WASHINGTON - One of the world's most
exclusive business clubs warned the United States
on Tuesday that its open-ended national-security
and war expenditures, along with tax cuts that led
to large budget deficits, could affect the
country's status as a powerful economic force.
The Geneva-based World Economic Forum
(WEF) issued its 2006-07 Global Competitiveness
Index (GCI) rankings and listed the US in sixth
place, down from the top spot, behind
Switzerland, Finland and
Sweden and just ahead of Japan.
The top 10
countries are all rich nations. They are
Switzerland, Finland, Sweden, Denmark, Singapore,
the United States, Japan, Germany, the Netherlands
and the United Kingdom.
The report says
that with potentially even higher spending
commitments in defense and "homeland security",
which comes with the US "war on terror", and
ongoing plans to lower taxes further, the United
States faces difficult fiscal balancing.
"With a low savings rate, record-high
current-account deficits and a worsening of the
US's net debtor position, there is a
non-negligible risk to both the country's overall
competitiveness and, given the relative size of
the US economy, the future of the global economy,"
said Augusto Lopez-Claros, chief economist of the
WEF's Global Competitiveness Network.
The
report says the US faces major institutional
challenges because the country's public
institutions are inferior to those of other rich
nations in terms of transparency and efficiency.
However, the report does praise the US
higher education system and says the country
remains the world leader in innovation.
The pro-market forum ranks countries based
on specific criteria, including macroeconomic
policies, market regulation, technological
development and education.
The
comprehensive annual survey is conducted by the
WEF along with research institutes and business
organizations in the countries covered by the
report. This year's report was complemented by a
poll of more than 11,000 business leaders in 125
economies worldwide.
The WEF is a loose
grouping of the most powerful companies around the
world and is best known for its annual meetings in
the Swiss alpine resort of Davos, where world
leaders and top business executives gather to
chart the financial course for the next year.
The admonition from such a pro-market
establishment group could serve as a red flag on
the direction of the US economy. If international
confidence in the US economy continues to ebb, the
US dollar is likely to fall further and foreign
investment will shrink.
The report was
immediately seized on by the US opposition party
as evidence of the counterproductiveness of the
Republican administration's policies. The
Democrats, who will compete with President George
W Bush's party for congressional seats on November
7, blamed the administration's economic policies
for the poor US ranking.
House Democratic
Leader Nancy Pelosi said in a statement that Bush
administration officials and Republican lawmakers
"have run up record budget deficits in their quest
to help the privileged few, given subsidies to
companies to ship jobs overseas, and failed to
pursue an aggressive trade agenda on behalf of
America's companies and America's workers".
"Nothing less than our economic leadership
is at stake," she said. The US economy is
menaced by large macroeconomic imbalances,
particularly rising levels of public indebtedness
associated with repeated fiscal deficits.
Economists say the country could see disorderly
adjustment of such imbalances, including the
historically high trade deficit. The US ran a
gigantic trade deficit of nearly US$791.5 billion
last year. The trade deficit hit $68 billion in
July, up 5% from June's record.
The
running US trade deficit is $820 billion in 2006 -
keeping the country on pace for a record annual
trade deficit for the fifth straight year - far
ahead of last year's record and approaching 6% of
the gross domestic product (GDP).
A
deficit that reaches 4% of the GDP is considered
by economists to pose a threat to an economy's
general stability by increasing prospects for high
interest rates or sudden selloffs of a country's
currency.
The WEF noted the seriousness of
those rates. "What is unsustainable is the present
growth of the US deficit as a share of GDP," says
the report.
"Maintaining a constant share
deficit may require some depreciation of the
dollar and a reduction in the trade deficit. It
will also require greater effort on the part of
the US to reduce fiscal imbalances."
