The World Economic Forum’s ranking of competitiveness released this week confirms what many of us feared: Latin America is losing ground in the global economy and is doing very little about it.
The Global Competitiveness Report 2013-2014, probably the most comprehensive study on countries’ ability to compete internationally, measures, among other things, each nations’ institutions, infrastructure, business climate, education, technological readiness and innovation.
Switzerland tops the list of 148 countries as it did last year. It’s followed by Singapore, Finland, Germany, the United States, Sweden, Hong Kong, the Netherlands, Japan and the United Kingdom.
The Latin American country that ranks highest on the list is Chile (34) followed by Panama (40), Barbados (47), Costa Rica (54), Mexico (55) and Brazil (56). Further down on the list are Peru (61), Colombia (69), Ecuador (71), Uruguay (85), Guatemala (86), El Salvador (97), Bolivia (98), Nicaragua (99) and Argentina (104).
Near the bottom sit Venezuela (134) and Haiti (143) — ranked among the world’s most hopeless countries economically.
The report says that after a decade of steady economic improvement, thanks to rising commodity prices and sound macroeconomic policies, the tide is shifting. The latest data “show that most countries are stagnating in their competitiveness performance.” Translation: The region is falling behind.
“Urgent actions will be needed,” the report says. They include improving the functioning of institutions and the quality of education, technology and innovation.
“This will require a series of overdue reforms that have been repeatedly postponed,’’ according to the report.
While Brazil and Mexico basically retained last year’s positions, Argentina, Uruguay and Venezuela suffered the biggest drops.
Argentina, where President Cristina Fernández de Kirchner last month bragged that her country’s economy is doing better than those of Australia and Canada, dropped 10 positions this year. Incidentally, Canada ranks 14th in the WEF ranking, 90 places ahead of Argentina, and Australia ranks 21st — 83 places ahead of Argentina.)
Even conflict-torn Algeria and Lebanon are more competitive than Argentina, the new ranking says.
Venezuela, in turn, dropped eight places from last year’s ranking, in line with a steady decline over the past decade. It now ranks alongside Uganda , Zimbabwe, Mozambique, Haiti and Chad as among the world’s least competitive countries.
Xavier Sala-i-Martin, a well-known economist at Columbia University and a leading author of the WEF Global Competitiveness Report, told me that “in Argentina and Venezuela, the problem is not just excessive state control of the economy, but bad state control of the economy.”
“Government decisions are not taken based on economic efficiency, but on political favoritism, and on punishment of those who don’t support the government,” he said.
I asked him what the solution is.
“There are many pending assignments, including infrastructure, and improving governance, but the key one is improving education,” he said. “The biggest difference between Latin America and successful Asian countries such as Singapore, South Korea and China is the incredible emphasis that Asian countries have placed in improving educations standards.”
My opinion: The bad news is that, in the short run, the leaders of Argentina, Venezuela and other populist/corruption havens will most likely dismiss the new competitiveness ranking. As they have done before, they will probably stick to their own cooked statistics and try to showcase their economies’ alleged resilience in the midst of a global crisis.
But economic reality has changed and is making their claims look increasingly ludicrous to their own people.
During the past 10 years, thanks to high world commodity prices, they gave away cash subsidies in exchange for votes, wasting their countries’ biggest opportunity in recent memory to invest in education, infrastructure, and other pillars for long term-growth.
Now world commodity prices are no longer rising, and they can’t keep pretending that their countries are doing well. In oil-rich Venezuela, the lights are going off.
Of course, populist leaders will blame others — the United States, “the oligarchy,” etc. — for their self-inflicted problems. But it will become increasingly apparent that countries that have saved during the good times to be able to invest in their long-term growth will do much better. Count Chile, Peru and Brazil among them.
The new Global Competitiveness Report should sound alarm bells throughout the region.
The days of easy money are over. Now, it’s a matter of becoming more competitive and selling more, as well as selling more innovative goods, in global markets.