Yesterday, the World Economic Forum released its annual Global Competitiveness Report 2011-2012, which compares the ability of 142 economies to produce quality growth.  A far-reaching endeavor, the report compares national economies based on a Global Competitiveness Index, a combination of 12 factors (expressed as 110 indicators) from institutions, infrastructure, and macroeconomic environment to market size, innovation and labor market efficiency. The World Economic Forum has used this index since 2005, therefore allowing comparisons over time of nations’ performance.

So, what’s new this year? The title of the report’s news release says it all: “U.S. Competitiveness Ranking Continues to Fall; Emerging Markets Are Closing the Gap.” While this study deals with long term economic factors, its analysis could have well been from the International Monetary Fund’s Annual World Economic Outlook released in April this year. The IMF observed that developing countries have managed the recession much better than developed countries and are increasing their role in the world economy.

For its part, the World Economic Forum observed: “The results show that while competitiveness in advanced economies has stagnated over the past seven years, in many emerging markets it has improved, placing their growth on a more stable footing and mirroring the shift in economic activity from advanced to emerging economies.”

At the top of the rankings, Singapore, the wunderkind of city-states, overtook Sweden for the second position. The United Kingdom returned to the top 10, after suffering setbacks during the last three years. China powered ahead in the rankings to 26th place, marking its advancement to upper middle income status this year. Brazil moved forward also, gaining five places during the last year to rank 53.

The United States has been in freefall since the index was first released. While ranked first in 2005, it’s now in fifth place, being overtaken for fourth spot by Finland, a country who recently urged its European Union counterparts to boost their competitiveness or face sanctions. The United States registered the largest drop in the value of its competitiveness index during the last seven years, comparable only to Nigeria, Greece, Ireland, and Iceland. 

What has been dragging down the United States for the last seven years, during both Republican and Democratic administrations?

America still has advantages envied by many in the world: sophisticated and innovative firms, a great higher education system, flexible labor markets, and a huge internal market. The main problem has been government effectiveness; the United States ranks 66th on the wastefulness of government spending, with increasingly burdensome regulation (58th), and less transparent policymaking (50th). The lack of macroeconomic stability puts the United States in 90th place, below Senegal and above Serbia. Hopefully, President’s Obama speech tonight will deal with both creating jobs in the short term, while also addressing long term U.S. competitiveness challenges.