On April 1st, my book,” Dagbok från USA”, came out in Sweden. It will also soon be published in English (as an e-book for Kindle and for other readers) with the title: “Diary from the United States – Notes on a society in crisis“. As an appetizer for English speaking readers, I will the coming weeks publish some excerpts from the book.

“It’s the stability, stupid!”

The World Economic Forum (WEF) annually organizes a high-profile conference in Davos, Switzerland, for the world’s economic and political elite. Almost everyone knows about that. Fewer know that the WEF is also a think tank with substantial resources. Among other things, the WEF in recent years has conducted an ambitious study of the competitiveness of various countries.

The latest report, published in 2010, measures and compares 139 countries in accordance with twelve criteria of importance for competitiveness. These twelve criteria are shown in the chart below (click for bigger picture), where four European countries, including Sweden, are compared.

It only takes a quick glance at the graph to see that Sweden is doing better than the other three countries in the comparison – France, Germany and England. In fact, Sweden comes in second among all 139 countries. Switzerland takes first place. After Switzerland and Sweden – to pick the ten most competitive in the ranking – come Singapore, the U.S., Germany, Japan, Finland, the Netherlands, Denmark, and Canada.

The West’s most successful countries – the United States, Canada and the northern European countries – are thus at the top of this ranking. (The exception is Singapore, which though is not a traditional country but a sovereign city-state.) Looking at the whole list, one finds the BRIC countries a good bit down on the list: Brazil in position 58, Russia 63, India 51 and China 27. This means that it’s not the potential to create sustainable high growth that is the problem for the Western countries. Competitiveness is clearly in place. It must be something else. The answer is politics. Or more precisely, it’s the Western politicians’ inability to create both competitiveness and stability. The politicians in some of the West’s strongest economies, the United States and the Eurozone countries, have variously managed the feat of getting into a grave instability affecting growth. It’s symptomatic that in countries like Australia and New Zealand one does not – as here – talk about the 2008-2009 crisis as “the global financial crisis”. It’s called instead, and rightly so, “the North Atlantic financial crisis”.

United States is particularly interesting. The country comes high – in fourth place – in the rankings. The report points to the familiar strengths that the U.S. has – technological readiness, innovative companies, excellent universities for both teaching and research, an efficient venture capital market, a flexible labor market, and last but not least, a very large domestic market that creates opportunities for economies of scale.

But then comes the report’s reservations, explaining why the U.S. has lost in the rankings since the last report:

On the other hand, there are some weaknesses in particular areas that have deepened since our last assessment. The evaluation of institutions has continued to decline, falling from 34th to 40th this year. The public does not demonstrate strong trust of politicians (54th), and the business community remains concerned about the government’s ability to maintain arms-length relationships with the private sector (55th) and considers that the government spends its resources relatively wastefully (68th). There is also increasing concern related to the functioning of private institutions, with a measurable weakening of the assessment of auditing and reporting standards (down from 39th last year to 55th this year), as well as corporate ethics (down from 22nd to 30th). Measures of financial market development have also continued to decline, dropping from 9th two years ago to 31st overall this year in that pillar. A lack of macroeconomic stability continues to be the United States’ greatest area of weakness (ranked 87th).

What is this summary saying? First, that there’s a negative trend for the U.S. in terms of the criteria that determine competitiveness. For example, trust in institutions and politicians has fallen. The Economist published a graph (Economist, August 6th, 2011) showing that the American business community’s confidence in the politicians in Washington, D.C. (“U.S. Congress”) has been falling since 2002. Judging from the graph, the business leaders in Canada, Germany and England have not experienced the same loss of confidence in their politicians.

The other thing that the citation says is that the United States in terms of many criteria is surprisingly bad. If a country comes further down than 50 in the rankings, one can start talking about serious deficiencies in competitiveness (there are, as a comparison, today 34 OECD countries). And if a country comes in 87th place in “macroeconomic stability” – as the United States does – then it probably will become difficult to achieve high long-term relative growth. The fact that the U.S. has had two major crises in the last decade – the IT debacle at the beginning of the decade and the subprime crisis of 2008-2009 – is the concrete proof that it’s right and proper to give a low rating of U.S. politicians’ ability to create stability, the most important task for Western politicians as the situation stands, according to this report. Or to parody another familiar expression: “It’s the stability, stupid!”

Literature:

“The Global Competitiveness Report 2010-2011”, 2010, World Economic Forum, Geneva;

First published (in Swedish): August 9, 2011