On the occasion of the “Journée des Présidents”, Luxembourg Confederation asked Professor Arturo Bris, a Finance Professor at IMD Lausanne and the Director of the World Competitiveness Center, three questions about the competitiveness of the Grand Duchy.
1. Over the past few years, Luxembourg has distinguished itself as a financial center and hub for startups. In your opinion, what are the main factors that make Luxembourg a competitive player on the global stage, and what challenges does it still need to overcome to maintain or improve its position?
Professor Bris: Financial centres share some attractiveness indicators such as policy stability, fiscal friendliness, and rule of law. For us at the World Competitiveness Centre, policy stability (the predictability of government policies) can coexist with political instability (changing governments because of elections). In the last years however, because of conflicts, populism, and social networks, many democracies are suffering from instability both policy and political. Other countries without democratic systems, such as Singapore and the UAE, are taking over as financial centers. For Luxembourg this is a challenge because it needs to maintain its dominant position as capital attractor within the EU context, which is adding both fiscal and political uncertainty.
2. Due to its small size, Luxembourg presents both advantages and disadvantages in terms of competitiveness. In your opinion, what are the major strengths of this small state, and how can it overcome its inherent challenges to compete with larger economies?
Professor Bris: The advantage of smaller states, especially those that have access to large markets such as Luxembourg, is their ability to reach social consensus easily, and therefore to have efficient and productive economic systems. Additionally, in small states we see a bigger collaboration and a closer distance between the public and the private sectors, which results in competitiveness improvements in the very short term.
On the other hand, small states are small markets, so they need to access a larger economic area. In this sense, the EU is critical for Luxembourg (as for Switzerland) to maintain its competitive position. If you look at the most competitive economies in our ranking (Denmark, Singapore, Netherlands) they are small, but also to trade in close by, large markets.
3. Considering current global trends, particularly in innovation, digitalisation, and sustainability, how do you envision the future of Luxembourg’s competitiveness in the medium- and long-term? What strategies should the country adopt to remain at the forefront of global competition?
Professor Bris: We in Europe are slow-moving compared to other economies, from China and the US, to South Korea, Singapore and Indonesia to name a few. We need to speed up our political coordination processes, increase our investment in key technologies, and accelerate the incorporation of technologies by companies, especially SMEs.
In terms of sustainability, Europe (and subsequently Luxembourg) is a world champion, and sustainability will provide Europe with the licence to operate, that our multinational companies need to compete better in global markets.
The presentation Professor Bris gave on the 8th of November 2023 in Luxembourg is now available: