Superstar Nations

| June 28, 2012 | 0 Comments
Switzerland has been ranked the most productive economy in the world by the  World Economic Forum for three years running. This is a photo of its largest city, Zurich.

Switzerland has been ranked the most productive economy in the world by the World Economic Forum for three years running. This is a photo of its largest city, Zurich.

The 10 most productive countries on Earth — and five contenders

 

The Age of Expectations, published in 1994 by American economist Paul Krugman (who has since become a Nobel laureate) opens with the following observation: “Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” This conclusion (with its subtle nod towards John Maynard Keynes’ famous aphorism) designates productivity as the decisive source of human prosperity and advancement, for unproductive societies will likely lack sufficient means to expand their scientific, cultural and artistic horizons.
But this perspective should not lead us to the inevitable conclusion that higher productivity will inherently improve the human condition, assuming we can agree on a definition of productivity. The definition, which Krugman advances, appears as only one of many and merely hints at the complexity of the concept.
Consider the following. Which reasons motivate us to be productive? How does a person’s productivity (and its underlying motivations) impact our relations with other humans? With other living beings and the natural environment? How do we measure and reward productivity? Which activities are productive and which are not? How do we deal with individuals deemed to be unproductive because of their age and other conditions, some of which may entirely immutable? Is it even appropriate to tag individuals with labels such as productive and unproductive?
Questions of this sort have sourced philosophical debate since Classical Greece through the Enlightenment into Modernity and beyond. They have also led humanity into some dark, depraved corners. This list of the Ten Most Productive Countries does not dare to offer any answers to such fundamental questions, for they would break the bounds of this volume. It instead focuses on the more quantifiable dimensions of productivity.
First a few words about two notable countries, which did not make this list — China and India. While their respective gross domestic products might be impressive when held up against the anemic numbers of many western economies, their overall economies are nowhere near as productive. An over-reliance on cheap labour and natural resources characterizes their economies, while other key sources of productivity such as innovation, research and technological adaptation remain under-developed. Finally, both countries are still building productive institutions.
Large parts of both countries still lack the necessary physical infrastructure to ensure the efficient movement of goods, services and people. Their educational, social and political institutions are also deficient in many ways. Of particular concern is the issue of corruption, which is rampant in both countries. It wastes resources that could be used to improve productivity, undermines property rights (the basis of production) and creates uncertainty.
China’s government compounds the sin of corruption through an opaque justice system and undue interference in all matters social, economic and political. lts treatment of certain groups, such as ethnic minorities, women and migrant workers is further evidence of a society that diminishes human potential — and by extension productivity — through choices rooted in questionable ideology. This critique, however, does not mean that China and India will not eventually catch up with productivity leaders such as Switzerland, Singapore and the Nordic countries. But their lead is by definition temporary and, if current trend lines continue, tenuous.
In conclusion, some final words about methodology. This list draws much inspiration from the Global Competitiveness Report, which the World Economic Forum has published since 2004. Its suitability stems from the fact that it draws a direct link between productivity and the presence (or absence) of 12 pillars of economic competitiveness — institutions, infrastructure, the macro-economic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication and innovation. Such quantitative rankings face the charge of lacking context and this list tries to answer this concern by including, where appropriate, relevant contemporary and historical details.

 

Switzerland tops the list. Here, industrial Zurich is shown.

Switzerland tops the list. Here, industrial Zurich is shown.

