Hong Kong Tops U.S. as Most Competitive Nation

Hong Kong solidifies its place as the most competitive nation in the world as the U.S. slips a spot.

By SHARE

The United States is no longer the most competitive nation in the world, a title it once shared with this year's champion, Hong Kong.

The U.S. slipped to second in this year's World Competitiveness rankings, compiled by the IMD World Competitiveness Center, giving sole bragging rights to Hong Kong.

Despite losing ground in this year's rankings, the United States remains at the center of world competitiveness "because of its unique economic power, the dynamism of its enterprises, and its capacity for innovation," the report from the Lausanne, Switzerland-based IMD School of Business said.

[See a slideshow of the world's most competitive countries.]

No other nation exerts such a strong "pull effect" on the world's economy, the report said, underscoring the political and economic turmoil in Europe and the fact that emerging markets still don't have the infrastructure to drive the world's economy.

"Everybody is looking at the U.S. to become the locomotive of the world economic recovery again," says Stephane Garelli, director of IMD's World Competitiveness Center. "Europe is not in very good shape and the emerging markets realize that they are not sufficiently developed to lead without the U.S. and European economies."

The United States also has economic ties with virtually every economy in the world, which makes the direction of its economy crucial to others.

"Every country has business and investment and trade with the U.S.," Garelli says. "That means when the U.S. economy is going up, it's pulling with it everybody else."

Being responsible for propping up the world's economy seems like a tall order, but the global economy has become a lot more complex and nuanced according to Garelli. There's no denying that globalization has increased over the past several decades, but in the wake of the one of the worst financial crises in history, that interconnectedness has become more fluid.

[Read: Europe Concerns Cause U.S. Stocks to Plummet.]

"The recession has made the global economy more fragmented. Globalization was about synchronization and now it goes into every direction," Garelli says. "Globalization isn't everything anymore. We're not going into protectionism, but there's an economic nationalism and an effort to build your national champions and go back into reindustrialization."

In other words, a country's ability to produce and market products domestically will be crucial to its competitiveness, and the "national context will be more and more important," Garelli adds.

That's been partly true for the U.S., where manufacturing has been credited with much of the early steam behind the economic recovery. It's since tapered off, but the renewed vibrance of the automotive industry has been one example of the reinvigoration of manufacturing in the United States.

It's also been a central component in President Obama's economic platform, "An Economy Built to Last," which has highlighted an increased willingness of companies to move manufacturing operations back to the United States from lower-wage competitors such as China and Mexico.

[Read: House Hunters Flocking to Foreclosures For Value.]

The biggest headwind for the United States and many other governments is the issue of mounting public debt, a factor that contributes to a country's competitiveness rating. But the true problem with public debt won't necessarily be at the federal level, Garelli says.

"In the U.S. the states have problems, cities have problems," he says. "You start to go layer by layer and then you discover that something is very disquieting there because when Washington has a problem, they can print money. But when California, for example, has a problem, they can't."

"That makes a hell of a difference," he adds.

Meg Handley is a business reporter for U.S. News & World Report. You can reach her at mhandley@usnews.com and follow her on Twitter.