PROMOTING THE PRINCIPLES OF KNOWLEDGE ECONOMY IN GEORGIAN UNIVERSITIES

Dr. George Ivaniashvili

International Centre for Social Research and Policy Analysis

THE GLOBAL CHALLENGES

In the era of globalization, rising competitiveness and technological progress, the role of universities gains more importance across a wide range of issues involving knowledge economy and national competitiveness, which requires benchmarked competitive adaptation on national, organizational and individual level. The European Union declared 2009 the Year of Innovation, which presented complex challenges and referred to tackling the higher education and science system in a more effective way. In this context, the elaboration of economic strategy based on knowledge economy, innovations and new technologies has become crucial for ensuring the sustainable economic development and security of Georgia. That would enable the country to develop its priority sectors, make use of its comparative advantages and improve national competiteveness. The system of Knowledge Economy has been successfully implemented in OECD countries and more recently is becoming the focus of increased attention from developing nations. This system is a powerful conceptual framework, which requires increasing financial support for R&D, improving cooperation between universities and the private sector as well as developing the economic and legal framework to better facilitate the creation of new knowledge and technological development. The European Union, Organization for Economic Cooperation and Development (OECD) and the World Bank have stressed the significance of education, research and development (R&D) as crucial factors for development. Produced by technological progress, the universities need to redefine their roles, functions, and strategies. Educational systems in general need to become much more relevant so as to be in perfect harmony with their local, national, and global competitive environments. Attention has been concentrated on inter-correlation among science, higher education institutions and business, and their involvement in promoting sustainable development of human resources and human capital, in order to increase innovative potential in university activities through assisting in development of curricular resources, research and teaching methodologies. Industries compete on innovation to increase and sustain the competitiveness and universities are seen as a key source of innovative capacity. In this respect the focus of economic policy has shifted from macroeconomic stabilization and market opening to upgrading the microeconomic business environment of which universities have crucial importance. The process of economic policy is opening up beyond government to include companies, universities, and research institutions that all have information and the ability to act on barriers to innovation and productivity. The Lisbon European Council rightly recognized that Europes future economic development would depend on its ability to create and grow high value, innovative and research-based sectors capable of competing with the best in the world. The evidence is overwhelming that the higher research and development expenditure, the higher subsequent productivity growth.

THE KNOWLEDGE ECONOMY INDEX AND EUROPEAN NEIGHBOURHOOD POLICY PRIORITIES

The principles of knowledge economy reflected in EU-Georgia Neighborhood Policy Action Plan, have not been yet translated into concrete policy changes in the sphere of higher education and science, which is required to tackle the specific aspects of this model in a more effective way. Among the priorities included in this Action Plan, is development of sound education, research and innovation policies in Georgia, which will help the country achieve and maintain sustainable economic growth. In Particular: Develop a Research and Innovation policy directly relevant to the sustainable and equitable economic development policy objectives of Georgia; Further reform efforts in the field of education to promote human resources development; Foster co-operation with the aim of reforming higher education sector in the context of the Bologna Process; Reinforce participation of Georgian scientists/students/academics in international and exchange programmes; Encourage life-long and life-wide learning opportunities as well as further the reform efforts in the field of education, science and training to promote sustainable development of human resources and human capital; Reform science management system through appropriate regulatory framework financing model and governance based on scientific excellence, capacity-building and joint initiatives.

Numerous reports provided by the international organizations indicate an alarming inefficiency of Georgian universities and scientific research institutes. According to the latest results provided in Global 1 rd Competitiveness Report 2010-2011, Georgia ranks 93 among 139 countries. A deterioration of the political and regulatory environment in Georgia prompted the fall of the country's ranking, which is three spots behind the previous ranking 2009-2010, and close behind the African states such as Gambia, Rwanda, Botswana and Namibia. The same applies to the Knowledge Assessment Methodology (KAM) Index 2009, which is the World Banks benchmarking tool created in the framework of the Knowledge for Development Program. It has been found that the successful transition to the Knowledge Economy typically involves elements such as long-term investments in education, developing innovation capability, modernizing the information infrastructure, and having an economic environment that is conducive to market transactions. These elements have been termed by the World Bank as the pillars of the Knowledge Economy and together they constitute the Knowledge Economy framework. More specifically, the four pillars of the Knowledge Economy (KE) framework are: An economic incentive and institutional regime that provides good economic policies and institutions that permit efficient mobilization and allocation of resources and stimulate creativity and incentives for the efficient creation, dissemination, and use of existing knowledge. Educated and skilled human resources who can continuously upgrade and adapt their skills to efficiently create and use knowledge. An effective innovation system of firms, research centers, universities, consultants, and other organizations that can keep up with the knowledge revolution and tap into the growing stock of global knowledge and assimilate and adapt it to local needs. A modern and adequate information infrastructure that can facilitate the effective communication, dissemination, and processing of information and knowledge. The Knowledge Economy framework thus asserts that investments in the four knowledge economy pillars are necessary for sustained creation, adoption, adaptation and use of knowledge in domestic economic
1 2

