dr krzysztof rybiński* national bank of poland deputy governor email: [email protected]

Achieving sustainable growthAchieving sustainable growthWill new Europe fly or crawl in the 21st Will new Europe fly or crawl in the 21st

century global knowledge economycentury global knowledge economy

Symposium: „The Future of Europe.Sustainable Development and Economic Growth?”

ViennaSeptember 12-13, 2007

Dr Krzysztof Rybiński*National Bank of Poland

Deputy GovernorEmail: [email protected]

Blog: www.rybinski.eu

* Views presented here are my own and they do not necessarily represent the official position of the National Bank of Poland or the Financial Services Authority. Presentation based on paper Radzikowski, Rybiński (2007)

mailto:[email protected]

http://www.rybinski.eu/

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Economic growth in the long run…Economic growth in the long run…

From the middle of the From the middle of the 70’s there has not been 70’s there has not been much convergencemuch convergence of of Western Europe towards Western Europe towards the U.S. the U.S.

NIEs NIEs recordedrecorded an an enormous acceleration enormous acceleration from the end of the 60’s. from the end of the 60’s.

China woke up in the 80’s.China woke up in the 80’s. After an initial decline in After an initial decline in

the beginning of the 90’s, the beginning of the 90’s, CEE-4CEE-4 had to had to start their start their convergence actually from convergence actually from scratch. scratch.

0

10

20

30

40

50

60

70

80

90

100

EU-15 CEE-4 USA Latin America NIE's China

GDP per capita in 1990 US$ (converted at Geary Khamis PPPs, US=100)

Source: Groningen Growth and Development Centre and the Conference Board, Total Economy Database, January 2007, http://www.ggdc.net.


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……and in the medium runand in the medium run

AlthoughAlthough CEE-4 CEE-4 areare the the most successful group most successful group amongamong the post- the post-communist countries,communist countries, their their growth since 1989 has growth since 1989 has been negligible when been negligible when compared to compared to NIEs NIEs aand nd ChinaChina..60

100

140

180

220

260

300

340

EU-15 CEE-4 USA Latin America NIE's China

GDP per capita in 1990 US$ (converted at Geary Khamis PPPs, 1989=100)

Source: Groningen Growth and Development Centre and the Conference Board, Total Economy Database, January 2007, http://www.ggdc.net.


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Institutional factors and policy-mixInstitutional factors and policy-mix

In the beginning of the In the beginning of the transition most institutions transition most institutions in CEE-4 were yet in CEE-4 were yet fledgling.fledgling.

Policies were being Policies were being transformed from centrally transformed from centrally planned into market planned into market oriented.oriented.

0

1

2

3

4

5

6

7

8

9

10

Size of Government

Legal System &Property Rights

Sound MoneyFreedom to Trade

Internationally

Regulation

EU-15

CEE-4

USA

Latin America& the CarribeanNIEs

China

Index of economic freedom in 1990

Source: Fraser Institute.


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Institutional factors and policy-mixInstitutional factors and policy-mix

Since then many Since then many institutions have been institutions have been founded and policies founded and policies improved but…improved but…

Some maintained weak.Some maintained weak. Others converged to the Others converged to the

EU’s welfare state model.EU’s welfare state model.

0

1

2

3

4

5

6

7

8

9

10

Size of Government

Legal System &Property Rights

Sound MoneyFreedom to Trade

Internationally

Regulation

EU-15

CEE-4

USA

Latin America& CarribeanNIEs

China

Index of economic freedom in 2004

Source: Fraser Institute.


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Social developmentSocial development ““TThe key to solving the he key to solving the

problem of crisis-induced problem of crisis-induced poverty lies in guaranteeing poverty lies in guaranteeing stable economic growth and stable economic growth and creating new jobscreating new jobs (Górniak (Górniak 2001)2001).”.”

TThe UN’s goal of halving the he UN’s goal of halving the world’s poverty by 2015 from world’s poverty by 2015 from its 1990 level is likely to be its 1990 level is likely to be reached mainly due to a reached mainly due to a spectacular and sustained spectacular and sustained growth recorded by East growth recorded by East Asia and the Pacific and Asia and the Pacific and South Asia. South Asia.

