Outlook: Competitiveness

THERE IS something irresistible about league tables. Everyone loves peer group comparison. So it is with the annual competitiveness report from the World Economic Forum, which runs the annual Davos forum for the great and good in business. The same countries tend to cluster at the top and bottom year after year, but the UK is one of the those which moves up and down the international hit parade.

The report's first verdict on the Labour Government is not good. The measures which reintroduce red tape and higher costs into the jobs market made a big contribution to the four point slippage this year. So too did a long-standing weakness which is getting worse, namely the shortfall in scientific and technological capacity. This is a problem the government has so far failed to dent. At number eight out of 59, however, the UK is still ranked one of the most competitive economies in the world, and certainly one of the few big economies in the top quarter of the table. Continental European countries lag behind because of their greater jobs, goods and capital market rigidities, and because their public sectors take a bigger bite out of national output.

It ought to be pointed out, ofcourse, that downgrading Continental-style capitalism and awarding high marks to the red-blooded Anglo-Saxon version is part of the purpose of these global rankings. The construction of the index reflects the value judgements of its compilers. Quite a few European economies have higher average incomes per head and higher productivity levels than the UK, but this gets a relatively low weight in the World Economic Forum index.

For this reason the new index of `micro-economic competitiveness' which is fed into the overall ranking is rather more interesting. It burrows deeper than the value-laden big picture to assess countries on their basic infrastructure of education and technology, and their capacity to innovate. This is the ultimate source of long-run economic prosperity.

It is not only the UK that is slipping on this front. So is the US, where similar weaknesses in basic education mean the country is not producing enough scientists and engineers. Nor is it able to drain brains from abroad in the way it used to. The competitiveness rankings could soon look very different if the countries near the top now do not build the capacity for future technological innovation.