Global Competitiveness Index, http://gcr.weforum.org/gcr2010/ http://info.worldbank.org/etools/kam2/KAM_page5.asp

production, which will consequently result in higher value added goods and services. This would tend to increase the probability of economic success, and hence economic development, in the current highly competitive and globalized world economy. The transition to becoming a knowledge economy requires long-term strategies that focus on developing the four KE pillars. Initially this means that countries need to understand their strengths and weaknesses, and then act upon them to develop appropriate policies and investments to give direction to their ambitions and mechanisms to enable the policy makers and leaders to monitor progress against the set of goals. To facilitate this transition process, the World Bank Institutes Knowledge for Development (K4D) Program has developed the Knowledge Assessment Methodology (KAM - www.worldbank.org/kam), which is an Internet-based tool that provides a basic assessment of countries and regions readiness for the knowledge economy. The KAM is a diagnostic and benchmarking tool that is designed to help countries understand their strengths and weaknesses by comparing themselves with neighbors, competitors, or other countries that they may wish to emulate based on the four KE pillars. The KAM is therefore useful for identifying problems and opportunities that a country may face, and where it may need to focus policy attention or future investments, with respect to making the transition to the knowledge economy. The unique strength of the KAM lies in its cross-sectoral approach that allows a holistic view of the wide spectrum of factors relevant to the knowledge economy. On the basis on the KAM indexes, we have made a comparative analysis of Georgias position relative to its neighbouring post-Soviet states. The results are summarized in the Table 1. Table 1. KAM 2009 Comparative Analysis
Georgia (Group: All Countries) actual Annual GDP Growth (%), 2003-2007 Human Development Index, 2005 Tariff & Nontariff Barriers, 2009 Regulatory Quality, 2007 Rule of Law, 2007 Royalty Payments and receipts(US$/pop.) 2007 S&E Journal Articles / Mil. People, 2005 Patents Granted by USPTO / Mil. People, avg 20032007 Adult Literacy Rate (% age 15 and above), 2007 Gross Secondary Enrollment rate, 2007 Gross Tertiary Enrollment rate, 2007 Total Telephones per 1000 People, 2007 Computers per 1000 People, 2007 Internet Users per 1000 People, 2007 9.60 0.75 80.60 0.21 -0.44 3.53 32.33 0.72 99.00 90.17 37.26 720.00 50.00 80.00 normalized 9.24 4.27 5.59 5.75 4.73 3.95 5.56 6.16 7.33 6.04 6.01 4.38 3.87 3.08 Armenia (Group: All Countries) actual 13.20 0.78 86.40 0.24 -0.51 n/a 59.61 0.46 99.48 89.54 34.20 310.00 100.00 60.00 normalized 9.86 5.03 9.23 5.89 4.32 n/a 6.81 5.68 7.81 5.90 5.36 2.47 5.56 2.53 Russian Federation (Group: All Countries) actual 7.00 0.80 60.80 -0.44 -0.97 22.61 100.76 1.26 99.52 84.01 74.72 1.460.00 130.00 210.00 normalized 7.79 5.87 0.84 2.95 1.51 6.22 7.36 7.05 7.88 4.72 8.99 7.74 6.06 5.34

