Most Likely To Succeed

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Thu, May 15 01:30 AM

Jack Gage, Forbes.com

America is No. 1.

Don't take our word for it--the Global Competitiveness Report, published every year by the World Economic Forum (WEF), has ranked the U.S. first for the last five years. But Americans shouldn't get too cocky. Healthy European economies have been climbing the ranks, with Switzerland moving to second place in 2008 from fourth in 2007, and Sweden climbing to fourth place from ninth.

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So what does it take to make it to the top? Economic competitiveness gets a lot of public praise. Businesses want it, politicians promise to boost it, and governments sign trade deals to get it. Measuring it precisely is tough. But 29 years ago, the WEF started doing just that.

Its annual report combines macroeconomic data on 131 countries with information collected through its Executive Opinion Survey, which reflects business leaders' outlook on economic climate. Using these two sources, the survey comes up with a final ranking based on 12 variables: institutions, infrastructure, macroeconomy, health and primary education, higher education and training, goods-market efficiency, financial-market sophistication, technological readiness, market size, business sophistication, and innovation.

The index's biggest gainer among wealthy nations in the last year was Sweden, which moved up five positions thanks to improvements in judicial independence, high regulatory standards and government procurement of advanced technology. Sweden ranked first in the world for technological readiness.

The largest Nordic economy, moreover, may stay buoyed over the next year, even as other Western economies suffer a downturn. The country's main retail-sales gauge has remained strong this year, vindicating a decision by the Central Bank in April to leave interest rates unchanged at 4.25%.

Overall, the Nordic countries, once considered bastions of socialism, remain well-represented in the top 10, with Denmark ranking third and Finland sixth, thanks to high marks in such areas as health and primary education, higher education, and institutions--in fact, Finland ranks first in the world on all three of those variables.

The United States ranked only 33rd on institutions, a measure that takes into account whether property rights are well-enforced and whether governments and private companies are run transparently.

The United Kingdom, meanwhile, headed down the ranks, falling seven spots to ninth in 2008 from second in 2007. The slide came thanks to worsening macroeconomic indicators--in particular, rising indebtedness. And the British economy could fare worse over the next year. Whereas, in the U.S., only 6% of jobs are directly exposed to the ongoing purge in the financial sector, Britain attributes roughly a fifth of its jobs to the finance industry--a dramatic overexposure likely to hurt it in the coming months.

Outside of the top 10, South Korea surged to No. 11 on the list, from just 23rd place last year. Gains in school Internet access and the number of broadband Internet subscribers bolstered its high post-secondary enrollment, on which it ranks first in the world. With poor marks for health, though, Korea has work yet to do before joining the WEF's top 10.

A No. 1 ranking notwithstanding, U.S. Secretary of State Condoleezza Rice isn't taking any chances. Speaking at the WEF's most recent gathering at Davos, Switzerland, earlier this year, she reminded world leaders that America was open for business.

"The U.S. continues to welcome foreign investment and free trade,” she said. Because it's not enough to be No. 1 if you can't hang on to the crown.

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