WASHINGTON, Oct. 13 (UPI) -- Nordic countries dominate this year's list of the world's most competitive countries, according to the latest Global Competitiveness report, released Wednesday by the Geneva-based World Economic Forum.
The report, which ranked 104 global economies, ranked the United States second, followed by Sweden, Taiwan, Denmark and Norway, consecutively. In fact, Nordic countries hold five of the top 10 spots in the list: Finland (1), Sweden (3), Denmark (5), Norway (6) and Iceland (10).
Other countries that made the top 10 list were Taiwan (4), Singapore (7), Switzerland (8), and Japan (9).
The report discusses the strengths and weaknesses of each country's economy, and tries to explain why some countries have succeeded in raising their populations' incomes and opportunities and becoming globally competitive, while others have not.
"The Nordic countries are characterized by excellent macroeconomic management overall -- they are all running budget surpluses -- they have extremely low levels of corruption ... and their private sectors are on the forefront of technological innovation," said Augusto Lopez-Claros, chief economist and director of the World Economic Forum's Global Competitiveness Program.
"Especially noteworthy is the fact that, for several years, Finland has been running budget surpluses, in anticipation of future claims on the budget associated with the aging of its population," Lopez-Claros said.
The bottom 10 slots were filled by Georgia (94), Nicaragua (95), Madagascar (96), Honduras (97), Bolivia (98), Zimbabwe (99), Paraguay (100), Ethiopia (101), Bangladesh (102), Angola (103), and Chad (104).
The new additions this year to the report include Bahrain, Bosnia, Herzegovina, Cyprus, Georgia and the United Arab Emirates.
The report uses two complementary indexes to assess a country's potential for growth: the Growth Competitiveness Index (GCI), which looks at institutions and economic policies that would support high economic growth over the next five years; and the Business Competitiveness Index (BCI), which looks at institutions, market structures, and economic policies that support the country's current levels of prosperity. The GCI evaluates the quality of the macroeconomic environment, the state of a country's public institutions, and the country's technological readiness. The BCI evaluates the sophistication of the operating practices and strategies of companies, and the quality of the microeconomic business environment in which a nation's companies compete.
Countries that fell sharply in their GCI rankings include Bolivia, the Dominican Republic, Pakistan, Peru, the Philippines, Poland, and Vietnam, for reasons such as blatant official corruption, quashing press freedoms and other civil liberties which
drive out capital and discourage business, political instability and a weakening in the rule of law.
Conversely, countries like Chile, Bulgaria and Romania have risen in the GCI ranks, due to macroeconomic as well as other improvements.
China essentially tread water this year, falling only slightly to 46th place after ranking 44th in the last index. Korea and Vietnam fell sharply, each more than 10 places.
Latin American countries overall exhibited deteriorating levels of competitiveness in 2004. Chile, the highest-ranked country on that continent, moved up to 22nd place from 28th, but its nearest rival, Mexico, is ranked a lowly 48th.
Sub-Saharan African countries occupy many of the lowest places on the list. South Africa, which leads Africa in the global rankings, ranks 41st.
On the BCI Index, advanced countries that dropped in their rankings include Italy, Malta, and Iceland. Italy's deteriorating business environment pushed it down to 47th place, compared to 26th in 2001.
Middle-income countries which ranked lower include Latvia, the Dominican Republic, Poland, and Mauritius.
Middle-income nations that saw their BCI rankings improve include Romania, Lithuania, the Slovak Republic, Russia, Namibia, and the Ukraine. Romania leapt from 82nd to 63rd place thanks to strong across-the-board improvements as it prepares for eventual European Union entry.
Among low-income countries, Indonesia saw the most improvement after several turbulent years, rising 18 places. India rose 8 ranks, thanks in part to more sophisticated companies. Vietnam however fell a full 23 places, after several years of steady improvement.
The release of this year's report occurs at "a crossroads in the evolution of the global economy, when the strength of the economic recovery has left many observers pleasantly surprised," Professor Klaus Schwab, co-chair of the World Economic Forum, wrote in the report.
"Industrial production has been expanding quickly, business confidence and investment growth have been buoyant, and global trade is growing at rates not seen for a decade.
"Yet the markets are worried. How will the authorities manage the transition to a higher interest rate environment? Will the yawning twin deficits in the United States derail the recovery, against a background of global security concerns and the repercussions these might have for oil supplies and prices?"
This year's report includes several studies that address different facets of competitiveness. Daniel Kaufmann writes about how corruption and governance problems pose challenges not just to poor countries but also to rich countries. Arthur Dahl explains why environmental responsibility makes good business sense.
Lopez-Claros elaborates on why Chile is the most competitive economy in Latin America, but also on what it needs to do to further improve, including a better educational system, while Mario Blejer explains that overall Latin America's shaky state is mainly due to incomplete reforms, with initial successes not being followed up by further reforms.
Andrew Warner writes that the European "productivity slowdown" is a myth, and that many European countries actually are ahead of the United States when looking not just at hours worked, but at GDP per hours worked.
Richard Cooper gives his vision of the future by looking at trends in population growth, per capita income and the effects of information technology and how they will shape the world by the year 2020. In that vein, Peter Heller takes up the issue of caring for the impending large elderly populations and how countries need to do much more than they are now doing to be fiscally prepared.
Stefan Tangermann calls for an end to government-provided farm subsidies, saying they distort the market, depress prices for farm products, and mostly end up subsidizing large landowners rather than farmers.
Finally, William Easterly looks at why foreign aid has not been more successful at promoting competitiveness. He cites the "dysfunctional" nature of aid agency bureaucracy and their failure at performing truly "grassroots" development, but also questions why the world has not "held agencies responsible for the failure of large flows of aid to generate growth."
A summary of the report containing both indexes is available at http://www.weforum.org/pdf/Gcr/Executive_Summary_GCR_04.