Variable

Source: The World Bank Report 2008

DRIVING FORCES OF KNOWLEDGE ECONOMY: INNOVATION SYSTEM A system of innovation can be defined as the system of interacting government institutions, private firms and universities, aiming at the production of science and technology within national borders. The smooth operation of innovation systems depends on the fluidity of knowledge flows among enterprises, universities and research institutions. Both tacit knowledge, or know-how exchanged through informal channels, and codified knowledge, or information codified in publications, patents and other sources, are important. The mechanisms for knowledge flows include joint industry research, public/private sector partnerships, technology diffusion and producing innovative products. The following framework extends the traditional linear chain model to the dynamic innovation process and clusters the most important innovation factors into the following six dimensions: 1. Innovation input factors such as enterprise strategy, knowledge, capital, human resources, patents, scientific publications. 2. Innovation process (implementation) factors such as design, production, organizational culture and barriers to commercialization. 3. Public policy environment factors such as R&D policy, taxes, intellectual property, standards and market access. 4. Innovation infrastructure conditions such as quality of research in universities, federal labs, and skilled human resources. 5. Consumer value/outputs such as cost reduction, profits, revenues and convenience. 6. National outcomes such as growth, employment, competitiveness and trade. The nations innovation infrastructure includes the following: Scientific and research institutions that serve as a major source of knowledge and include universities and research institutes, laboratories, non-profit think-tanks, R&D consortia, technology transfer centers and technological centers of excellence. Capital providers and markets that finance innovation and the acquisition of new products and services. Venture capital and government research programs play a particularly important role in supporting technology-based entrepreneurs, start-ups and small business firms. Equity/stock markets provide an important incentive for innovation, reward innovators and determine the value of enterprises. Education institutions comprising secondary schools, colleges and universities, along with private sector training organizations, should provide the pool of leading-edge scientists, engineers, managers and the technical workforce. The skills, mobility and flexibility of the workforce are an important innovation input to both producers and customers of innovation. Information infrastructure provides enterprises with the important tools and communication platforms necessary for innovation. Global collaboration and open innovation systems rely on advances in computing, software applications and information networks. Regional innovation clusters are geographic concentrations of interconnected businesses, suppliers, and associated institutions in a particular field that share a common knowledge base, labor pools, markets or distribution channels. The Global Innovation Scoreboard report (GIS) compares the innovation performance of the EU25 to that of the other major R&D performing countries in the world: Argentina, Australia, Brazil, Canada, China, Hong Kong, India, Israel, Japan, New Zealand, Republic of Korea, Mexico, Russian Federation, Singapore, South Africa and the US. The choice of which countries to include was made based on their global R&D expenditure share in 2002. Georgias, as non-EIS countrys share had to be at least 0.1% in order to be included. the detail information is provided in Table 2.

Table 2. Global R&D spending 2002 R&D expenditures (thousand 2000 US $) United States EU25 Japan Germany France United Kingdom China Korea, Rep. Canada Italy Sweden Netherlands Switzerland Brazil Spain Australia Israel Belgium Finland Austria Denmark India Russian Federation Norway Mexico 26655154 16595544 14829645 4777706 3056595 2802347 1540417 1439710 1433170 1218205 1032620 707220 632105 625919 609127 599692 580228 517285 428217 426419 409286 386570 356553 36.69% 22.85% 20.41% 6.58% 4.21% 3.86% 2.12% 1.98% 1.97% 1.68% 1.42% 0.97% 0.87% 0.86% 0.84% 0.83% 0.80% 0.71% 0.59% 0.59% 0.56% 0.53% 0.49% Ukraine Luxembourg Thailand Slovenia Iceland Croatia Egypt, Arab Rep. Pakistan Romania Tunisia Slovak Republic Colombia Lithuania Belarus Kuwait Bulgaria Costa Rica Peru Uganda Uruguay Estonia Panama Nepal 41536 33527 32167 31001 26618 22647 19216 17138 15456 13056 12654 8638 8628 7793 7123 6741 6176 5741 5067 4776 4646 4464 3830 0.06% 0.05% 0.04% 0.04% 0.04% 0.03% 0.03% 0.02% 0.02% 0.02% 0.02% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%

290499 228914

0.40% 0.32%

Latvia Cyprus

3770 2967

0.01% 0.00%

Singapore Turkey Ireland Hong Kong, China Portugal Poland Argentina South Africa Greece Czech Republic Malaysia New Zealand Venezuela, RB

198692 132131 114103 102365 100925 100102 94134 90872 75783 71020 65253 62661 54457

0.27% 0.18% 0.16% 0.14% 0.14% 0.14% 0.13% 0.13% 0.10% 0.10% 0.09% 0.09% 0.07%

Bolivia Madagascar Azerbaijan Georgia Macedonia, FYR Trinidad and Tobago Paraguay Armenia Honduras Kyrgyz Republic Mongolia Seychelles St. Vincent and the Grenadines Cape Verde Serbia and Montenegro

