Mon, May 14, 2007 page8

• Editorial: Calm down, it's an inexact science

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  Many people were shocked last week by the Swiss-based International Institute for Management Development (IMD) report that showed that Taiwan had for the first time been outranked by China in terms of competitiveness.

  The latest World Competitiveness Yearbook, which ranks 55 countries on their ability to maintain an environment conducive to business, dropped Taiwan from 17th to 18th in the past year, whereas China jumped three spots to 15th.

  Critics in Taiwan said the IMD report sent an urgent warning and lashed out at the government for the nation's underperformance. Government officials said the survey was not a true reflection of the country's standing in the global economy. The business sector, meanwhile, had mixed reactions about the report, saying the local environment was still far from competitive because of over-regulation and bureaucratic barriers.

  Given the variety of reactions, one wonders if the IMD report should be cause for alarm.

  It isn't. Regardless of whether they are conducted by the IMD or by World Economic Forum (WEF), competitiveness assessments are not an exact science. Rather, they are a measurement comprised of economic statistics and, to some extent, how people perceive a country's businesses environment.

  It is impossible, therefore, to say for sure which assessment is best. In the WEF report released last September, for instance, Taiwan fared much better than China. Despite having dropped five spots, Taiwan was ranked 13th, while China was 54th.

  Taiwan's standing in the "economic performance" category -- one of the four major categories in the IMD yearbook -- showed a marked improvement over last year, climbing nine places to No. 16. This was mainly the result of a steady growth in the nation's economy -- at approximately 4 percent yearly -- with a strong showing in terms of domestic price stability, low unemployment, expanding international trade and improving fiscal policy.

  A nice surprise was Taiwan's performance in the "government efficiency" category, where it had not fared particularly well in the past. This year, Taiwan climbed three spots to No. 20. This improvement boosted the nation's overall competitiveness, ranking one spot behind Finland but ahead of the UK's 20th, Japan's 24th and South Korea's 29th.

  Moreover, Taiwan is part of a group of 40 economies that are "closing the gap" with the US, which ranked first, the IMD report said. This group includes Australia, China, Denmark, Hong Kong, India, Russia, Sweden and Switzerland.

  Nonetheless, factors such as a loss of attractiveness for foreign direct investment, weakened social coherence, political instability and policy inconsistency were highlighted in the yearbook as hindrances to Taiwan's overall performance.

  Spending on highways and other infrastructure projects is being held back because the government's 2007 budget has been in limbo for months, a result of political deadlock. The resignation of Premier Su Tseng-chang (蘇貞昌), the fifth premier of President Chen Shui-bian's (陳水扁) seven-year tenure, only reaffirmed what Grace Ng (吳向紅), an economist at JPMorgan Chase & Co in Hong Kong, said last week: ``Many international investors complain that Taiwan is drifting without any actual economic policy because of the political infighting.''

  What the nation should worry about is its ranking in the "business efficiency" category, in which it dropped from sixth in 2005, 13th last year and 17th this year. This regression shows that more effort will be needed to reinvigorate a domestic business environment characterized by low investment and low consumption.
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