Key takeaways included:
- It is challenging to pick one metric to signify whether a country will be successful in the future;
- For long-term investors, the key question is whether the quality of talent pools and talent policies are sufficient to help both companies and countries grow over the long-term;
- If countries lose talent pools, they will not have a sustainable future, so investors need to assess countries on how effective they are at educating, training, attracting, and retaining talent;
- One key differentiator is to what extent countries support their education systems to ensure that they meet the needs of the labour market – plenty of countries spend on education but the output isn't sufficient because they don't produce people with the right skills or levels of attainment to support long-term growth.
What makes a country successful?
Dr Bris began his session by posing a question to the attendees about which country has consistently grown its economy for the past 40 years1.
Many attendees cited China, but Dr Bris pointed out that Colombia is one of the three countries to have achieved this over the time period.
Moving the discussion on, Dr Bris stressed that GDP growth is but one measure of success but not necessarily a sufficient guide as to whether a country will continue to be successful in the future.
Dr Bris introduced the idea of intangibles, like quality of life and scientific infrastructure, that he believes are more indicative of how successful a country will be in the long-term.
Learning from companies
Dr Bris argued that analyzing what makes companies successful can help investors understand what can make countries grow over the long term.
Taking a time-based, four quadrant approach that groups companies according to low-or-high growth, matched to whether they are able to deliver high-or-low profits, Dr Bris showed that over time only 6% of companies were able to maintain high profitability with high growth over a period of ten years2.
Dr Bris explained that three factors made those companies successful: governance quality was a key factor - with family-run companies being strong performers – as well as talent management, i.e. training, promoting and retaining workers, and corporate innovation.
Bringing it back to the discussion about successful countries, Dr Bris argued that his studies into long-term corporate success reveals that intangible factors, like governance and talent management, are key factors for sustainable success and growth3.
Economists, engineers, dentists and the case of Switzerland
Focusing on talent in particular, Dr Bris argued that it is people who ultimately decide how successful a company and country is going to be in the long-term. As such, investors should focus on how countries develop their talent.
In this sense, Dr Bris explained Switzerland is an excellent example of effective talent management. In fact, Switzerland ranks at the top of IMD's global competitiveness rankings4.
Dr Bris argued that Switzerland dominates because it has a highly focused, well-funded education system that matches the demands of the labour market. Switzerland produces many economists and engineers, and these are exactly the kinds of disciplines that are needed for Switzerland's two main industries: finance and advanced capital goods. For other disciplines, like dentistry, Switzerland imports workers and specialists.
But Dr Bris pointed out an important distinction. It is important to gauge a country's competitiveness on inputs into the education system, like expenditure on education as a % of GDP; but it is equally important to measure outputs, like levels of attainment on internationally-renowned tests like the Programme for International Student Assessment (PISA).
That's one area where one of the world's leading economies, the United States, lags other nations. Despite investing heavily in education, levels of attainment for American students remain low when compared with other nations across the world.
Attracting talent and avoiding brain drain
Moving on from generating and educating talent, Dr Bris argued that investors also need to look at whether countries are doing enough to attract foreign workers and retain the human capital they have.
Indicators like quality of life, legal systems, security, quality of the intellectual environment, salary levels across industries and sectors are all key indicators which can tell investors how successful a country is going to be in attracting and retaining talent in the long-term, and ultimately what potential they have to keep growing.
Though China is a notable economic success story, it remains an exporter of talent and at the same time fails to attract talent, and this may undermine both the country's ability to grow over the long-term, or the potential of companies operating in China to be successful. Key factors that may undermine talent retention in China could be levels of both pollution and free speech.
Summing up the session, Dr Bris reiterated the importance to investors of focusing on talent management when gauging the long-term prospects for countries. Looking in detail into the factors underpinning talent management can give vital perspectives that have the potential to generate a more rigorous view about long-term prospects, and that's something that all investors should pay attention to.
Views and opinions expressed are presented for informational purposes only and are a reflection of UBS Asset Management’s best judgment at the time a report or other content was compiled. UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. The information and opinions contained in the content of this webpage have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith but no responsibility is accepted for any errors or omissions. All such information and opinions are subject to change without notice but any obligation to update or alter forward-looking statement as a result of new information, future events, or otherwise is disclaimed. Source for all data/charts, if not stated otherwise: UBS Asset Management.
Any market or investment views expressed are not intended to be investment research. Materials have not been prepared to address requirements designed to promote the independence of investment research and are not subject to any prohibition on dealing ahead of the dissemination of investment research. The information contained in this webpage does not constitute a distribution, nor should it be considered a recommendation to purchase or sell any particular security or fund. The materials and content provided will not constitute investment advice and should not be relied upon as the basis for investment decisions. As individual situations may differ, clients should seek independent professional tax, legal, accounting or other specialist advisors as to the legal and tax implication of investing. Plan fiduciaries should determine whether an investment program is prudent in light of a plan's own circumstances and overall portfolio. A number of the comments in the content of this webpage are considered forward-looking statements. Actual future results, however, may vary materially. Past performance is no guarantee of future results. Potential for profit is accompanied by possibility of loss.
© UBS 2021 The key symbol and UBS are among the registered and unregistered trademarks of UBS.