A timely review

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The Independent Online
The timing is good. Every year the International Institute for Management Development in Lausanne produces the World Competitiveness Report, in which it looks at just that - how the various countries rank in their competitiveness. This year it happens to be published at the moment when the European summit is confronting some very uncomfortable questions.

Why is Europe's unemployment so much higher than that of Japan or the US? More fundamentally, what is Europe's comparative advantage in the world?

The survey itself is inevitably arbitrary in the way it grades different countries' competitiveness, but it is a useful exercise. Some two-thirds of the rankings come from published data, the rest from surveys of what executives in companies around the world think. The things considered include domestic economic strength, degree of internationalisation of the economy and quality of government, finance, infrastructure, management and science and technology. Finally, there is a ranking for 'people'.

The pecking order puts Japan at the top followed by the US, Denmark, Switzerland and Germany. There is a middle band of countries with France in the middle and Britain close to the bottom. Then below those come Spain, Italy, Turkey and Greece. A separate group of newly industrialised and developing countries has Singapore at the top and Pakistan at the bottom.

The fact that Britain ranks so low is partly explained by the way the factual data are collected. The raw material is frequently very out of date - the survey uses a lot of 1991 figures and some even earlier ones. So the figures tend to reflect the stage each country was at in the economic cycle a year or more ago rather than the opportunities now. Italy ought probably to rank higher than it does on these grounds.

The survey also reflects attitudes of the business community - the assessment by executives of the quality of the actual and potential workforce, which is inevitably subjective. Business people want a labour force that is well-educated, enthusiastic and hard-working and that regards company objectives as more important than individual ones. It should be no surprise that Japan comes top.

More useful than the pecking order is the wealth of detail that the survey pulls together. Consider three myths about Britain - that we are the 'coolies of Europe', that the Government is starving the national health service of cash and that Britain is an unequal society.

Well, which countries in the industrial world have the largest number of hours worked per year? The answer is Japan and the US, with Britain and France in the middle and Germany at the bottom. If one looks at hours per worker per week in manufacturing Britain does come close to the top, with the US and Japan in the middle and Denmark and Finland at the bottom. The lesson is that some workers in Britain do work longer hours than their counterparts elsewhere, but if one looks at the economy as a whole it is Europe that is out of line with North America and Japan.

On the state's commitment to health care, which governments spend the highest proportion of their total expenditure on health? Germany, France and Britain in that order.

We are very much at the top of the league. We may feel that the NHS is short of cash, and that may objectively be true, but the Government's commitment, again objectively, is large by world standards.

Or consider inequality. Britain is absolutely in the middle of the pack, ranking 12th out of 20 countries in terms of the proportion of income going to the poorest 20 per cent and 10th of 20 in terms of the richest.

And those questions about unemployment and competitiveness in Europe? The report answers these in the politically correct way.

Professor Stephane Garelli, director of the project, argues that people should not be regarded as disposable assets by companies: 'The theory of competitiveness does not necessarily advocate the systematic reduction of employment whenever it is feasible . . . it underlines the importance of managing corporate culture and human assets as well as any other financial asset.'

It would be absurd to argue against the value of education and hard to argue against the notion that a company should look to its long- term interests. But the fact remains that the US and Japan, the two countries at the top of the list, have up to now adopted very different policies towards their labour forces.

The US does tend to hire and fire, while Japan - at least among people working for large companies - does not. Yet these two extremes both seem to work reasonably well at holding down unemployment. Europe has failed on this score and it is hard to see how persuading companies to hold on to labour would have much effect on that. Surely the answer lies in building Europe's real competitiveness - encouraging the things that the rest of the world cannot do cheaper.

Professor Garrelli points out how the communications revolution will increasingly shift white collar jobs outside the industrial world, with computer software written in India or the Philippines. (Swissair does part of its accounts in Bombay).

There are many things, though, that low-wage countries cannot do as well as Europe - develop new drugs, make high-quality fashion garments, produce fine wine and many, many more. Ultimately, what will protect Europe's living standards is its rich variety of different skills - nothing else.