Why the U.S. is Falling Behind.

We Americans like to think of ourselves as number one. But the reality is that when it comes to global competitiveness, we’re not number one. In fact, we’re not even number two. The U.S. position in the global economy has declined to seventh place, according to the World Economic Forum’s Global Competitiveness Report 2012-2013.

Rising national debt, continuing economic instability and distrust of government on the part of the business community all combined to lower the U.S. ranking for the fourth straight year in the annual ranking of global competitiveness. Switzerland ranked number one on the list, as it has for the past three years. Singapore, Finland, Sweden, the Netherlands and Germany came in above the U.S. in the rankings; Great Britain, Hong Kong and Japan completed the Top 10 list.

The report ranks 144 nations and bases it on 12 factors including infrastructure, education, innovation and the strength of public and private institutions. The U.S. ranking has declined from fourth place in 2010-11 and fifth place in 2011-12. What caused the drop this year? The U.S.’s macroeconomic environment  which includes the government’s debt, its credit rating, the nation’s budget deficit and savings rate ranked poorly (111th overall). The business community’s distrust of the government was also a big factor: The U.S. ranked 76th in the wastefulness of government spending and the burden of government regulations.

What does the ranking mean for small business? While the U.S. is no number one, it’s not at the bottom of the heap, by any means. (That honor goes to Burundi.) In fact, the report praises the U.S. as an innovation powerhouse that boasts highly sophisticated companies supported by a strong university system that collaborates well with business on R&D. The sheer size of the U.S. economy and the flexibility of its labor markets also helped keep the U.S. near the top of the rankings.

But while the U.S. is still a strong leader in the rankings, its continuing decline is troublesome. What could be done to reverse the trend? Attacking the nation’s deficit and chipping away at debt are first steps that would help boost the U.S. credit rating a major factor in the country s poor showing this year. Reducing wasteful government spending and over-regulation would also help. Both of these are goals that small-business owners have sought for years. Will the coming presidential election bring any resolution? That remains to be seen.

In the meantime, small-business owners who are hoping to compete in the global marketplace can do so by emphasizing their strengths and doing the following:

Continuing to innovate in their business models, products and services

Forming partnerships with universities and other research organizations to commercialize new technology and intellectual property

Forming strategic joint ventures with larger businesses that have inroads into international markets and economies of scale

In short, small businesses can thrive by doing what small businesses have always done focusing on the positive and taking steps to help themselves, instead of waiting for government to do it for them.

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