0

10

20

30

40

50

60

70

80

CEE-4 Latin America & Caribbean Korea, Rep. China

Poverty headcount ratio at $2 a day (PPP) (% of population)

Source: World Development Indicators 2007.


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Income inequalityIncome inequality

It is important to stress that It is important to stress that globalization reduces globalization reduces inequality, as documented inequality, as documented in Sala-i-Martin (2006)in Sala-i-Martin (2006)..

However, while However, while globalization allows poor globalization allows poor countries to catch up, countries to catch up, which reduces which reduces international income international income inequality, at the same inequality, at the same timetime there is a trend of there is a trend of rising intra-country rising intra-country inequalities. inequalities.

7.13.8

5.9

38.8

7.4 6.48.7

5.4

11.9 11.1

48.0

9.3 9.9

18.5

10.1

123

143

109

124 125

154

200

0

10

20

30

40

50

60

EU-15 Hungary Poland USA LatinAmerica &Carribean

Korea Taiwan China0

50

100

150

200

250

1989-91 2002-2005 Percent change (1989-91=100, right scale)

Decile dispersion ratio (10th income decile/1st income decile)

Source: WIDER World Income Inequality Database; World Development Indicators 2007; U.S. Census Bureau; Korean Statistical Information Service; Report on The Survey of Family Income and Expenditure in Taiwan Area, National Statistics Republic of China (Taiwan).


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Income distributionIncome distribution

In many countries In many countries compensation of compensation of employees as a share of employees as a share of GDP declined. GDP declined.

It It suggests, that suggests, that globalization of the labor globalization of the labor market was accompanied market was accompanied by the rising bargaining by the rising bargaining power of corporationspower of corporations..

52 5249

41

54

32

52 51

58

50

4244

59

29

48

43

37 36

57

99

82

9693

102

89

96

20

30

40

50

60

70

EU-15(excl.

Portugal,Ireland)

CzechRepublic

Slovakia Poland(2000-2005)

USA Japan India(2000-2004)

Singapore*0

20

40

60

80

100

1990 2000 2006 Percent change (2000=100)

Compensation of employees (in % of GDP)

* Data on Singapore refer to earnings and exclude employer social contributions.Source: Ecowin Databases: Ecowin Economic and OECD QNA.


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HealthHealth

75.8

70.6

75.2

68.1

74.3

68.9

79.3

74.4

77.7

72.5

79.6

71.8

106

107

104

103

105105

62

64

66

68

70

72

74

76

78

80

82

EU-15 CEE-4 USA Latin America& Caribbean

NIE's (excl.Taiwan)

China101

102

103

104

105

106

107

108

1990 2005 Percent change (1990=100, right scale)

The 70’s saw a major The 70’s saw a major deterioration in health deterioration in health trends in all CEE-4.trends in all CEE-4.

It reflected an overall It reflected an overall negative situation of health negative situation of health in communist states.in communist states.

Although many common Although many common health problems health problems in CEE-4in CEE-4 still remain more prevalentstill remain more prevalent than in the EU, overall than in the EU, overall health conditions have health conditions have improved dramatically.improved dramatically.

Life expectancy at birth, total (years)



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HealthHealth While these trends inWhile these trends in

CEE-4 are highly positive CEE-4 are highly positive the superior performance the superior performance of NIEs of NIEs in this area isin this area is also also meaningful.meaningful.

7.8

14.2

9.4

42.8

7.3

38.0

4.05.8 6.0

26.1

4.0

23.0

52

40

6461

54

61

0

5

10

15

20

25

30

35

40

45


NIE's (excl.Taiwan &

Hong Kong)

China0

10

20

30

40

50

60

70



Infant mortality rate (per 1,000 live births)


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Environmental protectionEnvironmental protection

0.43

0.86

0.68

0.38

0.60

1.32

0.33

0.58 0.56

0.340.40

0.65

78

67

83

90

67

49

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4


NIE's (excl.Taiwan)

China0

10

20

30

40

50

60

70

80

90

100


The communist economies The communist economies led to an intensive and led to an intensive and excessive use of natural excessive use of natural resourcesresources..

CO2 emissions (kg per 2000 PPP $ of GDP)



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The transition process The transition process itself as well as the mixture itself as well as the mixture of pressure and incentives of pressure and incentives from the West brought from the West brought about a number of about a number of significant changessignificant changes (e.g. (e.g. a a switch to less share of switch to less share of heavy industry in the heavy industry in the economyeconomy))..

9.310.1

19.3

2.4

8.3

2.1

9.6

8.0

19.9

2.4

8.8

3.2

103

80

102106

152

103

0

5

10

15

20

25


NIE's (excl.Taiwan)

China0

20

40

60

80

100

120

140

160


CO2 emissions (metric tons per capita)



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As a consequence As a consequence COCO22 emissionsemissions slumped. slumped.

CEE-4 was the only group CEE-4 was the only group of countries that managed of countries that managed to reduce the absolute to reduce the absolute amount of COamount of CO22 emissions. emissions.

0.62

4.82

1.04

0.31

2.40

1.30

0.54

4.14

3.12

5.79

3.19

0.52

83

125

173 173

102

120

0

1

2

3

4

5

6

7


NIE's (excl.Taiwan)

China0

20

40

60

80

100

120

140

160

180


CO2 emissions (million kt)



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42.2

59.1

53.1

3.8

57.5

71.2

27.8

49.8

4.7

53.7

77.9

50.4

126

66

9593

109

84

0

10

20

30

40

50

60

70

80


NIE's (excl.Taiwan &

Singapore)

China0

20

40

60

80

100

120

140

160


MarketMarket energy prices energy prices broke the tradition of broke the tradition of excessive coal excessive coal consumption in favor of, consumption in favor of, less harmful less harmful toto the the environment, energy environment, energy sources such as oil and sources such as oil and gas. gas.

Electricity production from coal sources (% of total)



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Exposure of companies Exposure of companies transmitting and transmitting and distributing energy to distributing energy to market competition as well market competition as well as liberalization and partial as liberalization and partial privatization reduced privatization reduced wasteful practices. wasteful practices.

14.3

6.97.9

6.4

9.0 9.3

7.76.97.3

6.1 6.3

16.7

80

69

106

9287

116

0

2

4

6

8

10

12

14

16

18


NIE's (excl.Taiwan)

China0

20

40

60

80

100

120



Electric power transmission and distribution losses (% of output)


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What matters?What matters? Romer Romer (1986) (1986) argued that one of key factors of economic argued that one of key factors of economic

progress are innovations, ideas or more broadly knowledge. progress are innovations, ideas or more broadly knowledge. HisHis second observation was non-rivalry of ideas second observation was non-rivalry of ideas, which , which has a has a

number of important consequencesnumber of important consequences.. KKnowledgenowledge, however,, however, is only one of the three components of is only one of the three components of

intellectual capital. intellectual capital. SStructural tructural andand relationship capital relationship capital are the are the other two.other two.

TThe ability to source knowledge globally has become a key he ability to source knowledge globally has become a key advantage that can be exploited by small countries with advantage that can be exploited by small countries with excellent knowledge infrastructure (such as Finland or Ireland). excellent knowledge infrastructure (such as Finland or Ireland).

It can be used to leverage growth by large corporations or It can be used to leverage growth by large corporations or small companies.small companies.

Thus knowledge economy seems to be the growth engine in Thus knowledge economy seems to be the growth engine in the 21st century.the 21st century.


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Large corporations did better …Large corporations did better …

3948

28 29

6154

72 71

0%

20%

40%

60%

80%

100%

1994 2004 1994 2004

100%=570 bn 100%=1393 bn 100%=33.8 bn 100%=59.6 bn

Profit share Employment share

150 largest corporations Corporations ranked 151-2000 in size

In 10 years the share of In 10 years the share of largest firms in largest firms in employment remained employment remained unchanged while their unchanged while their share in profits rose.share in profits rose.

