Problem of comparative advantages and competitiveness of countries becomes increasingly important under global competition. It is especially important for small and open economies and Latvia is one of them. The Global Competitiveness Index of Latvia has decreased during the previous years and it means that there are serious problems. Latvia occupies one of the last places among the EU member states in this evaluation. The way to international competitiveness and to the knowledge-based society lies via innovations. European Innovation Scoreboard shows that Latvia remains in one of the last places among the countries surveyed. Latvia’s innovation index has not substantially changed over the last years. Innovative potential of a country depends on financial resources devoted to science and education. Despite it, expenditures on science and education in Latvia’s government budget are reduced during the last years. Latvia still is a country with relatively cheap and educated labour force. A serious threat to this advantage is caused by labour emigration. Also, Latvia’s competitiveness is endangered by situation in the country’s educational system.