Global Competitiveness Report 2019: How to end a lost decade of productivity growth

The Top 10

Long-term growth: the final frontier

This year’s Global Competitiveness Report is the latest edition of the series launched in 1979 that provides an annual assessment of the drivers of productivity and long-term economic growth. With a score of 84.8 (+1.3), Singapore is the world’s most competitive economy in 2019, overtaking the United States, which falls to second place. Hong Kong SAR (3rd), Netherlands (4th) and Switzerland (5th) round up the top five.

Each indicator, or “pillar” uses a scale from 0 to 100, to show how close an economy is to the ideal state or “frontier” of competitiveness in that area

Building on four decades of experience in benchmarking competitiveness, the index maps the competitiveness landscape of 141 economies through 103 indicators organized into 12 themes. Each indicator, using a scale from 0 to 100, shows how close an economy is to the ideal state or “frontier” of competitiveness. The pillars, which cover broad socio-economic elements are: institutions, infrastructure, ICT adoption, macroeconomic stability, health, skills, product market, labour market, the financial system, market size, business dynamism and innovation capability.

What is competitiveness?

What is economic competitiveness? The World Economic Forum, which has been measuring countries' competitiveness since 1979, defines it as: “the set of institutions, policies and factors that determine the level of productivity of a country." Other definitions exist, but all generally include the word “productivity".

The Global Competitiveness Report is a tool to help governments, the private sector, and civil society work together to boost productivity and generate prosperity. Comparative analysis between countries allows leaders to gauge areas that need strengthening and build a coordinated response. It also helps identify best practices around the world.

The Global Competitive Index forms the basis of the report. It measures performance according to 114 indicators that influence a nation’s productivity. The latest edition covered 141 economies, accounting for over 98% of the world’s GDP.

Countries’ scores are based primarily on quantitative findings from internationally recognized agencies such as the International Monetary Fund and World Health Organization, with the addition of qualitative assessments from economic and social specialists and senior corporate executives.

A lost decade

Economic tipping point and a widening competitiveness gap

The world is at a social, environmental and economic tipping point. Subdued growth, rising inequalities and accelerating climate change provide the context for a backlash against capitalism, globalization, technology, and elites. There is gridlock in the international governance system and escalating trade and geopolitical tensions are fuelling uncertainty. This holds back investment and increases the risk of supply shocks: disruptions to global supply chains, sudden price spikes or interruptions in the availability of key resources.

The Global Competitiveness Report 2019 reveals an average across the 141 economies covered of 61 points. This is almost 40 points short of the “frontier”. It is a global competitiveness gap that is particularly concerning, given the world economy faces the prospect of a downturn. The report’s survey of 13,000 business executives highlights deep uncertainty and lower confidence.

While the $10 trillion injection by central banks is unprecedented and has succeeded in averting a deeper recession, it is not enough to catalyse the allocation of resources towards productivity enhancing investments in the private and public sectors.

However, some of this year’s better performers appear to be benefiting from global trade tensions through trade diversion, including Singapore (1st) and Viet Nam (67th), the most improved country in 2019.

The principal culprits

Persistent weaknesses in the drivers of productivity growth are among the principal culprits. In advanced, emerging and developing economies, productivity growth started slowing in 2000 and decelerated further after the crisis. Between 2011 and 2016, “total factor productivity growth” – or the combined growth of inputs, like resources and labour, and outputs – grew by 0.3% in advanced economies and 1.3% in emerging and developing economies.

The financial crisis added to this deceleration through “productivity hysteresis”– the long-lasting delayed effects of investments being undermined by uncertainty, low demand and tighter credit conditions. Beyond strengthening financial system regulations, many of the structural reforms designed to revive productivity that were promised by policy-makers in the midst of the crisis did not materialize.

The injection of cash by the world’s four major central banks may have even contributed to divert more capital towards the financial market rather than to productivity-enhancing investments.

Who’s the best in class?