What contributed to this What contributed to this massive increase of profit massive increase of profit per employee?per employee?

Is this question valid for Is this question valid for entire countries or entire countries or regions?regions?

Employment and profit share of the 150 largest corporations listed in the U.S., 1994 and 2004.

Source: Bryan, Zanini (2005).


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… … amid development of ICamid development of IC

Partial answer to this Partial answer to this question question is that iis that in the case n the case of largest corporations of largest corporations the the value of intangibles rose at value of intangibles rose at a very fast pace.a very fast pace.

Although there could be Although there could be several explanations, the several explanations, the most plausible one is that most plausible one is that the level of intellectual the level of intellectual capital in large capital in large corporations exceeds that corporations exceeds that in the medium ones, which in the medium ones, which is adequately priced by the is adequately priced by the financial marketsfinancial markets..

25

6452

40

75

3648

60

0%

20%

40%

60%

80%

100%

1994 2004 1994 2004

100%=1.8 tr 100%=11.9 tr 100%=2.5 tr 100%=10.8 tr

150 largest corporations Corporations ranked151-2000 in size

Remaining market value Book value

Source: Bryan, Zanini (2005).

The share of intellectual capital in the market value of corporations listed in the U.S. (in US$ trillion)


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Globalization strategies adopted by Globalization strategies adopted by new global challengersnew global challengers

Model 1: Taking RDE brands global

Model 2: Turning RDE engineering into global innovation

Model 3: Assuming global category leadership

Model 4: Monetizing RDE natural resources

Model 5: Rolling out new business models to multiple markets

Model 6: Acquiring natural resources

Source: Aguiar et al. (2006), The Boston Consulting Group.


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Higher education important for Higher education important for knowledge potentialknowledge potential

TTertiary enrollmentertiary enrollment is is anan important indicatorimportant indicator of of future knowledge potentialfuture knowledge potential..

The gap between U.S. and The gap between U.S. and other regions has other regions has narrowed. narrowed.

Interestingly, South Korea Interestingly, South Korea has become has become thethe leader. leader.

China is closing its gap China is closing its gap with the Latin Americawith the Latin America..

CEE countries last year CEE countries last year reached 50% ratioreached 50% ratio..


School enrollment, tertiary (% gross)

0

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20

30

40

50

60

70

80

90

EU-15 CEE-4 USA Latin America & Caribbean Korea China


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Higher education – absolute values Higher education – absolute values are important tooare important too

Bearing in mind Bearing in mind that the that the quality of education isquality of education is not not similar in all regions similar in all regions iit ist is alsoalso worth to look at the worth to look at the absolute numberabsolute numberss as it as it may be a good proxy for may be a good proxy for the future number of the future number of domestic researchersdomestic researchers..

Recent years have Recent years have witnessed an important witnessed an important shift in thshift in this areais area. . * Data for Germany are available from 1992 and for the

Czech Republic and Slovakia from 1993.Source: Euromonitor International from national statistics/UNESCO.

Higher education students (incl. universities) in thousands

0

5000

10000

15000

20000

25000

30000

EU-15* CEE-4* USA Latin America & Caribbean NIE's China


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Higher education – absolute values Higher education – absolute values are important tooare important too

We can safely predict that We can safely predict that the number of students will the number of students will increase further increase further inin China China..

The absolute number of The absolute number of students in CEE-4 has students in CEE-4 has also increased also increased significantly, but the gap significantly, but the gap with NIEs remained. with NIEs remained.

It is also worth noticing It is also worth noticing that LAC countries make that LAC countries make steady progress. steady progress.

* Data for Germany are available from 1992, for Luxembourg from 1999 and for the Czech Republic and Slovakia from 1993.Source: Euromonitor International from national statistics/UNESCO.

