Study: Cyprus Better for Foreign Investors Than America

Another low point for America's global reputation.

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Protesters chant slogans outside the Cypriot parliament against a crucial parliamentary vote on a plan to seize a part of depositors' bank savings, in central Nicosia, Tuesday, March 19, 2013. The Cypriot government sought Tuesday to shield small savers from a plan that is intended to raise euro 5.8 billion ($7.5 billion) toward a financial bailout by seizing money from bank accounts. The plan, which is part of a larger bailout package being negotiated with other European countries, has been met with fury in Cyprus and has sent jitters across financial markets.

America certainly has some problems. But worse than Cyprus?

In one way, yes. A new report published by the nonprofit Milken Institute ranks 98 countries in terms of their ability to attract foreign capital. Cyprus ranks 19th. The United States ranks 23rd. If you believe those results, a tiny nation whose financial system is about to collapse is more appealing to investors than the world's largest and most diverse economy.

There's logic to those startling rankings. The Milken "global opportunity index" tends to emphasize low regulatory barriers, which is why Hong Kong and Singapore are typically at the top of the list. Cyprus, known as "the Cayman Islands of the Mediterranean," is notorious for low taxes and loose rules that, among other things, attract a lot of money from Russian oligarchs. Much of the money that fuels the Cypriot economy does, in fact, come from elsewhere.

[READ: Cyprus Continues to Threaten U.S. Investors]

It's worth noting, however, that Milken conducted the research in 2012, before it was apparent the banking system in tiny Cyprus was headed toward insolvency. That situation has become acute in recent weeks, with Cyprus declaring a bank holiday to prevent a full-blown run on its financial system. If Cypriot leaders and their counterparts in Europe don't agree on a rescue package soon, Cyprus could be the first nation to leave the euro zone, triggering who-knows-what kind of panic elsewhere in Europe.

America is obviously in better shape than that, yet the Milken rankings echo other findings that highlight the deteriorating business climate in the United States. Five years ago, the United States ranked 16th in the Milken index, and the change in America's score since then is worse than all but nine other countries. That's similar to the U.S. performance in the World Economic Forum's annual survey of business conditions, in which the United States has fallen from 1st to 7th since 2008.

The global financial meltdown, which spread outward from the U.S. housing bubble and the Wall Street cowboys who fueled it, obviously degraded America's reputation as a top place to do business. Other nations affected by the financial meltdown, including Ireland, Iceland and Germany, have also faltered in the Milken rankings. In general, much of the developed world earned a well-deserved black eye for the antics that led to the Great Recession.

[READ: How Cyprus (and Russian Gangsters) Could Harm Your 401k]

But negative developments since then have largely overshadowed the strengths of the U.S. economy, such as a transparent legal system and the world's most resilient consumers. Washington, for one thing, has become a global embarrassment, due to the self-inflicted crises that members of Congress keep flapping their arms over. The U.S. tax code is a complicated mess, and different levels of government often pile overlapping layers of regulation onto businesses. Plus, it can be difficult just gaining entry to the United States.

"For a business considering coming to the United States, there are all kinds of attractions," says Keith Savard, a co-author of the Milken study. "But look at how many hoops you have to jump through to start a business here."

If there's any good news, it's that the United States will probably outrank Cyprus when the next version of the Milken index comes out, since the fundamentals of the Cypriot economy are sure to deteriorate. The U.S. economy, meanwhile, does appear to be improving faster than in other parts of the developed world. We're not irrelevant yet.

Rick Newman's latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.