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Proposed Topics and Rationale for Their Selection

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1. Some of the world’s most prosperous economies are also among the most innovative ones.  Knowledge is increasingly considered by economists as an important production factor in fostering economic growth, with high value-added coming mostly from technology and knowledge-intensive sectors where innovation is the key driver.  This emphasizes the importance of advanced education levels and well-functioning science and technology (S&T) infrastructure over the possession of raw materials or abundance of cheap labor for developed as well as developing economies.  Therefore, having successfully made the transition to market economies, countries in the ECA region need to reorient themselves towards establishing a framework for innovation and technology absorption that will grant them more effective interaction with the global economy; better access to and return on knowledge; improved product quality; cost reduction; better adaptation to consumer needs; adding value and diversifying the productive and export structure of their economies.

2. Recent economic thought has analyzed the direct impact of knowledge and innovation on economic growth and there are numerous examples of countries that founded their rapid economic growth on a successful innovation and S&T strategy—even in the absence of an industrial base and natural resources.  Among the better known examples is Korea that did not possess much in the way of mineral resources other than coal.  Nonetheless, significant investments in science and technology, and research as well as a strategic science policy contributed to GDP increases of 6.8% per year between 1966 and 1996.  Other prominent examples of smaller, resource-poor countries that are specializing on the higher end of the technology spectrum are Malaysia and Dubai.  Malaysia has embarked on a very ambitious project (including the famous ‘Multimedia Super Corridor’ that has enabled it to move from being a largely agricultural economy to being at the forefront of innovation in only one generation.  Dubai has moved from being a largely oil dependent country to being more knowledge-based and specializing in the provision of services.  The oil sector’s share in GDP has decreased from almost 20% in 1995 to around 6% in 2005.  These countries are capturing growing percentages of expanding high-tech export markets and adding to their economic growth as a result of their successful innovation strategies.

3. At the Istanbul Forum we learnt that countries in the ECA region invested significant efforts and many have made strides at reforming their business environments and improving their investment climates.  Additionally, many countries also possess a relatively well-trained labor force, considerable experience in S&T development and relatively developed information communication facilities.  Nonetheless, the lack of experience engaging in productive R&D and innovation and commercialization of knowledge is a serious impediment for countries’ competitiveness and continued economic growth in the region.  This conference seeks to help economies in ECA overcome these obstacles by maximizing benefits from the existing national and global knowledge and innovation infrastructures.

4. The different sessions of the Prague Forum will address practical means to promote innovation systems (the institutions, rules and procedures that facilitate the creation and use of knowledge), and the role that the state can play in designing it.  Three main concepts will be the creation, absorption and financing of new technology.  Specific attention will be paid to how to finance such a system, the role of human capital, and the protection of intellectual property rights within this system.  This forum will build on previous conferences and will aim to provide a range of ideas that might inspire countries in the development of more effective innovation policy frameworks.

5. Plenary Session I: Innovation, Competition and Economic Growth.  The first plenary session introduced the overarching topics and established a framework for understanding the role of global competition in promoting innovation. The session also aims to establish to what extent innovation is a major driver or economic growth.  According to a recent World Development Report on the Investment Climate, firms that perceive themselves as being under strong competitive pressures are likely to reinvest as much as 50 percent or more into research and innovation.  Understanding these dynamics will help countries understand the links between competition policy and a country’s innovation record.

6. Plenary Session II: The Role of the Government in Fostering Innovation and Technology Absorption.  The role of government in promoting innovation lies at the core of this conference.  The key question many governments face is when to intervene and how to design interventions so as to minimize distortions.  Among the dilemmas policymakers face is whether to adopt a focus that promotes national economic and industrial needs, or focus on growth trends in international markets.  Developing a new export product on the basis of technology foresight is possible albeit not simple.  The discussions will deal with this tension, between picking winners versus assisting companies overcome barriers to market entry.

7. The biggest role for the state to play is arguably in the initial stages of innovation, where the eventual success of a technological invention is highly uncertain and potential financiers too risk-averse to finance its development.  The state could step in by taking on part of the risk (matching grants or financial guarantees) or help in technically facilitating the movement through the innovation cycle.  Finland, for one, greatly relies on the technical capabilities of its government officials to do so.  Significant capacity development of bureaucracies in the ECA region will be required if they are to play a role in these strategies.

8. More generally, the state could step in when substantial “spill-over effects” (educational, infrastructural or knowledge-base improvements) are expected.  How to measure spill-over effects and how to effectively exploit them will be topic of discussion.  Given that there are positive externalities from knowledge creation the social benefits from it will be greater than the private benefits that can be appropriated which may result in a less than optimal quantity of knowledge being created.

9. Information asymmetries are intrinsic to the process of creating knowledge.  These asymmetries often lead to the under-funding of knowledge generation, which again could be addressed through state intervention.  In addition, firms and universities may not find each other for the mutual suspicion they hold and the creation of “technological clusters” or “centers of excellence” comes with considerable costs that individual firms may not be willing to contribute.  The state may need to actively facilitate these, as many countries have demonstrated.

10. Even developed economies depend on highly specialized private and public institutions for investments to facilitate the early stages of technology development.  In the ECA region, however, these specialized institutions are scarce and most innovation is financed by internal government funding.  Since cash-flow and collateral-based finance are clearly inadequate when it comes to financing uncertain innovation outcomes, the region has a crucial problem with financing innovation in general and with technology start-ups in particular.  This session will discuss some of those problems.  The specific topics will include venture capital funds (potentially state-financed or even state-managed), government funding under private management, such as ones that contributed to Israel’s success in innovating, and various forms of matching government grants.

