10/13/2010 02:01 pm ET | Updated May 25, 2011

We're No. 4! What the Slip in U.S. Competitiveness Means

The United States slipped from second to fourth in a country-by-country ranking of global competitiveness, according to a study by the World Economic Forum (WEF). This is the second year in a row that the U.S. ranking has slipped, with the U.S. losing the No. 1 slot in last year's report.

These analyses often lead to the conclusion that we need to better teach our children math skills in the fourth grade. Of course those are valid concerns for the long haul, but global competitiveness studies can serve a different purpose: they can tell us something about the state of the U.S. economy today.

Picking apart the components of the U.S. loss in ranking can give a glimpse of the direction of our economy -- and our wallets.

The good, the bad and the ugly of U.S. competitiveness

The WEF rankings are based on over 100 economic factors, grouped into 12 so-called pillars of competitiveness. With so many elements in play, the news is not likely to be all good or all bad for any country, and there certainly were both positive and negative results making up the U.S. ranking:

  • The good: The U.S. ranked first in the world for two of the pillars of competitiveness, innovation and market size. The U.S. also garnered top-ten rankings in higher education and training, labor market efficiency and business sophistication.
  • The bad: The lowest rank the U.S. was given for any of the 12 pillars was 87th out of 139, for macroeconomic environment. Not an encouraging sign, given that the economy is of much more immediate concern than any of the other pillars.
  • The ugly: There were some individual factors for which the U.S. received especially low scores, in the bottom 25 percent. These included the business costs of terrorism, the government's budget balance, the national savings rate, accumulated government debt and the soundness of its banks. The last four of these five problem areas suggest that America still hasn't cured its addiction to debt.

Savers get the shaft

To put this all in perspective, the WEF study did cover some 139 countries (the nation of Chad ranked dead last, in case you were wondering), so a fourth-place ranking really isn't all that bad.

However, the falling trend of the U.S. ranking is cause for concern. The same economic factors that pulled down the U.S. in the global competitiveness ranking are likely to pull down yields for bank deposits, which won't help savers and creditors. How so?

Macroeconomic weakness is the big indicator that has already been holding down interest rates. A weak economy has already prompted government intervention to lower the cost of borrowing, and continued weakness in the economic recovery has led the federal government to contemplate still more stimulative interventions. On Sept. 21, for instance, the Federal Reserve signaled that it may undertake more aggressive market actions to further drive down interest rates.

Rock-bottom interest rates is bad news for those with retirement funds, college funds or even a home down payment in savings accounts or CDs.

Second, a slip in competitiveness could hamper U.S. exports. With some nations around the world showing much stronger economic recoveries than the U.S., global trade could be the key to pulling the U.S. economy out of its funk. However, the less competitive the U.S. is, the less able it will be to benefit from trade.

Lastly, inflation could erode consumer purchasing power. To some extent, a lack of competitiveness represents a lack of economic efficiency. The less efficient an economy is, the more susceptible it is to inflation.

The WEF report suggests these macroeconomic woes won't be easily solved, and that we're headed in the wrong direction. We can hope that next year's rankings show a trend back toward the No. 1 spot.

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We're No. 4! What the slip in U.S. competitiveness means