  • 1
    With a score of 84.8 out of 100, Singapore is the country closest to the frontier of competitiveness
  • 2
    Other G20 economies in the top 10 include the United States (2nd), Japan (6th), Germany (7th) and the United Kingdom (9th) while Argentina (83rd, down two places) is the lowest ranked among G20 countries
  • 3
    Asia-Pacific is the most competitive region in the world, followed closely by Europe and North America
  • 4
    The United States may have lost out to Singapore overall, but it remains an innovation powerhouse, ranking 1st on the business dynamism pillar, 2nd on innovation capability, and 1st for finding skilled employees
  • 5
    Nordic countries are among the world’s most technologically advanced, innovative and dynamic while also providing better living conditions and social protection
  • 6
    Denmark, Uruguay and Zimbabwe have increased their shares of renewable sources of energy significantly more than other countries at their respective levels of competitiveness

Winning the game – how to get ahead?

The index examines the relationship between competitiveness and the two other dimensions of sustainable development – social cohesiveness and environmental sustainability. It shows that there are no inherent trade-offs between competitiveness and sustainability, and between competitiveness and social cohesiveness. This suggests a “win-win” policy space, where a productive, low-carbon, inclusive economy is possible, and it is the only viable option going forward.

Be an all-rounder

The report is a reminder to apply a holistic approach and to better balance short-term considerations against factors whose impact is felt beyond quarterly results and election cycles. For example, the results of the index show that labour and education policies have not been keeping up with the pace of innovation in most countries, including in some of the largest and most innovative economies.

With nearly one-half of humanity struggling to meet basic needs, the need for sustained, productivity enhancing economic growth is critical for improved living standards

For least-developed and emerging economies, their fragile economic foundations make them highly vulnerable to shocks. With extreme poverty reduction decelerating and nearly one-half of humanity still struggling to meet basic needs, the report suggests the need for sustained, productivity enhancing economic growth remaining critical for improved living standards.

In parallel, the unfolding climate crisis requires urgent, decisive and coordinated action by policy-makers. Supporting economic growth at all costs can no longer be a sole objective.

Integrate tech

Governments must better anticipate the unintended consequences of technological integration and implement complementary social policies that support populations through the Fourth Industrial Revolution. The report shows that several economies with strong innovation capability like South Korea, Japan and France, or increasing capability, like China, India and Brazil, must improve their talent base and the functioning of their labour markets.

The world’s largest economies also have room for improvement on technology governance. Based on how the legal frameworks in their countries are adapting to digital business models, only four G20 economies made it into the top 20: United States (1st), Germany (9th), Saudi Arabia (11th) and the United Kingdom (15th). China ranks 24th in this category.

Education, education, education

Talent adaptability is critical. It pays to enable the workforce to contribute to the technology revolution and to be able to cope with its disruptions. Talent adaptability also requires a well-functioning labour market that protects workers, not jobs. Advanced economies such as South Korea, Italy, France and, to some extent, Japan need to develop their skills base and tackle rigidities in their labour markets. As innovation capacity grows in emerging economies such as China, India and Brazil, they need to strengthen their skills and labour market to minimize the risks of negative social spillovers.

Economic growth does not happen in a vacuum

Sustained economic growth remains the surest route out of poverty and a core driver of human development. For the past decade, growth has been subdued and remains below potential in most developing countries, seriously hampering progress on several of the UN’s 2030 Sustainable Development Goals (SDGs). The competitiveness landscape of 2019 does not bode well. Individual countries, the aid community and all stakeholders must step up their efforts urgently.

Individual countries, the aid community and all stakeholders must step up their efforts urgently

The world is not on track to meet any of the SDGs. Least developed countries have missed the target of 7% growth every year since 2015. Extreme poverty reduction is decelerating. 3.4 billion people – or 46% of the world’s population – lived on less than $5.50 a day and struggled to meet basic needs. After years of steady decline, hunger has increased and now affects 826 million – or one in nine people – up from 784 million in 2015. A total of 20% of Africa’s population is undernourished. The “zero hunger” target will almost certainly be missed.

The index shows that there is little determinism and fatalism in the process of economic development. Economic growth does not happen in a vacuum. Some basic building blocks are required to jumpstart the development process, and more are needed to sustain it. In the current volatile geopolitical context, and with a likely downturn ahead, building economic resilience through improved competitiveness is crucial, especially for low-income countries.

So as monetary policies begin to run out of steam, it is crucial for economies to rely on fiscal policy and public incentives to boost research and development, enhance the skills base of the current and future workforce, develop new infrastructure and integrate new technologies.