1. Switzerland
So what do the Swiss truly think about the monumental movie, The Third Man? The question begs, because the most memorable line of this 1949 classic film noir about greed and deception, filmed on location in the ruins and rubble of post-war Vienna, casts a critical conclusion about the Swiss condition. Penned by English writer Graham Greene and delivered with delicious irony by screen legend Orson Wells as black market profiteer Harry Lime, it reads as follows: “You know what the fellow said — in Italy, for 30 years under the Borgias, they had warfare, terror, murder and bloodshed, but they produced Michelangelo, Leonardo da Vinci and the Renaissance. In Switzerland, they had brotherly love, they had 500 years of democracy and peace — and what did that produce? The cuckoo clock.” Ouch.
While this sentiment may strengthen certain cultural stereotypes about the Swiss as the Stepford Wives of Europe in stoking a fleeting but inappropriate sensation of Schadenfreude, it nonetheless critically misjudges one of the prettiest and most productive corners of the world. The Global Competitiveness Report, published by the World Economic Forum, ranked Switzerland as the most competitive economy in the world for three years running from 2009/10 through 2011/12 and this author finds few, if any reasons to disagree with this conclusion.
Yes, one cannot deny that Switzerland would not have been able to secure its current state without having made certain ethical sacrifices in the past, namely its historical decision to bank with funds from less-than-savoury sources in exchange for relative silence about their origins. This said, Switzerland ranks among the global leaders in innovation, technological readiness and labour market efficiency. The scientific institutions of the country are among the best in the world, its courts and bureaucracy inspire nothing but confidence and its excellent infrastructure ensures that business runs like, well, clock-work. One could go on and on about the various virtues of Switzerland, but that would be rubbing it into the faces of it neighbours, particularly Italy, which recently had to deal with another generation of corrupt and feckless politicians during the last 30 years. And all they ever produced was a society teetering on the edge of economic and moral bankruptcy, yet unwilling to reform and blind to reality. This begs another question: who truly lives in a cuckoo-land cloud?

 

Sweden’s government institutions receive high praise from the World Economic Forum. This is Stockholm's central railway station.

Sweden’s government institutions receive high praise from the World Economic Forum. This is Stockholm's central railway station.

2. Sweden
Scandinavian governments frequently confront the charge that their policies extinguish the flames of entrepreneurialism in lighting the way towards a socialist utopia. While this critique duly acknowledges certain undeniable dimensions of the Nordic development model, such as its rigid labour market and high taxes, it discounts the superior public and private institutions that characterize Northern European societies.
Consider Sweden, one of three Scandinavian countries to crack this countdown. Its government institutions have received gushing praise from the World Economic Forum for being efficient, trustworthy and transparent, whereas private institutions have received equally high marks for their ethical and open behaviour. Who dares to make comparable claims about the contemporary state of public and private governance in many western countries, including the United States and to a lesser degree, Canada?
Sweden has complemented this institutional efficacy (with its obvious economic benefits) with a dual commitment towards higher education and technological innovation, one reinforcing the other. In 2011, Sweden spent an estimated 3.3 percent of its gross domestic product on research and development, a ratio on par with Japan and ahead of all other G8 members, including Canada, which invested 45 percent less. Not surprisingly, Sweden boasts one of the highest ratios of scientists and engineers per million people with just over 6,000 — a figure in league with Japan and behind leader Finland.
Yes, one could make the case that Sweden could do more to liberate its labour market and scale down programs that coddle its participants. But this supposed cushiness also has advantages. Measures that encourage fathers to take paternal leave are receiving credit for strengthening social cohesion by lowering divorce rates, whereas generous state support for women has boosted growth in more than one way. Freed from the choice of working or raising children, Swedish women have done both, as the country has one of the highest female participation rates (around 70 percent) and birth rates (two children per woman).
In fact, recent research suggests insolvent southern European countries could raise their dropping standards of living and baby numbers by following the Swedish model, a move that would also require some significant changes in local sexual mores. Put plainly in a way that even Silvio Berlusconi could understand, no more demeaning Bunga Bunga parties. But Canadians might also benefit from emulating Sweden’s leadership in technological innovation. Stephen Harper, before becoming prime minister, once declared: “Canada is a Northern European welfare state in the worst sense of the term, and very proud of it.” If he meant to compare Canada with Sweden, we should do so well.

 

Singapore has invested significantly in physical infrastructure and social institutions.

Singapore has invested significantly in physical infrastructure and social institutions.

