<1>INSIDE TRACK: A new millennium's winners and losers: How the table was
worked out: COMPETITIVENESS: The FT has compiled a league table of the
countries that are best placed to develop their high-technology industries. The
results are amazing, says Peter Marsh
Financial Times; Oct 29, 2001
By PETER MARSH
Which countries are best poised to exploit the expanding industries of the 21st
century? The answers are important to many people: government policymakers,
industrialists and investors and also footloose youngsters keen to find the most
promising areas of the world in which to study.
While there are no absolute answers to the question, a hint emerges from a study by
economists and statisticians at the Paris-based Organisation for Economic
Co-operation and Development, a think-tank for 30 of the world's most developed
countries.
The study began in the mid-1990s at the behest of OECD member governments. They
wanted to plot how their countries were faring in the battle to acquire new skills and
progress in those "knowledge-based" industries - such as high-technology
manufacturing and the fastest-growing parts of business services - that were likely
to be important in the early part of the 21st century. Staff in the OECD's directorate
for science, technology and industry were given the job of shedding light on the
subject.
The OECD's latest thinking in this area is contained in a characteristically hefty
document - the 2001 edition of the organisation's biennial Science, Technology and
Industry Scoreboard*, which brings together statistics on different OECD countries'
per- formance.
The OECD has shied away from summing up the data in a single "league table" of
country rankings. There is a lack of consensus over the right way to approach such a
task. In addition, the organisation's secretariat is conscious of the possibility of
bruising the feelings of those nations that come out poorly in the calculations.
Yet such conclusions are there to be drawn. The Financial Times has distilled the
OECD study into a single, overall league table. The table captures the 10 most
meaningful sets of data from the OECD study. The basis for this is explained in the
text on the right.
Inevitably, some will not agree that our approach is the most appropriate. However, we
have adopted a methodology similar to that used by the organisation's staff - though
the table shown here does not carry the OECD's imprimatur.
The table contains some genuine surprises. In first place is Switzerland, which is not
universally regarded as being at the top level in innovation and entrepreneurship,
though it is known for its high quality of business life. In some rankings published this
month by the World Economic Forum, for instance, Switzerland is not among the top
10.
Next in the FT/OECD table is Sweden, which few would put at the very top of the tree
in industrial performance. After the US, which is in third place, come Ireland and the
Netherlands - two small but relatively open economies.
In sixth place is Hungary, making it, on this ranking, the leading member of the former
Communist bloc in terms of its industrial potential over the next few years. On this
score, Hungary is ahead of Canada, Belgium, the UK, South Korea and Finland.
Placed surprisingly low in the table, in 12th, 13th and 16th positions respectively, are
Germany, Japan and France. Italy is 20th, behind Denmark and Norway.
What are the lessons from the table for policymakers and industrialists?
The first point is that this analysis is different from most of its kind. One of the
best-known exercises of this sort is conducted every year by IMD, the Swiss
business school, in its "world competitiveness yearbook". The IMD's rankings are
more general - based on 286 individual indicators, derived from a variety of sources
including national statistical offices, plus a survey of how some 3,600 managers feel
about business conditions in the countries where they work. The research by the
World Economic Forum is similar to IMD's. It put Finland in the top position as the
country with the greatest potential for economic growth over the medium term.
By contrast, the OECD's work offers a view of which countries are doing best in
laying the ground for the fastest-expanding industries of the future. The table is based
on both "input" and "output" indicators: the first summarising conditions that seem
likely to lead to growth in knowledge-based industries in specific countries; and the
second discussing how well the nations are in fact performing. Accordingly, countries
need to make sure that they score highly on both the input and the output sides.
On the input side, Switzerland is the top-ranked country in the OECD for having the
greatest share - 16 per cent - of its student population coming from outside its own
country.
Talent is disseminated most easily through the physical movement of people. Many
visiting students will stay in their adopted country when they have finished their
studies. Thus the OECD believes that the international mobility of students is crucial
in deciding which countries are most likely to take advantage of new ideas.
Also on the input side, Switzerland scores well on its investment in information and
computer technologies. In terms of outputs, Switzerland is high in the individual league
tables rating the level of both knowledge-based services and high- and
medium-technology manufacturing as a proportion of specific countries' total
economies. According to the OECD, more than a third of economic output in
Switzerland falls into these categories - more than in any other country.
Georges Haour, professor of technology management at IMD, says Switzerland's top
position in the overall ranking for knowledge industries fits in with what he says is a
good environment for the growth of new companies in these fields. In particular, Prof
Haour says Switzerland is poised to do well in industries such as medical devices and
new instrumentation. These rely on a mix of electronics and traditional
precision-engineering skills, many of which are related to watchmaking, a field in
which Switzerland has excelled for centuries.
The good showing of both Sweden and the US in the overall survey is due to good
scores by both countries in a number of individual indicators. For instance, Sweden
comes out in the OECD's reckoning as the country investing most in information and
communications technologies, while the US is the biggest investor in venture capital
as a proportion of gross domestic product.
Ireland does well in the overall league table, thanks to its relatively open economy.
This, the OECD thinks, is likely to mean that new ideas from other countries in
knowledge-based industries will be transmitted fairly easily to companies and
individuals. In manufacturing, for instance, Ireland has a greater share of output in the
hands of foreign affiliates than any other country, while in services it is ranked as the
third highest, after Hungary and Belgium. Ireland also has a large proportion of its
manufacturing output in high-tech fields. This is partly a result of large investments in
the past by US manufacturers in fields such as computers and has been affected by
the downturn.
The strength of Hungary in the league table may raise a few eyebrows. The country
does well for economic openness - only Ireland is ahead in terms of the proportion of
manufacturing output accounted for by non-domestic companies. Just over a quarter
of output of both the country's services and its manufacturing are categorised as
knowledge-based by the OECD, putting Hungary in seventh position in the OECD in
this field, ahead of Sweden, Austria and Spain.
Labour productivity and patenting activity in recent years also count towards scores in
the overall league table. South Korea and Ireland come out as the top two countries in
the first of these; Switzerland and Sweden do best in the second.
Politicians sometimes seek a "policy" for growth. The OECD's work suggests that
such an approach is doomed to fail. Instead, countries need to develop policies that
tackle a number of areas simultaneously. It is not enough to concentrate, for instance,
purely on education and research and development, without ensuring that sufficient
companies (some of them foreign-owned) can take advantage of new thinking as it
filters through in years to come. To be good at one big thing means being good at many
smaller ones.
Details available on www.oecd.org/ sti/statistical-analysis.
The table prepared by the Financial Times is based on adding up the total number of
points amassed by Organisation of Economic Co-operation and Development member
countries in 10 separate surveys selected from the mass of data in the OECD's study.
These indicate how each country performed according to specific indicators linked to
their current and likely future performance in "knowledge-based" industries. Taken as
a group, they give an overall picture of each country's competitive position.
What counts as a "knowledge-based industry" is defined by the OECD's experts. In
manufacturing this includes aerospace, pharmaceuticals, chemicals, medical
equipment and general machinery.
In services the OECD includes post and telecommunications, finance and insurance
and general business services such as accountancy. Many of these sectors are
growing faster than other parts of the world economy.
The 10 indicators include four that relate to "output":
* Countries' proportion of total output provided by knowledge-intensive
manufacturing.
* Countries' proportion of total output provided by knowledge-intensive services.
* The number of patents a country files in specific "families" of technologies, divided
by its population.
* Recent labour-productivity growth.
The indicators also include six sets of "input" data:
* Countries' investment in knowledge, defined as software, research and development
and higher education.
* Spending on information technology, including hardware.
* Investment in venture capital.
* The proportion of total manufacturing output accounted for by foreign companies.
* The proportion of total services output accounted for by foreign companies and
services.
* The number of foreign students in university-level education, divided by the total
student population.
The OECD data are based mainly on surveys by national statistical offices dating from
the mid to late 1990s.
In the FT's analysis, a ranking of first in one of the separate 10 surveys provides a
country with a score of 10; a ranking of second gives a country a score of 9; and so on.
The countries that score best in all 10 surveys end up accumulating the most points.
The data on which the scoring is based apply only to the 30 OECD countries. Other
nations, including China, Malaysia, Brazil, Argentina and Singapore, are excluded.
Peter Marsh
Copyright: The Financial Times Limited
