American competitiveness declined for the fourth year in a row in 2012. In the World Economic Forum’s Global Competitiveness Report 2012-2013 (PDF), the United States now rank seventh, a two place drop from last year.
Although the report recognizes that America’s remains among the most productive economies in the world, with strong institutions, high labor market flexibility and great technological strength, “a number of escalating and unaddressed weaknesses” have lowered its ranking.
The business community continues to be critical toward public and private institutions. In particular, its trust in politicians is not strong, perhaps not surprising in light of recent political disputes that threaten to push the country back into recession through automatic spending cuts.
The report is critical of the “political gridlock on fiscal tightening could dampen the growth outlook.” Government deficits have averaged $1.4 trillion for the last four years. A $900 billion shortfall is projected for 2013. The national debt has increased by more than $6 trillion since 2008. Yet the two political parties in Washington DC remain far apart on what needs to be done. Democrats refuse to do a budget deal without tax increases while Republicans insist that entitlement programs, the largest expenditure items, have to be reformed. It is doubtful whether November’s elections will give either party absolute power, so further gridlock is to be expected.
Business leaders also remain concerned about the government’s ability to maintain arms length relationships with the private sector and consider that the government spends its resources relatively wastefully.
The Index of Economic Freedom compiled annually by the conservative Heritage Foundation and The Wall Street Journal similarly has the United States in decline since 2008, pointing out that “recent government interventions have eroded limits on government.”
When Barack Obama was elected president in 2008, the United States ranked first in the World Economic Forum’s Competitiveness Report and fifth on the Index of Economic Freedom where it stands at ten today. The expansion in business regulation and government spending that has occurred under his administration, the nationalization of enterprises in car manufacturing and banking, the threat of higher taxes and the effort to curtail domestic coal, natural gas and oil production in favor of subsidized renewable energies has impaired American competitiveness.
The Index of Economic Freedom claims that improving America’s ranking “will require significant policy changes to reduce the size of government, overhaul the tax system and transform costly entitlement programs.” The institutions that compiled the index tend to sympathize with the Republican Party in the United States which advocates such very changes. They adds that “freedom enhancing policies are the best hope for bringing down high unemployment rates and reducing public debt to manageable levels.”
The World Economic Forum, a more neutral institution, offers no country-specific advice.