The previous sections of this report have described the 11 emerging priorities for countries to achieve economic transformation: moving towards a full integration of social, environmental and institutional targets into their economic systems over the next five years (approximately). This final section takes a first step towards measuring the readiness of countries to achieve such a transformation. This exercise does not intend to be a complete assessment of countries’ performance on sustainable and inclusive prosperity, but rather focuses only on new dimensions of economic transformation.

As part of the exercise, a preliminary set of concepts were identified to further break down the 11 priorities, indicators benchmarked against them were then identified, and data was eventually collected. Ultimately, results were computed for the 37 economies for which the majority of data on these indicators is available. Appendix A provides a full description for the methodology used to conduct this exercise.

The aim of this exercise is three-fold. First, it maps the areas of priority against available data points in an effort to better define the actions and/or policies needed to “build back better” economies that are productive, sustainable and inclusive. Second, it provides a snapshot of the current situation in each country, assessing the extent to which countries today are on the way towards transforming their economies. Third, it highlights where the key data gaps lie in assessing current national policies and performance.

Tables 5.1 outlines the results of this exercise, which are explained in greater detail below, for each of the 11 priorities:

1. Ensure public institutions embed strong governance principles and a long-term vision and build trust by serving their citizens

Future-oriented institutions will not only need to be transparent and efficient; they must also evolve towards yielding more equitable outcomes and enhancing citizens’ trust in them. Governments will also be increasingly called upon to communicate clearly a longer-term vision, anticipating the evolution of trends, and build structures that will allow for agile responses to future shocks and rapid technological change. This includes being able to adopt legal frameworks to channel break-through innovations for the social good as well as updating how the value created in the economy is defined and accounted for. While the knowledge economy now relies very heavily on intangible assets, such as algorithms, software and data, accounting frameworks are still catching up.

The preparedness of countries on this priority area is measured here using metrics on judicial independence, corruption perception, digital media trustworthiness and a composite index reflecting the ability of citizens to exercise formal rights and liberties. It also includes perceptions of business leaders, taken from responses to the World Economic Forum’s Executive Opinion Survey, on three factors, which together give an indication of how good public institutions are at anticipating or responding to shocks: 1) governments’ responsiveness to change, 2) their long-term vision and 3) the adaptability of legal frameworks to digital business models. Further, in assessing the state of a country’s accounting framework, two survey-based indicators are included: business leaders’ perception of the strength of auditing and accounting standards, and whether spending on employees is accounted for as a cost or an investment.

Ideally, this area would include additional metrics to monitor in a more granular way the status of the rights and protections of historically disadvantaged groups as well as measures of social trust, for which data coverage is currently sparse.

Based on the available data, the countries that emerge in the top decile of the 37 countries included in this exercise are four small economies: Denmark, Finland, New Zealand and Switzerland. Overall, the spread of countries’ institutional quality is wide, ranging from scores in the 40s to scores in the high 70s. The least-prepared countries in this area include Russia, Mexico, Brazil and Argentina.

2. Upgrade infrastructure to accelerate the energy transition and broaden access to electricity and ICT

The transition to a greener and more inclusive economy will have to be underpinned by significant investments in infrastructure, including an expansion of digital networks. Greening the economy will require upgrading energy infrastructure and transport networks in addition to commitments from both public and private sectors to extend and respect multilateral agreements on environmental protection. With respect to inclusion, infrastructure upgrades should comprise the expansion of digital capacity to match the benefit of digitalization with universal access to opportunities.

When it comes to assessing readiness on these aspects, data is still very sparse. The current framework considers emission intensity by infrastructure type, covering one aspect of the environmental dimension, as well as energy efficiency regulation, renewable energy regulation and environment-related treaties in force as key elements of public-sector efforts.

Ideally, an assessment would also include a proxy for the size and ambition of ongoing infrastructure projects including the roll-out of digital infrastructure, the greening of energy infrastructure as well as the transport network. However, these data are currently not available.

Access to electricity and ICT is proxied by connectivity, signal land coverage, gender gaps in digital connectivity, E-government participation and electrification rates.

