UK leaps up world economic rankings

Click to follow
The Independent Online
THE UK has leapt up the world economic league table in the past year, climbing to within a whisker of the United States, according to a controversial annual assessment.

Despite the Government's newly-launched drive to improve national competitiveness following a damning assessment by management consultancy McKinseys, Britain is the only big European economy to feature anywhere near the top of the world rankings published yesterday.

These are compiled each year by the World Economic Forum, the body which organises the annual get-together of influential business and political leaders in Davos.

The UK is now the fourth most competitive country after Singapore, Hong Kong and the US, it says, up from seventh place last year, after overtaking Canada, New Zealand and Switzerland.

Other gainers this year are the Netherlands, Ireland, Finland and Denmark. But other Asian economies have slipped while the big Continental countries continue to languish in the middle of the league.

In an analysis of the results Jeffrey Sachs, an eminent Harvard professor, concludes that two types of country are the most competitive. Top of the league come the small but very open trading economies like Singapore. Close behind are the Anglo-Saxon countries, including the US, UK and Canada.

This pattern is due to the weight the report's rankings place on light regulation and the absence of red tape. Any single measure of competitiveness is bound to reflect the assumptions that have to be made to summarise an economy in one number, and the World Economic Forum is a firm advocate of free-market capitalism.

Thus Britain's leap from 15th to 7th place between 1996 and 1997 was acclaimed by the Conservatives in the run-up to last year's election as a clear vote of confidence in their economic policies. The Labour party, in reply, focused on alternative figures showing dismal growth in the UK's national output per head.

The WEF's overall "competitiveness index" is calculated by averaging a wide range of sub-indices measuring the openness of the economy, employment laws, the quality of government, and the national infrastructure.

The explanation for the UK's ascent in the latest 12 months lies in continuing improvements in infrastructure, government deregulation and labour market "flexibility". The financial system and institutions such as the competition authorities and the judiciary continued to score high marks.

However, in a conclusion that will come as no surprise to exporters, the strength of sterling against overseas currencies counts as a key liability, along with low national savings and investment and weaknesses in technical education.

Singapore and Hong Kong get top billing once again despite the fact that the Asian economic crisis means both will suffer a sharp slowdown this year. The report admires their minimal governments and openness to international trade and finance.

However, Indonesia, Malaysia and Thailand have all fallen in the rankings this year while Korea's position was little changed at number 19.

Most of Asia's former tigers remain ahead of France, Germany and Italy, despite the economic whirlwind that has caused them such upheaval during the past 12 months. The Continentals are marked down heavily for their rigid labour markets and expensive social welfare systems.

Less controversially, a t the bottom of the league are Eastern European countries, and other emerging economies such as India and Zimbabwe, where corruption is rife, institutions and infrastructure fragile, and organised crime is often far more efficient than governments. The report once again blames the legacy of socialism.

Business outlook, page 23