Talent is the new capital

The terms efficiency and investment have been heard for many years whenever economists discuss competitiveness. A global study has now shifted the focus onto an entirely different theme.

Once a year the rich and powerful of the world gather together in the Swiss mountain town of Davos. Left-wing critics like to brand the annual meeting of the World Economic Forum (WEF) as a meeting of capitalists. It is remarkable therefore when, of all people, the head of the World Economic Forum predicts the end of capitalism.

"The world is currently making a transition from capitalism to talentism," says Klaus Schwab in reference to the report on competitiveness. This refers to the fact that well-trained, creative workers are more important for long-term economic growth than capital. The WEF has been comparing how competitiveness is developing globally in its large-scale study for more than four decades. 114 parameters are analysed for this purpose and 138 countries are included.

This year there is a particular focus on the labour market. The report findings state that competitiveness is increasingly dependent on the innovative strength of a country. Since innovations always occur where particularly clever people encounter a great environment for creativity, the main focus in the report is on people and their talents—and less on the question of how much money there is and where it is going, as the word "capitalism" would suggest. It concludes that if a country is seeking to grow in the long term, its prime focus should be the education of its citizens.

In this, the study concurs with other scientific findings." It has been evident since the nineties that complex work activities are gaining in significance when compared to simple work,” explains Carl Brenke, labour market expert from the German Institute for Economic research.

However, academics have now also been hit by unemployment in the economies of Europe and particularly in Southern Europe, he explains, adding that it is therefore important to consider which qualifications are necessary. "Do we really need so many art historians, wouldn't there be more demand for scientists?" asks Brenke. Gender-specific patterns continue to dominate, particularly when choosing subjects, and this prevents young women from taking technical courses of study which have a great deal to offer. Information needs to be provided on this when young people are at school.

It is interesting that authors of the WEF report arrived at the conclusion that regulated labour markets might improve competitiveness. It explains that the protection of employee rights is entirely consistent with a flexible labour market. A good example of this is Germany - it performed very well in this and is ranked in fifth position. Employee rights are comparatively strong in Germany.

The report notes that robust structures in the labour market are particularly important as large numbers of jobs will be lost as a result of automisation and the increased use of robots. It identifies that, while some countries are certainly good at enabling innovation, they should be doing more to enable the broader society to benefit for their part from the advantages of such innovations. In this respect, the report refers to China, India and Indonesia in particular as negative examples. It explains that long-term economic growth can only be achieved if the benefits of growth are brought to the vast majority, if growth is environmentally sustainable, and if a balance between the generations is arrived at.

Switzerland comes top in the ranking of the most competitive countries followed by the USA and Singapore. Germany is in fifth position. These countries performed particularly well against the main criteria of the report. These include, amongst others, the effectiveness of institutions, infrastructure, health and education, goods market and labour market efficiency as well as corporate culture and technology standards.

A study of this type can, of course, only apply a very rough measure across very different countries. This is certainly one of the criticisms from the experts, however very little can be done about this. One major advantage of the survey is that it has been conducted for more than 40 years. This means that the trend over this period of time can be clearly seen.

For example, drawing on data from the last decade, the study identified that the financial system continues to impact negatively on competitiveness in many countries. It notes that competitiveness has still not recovered from the crisis in many countries and that the risk of further hardship exists since a large part of the financial system has been shifted into unregulated areas.

It is notable that a north/south divide continues to exist in Europe - the crisis here is far from over. While Germany performs very well, France receives a much lower ranking at position 22. Spain is ranked at position 34, Italy at position 43 and Greece at position 87. Only Portugal has improved with position 42. The WEF study highlights the worsening training indicators in these countries as a particular cause for concern. This, however, is exactly what the authors have deemed to be crucial over the long term.