The field of research called the “competitiveness of nations” takes into account that businesses operate in a national environment that can enhance or hinder those businesses’ ability to compete within their own countries or internationally. There are many factors that affect the environment in which businesses operate—including the domestic economy and fiscal policy, regulations, infrastructure (from transportation to universities to hospitals to Internet access), the education of the workforce, and many others. Factors may be hard data, such as GDP and miles of paved roads, or soft data, such as the attitudes and values of managers and workers.
The World Economic Forum (WEF) defines national economic competitiveness as “the set of institutions, policies and factors that determine the level of productivity of a country.” Its index (from the Global Competitiveness Report’s Global Competitive Index [GCI]) is calculated from both publicly available data and the Executive Opinion Survey, an annual survey conducted by the WEF together with its network of Partner Institutes (leading research institutes and business organizations). According to the WEF, the report “assesses the ability of countries to provide high levels of prosperity to their citizens. This in turn depends on how productively a country uses available resources. Therefore, the GCI measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity.” WEF has published its Global Competitiveness Reports since 1979 and the Global Competitiveness Index (GCI) was introduced in 2005. The 2011-2012 editon ranks 142 economies that are separated into three stages, according to where they are in their development: factor-driven economies (stage 1), efficiency-driven economies (stage 2) and innovation-driven economies (stage 3).
The WEF’s Global Competitive Index is based on 12 “pillars of competitiveness,” divided into three subindexes that emphasize different aspects of market efficiency. As an economy moves from one stage of development to the next, different subindexes of “pillars” become more important:
• Basic Requirements (institutions, infrastructure, macroeconomic stability, health and primary education)
• Efficiency Enhancers (higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size)
• Sophistication Factors (business sophistication, innovation)
Jennifer Blanke, Senior Director and Lead Economist at the World Economic Forum, discusses the 2011-2012 Global Competitiveness Report
The International Institute for Management Development (IMD) defines national economic competitiveness as “the ability of a nation to create and maintain an environment that sustains more value creation for its enterprises and more prosperity for its people.” According to IMD, “some nations support competitiveness more than others by creating an environment that facilitates the competitiveness of enterprises and encourages long-term sustainability.” The IMD ranks and analyzes these environments.
IMD’s methodology for its World Competitiveness Yearbook divides the national environment into four main factors, each with five sub-factors:
• Economic Performance (domestic economy, international trade, international investment, employment, prices)
• Government Efficiency (public finance, fiscal policy, institutional framework, business legislation, societal framework)
• Business Efficiency (productivity, labor market, finance, management practices, attitudes and values)
• Infrastructure (basic infrastructure, technological infrastructure, scientific infrastructure, health and environment, education)
The 20 sub-factors comprise a total of more than 300 criteria that are used to calculate the overall competitiveness ranking. These emphasize the market’s support for entrepreneurship and ability to attract investment. The IMD has published its reports since 1989. The 2012 edition analyzes 59 countries based on 329 criteria (two-thirds are hard data and one-third from the IMD’s executive opinion survey).
Stéphane Garelli, Professor at IMD and Director of the World Competitiveness Center discusses the 2012 World Competitivness Yearbook
Harvard economist Michael Porter, who has written extensively on the subject, has noted: “A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the world’s best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home-based suppliers, and demanding local customers.” However, Porter also wrote that “while the notion of a competitive company is clear, the notion of a competitive nation is not.” Critics of the field of competitiveness research argue either that there are limitations to the indexes—that is, that they disregard a national economy’s unique characteristics (such as geography, culture and demographics) and/or that the choice of variables and their weight is based on a particular concept of competitiveness and, therefore, a country’s competitive rank will be different depending on which index is used. There are also critics of the very concept of competitiveness rankings, challenging the basic assumption that countries compete with each other like companies and that a country’s prosperity is based on its success in international markets. These critics also voice concern that it may lead to the inappropriate allocation of resources and possibly to protectionism.
Still, the concept of national economic competitiveness has emerged as a new paradigm in economic development, and several countries and regions, particularly in developing and transition countries, have established advisor bodies or government agencies to develop policies to increase their competitiveness—most often through investment in infrastructure and high technology to increase productivity.
Data are from the World Economic Forum (WEF) and the International Institute for Management Development (IMD), with additional information from “The Competitive Advantage of Nations” (article by Michael Porter, March-April 1990, Harvard Business Review) and “Competitiveness” (article by Paul Krugman, March/April 1994, Foreign Affairs, Vol.73, No.2).
Data is from the International Institute for Management Development (May 2012)
Click on the column heading to sort the table.
Data is from the World Economic Forum (September 2011)
Click on the column heading to sort the table.