LAUSANNE, Switzerland -- For a nation to be competitive in the global era, above all it has to be attractive. That, argues my colleague Stephane Garelli, author of the annual IMD World Competitiveness Yearbook (WCY), is the ultimate criterion in determining how nations compete in the global era. Attractiveness is measured in terms of how successful nations are in attracting foreign (or retaining domestic) capital and talent, the two most vital economic resources.*

In the 2001 WCY rankings, Japan ranked 26th out of 49 countries. The United States, Singapore and Finland were respectively in first, second and third place. Japan's position has been rapidly deteriorating in the course of the last decade: As recently as 1997 it was in 17th position. In the 1980s, Japan consistently ranked at the very top of the league.

The difference between recent and past rankings does not simply reflect Japan's deteriorating economic performance, but also, indeed especially, the "paradigm shift" of global competitiveness. In the 1980s, before globalization, the competitiveness of nations was determined not by their attractiveness, but by their aggressiveness. Aggressiveness was measured in terms of industrial and technology policy, market share in global markets and outward flows of foreign direct investments (FDI).