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Development strategies: a matter of choice

Published on October 7, 2009 by: in: Economy

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European Union is in the state of war. It is a war that has begun decades ago, new battlefields open almost every day and our armies are in retreat in most battles, on earth, in the air and in the deep waters. Our enemies mobilized unprecedented resources, their armies outnumber the Union forces, hundreds of thousands of new, well trained recruits join the enemies’ forces each year, while the Union pool of talent able to survive and launch a victorious strike seems more shallow than ever. Our enemies have well targeted strategy, to make their countries prosper and to deprive our children and grandchildren from their prosperous future. Our enemies follow their strategy with a great determination while we still focus on tactics, winning a battle here or there, without a grand strategy to guide us. The Union is plagued by angst and impossibilism, Union leadership is scarce, weak or non-existent, Union army morale has never been worse.

There is no time to be spared, there is no money to be wasted, there is no man or woman to remain idle, we shall all unite to fend off the biggest threat that has faced Europe for many decades. It is this defining moment in the history of Europe, when national divisions should be removed, when local agendas should be abandoned, when we, Union citizens proud of our great history and culture should rise and declare: no more.

Wars in the past were fought by armies or navy fleets. The grand war of the 21st century is fought by scientists, researches, engineers, and companies that turn ideas into products sold to billions of consumers. Before, the winning armies had superior weapons, more soldiers, wiser commanders-in-chief. In the 21st century, battles are fought by teams of scientists, and the victory requires more creative minds, better ideas, better labs, better ability to commercialize innovation, better ability to market and sell new products and services. Nations that fail to develop these skills will perish, nations that build modern knowledge armies will prosper. One thing, however, has not changed. Similarly to wars of the past, the odds of winning the 21st century research and science war will be higher if our armies are led by great strategic minds, minds that can warm souls, can breed hope and optimism, can reinvigorate our innovative fabric that was with us for centuries. The time for the Union development strategy has come. It is a matter of choice. And we owe it to our children and grandchildren to make the right choice. And the time to make it in now.

The great Chinese general Sun Tzu once said:

“All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved “.

The winning strategy in the global science and research war should be based on good surveillance, no general should launch an assault without knowing his enemies strengths and weaknesses.  What I will present to you in the next few moments will not be pleasant. It will be a record of our failed strategies in the past, a record of our poor investments into our future. I say to the members of the symposium, take a look at these hard facts, take a look at the falling morale of our research and science troops, take a look at our falling performance, take a look at our enemies growing strength.

Surveillance fact no 1. Innovation power of the Union knowledge army, as measured by the number of patent applications, is trailing badly behind other armies

We all know that the number of patent applications maybe a poor measure of the nation capacity to produce innovations, especially disruptive ones. We know that some countries have patenting culture, some don’t. But changes in patent applications over the last decade presented in the table below for a sample of countries are simply too big to be ignored. While United States remains the innovation leader, Asia is gaining strength, and South Korea, a country populated by 48 million people has more patents than the Union, with population ten times bigger.

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Patent applications are applications filed with a national patent office for exclusive rights for an invention – a product or process that provides a new way of doing something or offers a new technical solution to a problem.

Source: WIPO

Surveillance fact no 2. Union knowledge army innovation commercialization capacity is very low, as measured  by percentage of high-technology exports in manufacturing exports

We all know that with the falling share of manufacturing and growing role of services it is the latter that matter more. But still manufactured goods market is more global and more competitive, hence  it is still a good measure of global competitiveness of a given country. We also know that in some cases, the share of high-tech goods in exports is inflated by large high-tech import component, as in the case of China.  But how will you explain to the Union citizens, that the share of high-tech goods in the eurozone manufacturing exports is only 15 percent, only half of what it is in the case of United States, China or South Korea.

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High-technology exports are products with high R&D intensity, such as in aerospace, computers, pharmaceuticals, scientific instruments, and electrical machinery.

