Japan slips in global competitiveness rankings

For the first time in 17 years, the United States is no longer the most competitive economy in the world, according to IMD’s annual competitiveness survey. The US dropped to third place, as Singapore and Hong Kong surged ahead in the rankings.

Japan watchers, however, must be dismayed by the nation’s drop in the rankings even as other Asian nations jumped ahead. While Taiwan moved up from 23 to 8, China went from 20 to 18 and South Korea jumped from 27 to 23, Japan fell ten places in the rankings, from 17 to 27.

IMD cited Japan’s slow growth, anemic foreign investment, low birth rate, greying population, budget deficits and corporate taxes (the highest of the 58 nations surveyed) as weaknesses. Japan was also cited as being unfriendly to foreign corporations and workers. The report hinted that foreign companies might eventually decide to pass over Japan and concentrate business efforts in other Asian nations, though that is a trend we already have seen for several years.

Unsurprisingly, Europe was pounded in the rankings as many Asian nations rose. We should keep in mind that Japan was ranked #1 from 1989 to 1993.

Should we take these rankings seriously? I would argue that they have some merit, while pointing out that nations at the top only have one way to go; European economies will rank better at some point in time. I have a hard time believing that China is more competitive than Japan, though it may be open to more foreign exploitation of local workers…ahem, foreign investment.

Still, Japan has issues that must be dealt with. Government debt and corporate taxes should be two of the easier problems to tackle, though political pressure and demographics will ensure that the debt will remain a bugbear for any foreseeable political administration. IMD predicts it will take Japan until 2084 to get national debt back down to 60% of GDP.

As far as unfriendliness to foreign workers and companies go, I am split on this issue. Japan is a tremendously easy country to start a company in, and many savvy foreign businesspeople have set up profitable operations. Foreigners who have language, technical and language skills (can’t emphasize those language skills enough) are well poised to succeed in Japan.

In summary, a drop of ten places in this ranking seems harsh. But, it is an opportunity for Japan. The current political situation gives little hope for improvement on the economy, but at least cuts in the corporate tax are under discussion.

Although demographics remain a serious issue, Japan will rank higher next year if corporate taxes and other issues are properly addressed by the ruling party. That’s not a small if.

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