Israel came in 20th out of 140 countries in the World Economic Forum’s Global Competitiveness Report for 2018-2019, published this week, dropping four places from last year’s 16th spot, but retaining top marks for a number of categories including innovation, spending on R&D, and positive attitude toward entrepreneurial risk.
The annual index, published first in 2004, ranks countries’ competitiveness based on 12 categories (or pillars), including innovation capability, technological readiness, business dynamism and higher education, and 98 indicators (subcategories).
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This year, the index introduced changes to the way countries are assessed according to the Fourth Industrial Revolution (4IR), including the addition of subcategories, new benchmarks, and “weighting pillars equally rather than according to a country’s current stage of development.”
“The index integrates well-established aspects with new and emerging levers that drive productivity and growth… emphasiz[ing] the role of human capital, innovation, resilience and agility, as not only drivers but also defining features of economic success in the 4IR,” the authors wrote.
The survey “contends that economies need to be holistic in their approach to competitiveness rather than focusing on a particular factor alone. A strong performance in one pillar cannot make up for a weak performance in another.”
In last year’s index, Israel ranked 3rd in the innovation pillar, down from 2nd the year prior, according to the previous sets of evaluations.
This year, Israel ranked 16th in the “innovation capability” pillar, and its highest ranking in a category was 5th in “business dynamism which looks at the administrative requirements of starting a business as well as entrepreneurial culture. But Israel was the top performer in the “growth of innovative companies” and “attitudes toward entrepreneurial risk” sub-categories of business dynamism, also coming in 1st in R&D expenditures as a percentage of GDP under the “innovation capability” pillar.
Israel ranked 2nd out of 140 countries in “venture capital availability” and “ease of finding skilled employees” due to its highly educated workforce. The country also ranked 3rd worldwide with “companies embracing disruptive ideas” and “multi-stakeholder collaboration.”
The country also did well in education by mean years of schooling (8th globally), skillset of graduates (9th) and overall health (11th globally), but ranked low in a number of business-related subcategories including “budget transparency” (90th), “ease of hiring foreign labor” (125th), credit gap (86th), complexity of tariffs (81st), and fiber internet subscriptions (93rd).
Israel “has grown to become one of the world’s innovation hubs thanks to a very strong innovation ecosystem (10th best in the world),” the report read in reference to Israel’s 10th spot in the 2018 Bloomberg Innovation Index published earlier this year.
“Israel spends the most of any country in the index on R&D (4.3 percent of GDP), and is where entrepreneurial failure is most accepted and innovative companies grow the fastest…A well-developed financial sector (22nd), with the second-best availability of venture capital in the world, also supports a flourishing and innovative private sector,” the report read.
The country’s pool of talent “is well integrated into the job market thanks to the low level of taxes on labor (5.9 percent of companies’ profits), near-equal participation of women (6th globally) and reliance on professional management (19th).”
However, the dynamism of domestic markets “could be hindered by the presence of large groups (51st globally in terms of dominance of few large companies), although competition within the service sector, particularly in professional services, remains vibrant (31st),” according to the report.
Meanwhile, the United States was ranked the most competitive country in the world, according to the index, placing first in the overall ranking as well as in business dynamism, labor market, and financial system. Singapore came in second, Germany third, Switzerland fourth, and Japan closed out the top five.