Canada slips again in global ranking By SHAWN McCARTHY >From Thursday's Globe and Mail Oct 14, 2004
New York — Canada saw its competitive standing in the world economy slip again last year, as the United States and the Nordic countries of northern Europe dominated the top spots in the World Economic Forum's global competitiveness report. In this year's report, which was released Wednesday in New York, Canada improved slightly — to 15th from 16th — for the growth competitiveness index, but dropped three places to 15th on a separate measure for business performance. “We're in this sort of status quo, equilibrium situation for the most part, but I worry about the downward drift in the business environment,” Roger Martin, dean of the University of Toronto's Rotman School of Management, said in an interview. Mr. Martin, who also chairs the U of T's Institute for Competitiveness & Prosperity, argues that the business ranking is the better gauge of an economy's competitiveness than the growth index. And he noted that Canada has dropped in that business index in five of the past six years, sliding from eighth place to 15th. That decline has come despite various attempts by governments at all levels to focus on productivity-enhancing measures such as workplace training, and research and development. However, Mr. Martin said governments have often been distracted by other priorities, sacrificing, for example, spending on higher education for ever-increasing public dollars for health care. “In order to make progress, there is simply going to have to be more attention paid to the competitiveness of this country rather than, say, fixing the health care system — which is important, obviously,” he said. At the same time, Canadian corporations need to invest more in technological improvement, in human resources and in product development, said James Milway, executive director of the institute for competitiveness. “What our Canadian businesses ought to be doing is looking for ways to enhance revenue, instead of just the cost line,” he said. “That has as much of an impact on productivity and has a longer-term impact on productivity if we can focus on how do we get more sophisticated products out there, better branding, and more innovation on the product line.” In the growth competitiveness index, Finland, the United States and Sweden maintained the top three spots from 2003, while Denmark and Norway were five and six, respectively. (Taiwan was fourth.) In the business competitiveness index, the United States held the No. 1 position, followed by Finland, Germany, Sweden, Switzerland and Britain. Canada was overtaken by Japan - which leapt to 8th place from 13th - Hong Kong and Belgium. The growth index is based on the quality of public institutions and macroeconomic performance, while the business ranking compares company operations and strategy, and a country's investment climate. “What we discovered is that some countries are succeeding, they are finding creative ways of making their presence felt in the global economy and others are struggling,” said Augusto Lopez-Claros, the World Economic Forum's chief economist. He said the index helps governments and global businesses better understand the competitiveness of nations, and what drives their ability to improve living standards for their citizens in a global economy. The stellar performance of the Nordic countries reflects the strength of their public institutions, their fiscal policies, their sophisticated work forces and their ability to adapt new technologies. The United States, in contrast, has a mixed picture, Mr. Lopez-Claros said. It is “technologically pre-eminent” among nations in the world, both in terms of research prowess and its ability to commercialize innovations. But he warned that its twin budget and current account deficits could pose problems in the future. “It highlights some of the macroeconomic vulnerabilities of the U.S. economy and it raises questions about the sustainability of its economic recovery,” he said. Mr. Lopez-Claros noted that two up-and-coming economies, China and India, remain far behind the developed country pack in the index, despite the flood of foreign investment into those countries. Harvard University economist Michael Porter said the business competitiveness index, which he helped develop, is focused on the influences that directly affect firms and their decisions to invest in one country rather than another. “This issue of competitiveness really does determine the future prosperity of societies and why some countries move forward and others stagnate and decline,” he said at the World Economic Forum news conference. “What we are finding is that in this modern global economy, productivity becomes more and more important because companies can do things anywhere. So increasingly what determines the success and failure of nations is how productive they can be as a location for business activity.” Economist Jim Stanford of the Canadian Auto Workers union said the forum's index, while useful, should be taken with a grain of salt. “The World Economic Forum is a business-dominated body that has its own vision of the ideal world, one that would not jibe with that of most Canadians,” he said. Still, he said the WEF report suggests Canadian corporate leaders can't simply point the finger at government, which has cut taxes, kept inflation under control and run consistent budget surpluses. “The problem is the failure of our own business sector to do what needs to be done, and that is, to invest and innovate,” he said.