3. Singapore
The Lion City poses a puzzle. On one hand, it is perhaps nothing less than proof that a small country with few (if any) natural resources can achieve global significance. Yes, this multi-ethnic island nation of 4.7 million has the benefit of ‘guarding’ one of the most important maritime straits. But such narrow determinism would dismiss the historical choices Singapore has made in leveraging its strategic location.
Investing in physical infrastructure and social institutions, Singapore has created an economy in which the virtual absence of corruption has ensured the efficient allocation of resources — financial or otherwise. This focus on productivity permeates all aspects of society. Government works closely with business in building future capacities through institutions such as the National Productivity Board (NPB) and has launched campaigns designed to change public attitudes towards work, as it did during the early 1980s, when Teamy the Productivity Bee buzzed through state-controlled television and newspapers as a national mascot.
More contemporary measures have focused on reinforcing educational standards and training. And yet recent years have seen also the rise of a virtual cottage industry probing Singapore’s stagnating productivity. A survey by the Strait Times, published in 2010, found that the country’s average productivity has grown by just one per cent during the preceding decade. “Declining productivity is a drag on the country’s potential economic growth, and the global economic malaise of 2008 and 2009 has drawn attention to the urgent need to address this challenge,” said Eugene Tan, assistant professor of law at the Singapore Management.
So what lies behind such concerns? Some have blamed the global recession itself. Others have focused on changes in the nature of the economy in suggesting that current corporate structures in Singapore deny workers the necessary autonomy and flexibility to succeed in the emerging knowledge economy. While others must decide which of these theories holds true, Singapore must once again make some decisive choices. So far, they have chosen well.

 

Finland and its capital, Helsinki, share their Nordic neighbours’ drive for innovation and institutional efficiency.

Finland and its capital, Helsinki, share their Nordic neighbours’ drive for innovation and institutional efficiency.

4. Finland
The second of three Scandinavian countries on this list, Finland is the only member of this trio that holds membership in both the European Union and the Euro currency zone. Sweden and Denmark also hold EU membership but continue to use their own currencies. But if this difference distinguishes Finland from its Nordic neighbours, it shares their drive for technological innovation and institutional efficiency.
Consider corruption. In 2011, Finland joined Denmark as the second least corrupt country in the world, behind New Zealand, according to Transparency International. Sweden, Singapore and Norway rounded out the category of countries said to be “very clean” of corruption. Finland has also spent significant resources on higher education and training in providing its workforce with the necessary skills to keep up with changing environments.
This flexibility will continue to be tested in the near future as cell phone maker Nokia — once a market leader and national symbol of Finnish ingenuity — continues to restructure. With Apple dominating the global market for ‘smart phones’ and other mobile devices, Nokia has had to cut some 4,000 jobs across Europe as it re-designs its product and manufacturing lines. This decision has not even spared Finland, where the company recently eliminated up to 1,000 jobs at its plant in Salo.
Notwithstanding this particular blow to Finnish national pride, the overall economy remains strong. In fact, European leaders are counting on Finland to play a quiet but powerful part in dealing with the European sovereign-debt crisis. As unappealing as this prospect may appear to voters of the True Finns, a populist outfit with some recent electoral success, most Finns appear to be comfortable with their place in Europe, as evident by their recent election of Sauli Niinistö, a pro-Euro president. But if the current state of the Eurozone continues to be unsettled — a charitable use of language — Finns may soon rue the day when they adopted the Euro. (It could be the little thing that makes all the difference — and not for the better.)

 

The United States is the largest economy in the world but lost its No. 2 position in world productivity listings partly because Congress and the Obama administration can’t agree on a successful bi-partisan economic policy.  Shown here is Times Square in Manhattan.

The United States is the largest economy in the world but lost its No. 2 position in world productivity listings partly because Congress and the Obama administration can’t agree on a successful bi-partisan economic policy. Shown here is Times Square in Manhattan.

