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Robust Comeback for US Competitiveness, Europe Stalls

Kiran Moodley, special to CNBC.com
Thursday, 30 May 2013 | 1:15 AM ET
US Ranked Most Competitive in the World
Professor Stephane Garelli, director at the IMD's World Competitiveness Center, tells CNBC that the US is back in the top spot but does it deserve to be there when a lot of its growth is funded by debt?

As calls grow for Europe to ease up on its austerity drive, a report on global competitiveness argued that cost-cutting on the continent has halted growth and antagonized the population, creating a number of non-competitive economies.

The World Competitiveness Rankings, compiled by the IMD business school in Lausanne, identified the U.S., Switzerland, Hong Kong and Sweden as the top four countries, while European nations have lost ground - not just over the last year, but over the last 16 years.

Professor Stephane Garelli, director of the IMD World Competitiveness Center, said this feeds the ongoing austerity discussion. "While the euro zone remains stalled, the robust comeback of the U.S. to the top of the competitiveness rankings, and better news from Japan, have revived the austerity debate," he said.

"Structural reforms are unavoidable, but growth remains a prerequisite for competitiveness. In addition, the harshness of austerity measures too often antagonizes the population."

(Read More: EU Criticized for 'Pretend and Extend' as it Eases Austerity)

Europe's Losers

According to Garelli, the golden rules of competitiveness are "manufacture, diversify, export, invest in infrastructure, educate, support SMEs, enforce fiscal discipline, and above all maintain social cohesion." The last point is a clear reference to the demonstrations over the past few years in Greece, Ireland, Spain, Portugal, Cyprus and beyond.

While Switzerland, Sweden, Germany and Norway are "shining successes," according to the IMD report, the rest of Europe has struggled. More than half of the "losers" - countries that have fallen by five or more places since 1997 - are from continent.

The U.K. has fallen nine places, from 9th in 1997 to 18th in 2013, while France has slipped six places over the same period, down to 28th.

The IMD warned that Italy, Greece, Spain and Portugal have not diversified their economies or reined in spending enough, and that Ireland and Iceland need to have sustained competitiveness, emphasizing that uncontrolled fast expansion could lead to disaster again.

(Read More: 'Recessions Hurt, but Austerity Kills': Study)

The Winners

Looking at the most competitive nations, the U.S. moved up from second last year to first once again in 2013 thanks to its improving financial sector, strong technological innovation and successful companies.

The IMD says that Japan's improvement over the past year is down to the dynamic impact Abenomics is having on the economy, while the three European "winners" - Switzerland, Sweden and Germany, who all made the top ten - had fiscal discipline, strong small and medium enterprises and a reliance on export-oriented manufacturing.

The BRICs were more of a mixed bag, with China and Russia rising in the rankings while India, Brazil and South Africa slipped due to general reliance of emerging economies on a global recovery.

Contact Europe: Economy

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