University students in thousands

0

2000

4000

6000

8000

10000

12000

14000

EU-15* CEE-4* USA Latin America & Caribbean NIE's China


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Current ability to innovateCurrent ability to innovate

TThe current ability to he current ability to innovate can be assessed innovate can be assessed by the number of by the number of researchers. researchers.

TThe U.S. continues to he U.S. continues to dominate the world both in dominate the world both in terms of researchers terms of researchers intensity and absolute intensity and absolute number of researchers in number of researchers in R&D. R&D.

However in terms of However in terms of researchers’ intensity both researchers’ intensity both the EU-15 and the NIEs the EU-15 and the NIEs are closing the gapare closing the gap..

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

EU-15 CEE-4 USA Latin America & Caribbean NIE's (excl. Taiwan & Hong Kong) China


Researchers in R&D (per million people)


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Current ability to innovateCurrent ability to innovate

IIn absolute number of n absolute number of researchers China is the researchers China is the third biggest in the world, third biggest in the world, although although the quality of the quality of researchers there may not researchers there may not be as good as in be as good as in the U.S. the U.S. or or the the EU.EU.

It is evident that in the last It is evident that in the last ten years the research gap ten years the research gap between the NIEs and the between the NIEs and the CEE-4 has been growing. CEE-4 has been growing.

0

200

400

600

800

1000

1200

1400

1600



Researchers in R&D in thousands


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How much on R&D and ICTHow much on R&D and ICT

R&D expenditure R&D expenditure measures funding measures funding available to people with available to people with great ideas. great ideas.

The EU has been closing The EU has been closing the gap with the U.S. in the gap with the U.S. in terms of R&D spending as terms of R&D spending as a ratio of GDP. a ratio of GDP.

In the last ten years there In the last ten years there was no improvement in was no improvement in R&D spending in CEE-4 R&D spending in CEE-4 countriescountries;; it lags badly it lags badly behind China. behind China.

0.0

0.5

1.0

1.5

2.0

2.5

3.0



Research and development expenditure (% of GDP)


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ICT expenditure is a proxy for ICT expenditure is a proxy for country ability to source country ability to source knowledge globally. knowledge globally.

ICT is likely to facilitate ICT is likely to facilitate factors factors that arethat are important in achieving important in achieving technical progresstechnical progress..

The EU lags badly behind the The EU lags badly behind the UU..SS.. in terms of ICT in terms of ICT expenditures. With growing expenditures. With growing importance of ICT using importance of ICT using industries for productivity industries for productivity growth it may signal the growth it may signal the Europe’s troubles lying aheadEurope’s troubles lying ahead,, despite its improvement in despite its improvement in R&D spending. R&D spending.


Information and communication technology expenditure (% of GDP)

3

4

5

6

7

8

9

10

EU-15 CEE-4 USA Latin America & Caribbean NIE's (excl. Taiwan)* China


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In terms of absolute levels In terms of absolute levels of spending per capita of spending per capita U.S. and Japan still top the U.S. and Japan still top the league and exhibit similar league and exhibit similar volatility pattern.volatility pattern.y = 16.1x + 256.1

y = 3.4x + 8.6y = 1.3x - 4.2

0

200

400

600

800

1000

1200

EU-15 CEE-4 USA Japan ChinaLiniowy (Japan) Liniowy (USA) Liniowy (EU-15) Liniowy (CEE-4) Liniowy (China)

Source: Eurostat, CEIC Data ISI Securities China Premium Database.

Total R&D spending per capita (in ECU/euro)


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While U.S. and NIEs are While U.S. and NIEs are world leaders in terms of world leaders in terms of R&D and ICT spending, R&D and ICT spending, China has made an China has made an enormous progress, enormous progress, raising R&D raising R&D sspending per pending per capita 12 times over the capita 12 times over the last 15 years. last 15 years.

Source: Eurostat, CEIC Data ISI Securities China Premium Database.

