Is Finland the most competitive economy in the world?

A survey published by the World Economic Forum (WEF) ranks 102 countries in terms of their competitive environment, and not only does Finland come out on top, but all of the major Scandinavian countries figure in the top 10.

Finland no doubt has many virtues – a highly educated workforce, a vibrant high-tech sector, and a history of active foreign trade going back hundreds of years. But Scandinavians also shoulder some of the highest overall tax burdens in the world:

Finland's government expenditures as a percentage of gross domestic product has been falling, but in 2002 still stood at an unhealthy 45 percent of Gross Domestic Product, down from 47 percent in 2001.

And that's low compared to its neighbours; Sweden's state sector spends an amount equal to 53 percent of GDP, Denmark 51 percent.

It turns out, however, that all of these countries moved up in the WEF's rankings this year because the WEF decided to stop weighing government expenditure in its rankings. It has been replaced with measurements of government "waste" and public confidence in public officials. Although Scandinavia's state sector is efficient, it's also massive. And size does matter.

Ironically, the WEF's survey of business executives emphasises this same point. "Tax rates" rank as the No. 1 "problematic factor" for doing business in Denmark, Sweden and Finland. And because the respondents ranked both their biggest gripes and the intensity of their complaints, the results make clear that not only do they consider taxes the biggest problem overall, but they consider it a very big problem indeed.

Source: Editorial, Size Matters, Wall Street Journal, November 4, 2003; based on the Global Competitiveness Report 2003-2004, World Economic Forum, October 30, 2003.

For text (WSJ subscription required) http://online.wsj.com/article/0,,SB106755728839054100,00.html

For report text http://www.weforum.org/site/homepublic.nsf/Content/Global+Competitiveness+Programme%5CGlobal+Competitiveness+Report%5CGlobal+Competitiveness+Report+2003-2004

For more on Taxes and Economic Growth http://www.ncpa.org/iss/eco/

RSA Note: This article on competitiveness features two of the most problematical factors affecting economic growth – government intervention and high taxes. Finland gets a high competitiveness rating because the government does not interfere in economic activity and itself efficiently performs its core functions of maintaining sound legal and monetary systems. Yet it takes excessive taxes, consumes too much of GDP, transfers too much wealth between sectors of the population, and has too many government enterprises. If the government were to concentrate on its core law and peacekeeping functions and cut back severely on government’s size and activities, Finland would be really competitive. However, are businesspeople saying that of the two evils they would prefer to pay high taxes and be left alone than to pay lower taxes and endure high levels of government interference?
Eustace Davie, Director, FMF.

FMF Policy Bulletin\11 November 2003