Source: World Bank, World Development Indicators

Surveillance fact no 3. Union is still a powerhouse of scientific publications, unable however, to close the gap with the United States.

We all know the perils of the scientific publications data. It is biased towards the English language, so the nations which speak English as native language, or learn English efficiently have comparative advantage. It is stunning to see Europe publishing so much knowledge, and translating so little fo this knowledge into new products and services. The number of scientific and technical publications in China has increased fivefold in ten years, if this trend continues within the next decade or two China will become the leading nation in this ranking.

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Scientific and technical journal articles refer to the number of scientific and engineering articles published in the following fields: physics, biology, chemistry, mathematics, clinical medicine, biomedical research, engineering and technology, and earth and space sciences.

Source: World Bank, World Development Indicators

Surveillance fact no 4. Union has failed to significantly increase investments in the weapons that might be used in the 21st century knowledge war. Other nations are doing much better

We all know that R&D data is poor, that various categories of investment in R&D are not properly accounted for, such as researchers salaries, or “sweat investment” in R&D to name just a few. With all these flaws in mind, Union leaders created a long-term strategic goal to reach 3 percent R&D spending in relation to GDP, and they failed to implement this policy. The Union lags badly behind the United States,  Asian tigers, Japan, and China is closing the gap very quickly.

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Expenditures for research and development are current and capital expenditures (both public and private) on creative, systematic activity that increases the stock of knowledge. Included are fundamental and applied research and experimental development work leading to new devices, products, or processes

Source: World Bank, World Development Indicators

Surveillance fact no 5. Union spending on the crucial knowledge infrastructure, Information and Communication Technology is very low.

We all know that ICT excessive spending can be harmful, as shown by the bursting of the Internet bubble in 2001-2002. While indeed many countries reduced their ICT spending as compared to the bubble year (United States, Japan), developing and newly industrialized countries are charging ahead, with China spending 7.8 percent of GDP, South Korea 7.1 percent of GDP, as compared with only 5.9 percent in the Union. One does not need to argue much, that modern ICT infrastructure is one of key weapons which will be increasingly used in the knowledge war we are in.kr4

Information and communications technology expenditures include computer hardware (computers, storage devices, printers, and other peripherals); computer software (operating systems, programming tools, utilities, applications, and internal software development); computer services (information technology consulting, computer and network systems integration, Web hosting, data processing services, and other services); and communications services (voice and data communications services) and wired and wireless communications equipment.

Source: World Bank, World Development Indicators

This surveillance data should come as no surprise to you. Citizens of the Union have already seen many years ago that the Union’s ability to win the science and research war dramatically diminished. To feel less insecure, in an dramatic attempt to improve their chances of survival during this 21st century war the Union citizens started to spend more on education. As shown in the figure 1, the share of spending on education in the HICP consumption basket increased in the last ten years in every Union member state. In some member states this share went up by as much as 2 pp., in others just inched up 0.5 pp. We often analyze such statistics as education spending to GDP, which includes public and private spending and often embeds national policies and cultural differences. But the education share in the HICP basket tells us much more about consumer preferences.  Of course there could be many factors behind this trend, higher inflation in education services than in other components of the consumption basket, systemic changes related to tuition or numerous other factors listed in the UNESCO Global Education Digest 2009. But I argue strongly, that is the only line of defense the Union citizens have; when faced with a dramatic weakness of the Union knowledge war strategy they have to invest in education. When there is no police to protect you neighborhood when burglars arrive, you better get yourself a gun.

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Figure 1. Increase in spending on education (as measured by the education share in HIPC basket) and average growth rate – Union members and Turkey

Source: own calculations, EUROSTAT

There is a positive correlation between the growth rate and the increase in share of education spending in HICP basket when measured across Europe. I am not claiming any causality here, that higher growth leads to higher wages and citizens can thus spend more on education, nor that higher education spending translates into higher employment ratio and higher productivity growth and thus leads to higher GDP growth. The actual relationships are much more complex than that as outlined in abovementioned UNESCO report. But if you take out outliers, which are small Union members, the relationship is thought-provoking indeed.

