forum (WEF).

The 2007 edition of The Global Competitiveness Report, published by the Geneva, Switzerland-headquartered international research and policy-support group fills out its list of the world’s Top 5 global economies with, in order, Switzerland, Denmark, Sweden, and Germany.

In 2006, the group ranked the US economy as 6th in overall competitiveness.

“The efficiency of the country’s markets, the sophistication of its business community, the impressive capacity for technological innovation that exists within a first-rate system of universities and research centers, all contribute to making the United States a highly competitive economy," said economist Xavier Sala-i-Martin, one of two co-authors of the report.

However, the report warns that macroeconomic imbalances, including current account deficit, and some weaknesses of US institutions “pose a risk to the country’s overall competitiveness potential.”

In the 2007 edition, 131 countries were ranked on the quality of their political institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, and goods and labor market efficiency.

Also taken into consideration were financial market sophistication, technological development, market size, and business sophistication, and innovation.

The US scored high on innovation, labor market efficiency, and higher education and training, but pinpointed tax rates and tax regulations as the most problematic areas of the US business environment.

Many private-sector and government economists said the resilience the US economy has shown in recent years in the face of many shocks such as the 2001 terrorist attacks, corporate scandals and high oil prices can be attributed to its competitiveness, particularly the openness and flexibility of its financial markets.

In October, US Treasury Secretary Henry Paulson said he believes that with these qualities the US economy will be able to weather another crisis – the slump in the housing and mortgage markets and the related credit crunch.

His optimism was supported by a recent US Commerce Department report that said the US economy grew 3.9% in the third quarter. The news surprised many market observers, who expected a slower growth rate.

The chairman of the President’s Council of Economic Advisers, Edward Lazear, called the growth rate “quite remarkable," in view of the fact that the housing market problems had begun to affect the economy during the third quarter.

The ranking was based on publicly available data and a survey of more than 11,000 business leaders around the world.

Economist Michael Porter, who also co-authored the report, said the index “helps governments identify policy areas ripe for improvements and provides motivation for reforms.”

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