2414 2322 1932 969 895 851 746 599 316 286 282 65 52

0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Hungary Chile

51392 42090

0.07% 0.06%

26 11

0.00% 0.00%

Source: Global Innovation Scoreboard

CONCLUSIONS AND RECOMMENDATIONS According to the results presented in this paper current situation in the sphere of higher education and science system in Georgia is not desirable due political instability, economic crisis, social disparity, intellectual erosion, clientelism, rent-seeking behavior, nepotism, cronyism. Transformation requires new ideological thinking, national modernization, effective leadership, sound public policy and management of organizational change. As the discussions with focus groups have clarified, one of the most disappointing aspects of existing situation in Georgia is that the importance of modern values and national priorities are not properly and comprehensively understood, which is one of the main constraints to promote sustainable change. The vast majority of universities are not accountable to their stakeholders and particularly students, which prevents the latter from becoming competitive in highly demanding and diversified job markets. Majority of interviewed professors could not demonstrate clear understanding about the ENP priorities reflected in EU-Georgia Neighbourhood Policy Action Plan. Nor they have shown positive results in terms of Knowledge Economy, Knowledge Management, National Competitiveness, Triple Hex Model, National Innovation System. Based on survey analysis, apart from knowledge deficit, many Georgian professors lack modern curricular resources, scientific background and international recognition. In most cases they are recruited based on personal preferences rather then on qualifications and needs. Georgia needs to dramatically improve its attractiveness to researchers, as too many young scientists continue to leave the country on graduating, notably for the US or Europe. Georgian government should call for making the country more attractive for its best brains; promoting new technologies and innovations. Further developing a system of mutual validation of national quality assurance and accreditation processes would be an important step in the right direction. Obstacles relate to social security entitlements and the recognition of qualifications. In order to increase attractiveness, there are also financial questions requiring attention. Government needs to urgently address the problem of funding for universities. If Georgia wants to attract more of the best researchers, the question of improving their research environment and remuneration needs to be addressed now. Creative interaction between universities, scientists and researchers on the one hand and industry and commerce on the other, which drives technology transfer and innovation, is necessarily rooted in the close cooperation of universities and companies. If Georgia is to compete in the global knowledge economy, it must also invest more in its most precious asset its people. The productivity and competitiveness of Georgias economy are directly dependent on a well educated, skilled and adaptable human resources that is able to embrace change. Yet at present, far from enough is being done in Georgia to equip people with the tools they need to adapt to an evolving labour market, and this applies to high- and low-skilled positions and to both manufacturing and services. Nor is anything like enough being done to eliminate brain-drain process. To equip Georgia with the highly educated, creative and mobile workforce it needs, higher education and training systems must be improved so that enough young people are graduating with the appropriate skills to obtain jobs in dynamic, high-value and niche sectors. Universities must devise ambitious policies to raise educational levels, to make lifelong learning schemes available to all and all must be encouraged to take part in them. Thus universities and research institutions need a clear strategy to find their appropriate new role in country competitiveness so far as their traditional roles continue to be critical for economic prosperity. Georgias innovative performance rests on a concerted effort to raise the level of education of the overall population. The public policy goal of lifelong education should be a major force in creating skilled human resources able to make the transition from an agrarian to an industrial society.

Table 3. SWOT Analysis of Georgian Universities in Terms of Promoting the Knowledge Economy
Internal Factors Rank 1 2 3 4 5 6 7 Historical background Intellectual potential Cluster growth potential Legal regulations Training opportunities Creativity potential Networking potential Weaknesses 1 2 3 4 5 6 7 8 9 10 Inefficient management system Weak scientific background Low funding Resistance to change Weak connection between industry and universities Unskilled human resources Lack of knowledge on new developing standards Technological disparity Lack of innovation policy Nepotism, cronyism and rent seeking behaviour External Factors Rank 1 2 3 4 5 6 Opportunities ENP Policy High demand on education International exchange programs Improving technology transfer Transnational partnerships Western orientation Threats 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Inefficient reform in science management system Inappropriate funding schemes Weak connection between industry and universities Brain-drain Ineffective public policy Political instability Economic crisis Higher level of social stratification Quality of life Lack of entrepreneurship culture Degree of social cohesiveness Poor technical infrastructure Poor institutional infrastructure Legal regulations and policy 7 7 7 6 6 Points 0-7 7 7 6 5 5 4 7 7 7 7 6 6 6 6 4 4 2 Strengths Points 0-7 7 7 6 4 4 3 2

5 5 5 4 3 2 1

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