Global Competitiveness Report: World Economic Forum

The World Economic Forum has released their 2010-2011 rankings of Global Competitiveness, a subject matter so important that it rates Capital Letters to introduce.

For each country, the economists from the WEF cobbled together a list of numerical criteria, weighted them, and them summed to create a score. Higher scores, and lower ranks, are better.

Coming in dead last is Chad, finishing way below the penultimate Angola. Who’s on first? Switzerland, the country everybody instantly thinks of when somebody says “Economic Powerhouse.” Two more “S” countries rapidly follow—Sweden and Singapore—followed by one more “S” in fourth place: the States.

Then Germany, Japan and then, where else?, Finland. Rounding out the top 10 are Netherlands, Denmark, and The Great White North (a.k.a. Canada).

Interestingly, the two countries China claims as their own, but have managed to operate independently—Hong Kong (11th place) and Taiwan (13th place; and a country which the report mysteriously labels “Taiwan, China”)—soar above the claimant, who comes in a mere 27th place.

The ratings were created, as all such ratings must be created, ad hoc and with data that is measured with error. Since this is so, the danger is not in creating a scheme, but in charging ahead in a Benthamite frenzy, pretending fine distinctions are meaningful. Rankings should not be taken too seriously. Is Singapore really better than the USA, competitively speaking? Or are they “about the same”?

It’s best, then, to take the results from any subjective rating scheme and consider them in blocks (say, in eighths to tenths). This means that, roughly, the top 14 to 17 countries should be considered “First Tier”, with no distinguishing intra-tier, and so on (remembering that the boundaries are fuzzy).

There are some interesting results, the most important contained in their Figure 1 (available in the full report).

World Economic Forum Global Competitiveness

As it says, this is the public debt as a percentage of GDP for different groupings of countries from 1950 until 2010, with projections out to 2015. The 100%+ rate starting in 1950 makes sense because, of course, the world was still recovering from World War II (in modern typography, War 2.0).

As the debris was cleared and new structures were built over the craters, and with people still skittish about the idea of powerful governments, the public debt shrank to reasonable levels. Until the Greatest Generation® began to retire and to meet their ultimate reward. The lack of this institutional memory began to show itself starting around 1980.

The levels now are not quite what they were in war time, or just after, but they are close and, if the democracies who make up the G-7 continue to vote themselves largess from the public coffers, we’ll soon return to the point where we owe more (to ourselves) than we can repay.

Since governments can create their own money ab initio, 100%+ debt-to-GDP ratios can be maintained for some time. But not, it need hardly be said, forever. Plus, the world—the G-7 world, anyway—is not rebuilding anything. Except authoritarian governments. At what point War 3.0?

GDP and debt data are pretty solid, and, relative to other measures in the WEF portfolio, contain only small error. But this is probably not so for every dimension that is tracked. The WEF does not provide (as far as I could tell) direct access to their data, but they do give us a tool where we can, for example, create scatter plots of various indexes.

For fun, I inputed “Organized crime” (x-axis) to predict “Overall Rank” (y-axis). Remember: lower is better for both. World Economic Forum Global Competitiveness

The tool lets you click the various dots, an action which brings up the name of the country belonging to the dot; the legend to the right is nearly useless. The country with the lowest organized crime was Rawanda. Yes, I said Rawanda, the country that was dead in the middle for competitiveness. Likewise, and more believably, El Salvador had the highest crime index, yet they were only two places away from Rawanda on the competitiveness rank.

World Economic Forum Global Competitiveness Next, I tried Quality of math and science education. Bit stronger signal than crime, but not much stronger. Singapore was tops here, which is believable. Worst was Angola, also no surprise. The States came in at 52, right behind—you guessed it—Saudi Arabia. We did beat out the old UK (55), so it wasn’t all bad news. Taiwan was 6th and China 33rdth, incidentally.

GDP per capita is always fun. Luxembourgians are mighty rich, with an average $105 thousand per head. It’s less than half this for the USA. But it’s unclear how much the folks in Luxembourg must fork out back to their leaders. However, they cannot be too unhappy with their leaders, because Luxembourg came in fourth in trust of their politicians (p. 369 of original report). The USA is fifty-fourth! Venezuela is last; probably because it is not quite yet the socialist paradise promised by Hugo Chavez. After it arrives, look for Venezuela to take first place. World Economic Forum Global Competitiveness

There is much more: how much economies rely on bribery (New Zealand best, Mali worst), judicial independence (New Zealand best, Venezuela worst), government wastefulness, regulation, terrorism, infrastructure, savings, health, and on an on.

In fact, there is so much tracked, that you will be able to find good news for just about any country. Watch various new sources for confirmation of this.

10 Comments

  1. Which country was the rankest, that is, the most likely to rank other countries?

    PS — kudos on the use of “Benthamite frenzy”. That’s worth at least 3 points. One well known and much beloved fact about the portly raconteur Jeremy Bentham is that his corpse was dissected as part of a public anatomy lecture, as requested in his will.

    From Wiki:

    “Afterward, the skeleton and head were preserved and stored in a wooden cabinet called the “Auto-icon”, with the skeleton stuffed out with hay and dressed in Bentham’s clothes. Originally kept by his disciple Thomas Southwood Smith, it was acquired by University College London in 1850. It is normally kept on public display at the end of the South Cloisters in the main building of the college, but for the 100th and 150th anniversaries of the college, it was brought to the meeting of the College Council, where it was listed as ‘present but not voting’.

