KNOWLEDGE PERSPECTIVE ON ECONOMIC POLICY IN EU ACCESSION COUNTRIES

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KNOWLEDGE PERSPECTIVE ON ECONOMIC POLICY IN EU
ACCESSION COUNTRIES

• Knowledge Economy Forum
• February 2002
• World Bank
• Paris

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INGREDIENTS OF A KNOWLEDGE ECONOMY

• Economic policy conducive to the establishment of
  a knowledge based economy
• Building an efficient ICT infrastructure
• Education system which trains knowledge workers
• Fostering innovation systems serving private and
  public institutions

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ECONOMIC POLICY FUNDEMENTALS

• Price and trade liberalization
• Hard budget constraint on banks and enterprises
• Enabling environment for private sector,
  particularly new enterprises
• Tax system and public expenditure program which
  promotes enterprise and government efficiency and
  fiscal balance
• Stable macro-economic policy
• Adequate financial market regulation

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EU ACCESSION COUNTRY ECONOMIC POLICY PERFORMANCE
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ECONOMIC GROWTH HAS RESPONDED TO POLICY
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NEW ENTERPRISES ARE MORE PRODUCTIVE THAN OLD
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WHAT MORE SHOULD ECONOMIC POLICY DO TO CREATE A
KNOWLEDGE ECONOMY?

• Is there more to it than good innovation policy,
  investment in higher education, and investment in
  ICT?
• Will these additional policy measures, whatever
  they are, stimulate faster economic growth?

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BALLYHOURA, IRELAND

• Community consultative group
• Audit of skills by University of Dublin
• EU Leader funds
• Vocational training for adults
• Rural tourism
• Small scale enterprises
• Agricultural innovation
• Information technology and knowledge sharing

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BALLYHOURA WAS TRANSFORMED

• New agricultural technologies
• Cooperative marketing
• Training in Information technology
• Telemarketing
• Rural tourism
• Knowledge was critical but so was local
  initiative

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BROADER LESSON IRELAND PUT IN PLACE SOUND
ECONOMIC FUNDEMENTALS

• Fiscal soundness
• Good exchange rate management
• Tax policy and regulatory framework which
  encouraged new business start-up and
  profitability
• Market discipline imposed on public enterprises
• Corporate oversight
• Efforts to attract foreign investment
• Government investment in R D

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THE ECONOMIC BOOST IN EU ACCESSION COUNTRIES CAN
COME FROM TECHNOLOGICAL ADVANCE

• Advanced countries have economic policies which
  encourage innovation
• EU accession countries must move from investment
  driven to innovation driven
• (Global Competitiveness Study)

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THE MOST ADVANCED ECONOMIES ARE
INNOVATIVEWorld Economic ForumGlobal
Competitiveness Report 2001/2002 (Jeffrey Sachs,
Michael Porter, et al)Global Competitiveness
Index GCI / Current Competitiveness Index CCI
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THE INGREDIENTS OF MOVING TO AN INNOVATION BASED
ECONOMY ARE MANY
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INVESTMENT DRIVEN ECONOMIES THE CURRENT PHASE
OF EU ACCESSION POLICY

• Harness technology from elsewhere
• Foreign investment is key
• High rates of investment
• Enhance legal systems to support business
  efficiency
• Attract new investors
• Discipline old less innovative companies

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EU ACCESSION COUNTRIES COMPLETE BASIC ECONOMIC
REFORM AND ADD POLICY CONSISTENT WITH CREATING A
KNOWLEDGE BASED ECONOMY

• Eliminate subsidies to non-innovating old
  enterprises (mostly in agriculture, coal, mining,
  railways, shipbuilding, and steel)
• Regulatory development for the financial system
  and creation of sophisticated capital markets,
  including a regulatory environment that
  encourages venture capital
• Better protection of intellectual property rights
• Policies to increase labor market flexibility
  (reduced mobility restrictions, low minimum
  wages, reduced termination restrictions)
• Effective social safety net (coordinated pension,
  unemployment and social assistance schemes)
• Continued building of legal and judicial
  institutions, with accountability of government
• Improved allocation of public expenditure,
  including more funding of R D, and of higher
  education, while maintaining fiscal stability
• Policy to continue to reduce cost of start up by
  small and medium enterprises

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(COMPANIES NEED TO CHANGE (DRUCKER)

• Corporate governance needs reform companies to
  focus on innovation, reduce hierarchy
• Buyers, suppliers, producers are linked in
  network arrangements
• Firms invest in training and skills upgrade
  (knowledge workers dominate)
• Firms become global players