World Bank Knowledge Economy Products and Strategy: Emerging Lessons Carl Dahlman PREM Learning Week April 9, 2003 Washington DC Structure of Presentation I. Why Focus on Knowledge Economy? II. III. IV. V. VI. VII. VIII. Knowledge Economy Definition Is KE Agenda Relevant for Diversity of Bank Clients? Knowledge Economy Framework and ESW Knowledge Economy Work Across the Bank Two WBI Tools: KAM and K4D Community Emerging Lessons from Knowledge Assessment Possible Follow-Up projects Annex: SWOT Analysis of Russia ©© Knowledge for Development, WBI Why focus on Knowledge Economy? Knowledge has always been important for development. Are giving it more attention because we are in period of speed-up in creation and dissemination of knowledge. Bottom line is constant restructuring and upgrading in an increasingly competitive international environment While this opens up opportunities for leapfrogging, it also raises risks that developing countries may fall behind because of an increasing knowledge divide. ©© Knowledge for Development, WBI The Knowledge Economy Definition The aim of the Knowledge Economy Program of t is to help countries develop these strategies to reduce the risk and increase the benefits. There are many definitions of the “Knowledge Economy”, many emphasizing just information technology and high technology We take a broader definition: “An economy that makes effective use of knowledge for its economic and social development. This includes tapping foreign knowledge as well as adapting and creating knowledge for its specific needs.” ©© Knowledge for Development, WBI Is KE Relevant for Diversity of Bank Clients? Yes, it is about making effective use of knowledge across all sectors, and any country can do better. Middle income countries are more aware of the need to keep up, and can do more to take advantage of new global knowledge as well as to develop their own knowledge But even very poor countries need to make more effective use existing local knowledge and global knowledge. Key issues and policy agenda will be different according to the capabilities and needs of each country. KE Framework and ESW To Analyze the KE we have developed a framework which cut across different networks Economic incentive and institutional regime that provides incentives for the efficient use of existing and new knowledge and the flourishing of entrepreneurship Educated, creative and skilled people Dynamic information infrastructure Effective national innovation system ©© Knowledge for Development, WBI Challenge for ESW in this Area In Bank (as in client governments) efforts are too compartmentalized into different sectoral silos It is hard to work in more coherent and synergistic way across different functional areas, although this is required to develop effective strategies In many ways PREM is best placed to play the lead coordinating role as it is the most cross sectoral But it is hard to accomplish in practice. Most work being done by FPSI and HD Ideal is to have cross sectoral team expertise to undertake this kind of work Functionally, the Country Director is the most appropriate internal client as effective approach requires systemic integration as part of broad diagnostic World Bank KE Program to Date World Bank Institute started program in 1999. Consists of: Intense one week policy forums for high level policy makers, as well as training for Bank staff Regional policy conferences and seminars on KE Detailed country knowledge assessment (Korea, China, Russia) KAM Web-based tool on country knowledge assessments A K4D Community of practice Regions of the Bank have been carrying the work further: The Latin America and Caribbean region has produced two major regional reports and is undertaking country specific reports in Argentina, Chile, and Mexico The EAP Region has been developing analytical tools for economy wide as well as firm based assessments, The Middle East and North Africa Region organized a conference in September, is supporting country specific work on: Jordan, Morocco, Algeria The Europe and Central Asia Region has organized two regional conferences and set up a KE unit to do detailed country specific knowledge assessments: Lithuania, ©© Poland, Turkey,for Latvia Knowledge Development, WBI A community of practice focused on K4D issues, and was launched October, 2002 to provide: Cross thematic dialogue and exchange of experiences as there is too much compartmentalization. A platform for cross regional exchange of experience as colleagues in various regions are doing work in this area. Links to work done outside Bank by other institutions and countries through link to Knowledge Economy page on the Global Development Gateway and a growing global network of persons working in this area. See www.k4dcommunity.org ©© Knowledge for Development, WBI A KE Benchmarking Methodology KAM: 69 structural/qualitative variables to benchmark performance on 4 pillars Variables normalized from 0 (worst) to 10 (best) for 100 countries www1.worldbank.org/gdln/kam.htm Basic scorecard for 14 variables at two points in time, 1995 and 2002 Aggregate knowledge economy index (KE) ©© Knowledge for Development, WBI Knowledge Economy Index ECON. INCENTIVE REGIME: -Tariff & Non-tariff barriers -Property Rights -Regulation Econ. Incentive RegimeINNOVATION: 10 -Researchers in R&D - Manuf. Trade as % of GDP - Scient. & Tech. Pub. per million people 5 Information Infrastructure 0 INFORMATION INFR.: -Tel. Lines per 1000 people - Computers per 1000 people - Internet hosts per 10,000 people POLAND Innovation EDUCATION: - Adult literacy rate - Secondary Enrollment - Tertiary Enrollment Education most recent 1995 Knowledge Economy Index Emerging Lessons from Knowledge Assessments