ECONOMY:

WITH OR WITHOUT
KNOWLEDGE

Prof dr Mladen Vedriš

Faculty of Law, University of Zagreb
Chair of the Economic Science Department

Zagreb, 3/4 December 2010

Round Table of UNESCO Chair:
Beyond the Crisis: Funding a Research Universities in Economic
Recession
“When written in Chinese the word
crisis is composed of two characters.
One represents danger, and the other
represents opportunity.”
J. F. Kennedy
The Situation Today
CROATIA – EU
Area, Population, GDP,
000 km2 mln EUR*

EU15 3.234 381 -

EU27 4.322 485 11,558,0

mlrd
HR 56 4,4 34,2
mlrd
HR 1.3% 0.9% 0.3%
share /
EU27
*2006 data

4
 CROATIA

58 countries included

Source: IMD World Competitiveness Yearbook 2010

5
 CROATIA

58 countries included

Source: IMD World Competitiveness Yearbook 2010

6
CROATIA

Source: IMD World Competitiveness Yearbook 2010

7
 Total R&D Investment
(as a % of GDP, 2005)

Developed countries increase their

R&D investment:

EU sa 1,86 % na 3
%
SAD 2,6 %
Japan 3,4 %

* Croatia decreases R&D

investment:

2005 1,22 %
2009 1,0 %
2010 0,7 %

Izvor: European Commission, Key Figures, 2007.

* Prema World Bank Hrvatska ulaže 1% BDP-a u R&D
8
 Labor market and education

Overall share of Share of Graduates in

expenditures in expenditures in natural sciences
education in higher and
Country
GDP education in mathematics*
(2006) GDP (2007)
(2006)
Croatia 4,11 0,88 6,8
Czech 4,61 1,23 12,0
Rep.
Slovenia 5,72 1,24 9,8
Finland 6,14 1,94 18,8
Denmark 7,98 2,27 16,4
EU 27 5,05 1,13 13,4

* per 1,000 residents 20-29

Source: Eurostat

10
Graduates, age: 20-29

11
 Science and Technology Graduates
(1000 inhabitants, age 20-29 ys)

 share of science and technology

20 graduates: 5,6 among 1000
18 inhabitants (age 20-29 ys)

16  European average: 13
14

12

10

0
ry

ey
ia

d
ia
nd
ia
7

t ia
an
-2

ar

ga

en
n

rk
ch

la

oa
to
EU

lg

nl

Tu
ov
un

Po
ze

Es
Bu

Fi

Cr
Sl
H
C

2001 2002 2003 2004 2005

Izvor: World Bank, Croatia Corvengence Report, Reaching and Sustaining Higher Rates of Economic Growth, June 2009.
12
Structure of the population - Education

13
 “Opportunity is missed by most
people because
it is dressed in overalls and looks like
work.”

Thomas Edison
 Average FDI by
activity, millions of €
Foreign Investment in Croatia
2.750 Selected Activities
2000
2.250
2006

2007
1.750
2008*
1.250

750

250

-250
Telecommunications

Mft. machinery and

Automotive

Construction
Financial Services

Other Activities

Water purification

Recreation and
Chemicals
Oil, Gas and Coal

Hospitality
Wholesale Trade

Food Products
Retail Trade
Real Estate

and distrubtion
equipment

Sports
*2008 is estimated figure.
Source: Foreign Direct Investment in Croatia (by activity), Croatian National Bank, 2009 15
 TO CONCLUDE...
Poor innovation capacity
Indicators Rang

 Innovation capacity 66

 Quality of the scientific research institutions 51

 Business sector investments in R&D 60

 University-industry cooperation in R&D 75

 Advanced technologies purchased by the State 121

 Availability of scientists and engineers 85

 Patents per mln inhabitants 35

Izvor: World Economic Forum, The Global Competitivenes Report 2010-2011. (index in detail)
* Ukupno rangirano 139 zemalja
16
Environment
 European Union
 Transition Countries
EU STRATEGY 2020

18
EU STRATEGY 2020
European Union – political determinants
(J.M. Barroso)

 On Europe President Barroso believes in

 "These are no ordinary times. What Europe needs is
a transformational agenda.
 Only by working together can Europe have the
critical mass needed. We face a choice: either we
collectively shape the new order, or Europe will
become irrelevant."

IP/09/1272 - Brussels, 3 September 2009

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EU STRATEGY 2020

20
Europe faces a moment of transformation. The crisis has wiped out
years of economic and social progress and exposed structural
weakeness in Europe’s economy. In the meantime, the world is
moving fast and long-term challenges - globalisation, pressure
on resources, ageing intensify.
The EU must now take charge of its future.

Europe 2020. puts forward three mutually reinforcing priorities:

 developing an economy based on knowledge

and inovation

 3% of the EU GDP should be invested in R&D

 at least 40% of the younger generation should
have a tertiarry degree

Izvor: European Commission, EUROPE 2020.

HOW ABOUT CROATIA ?

