The U.S. is the world’s undisputed economic superpower with a GDP of $16.7 trillion last year, nearly a quarter of the global total. It is the financial capital of the world and has largely recovered from the Great Recession. The economy recently posted its best six-month performance in more than a decade and unemployment stands at 5.9%, down from its 2009 peak of 10%.
Yet for all of its financial might, the U.S. lags behind many other developed nations when it comes to its business climate, and the gap is growing. The U.S. ranks 18th in Forbes’ ninth annual ranking of the Best Countries for Business, down four spots from last year. It marks the fifth straight year of declines since 2009, when the U.S. ranked second.
Blame an expanded government, as well as expensive new regulations in finance and health care. The U.S. is the only country to record a loss of economic freedom seven straight years in the Heritage Foundation’s Index of Economic Freedom. More than 130 major new federal regulations on starting a business have been added since 2009 at an annual cost of $60 billion, according to the Heritage Foundation. The U.S. ranks 81st out of 146 countries for monetary freedom, according to Heritage, with only the U.K. and Turkey faring worse among OECD nations.
The U.S. also gets knocked for its corporate tax climate, which ranks 43rd (out of 146 we ranked countries) in the World Bank’s Doing Business report. The statutory corporate rates in the U.S. are the highest in the world among developed countries and the complexity of the code keeps an army of accountants busy. Companies get a break on their taxes thanks to numerous deductions, but the reality of having the highest published rates in the world makes for bad PR.
The best country for business this year is Denmark, which ranked No. 1 three straight years between 2008 and 2010. Denmark’s economy has struggled in recent years along with the rest of the European Union. Last week Denmark’s government cut its growth forecasts for this year and next, as the $324 billion economy struggles to recover from the collapse of the housing bubble, as well as a weak export market. “Denmark relies on the core of Europe for their export demand and they are struggling to fill that void right now,” says John Weis, an economist at Moody’s Analytics with an expertise on the Danish economy.
Full Coverage: The Best Countries For Business
Despite its recent economic challenges, Denmark’s business climate is extremely positive. It scored highly across the board, finishing in the top 25 in each of the 11 categories we considered with top five showings for personal freedom, technology and low corruption.
One of the keys to Denmark’s pro-business climate is the flexible labor market known as “Flexisecurity,” where companies can easily hire and fire workers with out-of-work adults eligible for significant unemployment benefits. Unemployed workers are also eligible for training programs. It creates one of the most productive workforces in Europe. “The model encourages economic efficiency where employees end up in the job they are best suited for,” says Weis. “It allows employers to quickly change and reallocate resources in the workplace.”
Denmark is one of the most entrepreneurial countries in the world. The government streamlines the startup process with only four procedures needed to start a new business and at minimal costs. The regulatory climate is also one of the most efficient.
We determined the Best Countries for Business by grading 146 nations on 11 different factors: property rights, innovation, taxes, technology, corruption, freedom (personal, trade and monetary), red tape, investor protection and stock market performance. Each category was equally weighted. The data came from published reports from the following organizations: Freedom House, Heritage Foundation, Property Rights Alliance, Transparency International, World Bank and World Economic Forum (click here for more details on the methodology).
Pro-Democracy street protests have roiled Hong Kong this fall, but the semiautonomous Chinese territory enjoys an incredibly business friendly climate. It ranks second, up from No. 3 last year. Unemployment was a scant 3.1% last year and GDP growth of 2.9% was better than any other country in our top 20 outside of Singapore, which ranked ninth overall. Hong Kong ranks among the top five locales for investor protection, trade freedom, tax burden and red tape. Rounding out the top five of Forbes' Best Countries are No. 3 New Zealand followed by Ireland and Sweeden.
The world’s four biggest economies outside the U.S. turned in a mixed performance. Japan rose two spots from last year to No. 26, while China fell three places to No. 97. Germany, which has the fourth biggest economy at $3.6 trillion, jumped to No. 20 from No. 24 last year. France had the biggest fall of anyone in the top 50, down eight spots to No. 27. France endured its second recession in four years, as well as record unemployment. It's rating fell due to plunging scores on monetary freedom under the government of socialist Francois Hollande.
Guinea, formerly known as French Guinea, ranks last for the third straight year. The West African nation is at the center of the recent Ebola outbreak. It ranks among the bottom five for innovation, technology and corruption. Chad, Libya, Myanmar and Haiti fill out the bottom five (click here for more on the worst countries for business).
