World Bank Knowledge Economy Forum urges countries to protect R&D budgets in time of crisis
Innovation is vital for Europe and Central Asian countries’ post-crisis growth, according to the World Bank. The Bank urges countries to focus on key priorities for sustainable growth by ensuring that resources for innovation are not cut as part of fiscal consolidation, but are used more efficiently, and by approaching the crisis as an opportunity to change policies that would protect Research and Development (R&D) and investment in human capital.
According to a World Bank report that will be discussed at the World Bank’s EighthAnnual Knowledge Economy Forum to be held at INSEAD in Fontainebleau, April 29 – May 1, the economic crisis is a powerful opportunity for Europe and Central Asian countries to redirect investments in R&D by restructuring Government-sponsored Research & Development Institutes (RDIs), in order to increase the rate of return on these investments.
The Knowledge Economy Forum will stress that, despite the current economic and financial crisis, investment in human capital is important for the medium- to long-term, and that world-class universities are necessary to undertake leading edge research and develop skilled researchers who can innovate.
“For many countries in Europe and Central Asia,” said Shigeo Katsu, Vice President for the Europe and Central Asia Region, World Bank, “the ability to continue to generate knowledge to innovate can mean the difference between prosperity and stagnation, and higher poverty in the post-crisis period. Given the backdrop of the current financial crisis, the R&D community is facing possible budget cuts, but there are clear tradeoffs between short-term fiscal benefits at the expense of medium-term growth and competitiveness.” Katsu added that, “However, to ensure that countries will be able to promote post-crisis growth, the fundamentals of knowledge generation must be preserved, and the investment into R&D and human capital must be continued through this difficult time to ensure an effective recovery as well as medium and long term growth.”
Bruno Lanvin, Executive Director of INSEAD’s eLab, underlined that “the current crisis is affecting radically the ways in which business, governments and citizens look at how value is being created and shared across societies. For Europe and Central Asia, post-crisis competitiveness will be increasingly based on knowledge and innovation. This requires immediate action at the level of skills and innovation systems.” He added that “in this part of the world, it is the mission of academic institutions such as INSEAD to be proactive and join forces with major international organizations such as the World Bank to call the attention of business and governments to the necessity to focus on skills and innovation during the crisis, and not to wait until activity resumes at normal levels.” Lanvin also mentioned that the Forum would address the growing ‘skills gap’ that Europe is facing, in particular through the discussion of the report ‘Who Cares? Who Dares? Providing the Skills for an Innovative and Sustainable Europe’, recently produced by INSEAD’s eLab.
The World Bank report, Restructuring of Research and Development Institutes in Europe and Central Asia, says that RDIs in Europe and Central Asia are a legacy of central planning, a legacy which represents part of the unfinished restructuring agenda in the region. During the socialist period, RDIs were part of a system in which most often R&D was not performed ‘in-house’ within enterprises, and, therefore, was not directly driven by production needs or market demand. The separation between the supply and demand for innovation was particularly visible in the Soviet Union where industry-research linkages were mediated by the responsible ministry. Funding for all these RDIs was provided directly or indirectly by the state.
“As in the case of farmers in times of crises, if you eat the seeds today, there will be no crop and no food on the table tomorrow,” stressed Fernando Montes-Negret, Director of the Finance and Private Sector Department of the Europe and Central Asia Region of the World Bank. “R&D may not solve your problems today, but if you cut the funding for it, then you lose the competitive edge needed for tomorrow. It is critical to continue climbing the innovation ladder because competitors are climbing it fast.”
The report draws on case studies of RDIs in several Europe and Central Asia countries – Russia, Ukraine, Croatia, Serbia, Poland, and Bulgaria – to investigate the status of these RDIs today, the role they play in providing R&D services to industry, and the challenges these organizations face. The case studies show that, two decades into the transition, many of the RDIs that are still operating as standalone entities have made limited progress in terms of the intensity and quality of their interactions with the overall national innovation system and, specifically, in the range of services they provide to industry, exposing areas that lag far behind, such as knowledge management, licensing, incentive structures, and staffing.
According to the report, the way R&D institutions operate must be reformed to work more efficiently in support of economic growth. The report recommends that the R&D institutes should receive funding based on competition, past performance, and results. It suggests that the private sector must be more involved in the management and ownership of R&D institutes, and that cost-sharing and risk-sharing between the public and private sectors are essential to promoting innovation.
According to Jean-Louis Racine, World Bank Science, Technology and Innovation Policy Specialist and co-author of the Report, “Innovation must be driven by the market’s wants and needs. R&D institutions must develop commercially applicable research and knowledge in order to boost economic growth. The current structure and incentives of the Europe and Central Asia R&D institutions is not conducive to innovation. If they’re producing science for the public good, that’s one thing. But those who are not doing that and do have a market should be privatized and moved to the market.”
Economic growth and global competitiveness are increasingly driven by knowledge, and universities play a key role in that context. Indeed, rapid advances in science and technology across a wide range of areas – from information and communication technologies (ICTs) to biotechnology to new materials – provide great potential for countries to accelerate and strengthen their knowledge-intensive exports and economic development. The application of knowledge results in more efficient ways of producing goods and services and delivering them more effectively and at lower costs to a greater number of people.
Jamil Salmi, the World Bank’s higher education coordinator, reveals in a forthcoming book on world-class universities that, the distinguishing feature of top-ranked universities is the interaction of three key factors: concentration of talent, abundant resources, and appropriate governance.
The Knowledge Economy Forum will also expose opportunities for quality upgrading in Europe and Central Asia, leading to technological progress, higher productivity, and more exports, all critical in a time of crisis. Yet, the ability for firms to fully exploit these opportunities depends on a supportive national quality infrastructure of public and private institutions for standardization, metrology, testing, certification and accreditation. In many of the countries in this region these institutions still operate under much of the same system as they did under central planning. In others, they have not yet built the capacity to support quality in the productive sector.
Jean-Louis Racine will present the results of a World Bank study presenting novel indicators on how countries in the region compete on quality in export markets, on the performance and international integration of countries’ national quality infrastructure, and on what opportunities there are for reforming and upgrading these institutions.
For more information on the World Bank’s work in Europe and Central Asia, please visit:
www.worldbank.org/eca
For more information on the Knowledge Economy Forum, please visit:
www.worldbank.org/eca/ke
