The World Economic Forum Global Competitiveness Report has been getting a lot of media ink lately.
For instance, Gwyn Morgan writes in the Globe:
Are Canadian banks in trouble? The World Economic Forum just ranked Canada’s banking system as the soundest in the world.
and in the same edition in a column that does not appear to be available online, Murray Leith of Odlum Brown wrote:
Our Canadian banks were even rated the “safest” in the world, according to a survey conducted by the World Economic Forum
It is important to understand exactly what this means. First, the good news:
Canada moves up three places to join the top 10 (ranked 10th). Canada benefits from top-notch transport and telephony infrastructure; highly efficient markets, particularly labour and financial markets (ranked 7th and 10th respectively); and well-functioning and transparent institutions (ranked 15th). In addition, the educational system gets excellent marks for quality, which has prepared the country’s workforce to adopt the latest technologies for productivity enhancements (ranked 9th). Canada’s main weakness remains its macroeconomic stability, where it is ranked 43rd, mainly linked to the significant government debt of nearly 70% of GDP, which places the country 107th out of 134 countries on this indicator. On a more positive note, however, the government has been running small surpluses over recent years, which is allowing the country to put the debt level on a downward trend.
I don’t know how much longer the surpluses will last if old ‘What Debt?’ Harper gets his majority tomorrow, but that’s another issue.
But what does it all mean? The key word was used by Mr. Leith – “survey”. According to Chapter 2.1 of the report:
The World Economic Forum has conducted the annual Survey for nearly 30 years.This year, the Survey was completed by 12,297 top management business leaders—an all-time high—in 134 countries between January and May.This represents an average of 91 respondents per country.Table 1 shows key attributes of the Survey respondents for the 2008 dataset.
The Survey asks the executives to provide their expert opinions on various aspects of the business environment in which they operate.The data gathered thus provide a unique source of insight and a qualitative portrait of each nation’s economic and business environment, and how it compares with the situation in other countries.
…
The collected respondent-level data are subjected to a careful editing process.The first editing rule consists of excluding those surveys with a completion rate inferior to 50 percent.
OK, so what is this based on? A survey of executives, who are providing opinions described as “expert” on virtually every aspect of their own nation’s competitive position; these are then ranked against other executives expert opinion of virtually every aspect of the other executives’ nations’ competitive position.
Sorry, this doesn’t make sense; the answers are not particularly reliable for any given nation and are not reliable at all when making comparisons. I personally believe that Canadian banks are quite sound, but my opinions – and those of the respondents – are valueless when attempting to draw an objective comparison against Tuvalu’s banks. I stand ready to be corrected, but I cannot find any indication on the WEF Website of any testing that has been done regarding the predictive capability of past surveys.
Sorry, guys. While it makes for pleasant hearing, and may for policy purposes assist governments in setting priorities, the survey is meaningless.
Kind of moot now anyways isn’t? Every nation is baling out their banks so whether Canada’s are as sound as they led us to believe no longer matters much as, if they aren’t, the taxpayers (thank God) are going to be on the hook to keep them afloat anyway.
[…] tired old canard, as I have previously discussed. There were no comparisons made in the preparation of the WEF report. Recommendation #2 – Bring […]
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