Total R&D spending per capita (in ECU/euro, 1991=100)

0

200

400

600

800

1000

1200

EU-15 CEE-4 USA Japan China


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Now the outcomesNow the outcomes

SimilarSimilar ppicture emerges icture emerges wwhen one looks at thehen one looks at the outcomes, e.g.outcomes, e.g. number of number of scientific and technical scientific and technical journal publicationsjournal publications..

The U.S. and EU-15 The U.S. and EU-15 dominate the world in terms dominate the world in terms of publication intensity. of publication intensity.

In early 1990s CEE-4 In early 1990s CEE-4 published twice as many published twice as many papers per million of papers per million of citizens than NIEs, but in citizens than NIEs, but in recent years these recent years these proportions proportions have have changedchanged dramaticallydramatically..

0

100

200

300

400

500

600

700

800


* From 2000 data for NIEs exclude Hong KongSource: World Development Indicators 2007.

Scientific and technical journal articles per million people


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Now the outcomesNow the outcomes

The statistics showing patent The statistics showing patent filing do paint an interesting filing do paint an interesting picture. picture.

Japan and the UJapan and the U..SS.. are are the the leaders, while China, NIEs leaders, while China, NIEs and EU-15 and EU-15 are high in rankare high in rank. .

CEE-4 does not exist on theCEE-4 does not exist on the worldworld patent map. patent map.

IInstead of focusing on nstead of focusing on generating more innovations generating more innovations companiescompanies,, regions regions and and countries should find and countries should find and analyze analyze theirtheir weakest link weakest linkss in in the innovation value chain, the innovation value chain, and take corrective actions. and take corrective actions.

* Data for EU-15 are the sum of patent filings from national patent offices and the European Patent Office. According to WIPO, EPO patent filings in 2005 amounted to 60.8 thousands. The total number of patent filings for EU-15 may be overstated as the EPO grants patents on behalf of the member states of the European Patent Convention (EPC), the membership of which is larger than that of the European Union because some EPC member states are not members of the European Union. Furthermore many European patent applicants seek patent protection in multiple EPC member States, therefore, non-resident patent filings by Europeans in other EPC member State offices and at the EPO have become common. For the same reasons the total number of patent filings for CEE-4 may be underrated. Data for Italy are not available. Latin America-6 includes: Brazil, Chile, Colombia, Cuba, Ecuador and Peru.

Source: World Intellectual Property Organization.

Patent filings by office in 2005 in thousands

94.2

3.5

202.8

4.4

122.5

93.2

359.4

24.0

149.7

27.940.0

22.1

179.0

3.9

352.4

8.4

150.4

133.2

381.5

0.4 4.10

50

100

150

200

250

300

350

400

EU-15* CEE-4 USA LatinAmerica-6*

NIE's (excl.Taiwan)

China Japan

residents non-residents total


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China

NIE's (excl. Taiwan)

Latin America-6*

USA

CEE-4

EU-15*

0

50

100

150

200

250

300

350

400

0 200 400 600 800 1000 1200Researchers in R&D in thousands(average in the years 1996-2004)

No

. o

f to

tal p

ate

nt

filin

gs

by

off

ice

in 2

00

5 in

th

ou

sa

nd

s

Now the outcomesNow the outcomes TheThe U.S. has only marginally U.S. has only marginally

higher number of researchers higher number of researchers than EU-15, but records twice than EU-15, but records twice as many patent filings. as many patent filings.

NIEs are much more effective NIEs are much more effective that China, but smaller that China, but smaller number of researchers number of researchers produces almost as many produces almost as many patents as EU-15. patents as EU-15.

It It does indicate many weak does indicate many weak links in the innovation links in the innovation generation process in generation process in Europe.Europe.

Researchers in R&D and total number of patents filed




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Now the outcomesNow the outcomes When tWhen the effectiveness of he effectiveness of

money money spent on R&Dspent on R&D is taken is taken into account we see that tinto account we see that the he U.S. holds a supreme positionU.S. holds a supreme position..

China files almost as many China files almost as many patents as EU-15 with half of patents as EU-15 with half of the EU-15’s level of R&D the EU-15’s level of R&D expenditure as a share of GDP.expenditure as a share of GDP.

