Recent Global Knowledge Economy Developments Howard ALPER Chair , Government of Canada’s Science, Technology and Innovation Council (STIC) Chair , KEN International Advisory Board 25 November 2014 Ljubljana, Slovenia Better Understanding of Knowledge Economy • Although the concept was introduced over 50 years ago: Fritz Machlup (1966 »The Effective Executive« distinguishing between manual and knowledge workers), its extensive and explicit use is much more recent Peter Drucker (1992, Chapter XII in »The Age of Discontinuity«) ; • Essential to distinguish between: – knowledge/innovation/design -- as determinant of value/price of products and services; and – knowledge/know-how/tehnology -- as method of production and providing marketable services. • Growing consensus in the academic community on concepts of knowledge & innovation, and their relevance for understanding the potential, mechanisms and limits of economic policy in improving competitiveness. Knowledge economy developments (1 of 2) Knowledge component in national GDP is constantly growing. In 2010, knowledge workers amounted to 70% of the workforce in the US and 50% worldwide. Many new jobs require life-long learning with scientific, practical and analytical knowledge and high-technology skills. The central workforce in the knowledge society consists of highly specialized people with relevant competences. European labour market projections indicate that around 35% of all jobs will require tertiary graduate-level qualifications by 2020, only 26% of the EU’s labour force was qualified at this level in 2010. Knowledge generated growth: compare GDP growth profiles of Ghana, Brazil and South Korea –dynamic growth attributable to knowledge driven productivity, not to physical capital or labor. Knowledge economy developments (2 of 2) • Knowledge economy is characterised by growing productivity, based on higher creativity, more self-employment and better job satisfaction, wider possibilities of societal involvement -- in short higher quality of life. • Our populations are becoming better educated, generally more competent to use technology available and more innovative (techn. & non-techn.innovation). • Globalisation is bringing international competition to the most remote villages. A number are becoming smart villages. Excellence in many products and services only counts at the global level. • Unfortunately too many powerful corporations act unethically against sustainable development, and use knowledge and latest technology only to achieve their own short-term objectives (maximising profits) - also limiting efforts by governments to protect public interest through proper legislation. Global Education Trends In the past 50 years, college graduation rates in developed countries doubled ! Share of population (25-34 years) with post-secondary education (top 11 countries): 1. Korea: 60 % 2. Canada: 55 % 3. Japan: 44 % 4. Russian Federation: 55% 5-7. Ireland, Norway, New Zealand : 45-47% 8-11. Luxemburg, UK, Australia, Denmark: 42-45% Number of science & engineering graduates per 100,000 employed (25-34 years), 2012 Education performance of 15 year olds (Pisa Score) – Asia triumphant Committment and Political Will (1 of 2) • Political leaders increasingly appreciate the importance of knowledge-based competitiveness and place strong priority to strategies, policies. • More economic, social and political actors are mobilized than ever on these issues. • Europe’s commitment to public research has increased over the years, as illustrated below by resources devoted to European Framework Programmes. Committment and Political Will (2 of 2) • Indications of a country’s true committment to knowledge economy, especially in time of crisis, can be made by: – GERD: how much of GDP is devoted to R&D (EU target unchanged at 3% by 2020, best performing countries: Israel 4.2%, Korea 3.6%, Finland 3.5%). – To illustrate the importance, projected U.S. R&D spending of $465 billion will directly employ over 2.7 million U.S. residents in the private and public sectors. In turn, additional 6 million jobs will be supported in U.S. • Essential is understanding that GERD is not spending, but investment in increased innovative capacity. – private sector’s share in GERD (most advanced countries over 50%, top: Japan and US -- over 65%, Korea over 75% ). Changing landscape and future commitment • Impact of Long-Term Outlook for R&D Expenditures Even if historic stability and greater EU commitment to research intensity continues, growth in China is likely to propel it to the top in absolute R&D spending by the early 2020s. However, China needs to markedly improve the allocation of resources. Knowledge Economy Worldwide: are we making progress? • It is relatively easy to measure innovation inputs (GERD, building talent, e.g. STEM graduates) - more complicated to determine outcomes/outputs/impacts in knowledge economy performance. • Top country in all rankings (WEF, Insead, WIPO) are showing consistent effort, several Asian countries making great progress, US economy growing weaker, although its multinational corporations are the biggest R&D investors. Russia is declining in its competitivenes ranking. • Most European transition economies are struggling – with exception of Poland, Estonia. • Countries failing in any of the 4 KEN domains, has negative effects—e.g. Brazil (education), Italy (R&D). Knowledge Economy brings higher Competitiveness through Innovation Global Innovation Index 2014 Global Competitiveness Index 2014–2015 (INSEAD, WIPO & Cornell University (World Economic Forum) Trends towards comprehensive knowledge economy policies Increased realisation that knowledge-based competitiveness requires balanced and consistent attention to all domains – and achieving cumulative impact of their interaction and cross-fertilisation: • Education and training: gap between worlds of learning and work still not closing quickly enough (slow university reforms and neglect of vocational training); • R&D: maintaining input/output balance , fragmentation of research capabilities, insufficient business-academia collaboration, traditionalist funding schemes, while globalisation increased criteria for excellence, many research organisations ignoring market needs; interdisciplinarity needs strong encouragement and good governance • Innovation: support environment needs to cover all components of the ecosystem: legal framework, fiscal incentives, IP protection, funding, as well as creating and maintaining genuine innovation culture; • Entrepreneurship: the entire ecosystem needs to encourage and support entrepreneurs, specially start-ups, value change in many countries needed: failure to be accepted as learning experience, entrepreneurs to be regarded as „societal heros“. Clusters, Science & Technology Parks, Innovation Valleys and Hubs • All these forms of aggregation of innovation +entrepreneurship capabilities are present in various forms and intensity for decades (presently