Britain, the 'envy of Europe', races up the competitiveness league

Britain has leapt up the world competitiveness league as the privatisation and deregulation of the Conservative era finally pay dividends, according to a study published today.

In a finding that will give the last government bitter satisfaction, the annual competitiveness rankings published by the World Economic Forum show that the UK rose from 15th to 7th place in 1996, one of the biggest advances. Britain's place in the world rankings was one of the political footballs of the election campaign.

According to Fredrick Hu of the WEF, which organises the meeting of world political and business leaders in Davos each year: "The UK has become the envy of continental Europe."

He added: "What we see in the UK is an economy reborn out of sweeping privatisation, deregulation and other structural reforms, an economy that is now well poised to compete in the global economy."

But the annual review strikes a note of caution about growing income inequality, which has increased by more in the UK than most other countries. It notes that business executives in 49 out of the 53 countries covered judged that inequality had risen, but in general the high-ranking countries had suffered the smallest perceived increases.

The rankings are based on a mix of economic indicators such as tax rates and foreign investment, the quality of the infrastructure signalled by measures such as road density and the number of internet connections, and the results of a survey of business executives. The UK's advance reflects the importance the rankings place on factors like low tax rates and deregulation.

The report comments that Britain "has distinguished itself from the rest of Europe by retooling its social welfare state. It has slashed its top marginal tax rates and increased substantially its labour market flexibility."

Other big European climbers in the latest year are Ireland and the Netherlands. But the big European economies are languishing, with France unchanged at number 23, Germany down from 22nd to 25th, and Italy falling from 39th to 41st.

According to the WEF: "None of these countries has taken the painful but necessary measures to tackle their deep-rooted problems, which range from labour market rigidity to troubled fiscal policies."

At the top of the league table are two small but dynamic entrepot economies, Singapore and Hong Kong. They are followed by the US and Canada. With New Zealand at number five and the UK at number seven, the "Anglo-Saxon economies" make a strong showing, although this is perhaps not surprising given the assumptions behind the construction of the competitiveness index.

The newly industrialised Asian countries such as Taiwan and Malaysia also score high rankings. However, the report says their growth rates are slowing down as they mature.

It sees bigger potential in the big emerging markets like China and Indonesia, and to a lesser extent Brazil. China has climbed to 29th place in the 1996 competitiveness ranking from 36th in 1995, while Indonesia leapt from 30th to 15th.

At the bottom are two "faltering giants", the Ukraine and Russia. As well as a year of economic decline, they continue to suffer from high levels of corruption, unreliable enforcement of contracts and unreliable police guarantees of physical security.

But the survey results suggest that Colombia rivals Russia as the worst place in the world to do business in terms of governance. Respondents said bribery was commonplace, tax evasion rampant, organised crime widespread and the police force ineffective.

Global Competitiveness Report 1997

Competitive Ranking

1997

rank

Singapore 1 1 Egypt 28 29

Hong Kong 2 2 China 29 36

United States 3 4 Portugal 30 34

Canada 4 8 Belgium 31 25

New Zealand 5 3 Czech Rep 32 35

Switzerland 6 6 Mexico 33 33

United Kingdom 7 15 Philippines 34 31

Taiwan 8 9 Slovak Rep 35 N/A

Malaysia 9 10 Turkey 36 42

Norway 10 7 Argentina 37 37

Luxembourg 11 5 Iceland 38 27

Netherlands 12 17 Italy 39 41

Chile 13 18 Peru 40 38

Japan 14 13 Columbia 41 40

Indonesia 15 30 Brazil 42 48

Ireland 16 26 Jordan 43 28

Australia 17 12 South Africa 44 43

Thailand 18 14 India 45 45

Finland 19 16 Hungary 46 46

Denmark 20 11 Venezuela 47 47

Korea 21 20 Greece 48 39

Sweden 22 21 Vietnam 49 N/A

France 23 23 Poland 50 44

Israel 24 24 Zimbabwe 51 N/A

Germany 25 22 Ukraine 52 N/A

Spain 26 32 Russia 53 49

Austria 27 19