CEE-4 spend much more on CEE-4 spend much more on R&D than LAC countries, and R&D than LAC countries, and produce fewer patents. Both produce fewer patents. Both regions hardly exist on the regions hardly exist on the world R&D map.world R&D map.

R&D spending and total number of patents filed

China

NIE's (excl. Taiwan)

Latin America-6*

USA

CEE-4

EU-15*

0

50

100

150

200

250

300

350

400

0.0 0.5 1.0 1.5 2.0 2.5 3.0Research and development expenditure (% of GDP)

(average in the years 1996-2004)

No

. o

f to

tal p

ate

nt

filin

gs

by

off

ice

in 2

00

5 in

th

ou

sa

nd

s




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FDI may help…FDI may help…

As documented above As documented above CEE-4 countries lack CEE-4 countries lack ability to generate great ability to generate great ideas and to transform ideas and to transform them into them into new new products or products or services. services.

Therefore it appears that Therefore it appears that foreign direct investments foreign direct investments become the most become the most important modernization important modernization channel. channel.

Indeed Indeed CEECEE-4 became a -4 became a very large recipient of FDIvery large recipient of FDI..

0

10

20

30

40

50

60

EU-15 CEE-4 USA Latin America & Caribbean NIE's China

Source: UNCTAD, World Economic Outlook.

Inward FDI stock (in % of GDP)


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FDI may help…FDI may help…

Only NIEs economies Only NIEs economies managed to attract higher managed to attract higher FDI stock in relation to FDI stock in relation to GDP and enjoy higher FDI GDP and enjoy higher FDI annual inflows.annual inflows.


FDI, net inflows (% of GDP)

0

2

4

6

8

10

12

14

16

18

20

EU-15 (excl. Luxembourg) CEE-4 USA Latin America & Caribbean NIE's (excl. Taiwan) China


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……if well-targetedif well-targeted

However, in the global However, in the global knowledge economy it is knowledge economy it is important to attract high important to attract high foreign direct investments foreign direct investments to sectors that can become to sectors that can become globally competitiveglobally competitive..

While CEE-4 significantly While CEE-4 significantly improved the structure of improved the structure of exports, the high-tech exports, the high-tech goods account for only 12 goods account for only 12 percent of manufactured percent of manufactured exports, which is the exports, which is the worldworld’s’s worst result worst result..

0

5

10

15

20

25

30

35

40

45


* High-technology exports are products with high R&D intensity, such as in aerospace, computers, pharmaceuticals, scientific instruments, and electrical machinery. Data for Hong Kong are included from 1992.Source: World Development Indicators 2007.

High-technology* exports (% of manufactured exports)


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Who will be thought, innovation and Who will be thought, innovation and idea leaders?idea leaders?

The 21st century will see a new paradigm. Data shown above The 21st century will see a new paradigm. Data shown above suggest that China and NIEs will become thought, innovation suggest that China and NIEs will become thought, innovation and idea leaders. and idea leaders.

A very fine summary of this line of thought was offered by A very fine summary of this line of thought was offered by Hexter, Woetzel (2007): Hexter, Woetzel (2007):

““In such a competitive hothouse, adapted practices will evolve In such a competitive hothouse, adapted practices will evolve quickly, and as China merges into the world economy best quickly, and as China merges into the world economy best practice there will become best practice globally. More products practice there will become best practice globally. More products developed in China will become global products; more industrial developed in China will become global products; more industrial processes developed in China will become global processes. processes developed in China will become global processes. The ability to develop a Chinese talent pool will therefore be The ability to develop a Chinese talent pool will therefore be critical across all functions. Learning how to execute in China – critical across all functions. Learning how to execute in China – the world’s most competitive market – will teach companies how the world’s most competitive market – will teach companies how to compete more aggressively elsewhereto compete more aggressively elsewhere”.”.


