US slides down competition league

The United States has lost its top slot in a global ranking of economic competitiveness published yesterday because of mounting concern among businesses over its budget deficit and crumbling faith in its institutions.

The world's largest economy fell from first to sixth place in the World Economic Forum's annual survey that is based on interviews with 11,000 business leaders.

The harsh verdict comes a week after the International Monetary Fund highlighted a US slowdown as the biggest threat to the world economy.

The UK has slipped one place to 10th as one in five of the business leaders polled said that Britain had an "inadequately educated" workforce.

In its annual assessment of the competitiveness of 125 countries, the WEF said a number of weaknesses in the US, particularly related to macroeconomic imbalances and the institutional environment, were beginning to "erode the country's overall competitiveness potential".

Augusto Lopez-Claros, the chief economist and head of the WEF's global competitiveness network, said the US would remain one of the most competitive economies in the world for the "foreseeable future".

But he warned: "With potentially open-ended expenditure commitments linked to defence and homeland security, ongoing plans to lower taxes further, as well as other longer-term potential claims on the budget, the prospects for sustained fiscal adjustment seem not too bright."

He said the low savings rate in the US and the country's record current account deficit posed a "non-negligible risk" to its overall competitiveness and the future of the global economy itself, given the relative size of the US.

Mr Lopez-Claros said the quality of the country's public institutions had fallen "somewhat short of the levels of transparency and efficiency" seen in other members of the Organisation for Economic Co-operation and Development club of rich nations.

He said that, without redress, such worries "could allow other countries in a highly competitive global economy to challenge the US's privileged position".

It ranked just 69th out of 125 in terms of the basic health of its economy, with its health and primary education ranked 40th and the quality of its institutions 27th.

Mr Lopez-Claros said worries over its public finances had been the main factor in dragging the US's rating down. "It was a significant fall and was certainly noticeable," he said.

He said the decline in trust in public institutions was "tangible". "Businesses' attitudes towards efficiency of public spending have deteriorated and the business community in the US believes that public resources could be better directed to education, infrastructure and so on," he said.

He said it was impossible to say whether this reflected concern over the ballooning costs of the conflicts in Iraq and Afghanistan as the survey did not get that specific. "You are free to draw your own inferences," he said.

However he agreed the White House's half-hearted response to Hurricane Katrina has probably dragged down the score. "If you are saying that the management of this event had led to a tougher view of the efficiency of the government, that is plausible."

Mr Lopez-Claros said the UK's fall was not significant for such a high-ranking country. He said the UK had slipped due to concerns over the public finances, the state of its infrastructure and the quality of its higher education. But the WEF report noted: "The UK excels in market efficiency indicators, with the most efficient financial markets in the world."

Switzerland jumped from fourth last year to take the top slot, while Finland, Sweden, Denmark and Singapore all overtook the US. The rest of the top 10 was made up of Japan, Germany, the Netherlands and the UK.