Each year the World Economic Forum (WEF) produces a report entitled, “The Global Competitiveness Report”. It’s a pretty lengthy document, lots of tables and a wealth of information. The report is created primarily from data collected from internationally recognised agencies as well as the WEF’s own annual Executive Opinion Survey. The data forms the basis for the Global Competitiveness Index (GCI) which determines the respective global rankings for participating countries (142 for 2011/2012). The report can be downloaded from http://www.weforum.org/.
The report and results are based around WEF’s 12 Pillars of of Competitiveness. These being:
1: Institutions: Determined by the legal and administrative framework interactions which allow individuals, firms and governments to generate wealth.
2: Infrastructure: The effective functioning of an economy is highly dependent on the extensiveness and efficiency of the underlying infrastructure.
3: Macroeconomic environment: Overall competitiveness is reliant on a stable macroeconomic environment.
5: Higher Education and Training: If you want your economy to grow and move up the value chain beyond simple production processes and products accessibility and quality in higher education and training is essential.
6: Goods Market Efficiency: Measures the health of the goods market in terms of efficiency, supply and demand, competition, both domestic and foreign focussing on a minimum of impediments to business activity.
7: Labor Market Efficiency: The efficiency and flexibility of the labour market is crucial to ensuring that production and business activity are maximised.
8: Financial Market Development: Measures the soundness and functionality of a countries financial sector.
9: Technological Readiness: Measures the ability of an economy to readily adopt existing technologies to enable increased efficiency and competitiveness.
10: Market size: Pretty self explanatory that one!
11: Business Sophistication: Measure the degree of business practice sophistication which support higher efficiency and production.
12: Innovation: Last, but certainly not least technological innovation plays a crucial role in economic capability.
The Pillars of Competitiveness relate to the various stages of development of economies defined by the WEF as indicated below;
Australia is considered to be one of the 35 of the most advanced countries whose economies have developed to that of being of innovation driven so Business Sophistication and Innovation are extremely important pillars of our economic success. The other countries in this select group are;
The 2011/12 WEF report made the following observations about Australia’s performance: “With an unchanged score, Australia drops four spots to 20th place as other countries move ahead. Among the country’s most notable advantages are its efficient financial system (6th), supported by a banking sector that counts among the most stable and sound in the world, ranked 4th. Also noteworthy is its very good—and improving—performance in education: Australia ranks 11th in both the health and primary education subpillar and the higher education and training pillar. Australia’s macroeconomic situation is satisfactory in the current context (26th), especially when considering the difficulties many other economies face in this area. Despite repeated budget deficits in recent years, its government debt, at 22.3 percent of GDP, is the second lowest among the advanced economies behind Luxembourg. Finally, Australia’s public and private institutions are transparent and efficient, ranked 17th and 8th, respectively, and physical security is assured (19th), although business leaders continue to be concerned about the burden of government regulation (75th).
On a less positive note, Australia still lags behind the top performers of the GCI when it comes to innovation (22nd) and business sophistication (29th), two critical drivers of competitiveness for advanced economies. Finally, because of intensifying trade in commodities, the country’s transport infrastructure, particularly seaports, has been increasingly strained in recent years and it lags behind the world’s best.”
Certainly not effusive praise given our ongoing resilience to the continuing collateral damage from the Global Financial Crisis. ‘Damned with faint praise’ comes to mind.
So, digging a little deeper, what does the report say about the state of Australia’s competitiveness against the other 141 participants in the 1011/2012 study especially when compared to previous years?
Essentially we were becoming more competitive up until 2009/2010 and then we lost our position in the following two years with a pretty significant drop in rank in 2011/12. Why? Well, either we became less competitive or; peer countries improved their competitiveness to a greater extent than we did or; we stagnated, and the ‘improvers’ passed us by. It’s a bit difficult to identify the cause/s based on this level of performance data. Whatever the cause we are now in a worse position that we were in 2007/08. Very disappointing! In effect we’ve lost any gains we’d made in previous years.
So just who are these countries who have trumped us in rankings in the competitiveness stakes?
Well at least most of them are part of our peer group and we are lying 18th in our cohort, the exceptions being Qatar and Saudi Arabia who are classified as in transition from being Factor Driven to Efficiency Driven economies. And they managed rank higher than Australia?
The 12 pillar results are also reported separately enabling a deeper comparison of performance and providing opportunities to identify possible areas for improvement.
Digging a little deeper and looking at the individual Pillar Rankings over three financial years from our best year (2009/10) provides some clues about our performance and whether it was due to homegrown reasons or other countries outpacing us in improving their competitiveness?
So, we fell down in the rankings in the areas of Innovation, Business Sophistication, Technological Readiness, Financial Market Development, Labor Market Efficiency, Goods Market Efficiency, Macroeconomic Environment and Institutions. Nothing much changed in the areas of Market Size and Infrastructure, and we improved in rankings in Higher Education & Training and Health and Primary Education. Doesn’t exactly reflect a vibrant and bustling country aggressively driving the improvement of its economy in a global economy, eh? Nor does it really clarify the underlying causes for the ranking changes. Again its compounded by what other countries are doing.
Looking at the Index Scores for the Pillars of Competitiveness provides a better insight into whether improvements have been made to make the country more competitive or we’ve fallen back? An improvement in a score would indicate improvements to the particular Pillar to make it more competitive wouldn’t it? , Just comparing position rankings against other countries is likely to be masked by other countries improvements, or declines.
When we compare the latest scores against those of 2009/10 we find that:
Innovation: No real change.
Business Sophistication: Fell back somewhat.
Market Size: No real change.
Technological Readiness: Fell back somewhat.
Financial Market Development: Fell back somewhat.
Labor Market Efficiency: Fell back somewhat.
Goods Market Efficiency: Fell back somewhat.
Higher Education & Training: Improved.
Health & Primary Education: Improved (but stagnant for last two years).
Macroeconomic Environment: No real change.
Infrastructure: Improved (but stagnant for last two years).
Institutions: Fell back somewhat.
So that’s six ‘fell back somewhat’s’, three ‘no real change’, two ‘improved (but stagnant for last two years)’ and one ‘improved’. A pretty dismal performance all round. A ‘FAIL’ grade with a ‘could do much better’ on the report card could be considered appropriate in these circumstances.
In the two pillars most important for our type of economy we’ve basically stagnated (Innovation) and fallen back somewhat (Business Sophistication). Considering how important these pillars are to our economic performance that’s pretty disappointing.
In essence in a Global environment in which we are suffering minimally from the GFC, have a healthy debt structure compared to other countries, strong markets, solid investment in business development we can’t even hold our place in the Rankings but fell back four places.
Apart from some aspects of Labor Market Efficiency much of the capacity for improvement in the twelve pillars lies with Government, Business and Industry so it’s not ‘Workin Joe Public’ that carries the primary responsibility for the failure to improve our competitiveness. And failure it is! Federal and State governments and their respective Oppositions, as well as Business and Industry leaders have let the country down by their inaction in making improvements to government and business frameworks, infrastructure, competitiveness, market efficiencies, financial regulation and business sophistication in order to improve Australia’s competitiveness in the Global Economy.
Perhaps is time for business and industries in Australia to stop moaning about how hard life is with a high dollar and, falling productivity and, cautious consumers and, interest rates and, GST on overseas purchases under $1,000 and, falling prices for minerals etc, etc, to take off their collective ‘whingy pants’ and engaged positively with government in addressing and resolving issues which are reducing our capacity to compete effectively — And that’s food for thought!
- World’s Best (and Worst) Economies (mpoverello.com)