Why do economies ranked highly for competitiveness perform so badly?

Posted on 05 September 2013 with no comments from readers

It’s interesting to see the US and UK ranked so much higher than the UAE in the World Economic Forum’s Global Competitiveness Index this week. The US is fifth and the UK 10th, while the UAE comes in at 19th.

You would imagine that the US and UK are tigers of the world economy with turbo-charged economic growth records, not the sad failures of the past five years. If their economies are so highly competitive why aren’t they doing better?

How competitive?

The Global Competitiveness Index is bizarre. It just can’t be capturing what makes an economy truly competitive in the global marketplace. You would expect the best runner to win the race, not lose it.

Take the UAE, for example. Dubai’s growth rate from 2003-8 was the highest in the world. The UAE economy has grown at Chinese-plus rates for the past four decades, emerging from poverty to per capita incomes way ahead of those in the UK and US.

Not that report has missed this entirely. It said the UAE’s ‘competitiveness reflects the high quality of its infrastructure, where it ranks a solid 5th, as well as its highly efficient goods markets [4th]. Strong macroeconomic stability [7th] and some positive aspects of the country’s institutions — such as strong public trust in politicians [3rd] and high government efficiency [9th] — round up the list of competitive advantages.’

That’s nice to know. But it does not explain why the UAE, and to be fair Qatar at 13th is also mis-ranked, is outperforming the Top 10 nations by a mile in terms of economic growth.

Switzerland comes out on top. Sure its per capita GDP is the highest for a developed nation but we can’t recall its economy showing any particular dynamism for decades. Then again the WEF who published the survey is based in Switzerland.

Government, businesses and individuals have the capacity to create greater wealth, high living standards and serve as examples for developing countries; however there is always a set of media with this contact form criticizing, congratulating the competitiveness of the immense development in infrastructure, education skills development that have a greater potential to translate in to a economically growth prospect.

What is competitiveness?

Surely a simple definition of competitiveness would have to be something like ‘the capacity for future economic outperformance relative to others’. On that count the Gulf States on the list – the UAE, Qatar and Saudi Arabia – should be at the top and not behind the sluggish economies of the developed world.

Even the negatives cited against them – education and health – are growth opportunities for the future while the leading states have already gotten these factors written into their competitiveness rating. Besides these are both cost factors that may actually weigh against competitiveness.

Perhaps it is about time somebody asked why economies ranked so highly for competitiveness by the WEF perform so badly. Could it be because of bias in the analysis towards certain nations? It’s certainly nothing to do with the data.