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Why not us?Why not us? The last few years were very good for CEE-4 countries. HoweverThe last few years were very good for CEE-4 countries. However , ,

thethe analysis presented in this section identified important analysis presented in this section identified important structural deficiencies of CEE-4 knowledge economies. In structural deficiencies of CEE-4 knowledge economies. In particular theparticular they y lack the ability to generate innovationlack the ability to generate innovations. Although s. Although theythey have attracted large pool of FDI have attracted large pool of FDI itit seems to haveseems to have been been located in relatively low value added industries. located in relatively low value added industries. ItIt suggest suggestss that that,, after a period of EU-accession positive output shockafter a period of EU-accession positive output shock,, CEE-4 may CEE-4 may find it difficult tofind it difficult to maintain fast and sustainable growth path. maintain fast and sustainable growth path.

AAnother major deficiency of Europe, which was inherited by new nother major deficiency of Europe, which was inherited by new Europe as wellEurope as well,, is the lack of ability to create shared and is the lack of ability to create shared and ambitious vision, strategic goals and successful implementation of ambitious vision, strategic goals and successful implementation of strategic plans. strategic plans.

Last but not leastLast but not least,, new Europe is struggling with massive new Europe is struggling with massive emigration to Western Europe which emigration to Western Europe which hahas become a significant s become a significant „„brain drainbrain drain””.. No action has been taken so far to convert it to No action has been taken so far to convert it to „intellectual capital gain”.„intellectual capital gain”.


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ConclusionsConclusions

Population of present and future innovators in Asia (China and Population of present and future innovators in Asia (China and NIEs) is rapidly enlarging;NIEs) is rapidly enlarging;

Environment is much more competitive in many Asian markets Environment is much more competitive in many Asian markets than in Europe or the Uthan in Europe or the U..SS.., and tough competition breeds , and tough competition breeds success;success;

Sharply increasing return to education (white-collar wages) will Sharply increasing return to education (white-collar wages) will lead to even faster closing of the technology and innovation gap lead to even faster closing of the technology and innovation gap between the U.S. and China or NIEs;between the U.S. and China or NIEs;

Biggest developed world democracies, the EU and the U.S. lack Biggest developed world democracies, the EU and the U.S. lack clear vision and strategy;clear vision and strategy;

Western world has failed to understand the importance of Western world has failed to understand the importance of intellectual capital to future prosperityintellectual capital to future prosperity..

Data presented in this paper suggest that the ability to retain technological Data presented in this paper suggest that the ability to retain technological leadership by the U.S. and especially by the EU is rapidly vanishing because:leadership by the U.S. and especially by the EU is rapidly vanishing because:


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RecommendationsRecommendations Abolish present “destructive creation”Abolish present “destructive creation”.. Create long-term vision reaching out to 2050Create long-term vision reaching out to 2050.. This vision has to be universally shared by citizens and politicians, This vision has to be universally shared by citizens and politicians,

based on this vision strategic actibased on this vision strategic actioon plans have to be developedn plans have to be developed.. Analyze what assets are needed to fulfill that vision, invest to Analyze what assets are needed to fulfill that vision, invest to

create these assetscreate these assets.. Conduct a careful analysis of strategies developed and Conduct a careful analysis of strategies developed and

implemented by most successful global corporations, especially implemented by most successful global corporations, especially those from emerging markets. those from emerging markets.

There will be no success in the 21st century without courage or There will be no success in the 21st century without courage or luck. luck. Do not bet your future on being lucky!Do not bet your future on being lucky!

Innovation cannot emerge without reaching an adequate level of Innovation cannot emerge without reaching an adequate level of intellectual capital. The quest for intellectual capital of the 21st intellectual capital. The quest for intellectual capital of the 21st century has already begun. Both the old and the new Europe have century has already begun. Both the old and the new Europe have to wake up and join the race. to wake up and join the race.


Thank you Thank you CommentsComments and and qquestionsuestions most most

welcome!!!welcome!!!Dr Krzysztof Rybiński

National Bank of PolandDeputy Governor

Email: [email protected]: www.rybinski.eu

mailto:[email protected]


dr krzysztof rybiński* national bank of poland deputy governor email: [email protected]

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