Who Will Win in the 21st Century?

In the IMD's World Competitiveness Yearbook, the U.S. came in first once again. But other nations are closing the gap

by Andy Reinhardt

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As rankings go, it may not have the popular appeal of Mr. Blackwell's annual Worst-Dressed List. But business leaders and policymakers pay plenty of attention to the World Competitiveness Yearbook issued every May by the International Institute for Management Development (IMD), a business school in Lausanne, Switzerland. Derived from a battery of data, the competitiveness ranking is a global scorecard for how well nations are preparing themselves for the challenges of the 21st century economy.

The 2007 edition, released on May 10, confirms a few long-term trends. For the 14th time in the yearbook's 19-year history, the U.S. ranked No. 1, thanks to its fundamental economic strength, best-in-class business infrastructure, and highly ranked business efficiency. Following close behind are two Asian tigers, Singapore and Hong Kong, and a half-dozen recurring champs from Northern Europe: Luxembourg, Denmark, Switzerland, Iceland, the Netherlands, and Sweden.

There are also some surprises. In the words of Professor Stéphane Garelli, who heads up the yearbook project for IMD, the big news this year is that emerging economies are closing the gap with the U.S. There's "a big shakeup in economic and business power," Garelli says. In all, some 39 of the 55 countries surveyed either maintained or improved their position vis-à-vis the U.S., while only 15 declined. (For a complete list, see our interactive table.)

Wide-Ranging Criteria

Among the big gainers this year: China, Korea, Russia, and Romania, all of which rose in the rankings and posted faster economic growth than the U.S. The decliners? Some big European names, including Spain and Finland, as well as Mexico, Brazil, Turkey, and South Africa. "Sooner or later [these nations] will lose their standing in world competitiveness if they do not improve their overall performance," Garelli says.

The study—the most comprehensive of its kind—examines 323 criteria, ranging from gross domestic product growth and trade levels to mobile-phone rates and higher education. Roughly two-thirds of the inputs are quantitative, gathered from sources such as the U.N. and the World Bank. The balance are qualitative responses to an annual survey conducted by IMD that examines topics such as business attitudes, regulation, and the environment.

The U.S. continually does so well in the IMD survey thanks to several factors. It ranks No. 1 in the world for its domestic economy, international investment, financial strength, and technology infrastructure. It also comes out on top for "scientific infrastructure," which IMD defines as a blend of higher education, patent protection, R&D investment, and other enablers of innovation.

Looking At Other Studies

But in this year's study, the U.S. skidded five positions in its ranking for "government efficiency," a metric devised from factors such as fiscal soundness, trade freedom, and bureaucracy. Survey respondents marked the U.S. down in areas such as its legal and regulatory framework, independence of the public service from political interference, and even the behavior of customs authorities. Chile, Estonia, and even China all scored better, in aggregate.

To be sure, IMD's isn't the only list that compares countries and their socioeconomic performance. So to shed light on how different studies come up with different conclusions, we've prepared an interactive table that compares this year's IMD rankings with those of a recent study from the World Economic Forum assessing how "network-ready" countries are (see BusinessWeek.com 3/28/07, "Europe Tops World in Network Readiness"). There's a remarkable degree of convergence between the two lists, perhaps because both examine similar criteria to assess which countries are laying the groundwork for success in a knowledge-based economy.