Overall, countries that are currently better prepared for an economic transformation through their infrastructure include Denmark, Estonia, Finland and the Netherlands. Less-prepared countries include Russia, Indonesia, Turkey and South Africa.

Notably, while environmental regulation seems to have seen some progress for the group of 37 countries considered here, building new and greener infrastructure is less well-developed, indicating the difficult balance between access to efficient and relatively cheap energy (including transport) and the environmental footprint.

3. Shift to more progressive taxation, rethinking how corporations, wealth and labour are taxed, nationally and in an international cooperative framework

In the last two decades, the tax burden in a number of high-income countries has shifted to reinforce existing income polarization dynamics driven in part by global integration and automation of tasks. Middle-income earners have seen their tax burden increase, while high-income earners and capital owners have seen theirs fall.46 At the same time, pressure on public finances have reached new heights in the wake of the COVID-19 pandemic, as countries are drawing down on public resources to keep economies afloat and revive economic activity. Thus, new demands to finance the transition into recovery will arise. 48

When it comes to updating tax structures, the key tension to resolve will be between ensuring a fair transition and setting the right incentives for technology adoption and innovation. An updated tax architecture will require policy-makers to rethink relative burdens across income, wealth and corporate taxes in light of these trade-offs.

The assessment of countries’ readiness on this priority is based on an aggregate measure of the progressivity of personal, corporate and value-added tax; an inheritance tax indicator; a tax productivity indicator (taxes collected relative to the tax base) and a metric that measures the impact of taxation on inequality.

According to these metrics, Korea, Rep., Japan, Australia and South Africa emerge in the top decile of the distribution on this priority, thanks to their relatively well-balanced and progressive tax structured compared to other countries assessed in the framework. Hungary, Poland, Italy and Turkey score towards the lower end. Overall, however, scores across countries on this priority are low, leaving much room for improvement.

4. Update education curricula and expand investment in the skills needed for the jobs and “markets of tomorrow”

Reskilling, upskilling and education curricula updates are central to prepare workers and achieve inclusive prosperity. Participation in formal education is no longer sufficient to provide employment opportunities and build human capital. Instead, education systems should be upgraded to provide digital skills and critical thinking skills through schools and universities, as well as ongoing learning and skilling through public and private life-long learning programmes.

Data on these aspects, however, is relatively scarce. To date, it is possible to measure business views on employees’ skills (skill set mismatch, digital skills, critical thinking in teaching) and partial assessment of firms’ training (percentage of firms offering formal training, extent of staff training).

Based on available data, the Netherlands, Denmark, Switzerland and Finland are among the better-prepared countries, working to keep schools’ curricula relevant and up-to-date. Greece, Brazil, Turkey and Italy are less well-prepared.

5. Rethink labour laws and social protection for the new economy and the new needs of the workforce

One important component of policies to curb inequality and manage the technology- and recession-driven shifts in the workforce is adequate and agile social safety nets. While this is already the case in some progressive countries, they are often centred around income-support. Instead, future-looking approaches should better integrate income support with adaptation of labour laws and expand the social protection floor, including easing access to education, training and health to support the full development of citizens’ human capital. This approach should succeed in protecting and rewarding workers rather than jobs—and deploying technology to facilitate the shifts for workers is crucial.

Country readiness on this priority reflects this idea. Although currently available data does not fully capture how integrated health, education, labour laws and income support policies are, they do allow an assessment of the capacity of a country in providing protection on these domains. Examples of these protections include social protection coverage, guaranteed minimum income benefits, accessibility of healthcare services, inequality adjusted access to education, expenditure for housing allowances, active labour market policies, enforcement of minimum wage, adequate overtime regulation, workers' rights, impact of the online gig economy on working conditions, and employment opportunities for the low-skilled.

Based on the currently available data, Germany, Denmark, Switzerland and the United Kingdom are relatively better prepared than other approaches to combine adequate labour protection with new safety nets models. South Africa, India, Greece and Turkey score towards the lower end on this measure.

