UPFRONT When government becomes a drag

It’s happening in South America, Italy, France – even the United States. Some governments are exerting negative drag on the overall competitiveness of their national economies.
That’s according to the latest IMD World Competitiveness Yearbook, which this year calculated whether governmental contribution to the 61 countries it surveys was negative or positive. New Zealand is well onto the positive side of the ledger, whilst the weakest state performers proved to be Venezuela, Argentina and Italy.
The United States and France were tagged as the two industrialised nations where business outperforms government with budget deficits and burgeoning debt calling into question the efficiency of their State apparatus.
While India and China face similar gaps between government and economic performance, it’s more case of playing catch up to economies that are growing at great pace (8.1 percent for India and 9.9 percent for China). Here, failure to meet the standards and expectations of buoyant economy could create social and economic imbalances that jeopardise those countries’ achievements, suggests IMD professor and Yearbook director Stephane Garelli.
He notes that one of the most interesting changes in world economy will be the creation of middle class in previously underdeveloped markets, mainly in Asia. Some 600 million people there have moved into the consuming classes generating sales explosion.
That has probably helped provide “teflon” coating to the world economy which has allowed normally adverse conditions (rising interest rates, higher raw material costs, stubborn deficits) to just slide off, leading to the best overall growth performance the world has enjoyed since the start of the new millennium.

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