Question

Comment on "how good the institutions are " 200 words

Answer 1

If you want to predict the prosperity of a country, just look at its institutions. Together, the legal and administrative organizations that underpin every society form what we economists call an “enabling environment” for the creation of wealth. When they fail, trust is eroded and economies can become damaged, as Ricardo Hausmann recently suggested. Collaboration between public and private sectors is particularly important when it comes to boosting productivity. But in the absence of strong institutions the alliance can become dysfunctional, with both sectors colluding in the pursuit of profit at the expense of the consumer.

Hausmann is right to argue that a healthy relationship between business and government should be a priority for an economy at any stage of its development. Here, institutions are key in establishing such a long-term agenda, allowing for public-private collaboration in the public interest, free from the vagaries of the legislative cycle. However, Hausmann is not correct to assert that insufficient recognition is awarded to institutions on which such a successful symbiotic relationship depends, including in the World Economic Forum’sGlobal Competitiveness Report, our annual assessment of the economic health of more than 140 economies. The fact is, national institutional frameworks have had a pivotal influence since we began measuring competitiveness in 1979.

How do we measure the importance of a country’s enabling environment for long-term economic health? The answer is through a blend of quantitative data, taken from leading agencies such as the United Nations, World Bank or OECD, as well as subjective responses from more than 15,000 top executives around the world, who respond every year to our proprietary Executive Opinion Survey. This approach allows us to measure the relative strengths and weaknesses of economies across a total of 112 separate indicators.

Most of these 112 indicators are influenced by public and private institutions – some directly, others less so. The first and most basic pillar (there are 12 in total) on which we assess an economy is dedicated to institutions, providing 16 different measurements, including observance of ethics, levels of corruption, and government efficiency and accountability.