21
What measures should Europe and European countries take to
stimulate growth in the next two years?

Izvor: Ernst and Young 2010 European Attractiveness Survey, str. 5

22
 Cluster-Based Policy Implementation
Education and
Workforce Training
Management Training
Science and Technology
Investments
(e.g., centers, university
departments, technology
transfer)

Standard setting and

Business Attraction quality initiatives

Clusters
Export Promotion Environmental
Stewardship

Market Information Natural Resource

and Disclosure Protection
Physical
Infrastructure

• Clusters provide a framework for implementing public policy and

organizing public-private collaboration to enhance competitiveness
23
What is next?

OPEN ISSUES...
... CHALLENGES
.....how TO STAY ALIVE
TO SUMARIZE...
CROATIA – GDP

Source: EBRD Transition Report 2010: Recovery and Reform, EBRD

25
 CROATIA – THE WAY OUT

Source: RBAnalize, Raiffeisen istraživanja, br. 39, listopad 2010., str.

26
13
 CROATIA – THE WAY OUT

27
Source: RBAnalize, Raiffeisen istraživanja, br. 39, listopad 2010., str.
CROATIA – THE WAY OUT

Source: RBAnalize, Raiffeisen istraživanja, br. 39, listopad 2010., str.

14 28
 CROATIA – THE WAY OUT
Technological structure of the
Croatian exports is deteriorating
Technological complexity of the export R&D investments and profits
products in Croatian companies

2007.

 High complexity 3,3%

28,2% Prema Prof. Turčiću tvrtke koje ulažu:
 Medium high complexity 24,9%
 Medium low complexity 28,4% • >1 % ostvaruju viši profit za 4,7 %
71,8% • od 1 – 2 % viši profit za 8,2 %
 Low complexity 43,4%
• >2 % - viši profit za 12,5 %
1987.

Highly sophisticated products 65,7%

Average sophisticated products 28,1%

35,3%
Unfinished products 7,2%

Izvori: HGH, Gospodarska kretanja, br. 2/2010

NVK, Godišnje izvješće o konkurentnosti Hrvatske 2008.
DSZ , Statistički godišnjak Jugoslavije 1988.
* Prof. Turčić je proveo istraživanje 5000 hrvatskih tvrtki koje predstavljaju ukupno 75% anga žiranog kapitala 29
 Labor Force
Labor Force Utilization
Participation Rates, Selected Countries
Participation Rate, 2008
65%
Kuwait
Eastern and Southern Europe China Singapore
60% Other countries
Iceland

Thailand Norway
55% Canada Australia Vietnam
Germany Sweden Russia
Denmark Japan New Zealand Latvia
Czech Rep.
Estonia Ireland
USA UK Finland
50% Cyprus Spain
Slovakia South Korea
Brazil
Lithuania Indonesia
Ukraine
France India Netherlands Slovenia
45% Greece
Poland Romania Chile Macedonia
Ghana Austria
Hungary Italy
Colombia Mexico Argentina
40% Israel
Philippines Malaysia
Croatia
Moldova
Cote d’Ivoire South Africa
Bulgaria Tunisia
35% Nigeria
Turkey Albania
Egypt
30% Pakistan Libya

Saudi Arabia
25%
-3% -2% -1% 0% 1% 2% 3% 4% 5%
Change in Labor Force Participation Rate, 2004 to 2008

• With many of its less productive citizens outside of the active labor force, Croatian labor productivity is
overstated versus peers Source: Economist Intelligence Unit (2009)
30
CROATIA – Challenges in 2010
 Increase employment rate and diminish
unemployment, especially for young educated
workforce
 Increase the efficiency of state administration to
minimize the government burden.
 Encourage efficiency and innovation of export-
oriented SME’s
 Minimize effects of corruption.
 Promote life-long learning and “education for
entrepreneurship”.
Source: IMD World Competitiveness Yearbook 2010

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 CROATIA – CHALLENGES IN 2010
Fostering Innovation: Policy Implications

 Encourage private R&D:

 Attract R&D-intensive FDI jointly with the investment
promotion agency/ministry
Improve conditions for collaboration between university
and industry by:
 Simplifying legal requirements for cooperation
 Facilitating the commercialization of research
Enable the start-up of science based companies by:
 Eliminating regulatory bottlenecks for the
development of a venture capital industry
 Foster restructuring of public R&D institutes by
declining earmarking funding

Source: World Bank presentation: Gospodarska kretanja i kako

ubrzati održivi oporavak u Hrvatskoj, Zagreb, 9.11.2010. 32
CROATIA - Options Forward
Exploiting Untapped Growth Reserves in Croatia

Safeguarding macroeconomic stability remains a

precondition – which means stable public
finances
 IncreasingEmployment Levels: Labor Market
Reforms and Education
 Raising Productivity: Allocative Efficiency and the
Investment Climate
 Deepening Trade Integration: FDI and the Supply of
Exportable Goods
 Fostering Innovation: Knowledge
Commercialization and Use
Source: World Bank presentation: Gospodarska kretanja i kako ubrzati održivi
oporavak u Hrvatskoj, Zagreb, 9.11.2010
33
TO UNDERSTAND ....
TO STAY ALIVE

“... in globalization The Fast

Eat the Slow …”

(it is not the case that the Big eat the Small)

T. Friedman