Posted by: Nicholas Davis | October 4, 2013

Czech competitiveness – challenges and opportunities

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Last week I was in Prague, giving a speech on the competitiveness of the Czech economy to the Office of the Government and stakeholders of the National Reform Programme. The Forum’s Global Competitiveness Report, released last month, says the following:

The Czech Republic falls by seven places this
year to 46th position. Concerns remain about the quality
of the country’s public institutions, with public trust in
politicians ranked an extremely low 146th, ahead of only
Argentina and Lebanon globally. The macroeconomic
environment has worsened slightly with rising deficits
and debt, although (at 55th) it remains more stable
than in much of the rest of Europe. Czech businesses
are relatively sophisticated and innovative, buttressed
by a strong uptake of new technologies. The country’s
competitiveness would be further enhanced by
improvements to the educational system and by injecting
greater flexibility into the labor market.

Competitiveness is all about the conditions and factors influencing productivity, in order to maintain current living standards and to support future growth. The Forum’s methodology combines three subindexes (and 114 indicators in total) to produce an overall competitiveness score which is then ranked. These subindexes (basic requirements, efficiency enhancers, and innovation and sophistication factors) are weighted differently depending on the stage of development of a country.

It seems that, both relative to other countries and in terms of raw scores, conditions and factors across all subindexes have been declining for the Czech economy. While this isn’t great news for the Czech government, especially in terms of headlines, a deeper look into the data reveals some nuance that indicates where the upside and opportunity lie:

  • Weaknesses related to institutions, particularly the level public trust in politicians and elements linked to public sector efficiency, are certainly dragging down the country’s scores, with the Czech republic 88th in the world overall for its institutions. However I’d wager that this represents significant room for improvement in coming years – the country has recently endured some scandals and setbacks, but the opportunity is there for a new government to use the crises as motivation to improve on measures of ethics and corruption, as well as implement reforms in legal frameworks to improve dispute resolution.
  •  The country ranks 37 out of 148 in terms of “efficiency enhancers” – elements linked to higher education and training, goods, labour and financial markets, tech readiness and market size. For innovation-driven economies like the Czech republic, these are weighted at 50% in the index, meaning that reforms here heavily impact the overall assessment of competitiveness. This is with good reason – efficient goods, labour and financial markets are critical to ensuring that resources are able to flow where they are most productive, and focusing on the conditions for business operations, incentives for working, legal rights and retaining talent have the potential to further increase the Czech economy’s productivity.
  • The Czech economy is regarded as relatively innovative and sophisticated relative to other countries – its highest-ranked subindex focuses on these factors and puts it 36th in the world. The country has made large investments in its innovation ecosystem in recent years – ensuring that these investments translate into higher capacity for innovation will mean creating more links to industry, continuing to support scientific research institutions and looking at ways to improve the availability of scientists and engineers.

A Czech paper asked me if I thought it was possible that the country could be in the top five globally in 20 years time. Certainly possible, I answered; the future is wide open and while there is lots of work to do to catch up with Switzerland, Singapore, the US and Finland (to name a few), there is also lots of potential.

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