Just how competitive is our economy?

So what does the data mean for New Zealand?

Our ranking has improved. This is excellent news, particularly in the current business environment. It suggests that our economy is weathering the global economic crisis better than most. It also suggests that policy settings aimed at improving our economic performance are helping. So let’s dig a little deeper.

New Zealand’s performance against the 12 pillars

The WEF collects information against what it calls the 12 pillars that measure aspects of an economy. The pillars are then grouped into three main categories: basic requirements, efficiency enhancers, and innovation factors.

This chart shows how New Zealand compares. 

The numbers show where New Zealand is positioned against the other 133 countries. The methodology changed for 2005/06, but I’ve included that year’s score to show how our ranking has moved over time.

• Basic requirements cover infrastructure, institutions, health and primary education.
• Efficiency enhancers cover higher education and training, market efficiency, technological readiness, and market size.
• Innovation covers business sophistication and innovation (which itself includes R&D driven, value-added products and services).

This is interesting stuff. The numbers suggest that a lot of the things we do should have New Zealand ranked higher than it is. In particular they show that we have made real improvements in what the WEF call efficiency enhancers, which is clearly what has moved us up in the rankings.

But there are questions about how and whether New Zealand makes full use of research and development, and the extent to which New Zealand firms are able to create and capture value for their goods and services. These areas may be holding our performance back.

I should add at this point that these sorts of surveys are not gospel. Plus, they are relative rankings, not absolute values, but they do provide interesting pointers to the key economic issues facing our economy.

How New Zealand compares

The following “spider diagram” shows how New Zealand stacks up against the 12 pillars. I’ve compared us to the usual suspects, economies that New Zealand traditionally looks at when we make these sorts of comparisons.

What does this mean?

It’s quite an interesting picture.

Getting a score as close to the outside of the web is best. New Zealand institutions, health and primary education, and financial market sophistication are right up there with world best practice.

Getting a score on the inside of the web represents an area of relative weakness in our economy – and therefore an area that we should focus on and improve.

New Zealand falls behind the competition quite markedly in innovation, infrastructure, business sophistication and technological readiness (and of course the size of our market remains a constraint).

The pillars we scored less well at would logically be the areas to focus on first.

The first two pillars, infrastructure and innovation, are a strong part of the Government’s economic growth agenda, and Prime Minister John Key has given a number of indications that he sees them as fundamental to moving New Zealand’s performance forward, and closing the income gap with Australia. 

But business sophistication, that’s an interesting one. This pillar is not just about individual firms, but also about the quality of a country’s business networks.

In my next article I will try and unpick what the low score under the business sophistication pillar might mean, and offer some thoughts about how businesses and government might want to think about the issue.

More information

Read the full WEF report

Gareth Chaplin is Chief Economist for New Zealand Trade and Enterprise.