6. Expand eldercare, childcare and healthcare infrastructure, access and innovation for the benefit of people and the economy

Universal access to eldercare, childcare and healthcare is a fundamental factor for building fairer societies while empowering human capital. A combination of adopting new technology and expanding investments in this domain could help to address this priority.

Data availability on actual capacity of the care sector, however, is limited, hence the readiness measurement for this exercise reverts to several proxies: public expenditure on childcare and education, public expenditure on healthcare, use of online gig economy for providing care services, care workers to elder population ratio.

Based on the available data, Sweden, Finland and Canada are closer than other countries to achieving expanded access to care services. Notably, these countries allocate a relatively higher number of public resources to this sector and have built a relatively stronger health resilience compared to other countries assessed by this exercise.

It is also important to notice that most emerging countries South Africa, Brazil, Argentina, Indonesia, Russian Federation and China are not assessed on this dimension due to lack of data.

7. Increase incentives to direct financial resources towards long-term investments, strengthen stability and expand inclusion

A thriving financial sector should channel resources towards long-term investments in the real economy rather than maximize short-term profits or support financial markets. The growing importance of ESG (environmental, social and governance) standards for investing bodes well for the capacity of the financial system to move in this direction. More effective and stringent measures on rewards to executives, dividends, share buy-backs, cash holdings and financial investments by non-financial corporations could also help channel resources towards the investments needed to increase productivity, protect people and the environment, and avoid practices that aim for short-term increases in market valuation. Finally, accounting frameworks could be revised in order to value firms’ investments in resilience.

Data availability is extremely limited in this area, hence countries’ readiness is assessed using three proxies: quality of ethical standards among peer firms; amount of share buybacks conducted by companies in the country as a percentage of GDP (to capture short-termism in investment); and use of digital financial services among the poor (to capture inclusion).

Using available metrics, Finland, Sweden, New Zealand and Austria emerge as relatively better prepared than other advanced economies on these aspects. Notably, the United States, currently the largest financial centre in the world, is among the least ready to transform on this priority area. While this assessment is based on proxies it shows how financial development may diverge from long-term thinking and inclusion objectives.

8. Rethink competition and anti-trust frameworks needed in the Fourth Industrial Revolution, ensuring market access, both locally and internationally

While market concentration has increased in the past decade, modern policies to restore competition will need to consider new drivers of market concentration (e.g. intangible assets, digital platforms) and update their toolkit accordingly.

A vibrant, levelled business environment will require both proactive efforts to facilitate entry by new firms and upgrades to anti-trust frameworks which consider new sources of market power (in particular data holdings) and consumer harm beyond price increases.

Trade openness also contributes to the creation of more competitive markets; future policies should innovate on how to maintain the benefits of international trade while limiting internal divides between regions where world-class companies are located and support regions and sections of the population that lose out from globalization.

Data availability only allows for a partial assessment of these aspects. The data points included to assess countries readiness in this area consist of effective taxation for new economy, transnational firms; the extent of market dominance; the growth of innovative companies; financing of SMEs; venture capital availability as well as proxies of local opportunities (state of cluster development, ratio of unemployment between rural and urban population). Notably, measuring the drivers or the status of competition in the digital economy is difficult and data is scarce.

Based on the available statistics, countries that are relatively more ready to create vibrant business environments include Canada, Finland, China and the United States, while Russia, the Slovak Republic, Greece and Argentina are less ready for this area of transformation.

9. Facilitate the creation of “markets of tomorrow”, especially in areas that require public-private collaboration

Future-oriented policies will need to combine push-and-pull strategies, including incentivizing demand and investments in R&D towards the production of more sustainable and inclusive goods, services and technologies. A number of elements might reinforce path dependency in specific markets and prevent wide adoption of new products and technologies, even when those have superior characteristics. At the same time, bottlenecks in the diffusion of break-through innovations from a niche frontier to the rest of the economy should also be removed.

Governments have several tools to change the direction of market outcomes. Fiscal incentives can be granted to firms and consumers that adopt products and technologies that fall within specific performance requirements. Public procurement can also be a powerful tool to provide an initial market to new technologies that are at an earlier stage of research and development. The private sector can also contribute to tilt markets through its purchasing and sourcing strategies and by re-orienting its supply chains, either to cater to the preferences of consumers or to improve its own efficiency.

