For the first time in close to a decade, the U.S.A. has slipped badly in the Global Competitiveness Index (GCI) rankings, released by the World Economic Forum (WEF). While Switzerland has taken the top slot, the other major contender Finland, retains the No. 2 slot. The U.S.A, which has been occupying one of the top two slots in the WEF ranking in recent years, has been pushed down to the sixth position.

The fragile state of public finances has been the plausible cause for the sharp decline for the U.S.A., with the trade deficit expected to top last year’s record level of $717 billion in 2006. The budget shortfall is estimated to be approximately $300 billion. The poor public finance scenario pulled down the competitiveness of the U.S.A. despite the fact that it still leads the world in market efficiency, innovation, higher education and training, assessed by the GCI.

The GCI groups the factors behind the rankings into nine categories: Institutions, infrastructure, macroeconomy, health and primary education, higher education and training, market efficiency, technological readiness, business sophistication and innovation.

Large Emerging Countries Have Miles to Go

On top of the list of most competitive nations are the familiar names: Nordic countries such as Finland, Norway, Sweden, Iceland and Denmark; the developed economies like the U.S.A., Japan, Germany, the U.K., Netherlands, Belgium, Canada, Australia and France; and the small business hubs like Taiwan, Singapore, Hong Kong, Ireland and Luxembourg. Israel at No. 15 is the only exception.

Where does that leave the large emerging countries? Contrary to the perception that India and China are the biggest threats to the developed nations like the U.S.A., the rankings show that these countries have a long way to go before they are counted as the most competitive nations.

Take BRIC (Brazil, Russia, India, China) countries. The top position occupied in the competitiveness ranking in the WEF list among these countries in India, which comes at No. 43. And incidentally, it is the only BRIC country which has improved its ranking over last year — that too marginally by two places, from No. 45 last year. China, drops from No. 48 to 54, Russia from No. 53 to 62, and Brazil from No. 57 to 66 — measured in terms of global competitiveness.

China’s best show is in the macroeconomy parameter where it ranks an impressive No. 6, and where neighbor India ranks a lowly No. 88. China scores poorly in institutions, higher education and most ironically in technological readiness. India’s best performance is in market efficiency where it ranks No. 21; and the two innovation parameters: Innovation per se and business sophistication where it ranks at Nos. 26 and 25 respectively. The two neighbors have the most contrasting performance in macroeconomy (China far better), market efficiency and business sophistication (India far better).

Where do the other popular offshore nations stand? Malaysia at No. 26, Czech Republic at No. 29, Hungary at No. 41, and Poland at No. 48 are in the top 50. Romania at No. 68, Argentina at No. 69, and the Philippines at No. 71 follow.

Among developed nations, the U.K. is placed much higher than the U.S.A., as per the rankings in terms of all the basic requirements, including institutions, infrastructure, macroeconomic climate and health and primary education. In terms of market efficiency, the U.K. is just a rank lower than the U.S.A., while it is ranked higher in technological readiness.

Global Competitiveness Index rankings and 2005 comparisons

Source: GCI, World Economic Forum

Almost all the countries in the Middle East, including Algeria, Morocco, Tunisia, UAE, Qatar and Israel saw a good jump in their rankings from the previous year.

Some of the other key findings of the report are listed below: