America's political leaders frequently talk about the need to stimulate economic growth, citing multiple reasons why growth has eluded us. Typical examples include unfair competition from other countries, regulatory impediments, high tax rates, and general government interference in the marketplace.
A recent report released by the World Economic Forum (WEF) suggests that our economy has the basic competitive elements necessary for economic growth. According to their analysis, the U.S. is considered to be the second-most competitive country in the world. Only Switzerland tops the U.S., with Singapore a close third.
What of China, Trump's frequent target of trade complaints? They finished 27th out of the 137 countries that were rated.
How does the WEF arrive at this conclusion? Baseline information comes from the WEF's Executive Opinion Survey, a comprehensive survey of 12,755 business executives representing 133 countries. The data is subdivided and weighted in various methods, and categorized with respect to 12 important factors – labeled here as "pillars" of Global Competitiveness. These pillars include infrastructure, institutions, educational factors, market efficiency of labor and goods, technological readiness, and innovation.
Each pillar has between 4 and 21 subcategories that shed insight into America's competitive strengths and weaknesses. We lead the world in such categories as financing through local equity markets and availability of venture capital. Our low inflation rate is ranked #1 (not as a raw number, but as a weighted competitiveness factor). Control of international distribution and extent of marketing are two more factors topping the list.
Where do we fare poorly? Start with taxes. The WEF ranks us 95th in competitive tax rates, lending some credence to the Republican call for lower corporate tax rates.
While the U.S. does have the highest statutory tax rate of the industrialized nations listed in the Organization for Economic Cooperation and Development (38.9%), and the only nations with higher rates at all are the United Arab Emirates and the Comoros Islands, many companies pay less thanks to multiple deductions and loopholes. We rank fourth in the OECD data in effective taxes paid.
The weakest of our pillars is the macroeconomic environment, where we rank 83rd overall, falling behind Europe and the rest of North America. While two of the subcategories (inflation and credit rating) are near the top, the other three categories show serious deficiencies. We rank 83rd in our gross national savings rate, 95th in the art of balancing government budgets, and a woeful 125th out of 137 countries in our government debt load. In essence, too much of our economic growth is purchased on credit.
From a policy perspective, this pillar is likely to only get worse. With politicians looking primarily at economic stimulus to increase growth, we are likely to run deficits well into the future – and it takes some pretty generous assumptions on future growth to ever generate the budget surpluses necessary to drive down our national debt.
What of our often-criticized crumbling infrastructure? America ranks reasonably well in 9th place, with road and rail infrastructures ranked 10th, and port and air transport infrastructures ranked 9th. We may have some problems, but we have an enviable infrastructure when compared to the rest of the world. Perhaps we will invest the funds to keep it that way while interest rates are low.
Unfortunately, in the U.S., the WEF report is likely to be used as little more than a leverage tool. Politicians and pundits will cherry-pick information that fits their point of view. We hope that our leaders will understand that the WEF report represents a global perspective we sometimes lose with our American tunnel vision. Our leaders may be able to learn a thing or two from listening to the input of others across the globe.
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