The Good, The Bad and The Ugly

Excerpt from the 2015-2016 World Economic Forum Global Competitiveness Report

MEXICONOW Staff Report

The World Economic Forum (WEF) recently published the Global Competitiveness Report 2015-2016 including the performing analysis of 140 economies, contribut- ing to the understanding of the key factors determining economic growth, helping to explain why some countries are more successful than others in rais- ing income levels and opportunities for their respective populations, and offer- ing policymakers and business leaders an important tool in the formulation of improved economic policies and insti- tutional reforms.

As Richard Samans, Head of the Centre for the Global Agenda and Mem- ber of the Managing Board of the WEF mentions on the publication preface, this report is being launched at a pivotal time for the global economy. On one hand, economic development is characterized by the “new normal” of higher unem- ployment, lower productivity growth, and subdued economic growth that could still be derailed by uncertainties such as geopolitical tensions, the future path of emerging markets, energy pric- es, and currency changes. On the other hand, other recent developments show great promise—the so-called fourth industrial revolution and new ways of consuming such as the sharing economy could lead to another wave of signifi- cant innovations that drive growth. At the same time, across countries we are witnessing economic policymaking become increasingly people-centered and embedded in overall societal goals.

Whether economies get trapped in the new normal or harvest the benefits of the latest innovations for their so- cieties will crucially depend on their levels of competitiveness. Policymak- ers, businesses, and civil society leaders must work together to ensure continued growth and more inclusive outcomes of economic development. Enhanc- ing competitiveness requires not only well-functioning markets; other keys to success include strong institutions that ensure the ability to adapt, the avail- ability of talent, and a high capacity to innovate. These essential ingredients will become even more important in the future because economies that are competitive are more resilient to risks and better equipped to adapt to a rapidly changing environment.

Seven years after the global financial crisis, the world economy is evolving against the background of the “new nor- mal” of lower economic growth, lower productivity growth, and high unem- ployment. Although overall prospects remain positive, growth is expected to remain below the levels recorded in previous decades in most developed economies and in many emerging mar- kets. Growth prospects could still be derailed by the uncertainty fueled by a slowdown in emerging markets, geo- political tensions and conflicts around the world, as well as by the unfolding humanitarian crisis. At the same time, some positive developments—such as the rapid diffusion of information and communication technologies (ICTs) giving rise to new business models and revolutionizing industries— bear great promise for a future wave of innovations that could drive longer-term growth.

As in previous years, the top of the rankings continues to be dominated by highly advanced Western economies and several Asian tigers. Switzerland tops the GCI for the seventh consecutive year. Switzerland leads the innovation pillar, thanks to its world-class research institutions, high spending on research and development (R&D) by companies, and strong cooperation between the academic world and the private sector. Singapore ranks 2nd for the fifth year in a row, with one of the most consis- tent performances of all economies. The United States retains 3rd place. Although many risks arguably loom on the horizon, the country’s recovery can build on improvements in institu- tions— public-sector performance is rated higher than in previous years—its macroeconomic environment, and the soundness of its financial markets.

Mexico progresses four places to 57th, despite some deterioration of the institutional environment, thanks to improvements in the efficiency of financial markets (up 17 places to 46th), business sophistication (up eight places to 50th), and fostering innovation (59th). The country’s competitiveness also benefits from an efficient goods market with enhanced, albeit low, level of competition (99th) and a large market (11th)—Mexico is the second largest country in the region. These results signal that recent reforms are bearing fruit, but challenges remain. Despite some improvement in the labor market (up seven places to 114th), rigidities are still a problem, as are weak public (115th) and private (78th) institutions— which reflect the fact that corruption is considered the most problematic factor for doing business.

MEXICONOW has divided some of the sampled aspects of the report in three categories: the Good, the Bad and the Ugly. Each of the above reflects a set of aspects in which Mexico performs among its competitors.