The Global Competitiveness Report 2016-2017 assesses the competitiveness landscape of 138 economies, providing insight into the drivers of their productivity and prosperity. With the Fourth Industrial Revolution, innovation and business sophistication are becoming increasingly important.
Published by Questex Asia on 05 Jun 2017
Author: Tan Wee Kwang
The Global Competitiveness Report 2016-2017 assesses the competitiveness landscape of 138 economies, providing insight into the drivers of their productivity and prosperity.
Ranking is based on the Global Competitiveness Index (GCI), calculated by drawing together data covering 12 pillars that collectively make up a comprehensive picture of a country’s competitiveness: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.
The top ten most competitive economies are as follows:
- United States
- United Kingdom
- Hong Kong SAR
Switzerland, Singapore and the United States remain the world’s most competitive economies; India is the highest rising economy, climbing 16 places to the 39th spot.
Global GDP growth has fallen from levels of 4.4 percent in 2010 to 2.5 percent in 2015. This is due to global productivity slowdown and a long-term downward trend in investment rates. Against the backdrop of global economic recession, the report highlights three key findings:
1) Monetary policy is not enough to reignite growth if economies are not competitive
In the aftermath of the 2007–2009 financial crisis, many central banks and governments have resorted to monetary policy to try to jumpstart growth. However, monetary stimulus is not enough to reignite growth if economies are not competitive. Economies with higher competitiveness have recovered faster from the financial crisis and ensuing recession, achieving faster growth rates, regardless of fiscal policies followed. Improving the conditions for businesses to flourish and increase their productivity is therefore the main policy challenge for economies.
2) At the dawn of the Fourth Industrial Revolution era, technology and innovation are increasingly driving development
The Fourth Industrial Revolution is characterized by a convergence of technologies that is blurring the lines between the physical, digital, and biological spheres. There is tremendous promise for higher economic growth and societal progress with the Fourth Industrial Revolution, and it will be increasingly important to support the emergence of new sectors of economic activity through competitiveness reforms that foster innovation.
With the Fourth Industrial Revolution, innovation and business sophistication are becoming increasingly important. Since 2010, GDP per capita has become more closely correlated with the Global Competitiveness Index’s technological readiness, business sophistication, and innovation pillars than it is with the infrastructure, health and primary education, and market-related pillars.
3) Declining openness is endangering future growth and prosperity
According to GCI data, economies in all income groups have become less open since 2007, driven mainly by non-tariff barriers, including increased legal and normative requirements.
“Declining openness in the global economy is harming competitiveness and making it harder for leaders to drive sustainable, inclusive growth,” said Klaus Schwab, Founder and Executive Chairman, World Economic Forum.
Innovation goes hand in hand with openness and economic integration. An open, trading economy generates incentives to innovate and invest in new technologies because firms are exposed to competition and new ideas and can benefit from the technology transfer that comes from imports and foreign investment. At the same time, firms can benefit from larger markets abroad.
The Fourth Industrial Revolution
Economies and people worldwide are starting to feel the first effects of the dawning Fourth Industrial Revolution. Breakthroughs in technologies such as artificial intelligence, biotechnology, robotics, the Internet of Things, and 3D printing, to name a few, will provide new avenues for growth and development in the future but could also give rise to significant social challenges.
Breakthroughs are happening and proliferating at an unprecedented pace—from sensors to blockchain to human-brain interfaces. Technology-enabled platforms in the “sharing” or “on-demand” economies are upending business models and forcing countries to rethink how they formulate economic policies.
The number of industrial robots in the world is roughly doubling every five years and is projected to reach 400,000 by 2018, driven especially by demand from automotive parts suppliers and the electrical/electronics industry.
As the Internet of Things becomes mainstream, the number of connected devices will almost triple by 2020, from 13.4 billion to 38.5 billion, and the proportion of products sold via e-commerce will more than double, from 6 percent in 2014 to 12.8 percent by 2019.
The combination of automation and digitalization is revolutionizing manufacturing and services alike, as well as blurring the lines between them. This process is increasing efficiency, optimizing logistics, and making prices more transparent and competition starker.
At the same time, it is reinforcing the need of firms to remain ahead of the innovation curve. More and more, technological forces are pushing companies to either innovate or disappear: 88 percent of firms in the 1955 Fortune 500 were not on the 2014 list, and the rate of turnover is accelerating, while the duration of product lifecycles declined, across all industries, by 24 percent between 1997 and 2012.
Such dramatic changes in the dynamics of the economy need to be reflected in how we measure economic progress and its drivers. These changes make it necessary to better understand how the Fourth Industrial Revolution is altering how we understand competitiveness, growth, and—fundamentally—the prosperity of countries.