5. United States
While the largest economy of the world easily earns the United States a spot on this list, it would have been higher if this ranking had appeared several years ago. (In 2009, the U.S. placed second in the Global Competitiveness Report released by the World Economic Forum; two years later it fell to fifth).
So what caused this slide? Much of it stems from a fundamental disagreement about the very source of productivity among members of the political elite, who have increasingly retreated to their own ideological corners.
Contemporary Republicans (who have been more than reticent to participate in reasoned debate in sometimes resorting to political blackmail) will insist excessive regulation and taxation has spread entropy throughout American society which functions best when left to its own devices, whereas leading Democrats (particularly but not exclusively President Barack Obama) will argue that the United States can regain its dynamic nature by investing in new social, economic and physical institutions.
While either perspective offers compelling points in favour of its respective case, neither offers a complete theory that could inform a comprehensive course of action. Few would deny that the flexibility of U.S. markets has fueled much of the economic fire that shone so brightly for much of the post-war era. But this sort of flexibility also depends on the availability of certain facilities, namely well-maintained public infrastructure and well-funded educational institutions, conditions Republicans rarely consider in their dogmatic elegies to entrepreneurialism.
But if Democrats are quick to quote the historic accomplishments of the New Deal and the G.I. Bill as cornerstones of American supremacy, they hesitate to acknowledge their ongoing role in fostering attitudes of dependencies by maintaining the fiction that inter-generational welfare programs will never run out of funding. Yes, Republicans practised their own version of welfarism during the era of Reagan and Bush the Younger by cutting corporate taxes in the middle of questionable, perhaps unjustifiable, military adventures.
This does not, though, absolve Democrats from shouldering their share of the blame in running up a public debt that could land the U.S. lower down this list in the future. The perverse brinkmanship permeating American politics, which ultimately favours the grinding gridlock of the status quo, speaks to this collective failure. Americans are getting wise to this fact, in showing little respect for their political institutions. Unfortunately, it is almost the only thing on which they can agree.

 

Much of Germany’s success (seen here is Frankfurt), is due to tough labour policies introduced by former Chancellor Gerhard Schröder.

Much of Germany’s success (seen here is Frankfurt), is due to tough labour policies introduced by former Chancellor Gerhard Schröder.

6. Germany
Pop-Quiz. Who works longer hours? Germans? Or Greeks who, according to German Chancellor Angela Merkel, would do well to work more and vacation less, as she famously insinuated. The answer, of course, duly embarrasses Merkel, Europe’s supposedly most powerful politician.
Statistics show that Greeks get as many legal vacation days as Germans (20) and retire at almost exactly the same age as the Teutonic workaholics north of the Alps, specifically just short of 62.
But if these statistics challenge the myth of lazy southern Europeans, they implicitly confirm the status of Germany as the productive engine of the Eurozone. Simply put, Germans do far more with less than most of their competitors. Denounced as the “sick man of Europe,” Germany has regained its global economic edge during the course of the last decade through policies designed to improve productivity.
Much of the credit belongs to an ironic figure — Gerhard Schröder, Merkel’s Social Democratic predecessor. His Agenda 2010 might have done damage to German notions of solidarity and cost him his job, but it also deregulated the German labour market and restrained wage growth, measures that ultimately released entrepreneurial creativity and preserved German manufacturing.
True, the struggling economies of southern Europe neither possess the political institutions nor the physical infrastructure of Germany and it is rather unlikely that they will be able to replicate them in the near-to-medium future. This said, Germany’s experience emphasizes the potential efficacy of the reforms currently underway in southern Europe and prove the importance of productivity. If the German economy continues to exceed expectations — admittedly a big if in light of current circumstances — Germans might finally be due for some additional vacation time.

 

The Netherlands (shown here are parliamentary buildings in The Hague) combines efficient markets, excellent schools and world-class infrastructure.

The Netherlands (shown here are parliamentary buildings in The Hague) combines efficient markets, excellent schools and world-class infrastructure.

