Blame Washington for America's Falling Ranking Among World Economies

Details of a key annual survey show that government is the nation's biggest weakness.

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You may have seen the headline: The U.S. economy has slipped again in an annual ranking of global competitiveness. But the reasons have little to do with the U.S. economy.

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America's biggest liability, in the eyes of business leaders, has become ineffective government.

The United States fell from fifth to seventh in the annual competitiveness rankings, issued by the Geneva-based World Economic Forum. As recently as 2008, the United States ranked first. The other countries ranking ahead of the United States in this year's report: Switzerland, Singapore, Finland, Sweden, the Netherlands and Germany.

It's not really that alarming that the United States has fallen behind small, homogeneous economies such as those in Scandinavia or Singapore, which don't bear the costs of a huge military or a teeming underclass. Germany and the Netherlands also bear a lighter load in terms of global leadership.

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But it's clear from the WEF's report that business leaders, who provide much of the input for the analysis, no longer consider the United States a paragon of stability, as they once did.

They still give the United States a high rating in terms of economic factors such as efficiency, technology, business sophistication and innovation. But they've lowered their marks for other factors that indirectly affect the economy, but can still impede competitiveness.

The United States ranks 111th out of 144 countries in terms of its macroeconomic environment, for example, a standing so low that it almost seems to be a mistake. Yet developments of the last few years can explain that figure. In 2008, when the United States topped the overall rankings, it ranked 66th on macroeconomic stability. Since then, there's been a global financial meltdown led by U.S. banks, a brutal housing bust, a draconian threat by politicians in Washington to default on the nation's debt, and a self-inflicted downgrade of America's credit rating. If you want to wreck your reputation in the eyes of the world, that's a good way to do it.

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Business leaders are also losing confidence in American institutions, including the government and the banks. The United States ranks 54th in terms of the trustworthiness of its politicians (which some Americans might consider surprisingly high). And when it comes to the efficient spending of resources, business leaders rate the U.S. government 76th.

It's possible that this year's WEF rankings may be a low point for the United States, with a rebound coming in 2013. The U.S. political environment is unusually volatile, even by Washington's standards, on account of momentous tax and spending decisions coming at the end of the year, the ballooning national debt (which just eclipsed $16 trillion), and this year's presidential election. If some of those issues get resolved by early next year, it will reduce mushrooming uncertainty over the U.S. economy, and perhaps improve America's competitiveness ranking.

The competition could also suffer next year, since chronic sovereign-debt problems in Greece, Spain and Italy seem to be building toward some type of climax. That could come with Greece leaving the euro zone, which would probably be manageable, or with the whole euro zone collapsing, which would be a considerable crisis affecting all of Europe. So maybe Singapore will top the list next year.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.