    The Auto-icon has a wax head, as Bentham’s head was badly damaged in the preservation process. The real head was displayed in the same case for many years but became the target of repeated student pranks, including being stolen on more than one occasion. It is now locked away securely.”

    Therein the phrase “Benthamite frenzy” takes on a whole new meaning.

  2. These indices typically come in for criticism of their structure. One big problem is that they do an arithmetic weighting of factors instead of the more logical product of factors. The product function makes sense because it says that competitiveness is a chain; if you don’t have a score in any one of the factors, you are dead. Therefore you ought to add the logarithms of the various factors, perhaps with weights. For example in macroeconomics, the Cobb-Douglas function for economic output is the weighted average of the logarithms of labor and capital, reflecting the fact that if you don’t have either of these components, you don’t have any output.

  3. Matt, sorry but you just wasted a bunch of time. That “Global Competitiveness” report you played with failed to mention/include the nation of Belize, the former Dutch Honduras. That throws everything off. Leave it to “World Economic Forum” dunderheads to include [and misspell] Rwanda but exclude Belize. It’s a Communist Elitist plat.

  4. Matt,

    Hong Kong is not, and never has been, a “country.” Even going as far back as the Qin Dynasty, Hong Kong has been a part of what we know today as China.

    Taiwan has some interesting arguments for independence, depending on how you look back, but Hong Kong? Not really. It’s only period as separate from China proper has been during its time as a British colony– hardly, I’d say, an argument for country status.

    Also, regarding debt-to-GDP, I once had a talk with Ken Rogoff at Harvard for work.

    (For those of you who don’t know who Rogoff is: http://en.wikipedia.org/wiki/Kenneth_Rogoff)

    In short, Rogoff made clear that what we saw in Greece this past summer is all but inevitable in the rest of the OECD at some point, assuming that nobody commits to reducing spending. I haven’t had a chance to read the copy of his book he gave to me, but he did say that these sorts of events come in waves, and each time the people somehow manage to convince themselves “This time is different.” Hence, the name of his book.

    Japan is the scariest OECD country, followed by the PIGS. The US, surprisingly, didn’t strike him as too precarious… YET. From an economist, that’s as good as saying we’re all gonna die. Fun.

    Also, mean personal income tax in Luxembourg is only about 35%, compared to the US’s 30-something percent. I can’t tell, however, what the REAL income tax is. Hard to say. That being said, their corporate income tax seems pretty low. Probably why a lot of money makes its way into there.

    Luxembourg is just a pretty nice little city-state. Hard to knock that place for much, other than being small.

    NO,

    Cobb-Douglas brings me back to grad school. Stop that, you’re scaring me.

    Regardless, I agree. One of the unfortunate things about doing applied economics is the extreme dearth of decent data. Many measures are not there, and the ones that are there are often poorly gathered or measured (as WEF shows so well.)

  5. 49er,

    WEF is Communist Elitist?

    I’ve heard it called a lot of things, but certainly not that. You should break it to the communists who are attacking it all the time that it’s actually one of their own! Instead of throwing communist freedom firebombs at WEF meetings, they should instead be joining with the globalization plans to bring the workers to the promised land of lower wages.

    Oh wait.

    I mean, even good old Noam Chomsky called WEF some kind of propaganda plot blah blah capitalist elites, blah blah.

    Aren’t the communists some of the most against globalization as prescribed by WEF types?

    Or something. I say any organization that brings me a step closer to being like Tom Friedman is not for me. Sadly, that makes it very hard these days to not align myself with pretty much the Xenu Party for Galactic Federation.

  6. Ari. Just funning. The term itself is an oxymoron, yah?
    And the WEF is sort of in the same category as MLB. They aren’t the “world” series and they aren’t “world” economies. Both groups use the term but limit the meaning to selected entities, pretty much. In my opinion, of course.
    Besides, this is Sunday. Chill.

  7. William

    Concerning Luxemburg that I happen to know very well because my wife was born and has been living a few km from there .
    Th reason why the GDP per capita is so incredibly huge yet arithmetically correct is due to the “cross-frontier workers” .
    Luxemburg is a rich country in the middle of “poor” regions of France , Belgium and Germany .
    That’s why some 150 000 “cross-frontier workers” go to work to Luxemburg every day while living in the surrounding countries .
    This is an anomalously high number compared to the Luxemburg population of 500 000 .
    As those 150 000 produce Luxemburg’s GDP in numerator , they should be accounted for in denominator too .
    When you make this correction , you get something around 60-70 k / capita what is less extraterrestrial but still damn high .

    To the fact that they are rich (the reason being mainly that people trust their banks) adds another sympathetic fact that the income tax is very low (for european standards) .
    For a fraction below a limit you pay 0 and for a fraction above some other limit you pay 20 % if I remember well .

    All in all a very pleasant country to live in .
    Besides it is a 100% sure receipt to create a rich country and maintain it rich as long as they maintain a policy where you can acquire citizenship and/or residence only if you can show some exceptional merits .

  8. 49er,

    Sorry, I guess I came off more serious than I meant to be. I was also trying to play along.

    Apparently I failed. Alas.

    Tom,

    Do Luxembourgers consider their home a country or city-state? I simply must know.

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