The IMD, the international management school based in Lausanne, published its competitiveness ranking for 2021 on Thursday. Switzerland takes first place for the first time since its publication, which began in 1989. The 2021 edition takes place in the context of the Covid-19 pandemic that has slowed the prosperity of the global economy by a decade. Overview with Arturo Bris, director of the Global Competitiveness Center at IMD and professor of finance. With his usual candor.
Le Temps: Why do countries need to become more competitive and what are the limits of competition?
Arturo Bris: Only in this way can prosperity be maintained or improved. IMD’s annual ranking shows the evolution of countries’ competitiveness. Their ranking provides relevant information, especially for potential investors. In terms of limits, they stop where factors get out of hand, for example during a pandemic or other natural disaster that affects competitiveness. That said, there are conditions that could matter in the event of a pandemic. For example, the Covid-19 did not have the same consequences for Switzerland as for Singapore. Switzerland is in the center of Europe, which allows it to stay connected to its neighbors. As for Singapore, which is an island, it has been cut off from the rest of the world ever since the airport is closed.
Against this background, what are the main factors that have propelled Switzerland to the top of your competitive position?
The country was already in good shape before the pandemic; so he was naturally stronger to deal with it. In addition, the stability of the political system, sound management of public finances and debt control were decisive factors. During this difficult year, the Swiss economy, more than many other countries, was able to work remotely. With the exception of the hospitality industry (hotels and restaurants) and the construction sector, the other sectors of the economy functioned for at least 60%. Finally, Switzerland, which is located in the center of Europe and also its most important economic partner, continues its trading activities. The trucks drove with our export products. Switzerland is a country that functions well in normal times, but excels in difficult times. To return to the comparison with Singapore, this island performs very well in times of economic boom, but collapses in times of crisis. The fall of Singapore, the first in 2020, also made Switzerland happy.
Now that Switzerland has reached the top, what can it do?
The opportunities for improvement are always there. Switzerland has a speed problem. In a crisis, decisions have to be made quickly. Remember, in March, April, even May, the Confederacy swam in the dark. More specifically, it took the example of Germany and the European Union. We can certainly draw inspiration from others, but we must also rely on our own agility. In another register, the country remains too frugal if it has sufficient resources. Countries like Thailand, Peru and Spain subsidize their citizens to visit their own country, with the aim of keeping the tourism industry alive. In France, the municipality of Champéry distributes vouchers to consumers to buy local cheeses. In Switzerland, some regions have certainly taken initiatives to attract local tourists. But it was up to the Confederacy to take bigger steps, such as making the train free for a period of time. Germany spent 10% of its gross domestic product on support measures; Switzerland 3%.
How has the pandemic affected the competitiveness of states worldwide?
It has reduced the competitiveness and prosperity of nations by at least a decade. Some states have held up better than others. The impact varied depending on the extent of the containment, the speed of states to make decisions and on their own role in terms of economic support. We can also say that the dictatorships managed the crisis better.
What lessons do you draw from the crisis?
The pandemic has demonstrated the importance of political “leadership”. It is about the ability to reach consensus, to impose difficult measures, to decide who should pay for the crisis, because some will have to pay more than others. In Greece, for example, there was no doubt that the elderly had to be protected first. But at the same time, for economic reasons, the state decided to cut pensions, which was a questionable but wise decision. It takes courage to make difficult decisions and then communicate them unambiguously. I can also give the example of Switzerland, where the Confederation preferred to impose strict restrictions on the hospitality industry, while leaving the manufacturing and service sectors a great deal of leeway. It was a choice made based on the size of each sector. In Switzerland, hospitality does not weigh heavily.
At IMD you will work with economic and political decision-makers from all over the world. What comes out most in your exchanges today?
The keyword is “reset” or resetting the counter. Our interlocutors understand that the pandemic presents an opportunity to rethink the way they work, to decide where and with whom to work, to rethink the links between business and society. On a purely economic level, they look at investment plans and, if necessary, the reallocation of resources. The European Fund, established after the pandemic, sets the tone: sustainability and digitization. The challenge remains job creation and these two sectors are motivating. The goal is not to rescue companies in trouble at any cost. The idea is to succeed in creating more jobs in new sectors than the jobs that need to be destroyed.
The pandemic has increased inequality. Is this also a topic?
In classical economics, fiscal policy is a means of redistributing wealth. The “reset” also provides an opportunity to address inequalities. Pandemics and natural disasters affect poverty by hitting the poor first. In the aftermath of the Spanish flu, the number of poor people had fallen sharply. Unfortunately, this was a good thing for the survivors. The standard of living rose rapidly in the 1920s. Now I am extremely optimistic. I see an explosion of enthusiasm and entrepreneurship. I am sure that our competitiveness and prosperity will be restored soon enough. It will be even faster for states that have not borrowed excessively and put their futures in jeopardy.
What will be the role of the state in the post-pandemic period?
It is true that the States have played an active role over the past year. So much so that they are all called “socialists”. But the state has always been the last resort in case of market failure. We know that. States have also subsidized the research and development of vaccines against Covid-19. This seems normal to me; it’s a way to ensure their vaccine supply. On another level, they have helped many companies survive. Central banks, on the other hand, printed money to increase liquidity in the economy while keeping interest rates historically low. This is understandable, because for any state and its population, the ultimate goal remains to create jobs. Job creation stimulates consumption and activity. The inflation that is generated absorbs the debt.
Aren’t you afraid that states and companies that have borrowed at very low interest rates will find themselves in trouble if interest rates rise due to inflation?
In fact, central banks guaranteed price stability. Now they also give themselves the role of creating jobs. They are equipped with aids to prevent skidding. I don’t see interest rates rising to 10 or 20% like in the past.
Did the pandemic sound the death knell for globalization?
In previous competitiveness rankings, ‘global factors’ were decisive. Last year, for example, several countries were hit by the trade war between China and the United States. In 2021 we will look more at the national decisions that make investors come to you or not. In 2021-2022, States will make many decisions to improve the local framework, without worrying about “global factors”. On the value chain, companies are already moving closer to their sources of supply. In a sense and to answer your question, globalization is definitely slowing down.
Is this bad news for China and Asia in general, which rely on the global market to sell their products?
The Chinese economy is strong and resilient to shocks. But it will have to compete. It is an over-protected economy, even as Chinese leaders are calling for opening markets abroad. We thought of former US President Donald Trump as a nationalist, but look, the new President Joe Biden speaks the same language. The Chinese economy will not open until its own companies, with government support, are in a strong position in the local market.
1967: Born in Guadalajara, Spain.
1994 Moves to Paris for her PhD at Insead, and marries Eva Abejon the following year.
1998 Appointed assistant professor of finance at Yale School of Management.
1997 and 1998: Birth of his son Felipe and his daughter Amanda.
2005 Appointed professor of finance at IMD, moves to Lausanne.
2014 Appointed Director of the Competitiveness Center at IMD.