To measure countries’ readiness on these aspects, available data include trade-adjusted emission levels—normalized by the size of the domestic market in PPP terms—to provide a measure of overall sustainability of consumption patterns within the country, as well as buyer sophistication, the role of the public sector in fostering demand for new technologies, consumer uptake of new technologies, pledges relative to overall patenting activity, and perception within the business community of the adequacy of existing regulation of emerging technologies.

According to these metrics, Finland, the United States, Sweden and Japan, relative to other countries, provide the best conditions for new technologies to be rolled out, and therefore emerge better prepared to address this priority. However, it is worth noting that overall, scores on this dimension are low and narrowly distributed.

10. Incentivize and expand patient investments in research, innovation and invention that can create new “markets of tomorrow”

Transforming economies will require unlocking the potential of human curiosity and creativity to develop breakthrough technologies and the new products, services and markets that apply them.

To measure these aspects would require data on aspects such as investments in long-term science and research projects, availability of patient capital for targeted development of new technologies, governments’ capacity to act as a de facto venture capitalist, time-horizon of research and the amount of development spending across countries.

Data availability, however, is limited on these domains, hence countries readiness on this priority is proxied by two indicators: i) state of research and development across 15 new technologies, and ii) role of the public sector in driving the development of these new technologies.

Finland, Japan, the United States, Korea, Rep. and Sweden emerge as better prepared on developing markets of tomorrow, thanks to a well-developed network of public institutions that shape the science, technology and innovation agenda of the country, and also work closely with research institutions and the private sector to implement this agenda. Greece, Mexico, Turkey and the Slovak Republic are less well-prepared.

11. Incentivize firms to embrace diversity, equity and inclusion to enhance creativity

Diversity, equity and inclusion must be an integral part of an innovation-driven strategy for economic transformation. Companies must fully leverage the creative potential of different segments of the population and access to the opportunities generated through innovation should be expanded via, for instance, facilitating inclusion in ownership of new innovative businesses, employment in research roles, and career progression in growing markets.

In spite of long-standing efforts to increase granularity of indicators to include gender or other dimensions of diversity, data gaps do persist, and measurement has been proxied by four indicators. As such, progress of countries on promoting diversity, equity and inclusion in their workforce has been measured by the gender diversity of the workforce, the propensity of companies to rely on professional management rather than friends and family, and the presence of women in tech roles and in ownership structures. The propensity of companies to rely on professional management rather than friends and family, and the presence of women in tech roles and in ownership structures. Clearly, these measures offer only a partial assessment of inclusion; yet countries are beginning to include these elements in national statistics.

Based on the narrow number of currently available statistics, China, Sweden, New Zealand and the United States perform best in this area, relative to all other countries assessed. India, Turkey, Italy and the Slovak Republic perform less well. Data availability on gender parity in business ownership, however, is currently limited to a small set of countries, making cross-country comparisons challenging.

Cross-priority assessment

The main contribution of this exercise is to provide an assessment of countries’ readiness on each of the 11 priorities for transformation. However, a synthetic view on overall transformation readiness can provide a snapshot of the most promising and holistic approaches taken by advanced and emerging economies so far.

Table 5.2 presents such a synthetic readiness assessment, based on a simple average of the measurement of the 11 priorities described above.

These results are not a composite index and must be treated with caution, due to insufficient indicators, the use of proxies and missing values. It should also be noted that the methodology allows for balancing out low scores in one dimension with higher scores in another. This is an important limitation, since, to achieve transformation, countries should aim for addressing all 11 priorities equally.

The key take-aways of this exercise are that organizations such as the World Economic Forum must better measure the capacity of countries to transform and expand data availability and that no country is yet ready to transform its economy. However, among the existing policies, and based on available statistics, the ‘Nordic model’ is the most promising in leading economic systems towards greater sustainability and shared prosperity. These countries (e.g. Finland, Denmark, Sweden) are among the best-prepared on most of the 11 priorities identified by this framework and are, consequently, among those that are most ready for an economic transformation.