30 September 2015

3 takeaways from the global competitiveness report


The World Economic Forum (WEF) has released its Global Competitiveness Report for 2015-­2016. It assesses the competitiveness landscape of 140 economies, analysing the drivers of their productivity and prosperity. If you don’t have time to read the full report, below are the three key findings for policy makers.

Weaknesses revleaed in European labour market

Competitiveness is “widely accepted as the key driver for sustaining prosperity and improving the well-being of a nation’s citizens”, and at the heart of an economy’s competitiveness is its capacity to leverage talent. It does not seem so surprising then that Europe’s persistently high unemployment rates (an average of 9.6% in 2015) look to subdue overall GDP growth rates for another year – projected to reach 1.8% this year, up 0.4% from 2014. High unemployment not only prolongs low demand, but also reduces skill levels in the labour force. This is especially prevalent in Southern Europe. Raising employment levels throughout Europe is therefore key to increasing domestic demand and competition.

However, Europe also faces an ageing and slowly growing population – limiting the scope for increasing the utilisation of labour in the long run; and even in many of the region’s most competitive economies, good education systems and efficient use of talent are thwarted by significant labour market rigidities. This is the case in Finland, Germany and Belgium (all ranking below 100 when it comes to labour market flexibility). This means that, over the longer term, EU competitiveness must rely on productivity growth – we must produce more with less. The report identifies a priority to addressing constraints to growth on the supply side to restoring productivity and thus competitive growth.

Support apprenticeship schemes in the UK

The report shows that countries that identify, nurture, and reward talent tend to be more competitive and are also better able to recover from crises swiftly. Taking lead from the US, ranked as the 3rd most competitive global economy, the UK can improve its labour market productivity through increasing the links between an effective education system and the allocation of talent to its most productive uses.

The Automotive Manufacturing Technical Education Collaborative is a joint programme by community colleges and major car manufacturers in the US designed to respond to a severe shortage of skilled labour by equipping students with the high-end skills they need to work in the car industry. The scheme has seen increasing enrolment rates, driven by early recruitment in secondary schools, growing from a single vocational scheme (pioneered in Kentucky by Toyota in the mid-2000s) to a programme encompassing 30 colleges and 34 plants across a dozen states. The fee-paying programme gives students two days a week in the classroom and three days of hands-on training.

We could use a similar scheme in the UK, where the number of people aged 25 and over starting an apprenticeship has fallen by 69,000 from last year. The UK government needs to address this decline if Britain is to capitalise on the rewards of a skilled labour force in global competition.

Sub-Saharan Africa is falling furthest behind, despite its potential

Even when split into groups of similar income, Sub-Saharan African (SSA) countries remain the worst performers of competition. Mauritius is at the higest for SSA at 46th most competitive, but of the 30 other SSA countries, 25 of them came in the bottom 45 rankings.

Despite more than a decade of consistent high growth (close to 5% in 2013), gains have not yet trickled down to all segments of the population and most economic activity takes place in the informal sector, which employs more than 80% of the population. The region’s challenge is to turn high growth into inclusive growth, which will aid the transition from agriculture-based economies to higher value-added activities which can compete globally. This can be achieved through investment in physical and digital infrastructures. This would increase productivity directly by connecting economic agents, reducing transaction costs, easing the effects of distance and time, facilitating the flow of information, and facilitating integration of markets into global value chains. Additionally, investment in physical and digital infrastructures will increase productivity indirectly by enabling and improving access to basic services such as sanitation, education, and healthcare, and therefore contributing to a healthier and more skilled workforce

The report’s ‘heatmap’ clearly indicates that SSA is the global region in most urgent need of increased productivity and competitiveness in order to sustain prosperity and improving the well-being of their nations’ citizens.

Overall, the report shows that “despite substantive efforts to re­ignite recovery, global economic growth remains low and unemployment persistently high”. A failure, particularly by emerging markets, to improve competitiveness could have deep and protracted consequences as the economy’s ability to improve living standards, solve persistently high unemployment, and generate adequate resilience for future economic downturns is hindered.

Olivia Archdeacon is a CapX contributor.