22 July 2021
The real gap in competitiveness and innovation is not between the US and China on the one hand and the EU on the other, but rather within the EU. In particular, Central Europe lacks world-class academic institutions.
It is often taken for granted that the Sino-US technology race has marginalised the European Union. This perception, however, is belied by the most recent Global Competitiveness Report (“report”) by the World Economic Forum (“WEF”) which ranks four EU member states (Netherlands, Germany, Sweden, and Denmark) among the world’s 10 most competitive economies.
The report defines “competitiveness” as a set of “attributes and qualities of an economy that allow for a more efficient use of factors of production,” particularly total factor productivity (“TFP”), which is a measure of long-term sustainable economic growth that cannot be explained by the traditional inputs of labour and capital.
Technological innovation and efficiency in input use are considered the most important elements of TFP. Therefore, the report’s Global Competitiveness Index (“GCI 4.0”) can be thought of as a ranking of countries by their TFP. Thus, the Netherlands is ranked as the EU member state with the highest TFP and deemed best positioned for long-term sustainable growth.