Jean-Francois Rischard
International consultant, former Vice President of the World Bank

Education and lifelong learning, innovation ecology, top-rated business environment: keys to a successful knowledge-based economy

How can South East European countries develop a knowledge-based economy? The best way to respond to this question is to look at countries that succeeded at recasting their future in a decade or less.

About a dozen countries – including Finland, Ireland, Malaysia, Chile, Singapore, and Korea – made huge leaps forward in the late 1990s by doing three specific things. First, they dramatically increased the quantity and sophistication of knowledge throughout their societies. Second, they boosted the size and diversity of their service sectors. Third, they pursued systematic, multi-year knowledge-based economy campaigns that had distinctive characteristics, both in terms of content and process.

This content had five pillars – you have to have all of them to succeed. The first pillar is education and life-long learning, which countries like Singapore, Korea, and Finland lifted to a very high level of quality. Secondly, these successful countries enabled a lively “innovation ecology” that would foster the “creative class” and business innovation, on top of science and technology-led innovation. The third pillar is a quality business environment. The fourth is an advanced information and communication technology infrastructure – these days that means bandwidth and sophisticated Internet usage. And the fifth pillar is a model government and change-friendly values within the population.

Creating an “innovation ecology”

As the governments of successful knowledge economies understood better than others, in today’s world the right innovation ecology will include three strands of innovation. In addition to classical innovation from PhD-laden researchers and scientists, equally important is that coming from two other groups: the creative class and the business world.

Creative class members do not necessarily have PhDs or even diplomas in anything. They are often young people, probably wearing jeans, creative enough to invent a new software game that make millions of addicts, to come up with new ways of using data, folding furniture, or organizing marketing campaigns. They write movie scripts or theatre plays. They invent new ways of managing payments by mobile phones. There are an estimated 150 million of these creative-class types in the world, one-third of them in the US.

Those who provide business process innovation probably have MBAs. They re-think supply chains, logistics and marketing; they reinvent entire new business models, come up with better business processes for, say, computer makers, clothing manufacturers, or retailers. Much of the US’s pickup in productivity growth came from that sort of innovation.

Most governments make the mistake of only focusing on the classical source of innovation in designing innovation policy – research and development budgets, incubators, techno parks, university spin-offs. In doing so, they miss out on the other two strands of innovation that today are as important if not more important, and which require different policies.

For example, to attract the creative class to your country or to your city you must provide highly attractive living and working conditions. You must support the creative industry sector and in general the sector of sophisticated services – with the best possible broadband, informatics, and communications facilities. Dubai did a great job at attracting creative class types by designing the city and the special zones to meet these kinds of needs. And finally, you must have a school system good at boosting creativity at the primary school and secondary school level, not just the higher education focus needed to breed classical innovation.

To foster the third strand, you need to attract as many enterprises, big and small, from all over the world into your country as you can. You must have excellent foreign direct investment support, start-up and small and medium enterprise support, a fluid business environment with low transaction costs, superb infrastructure and logistics.

The requirements for the second and third strand may often be easier to meet than for the third strand. That would be true even in RCC member countries from South East Europe.

Timeframe for the five pillars of successful knowledge-based economies

To do a good job at this, you must eventually be good at all five pillars. But they have different time profiles. An education system cannot be reformed overnight – it takes more than half a decade for sure. Innovation ecology takes five or six years to develop, even though some components move faster than others – attracting the creative industries and the creative class, for example. Dubai did that in a few years. But creating a deep down science and technology culture and research platform takes many years, and for some developing countries it may not be possible.

In terms of the business environment pillar, a government can move very quickly. We saw Saudi Arabia and Georgia improve their business environments in just one year, moving into the top league of the World Bank Doing Business ratings; one does not see why RCC members from South East Europe could not do the same thing. Another area where improvements can be made quickly is the creation of a top-rate information communication technology infrastructure and usage pattern. That can be done in three or four years, as we saw in Korea, Malaysia, and Estonia.

The fifth pillar of model government and change-friendly national values is a much slower moving show; it has to do with whether people are change-friendly or not, the degree of openness to the rest of the world, and whether the government is actually a role model for the whole exercise and not hopelessly inefficient. It is difficult to quantify, but certainly without this pillar the other ones will be hard to move ahead. Finland, Singapore, New Zealand would be the obvious models for the finer points about values and model government standards. 

“Ambition is an asset”

While all the champion countries moved in all the five pillar areas, they all took some out-of-the-box process steps to make a lot of changes very fast and very deep. They made profound transformational changes not in 25 years, but in less than a decade. They aimed very high, almost crazily high. For each, there was a deliberate, organized, conscious strategy to change. An Irish minister summarized it this way: “ambition is an asset”.

For instance, Estonia put into its constitution that people were entitled to digital access. When the Finnish economy was collapsing in the early 1990s, instead of undertaking an austerity program, the Finns tripled the budget for research and development and contributed to the take-off of a huge Nokia-centred cluster. The Irish lowered the tax rate for corporations to 10 percent and attracted Motorola, Intel and other big new technology players. Chile studied several forms of fish farming and then enabled farmers all over Chile to go into salmon farming from scratch; today Chile is the second largest exporter in the world in salmon. Dubai considered what it would take to attract creative industries and sophisticated services, and went for it with determination.

In short, there was boldness and speed, as well as nationwide mobilization. These governments communicated their goals of becoming knowledge economies very well. They roped in many stakeholders, and they ran public awareness campaigns. In a way, they applied principles of change management – normally associated with private enterprises – to the pursuit of a vigorous policy reform agenda run along knowledge-based economy lines.

Rapid results projects (RRP) approach

One of the change management techniques that could be used – I am thinking here about RCC member countries from South East Europe – would be the so-called rapid results projects (RRP) approach – where one starts with instalments, pilots, or ice-breaker projects under each policy reform agenda item, and entrusts them to non-hierarchical teams to which very challenging targets and deadlines are imposed by the top. Experience shows that such teams deliver 99% of the time, and become experienced change agents in the process. Their breakthroughs can then be scaled up.

Jean-Francois Rischard, as an International Consultant, has been addressing policy makers and keynoting across the world on the urgent need for new, out-of-the-box approaches to global problem-solving. He retired from the World Bank in 2005 from the position of the Vice-President for Europe (1998-2005), following a 30 year-long career. Rischard is a Luxembourg national and lives in Paris.

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