The Global Competitiveness Report

10/17/2018

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Klaus Schwab | World Economic Forum

Preface

With the Fourth Industrial Revolution (4IR), humanity has entered a new phase. The 4IR has become the lived reality for millions of people around the world, and is creating new opportunities for business, government and individuals. Yet it also threatens a new divergence and polarization within and between economies and societies. This year also marks the tenth anniversary of the beginning of the global financial crisis, which has had social and economic consequences of a magnitude unprecedented in recent generations. Combined with a background of growing inequality and geopolitical flashpoints, this has fuelled citizens’ concerns about globalization and polarized the political debate. Although global economic growth has been robust over the past two years, it remains fragile in this changing economic and political context.

These developments—the 4IR and the consequences of the Great Recession—are redefining the pathways to prosperity and, indeed, the very notion of prosperity, with profound implications for policy-making. Concerned leaders are grappling for answers and solutions, aiming to go beyond short-term, reactionary measures.

In this context, the World Economic Forum is introducing the new Global Competitiveness Index 4.0, a much-needed economic compass, building on 40 years of experience in benchmarking the drivers of longterm competitiveness. After having conceptualized the Fourth Industrial Revolution, the World Economic Forum is contributing to global thinking and policy-making by integrating the notion of the 4IR into the definition of competitiveness.

The index integrates well-established aspects with new and emerging levers that drive productivity and growth. It emphasizes the role of human capital, innovation, resilience and agility, as not only drivers but also defining features of economic success in the 4IR. It calls for better use of technology for economic leapfrogging—but also cautions that this is only possible as part of a holistic approach with other factors of competitiveness. Finally, it offers objective, data-driven analysis for dispassionate, future-oriented, and rational policy-making.

The results of the GCI 4.0 reveal the sobering conclusion that most economies are far from the competitiveness “frontier”—the aggregate ideal across all factors of competitiveness. In fact, the global average score of 60 suggests that many economies have yet to implement the measures that would enhance their longterm growth and resilience and broaden opportunities for their populations. In addition, we find that countries have a mixed performance across the twelve pillars of the index and that long-standing developmental issues—such as the lack of well-functioning institutions— continue to be a source of friction for competitiveness. Yet there are bright spots—in the form of economies that outperform their peers and present valuable case studies for learning more about methods to implement the factors of competitiveness.

At the World Economic Forum’s Centre for the New Economy and Society, the new home of the Global Competitiveness Report, we provide a platform for leaders to understand and anticipate emerging economic and social trends, and to adapt policies and practices to our rapidly evolving context. This report is complemented by a range of other benchmarking tools as well as frontier insights on the emerging contours of the new economy and society. Importantly, the Centre also aims to serve as an accelerator for newly emerging solutions, experiments and pilots led by the public and private sectors in areas such as designing new industrial policy, closing skills gap, developing new standards for business, and preparing for the future of work. This combination allows policy-makers, business and other stakeholders to combine insight and action into accelerating change, and we invite leaders to engage with our platform.

I want to express my gratitude to the core project team involved in the production of this report: Thierry Geiger, Roberto Crotti, Sophie Brown and Jean François Trinh Tan. Additional thanks for the specific contributions of Silja Baller, Attilio di Battista, Ciara Porawski, and our former colleague Margareta Drzeniek Hanouz, and the strategic guidance of Saadia Zahidi. My deep gratitude goes to Professor Xavier Sala-i-Martin for his guidance over the last 15 years, and to the more than 100 experts, practitioners and governments who were consulted during the GCI 4.0 creation process. Finally, we thank the 160 Partner Institutes, which help administer the Executive Opinion Survey, the results of which provide invaluable data for the GCI 4.0 and other benchmarks.

The Global Competitiveness Report is designed to help policy-makers, business leaders and other stakeholders around the world shape their economic strategies in the era of the Fourth Industrial Revolution. We hope it will also serve as a call to action to engage in the long-term, holistic, agile and far-sighted leadership required to build the competitive economies of the future, lift living standards and provide opportunities for all members of society.

Summary of Key Findings

In the midst of rapid technological change, political polarization and a fragile economic recovery, it is critical that we define, assess and implement new pathways to growth and prosperity. With productivity the most important determinant of long-term growth and income, the new Global Competitiveness Index 4.0 featured in this report sheds light on a newly emerging set of factors critical for productivity in the Fourth Industrial Revolution (4IR) and provides a tool for assessing them. The key findings below summarize the new tool as well as its results as revealed by global, regional and country level analysis.

A NEW TOOL FOR UNDERSTANDING AND ASSESSING COMPETITIVENESS New concepts. With the inclusion of new concepts and extensive new data gathering efforts, the GCI 4.0 provides novel and more nuanced insights on the factors that will grow in significance as the 4IR gathers pace: human capital, innovation, resilience and agility. These qualities are captured through a number of new, critically important concepts (e.g. entrepreneurial culture, companies embracing disruptive ideas, multistakeholder collaboration, critical thinking, meritocracy, social trust) complementing more traditional components (e.g. ICT and physical infrastructure, macroeconomic stability, property rights, years of schooling).

New benchmarks. The GCI 4.0 introduces a new progress score ranging from 0 to 100. The frontier (100) corresponds to the goal post for each indicator and typically represents a policy target. Each country should aim to maximize its score on each indicator, and the score indicates its current progress against the frontier as well as its remaining distance. This approach emphasizes that competitiveness is not a not a zero-sum game between countries—it is achievable for all countries.

Twelve pillars of competitiveness. There are a total of 98 indicators in the index, derived from a combination of data from international organizations as well as from the World Economic Forum’s Executive Opinion Survey. These are organized into 12 pillars in the GCI 4.0, reflecting the extent and complexity of the drivers of productivity and the competitiveness ecosystem. These are: Institutions; Infrastructure; ICT adoption; Macroeconomic stability; Health; Skills; Product market; Labour market; Financial system; Market size; Business dynamism; and Innovation capability.

A level playing field for all economies. For the second half of the 20th century, the pathway to development seemed relatively clear: lower-income economies would be expected to develop through progressive industrialization by leveraging low-skilled labour. In the context of the 4IR the sequence has become less clear, particularly as the cost of technology and capital are lower than ever but their successful use relies on a number of other factors. The GCI 4.0 reflects this growing complexity of policy prioritization by weighting pillars equally rather than according to a country’s current stage of development. In essence, the index offers each economy a level playing field to define its path to growth. While sequencing is dependent on the priority of each economy, the index contends that economies need to be holistic in their approach to competitiveness rather than focusing on a particular factor alone. A strong performance in one pillar cannot make up for a weak performance in another. For instance, investing in technology without investing in digital skills will not yield meaningful productivity gains. In order to increase competitiveness, no area can be neglected.

 

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