A more competitive economy: It’s as easy as TERDS

The World Economic Forum just released its latest ranking of the world’s most competitive economies. It offered good news for Canada: we had the 9th most competitive economy out of the 133 covered by the study . This year’s Top 10 list:

1. Switzerland
2. USA
3. Singapore
4. Sweden
5. Denmark
6. Finland
7. Germany
8. Japan
9. Canada
10. Netherlands

The gap between Canada and top-ranked Switzerland wasn’t as great as it might appear. Canada’s final score of 5.33 was only five percent below Switzerland’s 5.60 score.

If our goal is to be the world’s most competitive economy, we are literally 95 percent of the way there.

What would close the gap? I opened up a database that I keep handy, consisting of a wide range of information about 22 countries, ranging from GDP per capita, to long-term unemployment rates, to the percentage of citizens who say that they are satisfied with their lives.

I then compared each country’s latest competitiveness score to my motley collection of other variables. From this, I figure that a more competitive economy is as easy as TERDS.

  • T stands for “transparency”. Making it easy for citizens to watch what their government is up to and giving them a say in how their city, province or country is run is good for the economy. Why? Because this puts pressure on governments and anyone they do business with to be honest and ethical, which saves everyone a load of trouble. Canada does well in this regard, but a few changes — such as less resistance to Freedom of Information requests and more political finance reform initiatives — would help move us toward #1 in the competitiveness rankings.
  • E stands for “education”. The U.S. Deep South has low taxes and little regulation, but is still looked upon as a lacklustre place to do business and an unattractive region to move to. A big reason for that is because the Deep South is reputed to have some of America’s worst educational systems. Large numbers of high school dropouts mean a lower-quality labour pool — which discourages investment. Dropouts also impose higher social welfare, health care and policing costs on governments while paying less tax than those who’ve completed their education.  Fortunately, Canada does well overall in producing graduates — but there are still areas of the country (including a good portion of Winnipeg) where the dropout rate is still far too high.
  • RD stands for “research and development”. It’s a powerful driver of economic growth. Economies get ahead not by doing what other are already doing, but by creating new goods and services. This is an area where Canada needs to catch up. Investment in R & D by our post-secondary institutions is quite good, but investment by governments and business is spotty. An extra $10 billion or so per year in R & D would be a big help in closing the competitiveness gap. Perhaps a more aggressive R & D tax credit is called for, along with better R & D capabilities in universities outside of the London, Ont.-Quebec City corridor, where most of Canada’s R & D takes place.
  • S stands for “stability”. Investors might complain about taxes and regulations, but the one thing that truly turns them off — that causes them to run away from a jurisdiction — is unpredictability. The perception of stability is an important part of economic competitiveness. A country can improve its stability by not tolerating corruption. It also helps if a country’s politicians maintain a moderate tone and stay away from ideology and talk of “revolution” or “radical reforms”. Fortunately, Canada is perceived to be among the more stable countries around, in spite of the narrowing gap between Question Period in the House of Commons and an episode of The Trailer Park Boys. Moderate Scandinavia, in spite of perpetual minority governments, is also considered an oasis of stability. Countries with a rich history of ideological politics, such as the U.S., the U.K. and France, are perceived as being considerably less stable.

Interestingly, there was little relationship between tax loads and economic competitiveness: indeed the world’s ten most competitive economies are a mix of high-tax and low-tax jurisdictions.

[Edited Wednesday at 07:53 to correct a typo in the “Education” paragraph]

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About theviewfromseven
A lone wolf and a bit of a contrarian who sometimes has something to share.

2 Responses to A more competitive economy: It’s as easy as TERDS

  1. Fat Arse says:

    Vfr7,

    I always enjoy learning new things, keep it up.

    Who finished last? Which countries ranked 123-133?

    I mean, do they all fit the TERD model as well? Or are the reasons behind their rankings more nuanced. In the ‘bottom ten’ countries is it their latitude, disease burden, demographic trend, their cultural homogeneity (or not), their dominant religion, or the prevalence of foreign ownership that are at play? Or does TERD apply to all equally?

    Just curious.

  2. theviewfromseven says:

    Thanks, Fat Arse. Those are good questions you raise.

    The countries at the bottom of the list were:

    123. Kyrgyz Republic
    124. Paraguay
    125. Nepal
    126. Timor-Leste
    127. Mauritania
    128. Burkina Faso
    129. Mozambique
    130. Mali
    131. Chad
    132. Zimbabwe
    133. Burundi

    Looking at their rankings in terms of transparency, literacy rates and political stability, these countries tend to be poor performers, so this would appear to be consistent with the TERDS model. (Literacy was a bit higher in the Kyrgyz Republic, Paraguay and Zimbabwe, but their advantages here were offset by other problems.)

    R & D info is more difficult to come by, but I expect the amount of R & D in each of these countries is probably either nil, or very close to it.

    A lot of these countries — most of which are in Africa — have populations that are struggling for survival. Disease, high birth and mortality rates, religious/political violence, etc. do make it more difficult for people to survive and for any sort of service-sector or manufacturing economy to get off the ground.

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