Benchmarking is just first step, but it helps to put country in global context Need to deepen analysis with more detailed country knowledge Greatest value of approach is systems integration. Helps to develop stakeholder awareness If analysis is done together with key stakeholders, can help develop stakeholder buy in and help facilitate consensus for concerted action Hardest but most important part is reform of the economic and institutional regime Implementation of plans needs to be continuously monitored and adjusted to changing circumstances (Korea example) Possible Follow Up Projects Knowledge Economy Competitiveness Project Hasn’t been done yet, but highly desirable because of the need to integrate actions across sectors Sectoral Projects, but keeping links to policies and actions needed in other sectors Economic restructuring projects (financial sector, trade and competition policy, labor market reform, etc) Institutional reform projects, especially judicial and government reform in order to strengthen rule of law and improve government effectiveness Levering Knowledge for basic needs project for low income countries (preventive medicine, basic education, upgrading local knowledge to improve agricultural productivity) Life Long Learning Strategy-concrete follow up in China, possible for various ECA countries Restructuring R&D Infrastructure and Improving the Innovation System-natural follow-up for most ECA countries ICT: telecom policy reform, e-government, e-commerce, eeducation, projects to reduce digital divide ANNEX -Russia SWOT Analysis Russia: Current Situation and Risks Russia’s growth is acknowledged as unsustainable Russia is too dependent on natural resource sector (only sector growing, accounts for 80% of exports) Industrial sector is technologically outmoded and not competitive Russian economy suffers from overvalued exchange rate because of strong natural resource exports Only dynamic actors are natural resource based industrial groups High human capital and strong science base are depreciating Russia risks becoming just a natural resource exporting economy Russia needs to diversify and upgrade its economy to improve international competitiveness Russia: Summary of Strengths &Weaknesses STRENGTHS WEAKNESSES ECONOMIC & INSTITUTIONAL REGIME Reform oriented govt. Strong trade balance Strong natural resource based groups Poor investment climate Poor rule of law Weak financial system Dutch disease INNOVATION SYSTEM High S&T manpower Strong basic research High S&T capability Poor linkages with productive sector Insufficient use of global knowledge Weak diffusion systems EDUCATION & HUMAN RESOURCES High average educational levels High number of S&T and technical workers Poor link to labor market Weak Life Long Learning Lack of flexibility of educational system INFORMATION & COMMUNICATION INFRASTRUCTURE Software development capabilities Strong ICT capability Low penetration ratios High prices Poor application and use Russia: Summary of Opportunities & Threats OPPORTUNITIES THREATS ECONOMIC & INSTITUTIONAL REGIME Reverse capital flight and tap FDI by improving investment climate Develop financial system Continued capital flight Big industrial groups may capture government INNOVATION SYSTEM Tap global knowledge to increase value added in natural resources and diversify economy Harness potential of strong S&T base Falling behind global advances in knowledge Continued loss of scientific talent EDUCATION & HUMAN RESOURCES Launch major re-skilling program Institute LL learning Reform higher education to market needs Continued brain drain Resistance from established institutions Rigid university curriculums Expand penetration INFORMATION & COMMUNICATION ratios INFRASTRUCTURE Focus on applications Risk of digital divide Difficulty of changing processes to use ICT Russia: Tentative Recommendations Economic and Institutional Regime Improve investment climate by strengthening rule and application of law, reducing administrative barriers Strengthen financial system (banks and stock market) Improve labor mobility across industries and regions Increase tax on natural resources and strengthen economic competition Support development of new SMEs Innovation System Tap global knowledge more effectively through capital goods imports, technology licensing, strategic FDI Link S&T base to economy’s needs through better S&T policy, technology forecasting, matching grants, stronger intellectual property rights Support technology parks, incubators, university spinoffs, venture capital; promote technology dissemination Education & Human Resources Launch major program to re-skill working population to needs of labor market and restructuring economy Improve teaching methods in secondary schools to nurture critical thinking and problem solving Move towards establishment of Life Long Learning Information & Communications Infrastructure Establish more competitive telecom regulatory regime Address risk of digital divide by expanding access for low income and rural population Strengthen application, especially in e-government, ebusiness and e-education Russia: Emerging Lessons Radically improving international competitiveness requires explicit government strategy for building a knowledge economy in Russia Important to find the most advantageous ways of participating in globalization Labor intensive export strategies are being preempted by size and strength of some of the new developing country players such as China Now critical to engage and move up in global value chains This requires strengthening ability to create, acquire, adapt, disseminate, and use knowledge Knowledge strategy has to include measures to build a favorable economic and institutional regime