11. When engaging in such financial activities the state would have to be careful not to crowd out private investment, take the risk and performance incentive away from the private actors involved, or steer projects away from a commercial orientation towards knowledge creation per se.  Worst of all would be letting innovation aid fall in the hands of interest groups and rent-seekers.  All these threats will be addressed; with their possible solutions: careful assessment (perhaps with the help of foreign expertise) for the former ones and transparency and neutrality guarantees for the latter one. 

12. Plenary III: Reforming Higher Education for Innovation. Countries that have a large enough pool of skilled, flexible, mobile and networked individuals have a competitive edge in the global market. Consequently, the reform of higher education systems to provide that necessary resource is an important priority for all countries. Traditional universities are being forced to compete for scarce resources and also for students. Meanwhile, the costs of creating and maintaining the so called “world class higher education institutions” of the best quality and relevance are increasing. The appropriate role of government in setting national priorities, preparing legislative reform and providing the most efficient financing arrangements of tertiary education to align scarce resources to national strategic goals will be explored in this session. While the main focus of this plenary will be on the restructuring of higher education institutions to provide educated individuals to fuel the engine of the knowledge society, the issue of devoting resources to science and technology teaching and learning at the secondary education level will also be addressed.

13. Panel 1A:  Technology absorption.    Knowledge is available in many ways, besides indigenous innovation: imports, FDI or licensing of foreign technologies can compensate for lack of a capacity to generate knowledge within the country.  Most of the knowledge that ECA economies need to be more productive already exists, but firms are not adapting to it. This session will ask why that is the case and what can be done about it.  a) Is it a problem of the business environment (administrative barriers and inefficient financial markets)?  b) Or perhaps the companies lack the technological capacity to adapt to this technology, which could imply a lack of educated work-force manifesting itself in a lack of R&D capacity or a lack of managerial and organizational skills to make use of whatever capacity it has? The latter would not only imply a need to invest in the knowledge infrastructure that disseminates and applies existing knowledge but also a need to promote skills within the enterprise sector that will allow it to commercialize existing knowledge and bring it to the market. Strengthening the ties between the two will help but may not be enough.

14. Panel 1B:  R&D for Innovation.  Increasingly, education systems are being called on to produce better trained individuals including a strong cadre of scientists and engineers capable of contributing to a national innovation system.  Tertiary education institutions (both public and private) have to adapt in order to forge the needed linkages between research and national innovation systems.  The development of capacity in both public and private tertiary institutions to educate for entrepreneurship and risk taking is at the core of this issue, as is the improvement of the quality and relevance of teaching and of research everywhere.

15. The issue of how the financing of S&T can be placed on a more secure basis so that multi-year financing of projects can be assured will be discussed by the panel.  This session will also review ways of cultivating more effective public-private partnerships for research and technology development as well as the relationship between the state and the private sector and the creation of the right instruments to cultivate firm-academia-public sector linkages.

16. Panel 2A: Human Capital—Brain Drain and Brain Gain.  This session addresses various strategies to develop, maintain and import a skilled and trained workforce.  The basic question is what kind of education is required for effective participation in a knowledge economy. Since resources for education are scarce, choices will have to be made: on general education that breeds agile minds that can adapt to new technologies and foster an entrepreneurial spirit, or on more specific education that generates new technologies and knows how to use more specific ones.

17. Such education can be obtained in various ways. Can a brain drain, for instance, be converted into a brain gain?  In other words: how can native individuals that have obtained their education abroad be convinced to return to their home country, bringing back new competencies, and potentially creating new business ventures and links to global research and innovation networks.  China and India seem to have developed a strategy that achieves this.  A closely related question is how educated individuals of other nations can be convinced to seek employment in a country that is not theirs.  Once again, Singapore’s example proves that if the right infrastructure and economic incentives are provided, the mobility of human capital can be considered as an opportunity rather than a threat.

18. Panel 2B: Protecting Intellectual Property Rights and Technology Trading.  Due to its public good character, knowledge cannot be properly appropriated and profited from.  Without additional mechanisms (like intellectual property rights) inventors will be spending vast amounts of resources in creating knowledge and once an idea is in the open they will not be able to recover those costs.  In the long term, this may create disincentives for knowledge creation and innovation.  Countries must develop systems that allow firms or individual researchers to recover the costs incurred in creating knowledge (and profit from it).  Intellectual Property Rights, if properly designed, can help creating the necessary incentives.  However, IPR also imply costs, loss of consumer rents and may slow down the adoption and diffusion of technology.  Therefore, a balanced approach needs to be found.

19. IPR can have an important impact on economic flows (trade, FDI, licensing) between countries and on the diffusion of technology and knowledge within a country.  It is important that in the design of their IPR regime countries take, along with the incentives for innovation, these other considerations into account.  Since IPR will be granting monopoly rights to owners for a specific period of time, competition policy becomes an issue and countries should analyze the interface between competition policy and their IPR regimes.

20. Finally, IPR represents only legislation, that if not properly implemented could make IPR meaningless or in a worst case scenario allow for misuse.  Therefore, countries will have to pay special attention to the enforcement of these rights (to ensure that rights are protected but also to avoid abuse).  There is a wide array of countries that have passed very stringent IP legislation and acceded to all relevant conventions dealing with IPR but failed to enforce those rights.  Countries should, therefore, be including in their considerations institutions such as customs, the judiciary, legislators, relevant government institutions dealing with IP, and designing ways to guarantee that they have the necessary tools to ensure that the IPR regime maximizes the benefits to the country and minimizes any necessary costs


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