Growth and Entrepreneurship

The U.S. economy is on a roll. The economy is well into its sixth year of expansion. Unemployment and inflation [...]

October 1 1997 by JP Donlon


The U.S. economy is on a roll. The economy is well into its sixth year of expansion. Unemployment and inflation are lower than they’ve been in a generation. Economists and business leaders may quibble over productivity rates, but output is also rising at a brisk clip. The hum of the U.S. economy resonates all the more so when compared to the joyless and somewhat jobless-recoveries in Japan and the EU, where many structural reforms remain to be implemented. While the challenges of hyper-growth are discussed on a microeconomic level elsewhere in this issue, the question arises: Which countries are forging ahead? Which factors really influence country competitiveness and growth?

The World Economic Forum’s annual global competitiveness report sheds some light on who’s pulling ahead and why. Singapore and Hong Kong, with their dynamic, open economies, continue to hold first and second place in the overall competitiveness rankings (see table). Characteristics common to both-open financial markets, superb infrastructure, a highly educated work force, and corruption-free civil service-are seen as virtual recipes for growth. Yet the report also indicates a slowdown underway for the Asian Tigers. Growth rates may remain high by international standards, but hypergrowth may be a thing of the past.

The U.S., in third place overall, stands as the most competitive among the large economies. The WEF analysis shows that the U.S. is the undisputed leader in technology and management, two key areas determining long-term productivity growth in advanced nations. The U.S. goes to the top of the list in its market growth index (MGI), which weights a nation’s growth prospects against its economic size relative to the 53 countries in the index. Although Singapore is a fast-growing economy, it will account for relatively little of total world growth.

Harvard’s Jeffrey Sachs, who was the chairman of the report’s advisory board developed the analysis along with former IMF econometrician Frederick Hu. “These rankings are informative in that they demonstrate that small-government, rule-based economies outperform large-government, arbitrary rule economies,” says Sachs. The role of technology in development and growth can be ambiguous, believes Sachs, if the underlying institutions and policies do not promote growth. Open labor markets are a good example. Highly regulated labor markets, he argues, “are conducive to stagnation.”

This still leaves open a question: How long can the U.S. sustain healthy growth without incurring the bottlenecks that have tripped up others? Sachs, who is the director of the Institute of International Development at Harvard, offers one insight from his work: “Entrepreneurship has become a tradable good. The degree of openness simply allows nations to leverage that.”