over 1,500 clusters worldwide). • With various emphasis, these entities stimulate innovation by: – Achieving critical mass of R&D and innovation capabilities through facilitating their structured collaboration within a spacially defined environment; – Encouraging specialisation and cross-disciplinary collaboration among developers with active involvement of entrepreneurs who understand market needs and are capable of funding research and product development – including strategic marketing and promotion; – Attracting high calibre interdisciplinary oriented researchers from broader national and international environment, as well as potential business partners who may join forces with anticipation of benefit for all involved; – Attracting government support and R&D funding, as well as involvement of business angels and venture capitalists. Why Innovation Hubs? (1 of 2) • Recently Innovation Hubs are growing more popular – what are the reasons; in what way are they different? • It has been understood that best results in upgrading innovation performance of a region or country requires more than just a cluster or a science & technology park – although these undoutedly continue to contribute their share to the objective. • A Hub can be generated bottom-up or top-down, but finally it will become a success only if private sector and government follow the same objective and manage to build a well-balanced collaboration platform. Why Innovation Hubs? (2 of 2) Some conditions for a successful Hub: – Hub‘s domains of specialisation must reflect the areas of excellence achieved, recognised with critical scrutiny and defined as specifically as possible – The partners involved have to understand the benefits and responsibilities of becoming constituent parts of the Hub; – Respective authorities have to take a long-term committment to support the activities of the Hub, making it a pillar of regional/national innovation strategy, but allowing full autonomy of Hub's decision making bodies; – Everybody involved have to accept the Hub not being a prestige, or »building« project, but a »people project« - where results will be achieved in proportion to modern, openminded attitude of constructive partnerships, respect for genuine excellence, and mutual support for joint success – to be taken by all Hub members. Some inspiring Success Cases (1 of 4) Singapore’s long-term cluster development The central plank has been the country’s long-term investment in education and skills development. The private sector now far outpaces the public sector growth, a change from before. A recent 113 million USD investment from Roche in biomedical research is just one example. The country works to develop all related elements: finance and venture capital; project management; technology transfer; skills; regulation; and so on. Much emphasis is placed on trying to ensure collaboration between all parties, but the central foundation is its talent pool. Key lessons: – Talent is the single most important factor to get right in developing a cluster; – Quality matters more than quantity; – Universities help provide the necessary supply of skills, but shouldn’t be looked to for actual technologies or innovations; – Finding ways to attract prominent researchers or industry leaders can help accelerate hub development. Some inspiring Success Cases (2 of 4) Start-Up Chile’s fast-tracked innovation culture Start-Up Chile initiative explicitly seeks to attract ambitious early-stage hi-tech businesses from around the world by offering 40,000 USD in equity-free funding, a free place to work, a one-year visa, business support and mentoring, and all that comes with next-to-no strings attached. The core idea is to attract a lot of talent to the country and to connect that talent with local entrepreneurs, therefore kick-starting a local innovation and entrepreneurship hub. Key lessons: – – – – Culture is a significant intangible factor that needs to be fostered and supported; Governments should recognize local and invite international champions, while removing stigma associated with failure; A tolerance for differing views is another important cultural aspect; Providing an excellent quality of life is crucial for attracting global talent. Some inspiring Success Cases (3 of 4) South Korea - promoting life outside the “chaebol” The late-1990s Asian financial crisis was the catalyst that forced South Korea to act. The economic turmoil prompted the collapse of 11 of its 30 largest “chaebol” (a conglomerate of companies clustered around one parent company) such as Daewoo, causing widespread unemployment. These conglomerates had long been at the centre of South Korea’s development policy. But the crisis gave a strong impetus for reform. This started with the tax code, for example by allowing families to quickly create businesses in their homes and enter the tax system. Bankruptcy rules were also revised (failure wasn’t penalized). Government made a point of inviting entrepreneurs to key events and policy meetings, seating them next to the president, to literally raise their profile in society. Key lessons: – – – Governments have a range of policy tools to improve the competitiveness of the business environment: key elements: the tax code, reduced red tape, ease of immigration, corporate structures, IP protection and increased competition; While governments can provide financing, they should focus primarily on investing in the overall environment; Any investments should be matched by private sector funds. Some inspiring Success Cases (4 of 4) Waterloo Region: Canada’s Innovation Hub The Hub is home to 850+ tech firms including 550 tech startups. 30,000 people employed in the tech industry locally, and there is still over 1,000 job openings. The technology sector generates $25 billion in revenue; 631 patents were granted per million people, which is 3x the national average. Communitech Hub brings together key players—from early stage companies to large multinationals, as well as government agencies, academic institutions, and technology accelerators - all under one roof. Key lessons: – Talent: The combination of the education system — University of Toronto, McMaster University, Ryerson, York, Wilfrid Laurier and Waterloo all in close proximity — combined with the really vibrant immigrant community (Canada attracts some of the most qualified migrants worldwide), gives a world class pool of talent - hard to match globally; – Capital: Substantial financial support from the government (Silicon Valley too received federal support for research, which soon spread to industries beyond telecommunications. Defense contracts spurred for example the growth of instrument-maker Hewlett-Packard); – Attitude: One of the key ingredients that makes Silicon Valley so successful is the “not afraid to fail” attitude. If technology innovation is to continue to thrive, entrepreneurs must take chances. You embrace failures, learn from it and then try the next iteration.