Further Comment on Economic Performance Rankings

Craig Freedman (Macquarie University, Australia)

This comment originally appeared in the "Japan-U.S. Discussion Fourm" (http://lists.nbr.org/japanforum) on May 6, 2002: posted here with the author’s permission.

The IMD rankings are trying to predict the future. The assumption they are making is that certain institutional structures are conducive to competitive conditions and that competition leads to greater productivity and economic growth. You can of course disagree with the reliability of this link and whether they are judging institutional structures correctly.

The past is not necessarily a reliable predictor of the future. In fact, past success can lock firms and other institutions into a strategy that is no longer viable. This makes it difficult to change and leads to missed opportunities.

The IMD index then would seem to be saying that in the future, South Korea will have higher, more dependable growth than Japan. The index does not say, that as of today, South Korea is economically better off than Japan (no matter how that is measured). The index itself may be poorly constructed and a very faulty predictor, but shouldn't be blamed for what it doesn't purport to be.