But the Union citizens do realize that protection offered by the education weapon is not enough. You cannot fight jet fighters with an old-fashioned machine gun, you need modern and innovative weapons to be able to face the enemy. These weapons will not be created unless we have a strategy.

Let me give you an example. Poland’s science and research army is almost non-existent. We do not exist on the patent map, our export products are rarely innovative, our higher education institutions are of poor quality as shown by various rankings. It will be honest to say that Poland has no army to fight the science and research war, it has small groups of soldiers scattered across the landscape, without supplies and ammunition. But we do not want to be a looser in this knowledge war. I am coordinating work of experts who will draft Higher Education Strategy 2020 for Poland, on the request of the Ministry of Science and Higher Education. And the way we approach this task may be useful to think about how we should draft our grand knowledge war strategy for the whole Union.

We will create Poland’s Higher Education Strategy 2020 in the following four steps:

(1)   Creating consensus among key stakeholders with respect to Poland’s long term development goals described in Poland 2030 document, and in other strategic documents. This vision will take into account all important threats and opportunities that lie ahead (such as demography or climate change)

(2)   Determining to which Poland’s development goals the higher education strategy can and should contribute

(3)   Defining “development gaps”, as a difference between desired state in the future and the present state, with respect to all development goals to which higher education strategy can contribute

(4)   Working out what changes in the higher education sector are needed to bring about the closing of development gaps

This way we shift the debate away from the current state of the higher education system, from the numerous hidden agendas that various stakeholders have, towards the intensive and intellectually rich debate about the future of Poland and about the role of the higher education sector in shaping this future. The process has just started and it remains to be seen whether we will succeed. But I do think that similar approach should be taken when talking about the Union knowledge war strategy, that you may call development strategy or post-Lisbon if you like.

Let me restate my key message again. No country should go to war without a proper strategy. No country should go to war without a leader, a great strategic mind, mind that can warm souls, can breed hope and optimism, can reinvigorate our innovative fabric that was with us for centuries. I invite this forum to support the selection of such leader. I invite the symposium to articulate its full support and approval  for the steps to be taken and declare its confidence in the new knowledge war strategy. The resolution should say that “this symposium welcomes the formation of the new position in the European Commission – the Knowledge Commissioner, who represents the united and inflexible resolve of the Union  to prosecute the knowledge  war with our enemies to a victorious conclusion”.

You ask what will be the Knowledge Commissioner policy. I say it is to wage knowledge  war by land, sea and air. War with all our might and with all the strength God has given us. This will be Knowledge Commissioner policy.

You ask what will be the Knowledge Commissioner aim? I can answer in one word. It is victory. Victory at all costs, victory in spite of all divisions tearing the Union apart today. Victory, however hard and long the road may be, for without victory there is no good future for our children and grandchildren. This will be the Knowledge Commissioner aim.

You ask how  new general alone could win the war without his own army? I say that we need to break the silos, we need to reach across divisions. There is a need for a horizontal Knowledge Commissioner, who will tap whatever resources are needed, from Education, from Research, from Regions, from Enterprise and Industry, from Competition, from Internal Market to wage and to win this war. Knowledge Commissioner will closely work with ministers of science, education, economy and finance of Union member states to make sure that scarce resources are used in the best possible way.

I repeat, the Union is at war, and the future of our children is at stake. I repeat, we have no strategy how to fight this war, our leadership is scattered and fragmented across various topical or geographical silos. This should last no more. No more little steps, no more bureaucratic mumbling, that no citizen can understand, no more visionless myopic motion. No more. The time has come for one leader to lead this knowledge war. The time has come for grand vision and grand strategy to win this knowledge was. The time for action has come. It is a matter of choice.

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About Krzysztof Rybinski

Warsaw School of Economics and Ernst & Young

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