Where the U.S. ranks in global competitiveness

The World Economic Forum’s latest report on global competitiveness is out, and it ranks the U.S. as the world’s third-most competitive economy for the third consecutive year. The key factors that make up a country’s rank include its infrastructure, health care, education, market functioning, sophistication of business and ability to innovate.

The report said the U.S. has made improvements since 2007 in health care and primary education, higher education and training and technological readiness. However, it has fallen behind in infrastructure, macroeconomic environment and what the forum calls “goods market efficiency.”

Margareta Drzeniek Hanouz, head of Global Competitiveness and Risks at the World Economic Forum, said the U.S. finance sector is “generally world-class,” but fears “around the soundness of banks, where it ranks 36th, act as a drag on competitiveness.” 

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Monetary policy is a limiting factor, and not just for the U.S. “What we see as a big challenge to global growth is that we are coming to the end of the road when it comes to monetary stimulus packages,” said Drzeniek Hanouz. “These can be successful short-term measures, but too often they are not accompanied by competitiveness-boosting reforms. This is why so many economies are failing to ignite sustainable growth.”

She explained that for the U.S. in particular, a big challenge is still its macroeconomic environment, which is a basic requirement of competitiveness. “The country could also improve the strength of institutions in areas such as restoring trust in politicians, cutting red tape and improving judicial independence,” Drzeniek Hanouz pointed out.

Protectionism poses a major risk to the U.S., she added. “Open economies that are able to move goods, services, talented people and even ideas have been demonstrated to be the ones that have succeeded in driving sustainable growth.”

Pointing to why protectionism is on the rise in so many nations, Drzeniek Hanouz said: “At the root of the challenge is the perception that there is a link between trade and income inequality. Until we tackle this through measures to promote inclusive growth, people will continue to question the benefits of globalization.” 

Switzerland held its position from last year as the world’s most competitive economy, a spot it has now held for the eighth straight year, according to the report. 

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Singapore ranked second. It showed strength across the board in the 10 of the 12 categories the report measures. Among Singapore’s main strengths, Drzeniek Hanouz highlighted “the transparency of its institutions, quality of its education and strong functioning of its goods, labor and financial markets.”

European economies dominated the top 10, with the Netherlands, Germany, Sweden and Finland also on the list in order of ranking. The U.K. advanced three spots to No. 7 compared to a year ago, based on pre-Brexit data.

“We see a definite downside risk to the U.K. from Brexit,” Drzeniek Hanouz said. “The most important direct risks are increased trade barriers, nontariff measures and barriers to international investment.”