The global economy is undergoing significant structural changes that are rendering obsolete the distinction between ‘developed’ and ‘developing’ countries. Today, according to the Global Competitiveness Report 2013-2014, the relevant divide is between ‘innovation-rich’ and ‘innovation-poor’ ones.
This has important implications for the competitiveness of nations and their capacity to create wealth.
Such thinking simply ‘repackages’ existing knowledge; its only merit is in putting innovation at the centre of the development process. Not so long ago, we were being told that the big divide was between ‘information-rich’ and the ‘information-poor’ countries.
Innovation is a complex phenomenon and has divergent meanings to different people but, for sure, it implies the convergence of education and economic strategies to foster entrepreneurship and technological advancement.
This latest report by the World Economic Forum states that the global economy is slowly coming out of the worst economic crisis since the Great Depression of the 1930s. The anaemic growth rate of the developed economies is slowing down the performance of the rest.
The prospects for the eurozone remain uncertain, with economic recovery being constrained by tight credit and high unemployment.
The relevant divide is between the ‘innovation-rich’ and ‘innovation-poor’ countries
The report concludes that, given the increased competitiveness of the emerging economies, policymakers in developed ones need to implement further structural reforms as they seek “to identify and strengthen the transformative forces that will drive future economic growth”. This demands a strategic approach to managing the economy.
The recent political turmoil in North Africa seems to have convinced the Forum’s analysts that it is superfluous to talk about the competitiveness of an economy without also taking into account social and environmental factors. Tunisia prided itself with having the best performing economy in Africa. This possibly expedited the revolution as the wealth that was being generated was appropriated by a small clique.
The WEF is now working on a ‘sustainable competitiveness’ index that also incorporates social and environmental indicators. This lesson had already been learnt in the past by development economists who also started talking about ‘sustainable development’ after having for long ignored its ‘holistic’ nature.
The 2013-2014 Global Competitiveness Report features a record 148 countries and its compilation involved over 160 partner institutions worldwide. It gives rankings for over 100 indicators making it the most comprehensive report of its kind.
Switzerland tops the overall ranking for the fifth consecutive year. Singapore and Finland place second and third respectively.
These are all relatively small economies and Malta would do well to study their success in formulating its own economic strategies.
The report attributes Switzerland’s outstanding performance to its excellent institutions, dynamic markets and innovative capacity.
It adds that the country’s political system “ensures cohesive and inclusive leadership across political boundaries which enable the country to implement a long-term economic agenda”.
Switzerland enjoys a strong collaborative culture whereby the government, business and civil society work together in the national interest.
In 2012, Malta’s GDP per capita stood at $20,852 and places in the top tier, the ‘innovation-driven’ category, which has a minimum threshold of $17,000. The overall competitiveness ranking is then determined through a sophisticated, but subjective, weighting system of all the indicators taken into consideration. In the 2013-2014 report, Malta placed in the 41st position, essentially keeping the same ranking as the previous year.
This overall ranking is not commensurate with Malta’s placing in the top category. Moreover, while some indicators place Malta among the best performers in the world, on many others it ranks miserably.
On the positive side, Malta can boast a first class international internet bandwidth (third out of 144 countries), imposes low duties on imports (4), has a high life expectancy (7), has relatively high exports(8), its education level is of a high standard(8), ports offer a good service (13), local banks are sound (14) as are auditing standards (13).
In contrast, those indicators in which Malta scores poorly include: quality of scientific research institutions (57), favouritism by government officials (60), state of cluster development (64), electricity supply (69), prevalence of foreign ownership(70) and tertiary level enrolment (72). Malta’s performance is even worse for a number of other indicators: procedures to start a business (126), women participation in the labour force (125), government debt (120), gross national savings (114), quality of roads (91) and burden of government regulation (86).
These rankings befit a Fourth World country rather than an EU member State.
The performance of the local private sector too comes under fire, especially with regard to: reliance on professional management (99), willingness to delegate authority (75) and efficacy of corporate boards (63).
The report includes a section on the Regional Competitiveness Index developed along the lines of the Global Competitiveness Index by the European Commission. This index is meant to measure the competitiveness of regions within the EU.
Malta performs poorly on an EU regional basis and as a state it places just ahead of the Slovak Republic followed by just the Baltic States, Rumania and Bulgaria.
Theoretically, the appropriateness of the WEF’s approach to competitiveness to a micro, open economy like Malta can be challenged.
Still, its findings are not to be discarded. It is an important benchmarking exercise referenced by many potential investors.
It seems there is still merit in Malta trying to become ‘a Switzerland in the Mediterranean’.