Americans went to the polls this month to vote in a presidential election that in many ways was a referendum on Barack Obama’s economic and fiscal policies. The United States has emerged from the worst recession since the Great Depression, but economic growth remains weak and unemployment stubbornly high. Another challenge: how its business climate stacks up globally.
The U.S. continues to lose ground against other nations in Forbes’ annual look at the Best Countries for Business. The U.S. placed second in 2009, but it has been in a steady decline since. This year it ranks 12th, down from No. 10 last year. The U.S. trails fellow G-8 countries Canada (No. 5), United Kingdom(No. 10) and Australia (No. 11).
Corporate taxes continue to put a damper on American businesses. Following a tax cut in Japan this year, the U.S. now has the highest statutory corporate tax rate in the world. The effective rate is much lower thanks to numerous breaks, but owning the highest published rate makes for poor perceptions.
It is not just the rate that hinders the U.S., but also the complexity of the tax code. The typical small or medium-size business requires 175 hours a year to comply with U.S. tax laws, according to the World Bank. Overall the U.S. ranks 55th out of the 141 countries we examined in terms of its tax regime. The world’s biggest economy at $15.1 trillion, it also scores poorly when it comes to trade freedom and monetary freedom.
New Zealand ranks first on our list of the Best Countries for Business, up from No. 2 last year, thanks to a transparent and stable business climate that encourages entrepreneurship. New Zealand is the smallest economy in our top 10 at $162 billion, but it ranks first in four of the 11 metrics we examined, including personal freedom and investor protection, as well as a lack of red tape and corruption.
In Pictures: The Best Countries For Business
New Zealand’s economy is closely tied to Australia’s, and both held up better than most during the global financial crisis. The downside to the resilience of its economy is that the New Zealand dollar has appreciated, making the country’s agricultural exports more expensive. The higher prices have helped to push up unemployment to 7.3%—the highest level since 1999.
New Zealand cut its corporate tax rate from 30% to 28% last year and eliminated certain deductions, making the cut fiscally neutral. Investors have prospered, with the country’s benchmark stock index, the NZX 50, up 24% over the past 12 months.
We determined the Best Countries for Business by grading 141 nations on 11 different factors: property rights, innovation, taxes, technology, corruption, freedom (personal, trade and monetary), red tape, investor protection and stock market performance.
Forbes leaned on research and published reports from the following organizations: the Central Intelligence Agency, Freedom House, Heritage Foundation, Property Rights Alliance, Transparency International, World Bank and World Economic Forum.
Ranking second on our list is Denmark, on the strength of its technology, trade freedom and property rights. Its GDP per capita is one of the highest in the world at $59,684 last year, according to the World Bank (America’s was $48,442). Like the U.S., Denmark is struggling to recover from the bursting of its real estate bubble. GDP rose 1.1% last year and contracted 0.4% in the second quarter of 2012. Yet, with its business-friendly climate, the country is poised to rebound stronger than most of Europe.
Hong Kong ranks third. Its economy, highly dependent on international trade and finance, remains one of the most vibrant in the world. Credit one of the world’s lowest tax burdens and a high level of monetary freedom. Hong Kong’s economy grew 5% last year and the unemployment rate is a scant 3.2%.
Singapore comes in at No. 4, ranking in the top 20 in all but one of the 11 metrics we measured. The only thing keeping Singapore from the top spot is a low score on personal freedom, as measured by watchdog organization Freedom House. Singapore’s economy depends heavily on exports, particularly in consumer electronics and IT products. Its trade surplus was 24% of GDP in 2011. The $240 billion economy grew 4.9% last year.
Canada slid from the top of the rankings in 2011 to No. 5 this year, losing ground on innovation and technology. The World Economic Forum’s annual Global Competitiveness Report says Canada is being weighed down by “a less favorable assessment of the quality of its research institutions and the government’s role in promoting innovation through procurement practices.” However Canada remains among the best countries in the world when it comes to trade freedom, investor protection and the ease of starting a new business.