7. The Netherlands
Recent headlines have painted a rather unflattering image of the Netherlands as a locus of political instability, dripped in xenophobia, rife with religious intolerance. The Economist punned in April that the country found itself in a “deep Rutte,” a reference to Prime Minister Mark Rutte, whose minority government fell after the controversial opponent of Muslim immigration, Geert Wilders, withdrew his support. While it remains uncertain whether Geert’s spectre will continue to haunt the Netherlands following September elections, less sensational, more sober accounts have accentuated several aspects of Dutch society worthy of accolades.
The World Economic Forum (WEF) praises business in the Netherlands for being “sophisticated,” “innovative” and “aggressive” in utilizing new technologies to improve productivity. Fifth-largest in the Euro zone, it is known for its petro-chemical, engineering and agricultural sectors. Its highly mechanized agricultural industry employs only two percent of the labour force, but produces large surpluses for the food-processing industry and for exports, according to the CIA World Factbook. The WEF gives high marks for the country’s “efficient” markets and “excellent” educational system.
And “last but not least, the quality of its infrastructure is among the best in the world.” While the authors of this assessment register the country’s deficit (which ultimately caused the demise of Rutte’s government), they nonetheless praise its broader macro-economic climate. In short, the Dutch have much of which they can be proud. This said, it would be a mistake to dismiss the importance of social capital as a source of productivity. By this measure, Wilders and his sympathizers have contributed to a far more dangerous deficit.

 

Japan is a leader in technological innovation and research, but it also leads in public debt as a share of GDP. Tokyo is seen here.

Japan is a leader in technological innovation and research, but it also leads in public debt as a share of GDP. Tokyo is seen here.

8. Japan
Popular western attitudes and anxieties about the undeniable efficiency and occasionally questionable ethics of the Japanese workplace arguably peaked during the 1980s with a proliferation of journalistic pieces that probed the secret of Japan’s success. Gung-Ho, a movie starring Michael Keaton as a middle manager who must reconcile competing work cultures in a fictional American auto plant under Japanese ownership, articulated this subject in an artistic manner.
Varying in tone from gushing to gnashing, these various treatises often depict Japanese workers as relentless drones, whose equally ruthless managers push them to the point of exhaustion, if not death itself. Karoshi — the state-recognized occupational hazard of death by overwork — dates back to the post-war boom of the 1960s and continues to claim modern victims, with some 150 cases annually.
This phenomenon continues to cast a cloud on Japanese society, as it attempts to recover from the twin disasters that befell it last year — the devastating Tsunami of March 2011 and the related nuclear meltdown at the Fukushima Daichi Nuclear Power Plant. The incident has, in turn, inspired introspection across all sections of society, one hopes, in favour of more caring and considerate sensibilities.
This said, Japan continues to drop in rankings that track productivity. While the country continues to enjoy a competitive, if not leading, edge in terms of technological innovation and research, according to the World Economic Forum, Japan also leads another category — public debt as a share of gross domestic product. In 2010, it exceeded 220 percent according to the World Economic Forum, a figure sure to inspire another round of fear and loathing, but for entirely different reasons.

 

Inspite of recent economic troubles, Denmark (Copenhagen is pictured here) is one of the world’s most productive and prosperous countries.

Inspite of recent economic troubles, Denmark (Copenhagen is pictured here) is one of the world’s most productive and prosperous countries.

9. Denmark
One can argue Denmark has made news for all the wrong reasons in past months. Scandals of various sorts, some political, some personal, some petty, have pushed the popularity of the country’s first female prime minister, Helle Thorning-Schmidt, into the deep end. Her left-leaning coalition is also struggling to revive a malingering economy. GDP fell by 0.8 percent in the third quarter of 2011, and growth is forecast at a sluggish 1.0 percent for 2012.

Perhaps worse, sentiments hostile to immigration and deeper integration with the rest of Europe have spiked. But such developments, as unpleasant as they might be, should not distract from the solid fundamentals Denmark has furnished in building one of the most productive and prosperous economies. Political scandals come and go and Denmark is hardly the only country struggling with the ongoing recession.
More troubling is the country’s growing rejection of diversity. This tendency — which has also intensified in other parts of Europe — is a detriment to social cohesion and productivity. Aging societies with stagnating birth rates cannot afford to push immigrants to the margins of social and economic life if they wish to maintain their material well-being and comfort.

 

Hong Kong, which depends heavily on international trade and finance, has long been China’s window on the international financial market.

Hong Kong, which depends heavily on international trade and finance, has long been China’s window on the international financial market.

10. Hong Kong
Asia’s economic ascendancy has been impressive but uneven. China and India are on their way towards becoming global powers (if they have not achieved this status already), but both countries continue to confront significant social disparities and institutional deficiencies, which may delay their departure towards higher ground. Prominent regional players such Indonesia, Pakistan and Bangladesh possess all the potential in the world to play more prominent parts, but remain prostrated for a number of reasons.
As this list suggests, the rise of Asia has revealed itself most clearly in small urban locales such as Singapore and Hong Kong. Like Singapore, Hong Kong depends heavily on international trade and finance. Like Singapore, it has responded to this exposure by building and maintaining superb transportation facilities. Its efficient goods, labour and financial markets are also capable of catching shifting winds, now primarily blowing from the Chinese Mainland.
Under the “one country, two systems” governance formula, Hong Kong has long become Beijing’s window on the international financial market. But the similarities between Hong Kong and Singapore only go so far. Whereas Singapore continues to invest heavily in its long-term productivity through education, Hong Kong remains a relative laggard. Its education system may be of high quality, but participation rates remain below the levels found in other economies. The limited availability of scientists and engineers also limits Hong Kong’s innovative capacity.

 
Contenders

United Kingdom
The United Kingdom would have likely cracked the Top 10 were it not for its contemporary macro-economic climate characterized by sluggish growth and rising debt. Since 2002, the country’s debt has risen from 29 percent to 66 percent of GDP in 2012, spiking after 2008. While the public debt level of the United Kingdom is neither near its historical high nor levels seen elsewhere in Europe and North America, it is nonetheless concerning, because debt acts as a break on the provision of services that enhance human capital (health and education) and technological innovation. Public funds that service debt interest payments cannot pay for hospitals, university research labs and improved infrastructure. So far, the United Kingdom has yet to pay the price for its rising debt. But the time may yet come when the United Kingdom may lack sufficient means to pay both its creditors and restructure its economy to make it less dependent on financial services.
Taiwan
From 1998 through 2008, Taiwan raised its labour productivity by 5.3 percent. During the same stretch, only Sweden (5.4 annual percent) and the Republic of Korea (7.9) exceeded the performance of Taiwan, whose manufacturing clusters rank among the most modern in the world. Relatively low labour costs and high levels of technological innovation continue to propel Taiwan up the Asian economic rankings. This said, Taiwan’s public institutions could benefit from improvements. Transparency International ranked Taiwan 32nd on its 2011 index measuring perceived levels of public sector corruption, a far distance from productivity leaders such as Denmark and Finland (both tied for 2nd), Sweden (4th) and Singapore (5th).

Canada
By many measures, Canada has the potential to be among the most productive economies in the world. Various indices praise the country’s human capital, and its institutions enjoy a reputation for being efficient and ethical. And yet Canada is still trying to catch up with the rest of the field as it dropped two spots to 12th on competitiveness index produced by the World Economic Forum. So what is behind this condition? Much of it has to do with Canada’s mediocre record on investing in new technologies and in research and development.

Qatar
Volatilities in the global market for energy resources will likely shape the economic fortunes of this Gulf Emirate for the foreseeable future. But if the very foundation of Qatar’s prosperity fuels uncertainty, the leadership of Qatar has taken steps to ensure its long-term prospects by investing in high-quality institutions. Qatar is also a leader in the procurement of new technologies. But efforts to diversify the economy have yet to receive a full endorsement from the international business community.

Norway
Like its Nordic neighbours, Norway has managed to build an economy whose productivity is high as its wages. But if it shares many institutional commonalities with Sweden and the like, it does differ on two counts – access to sizable natural resources, namely oil, and an infrastructure with room for improvements.

 

Wolfgang Depner is a doctoral candidate at the University of British-Columbia Okanagan. His publication, Readings in Political Ideologies, co-edited with Dr. Barrie McCullough, is scheduled for release by Oxford University Press Canada in 2013.

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