Challenges of the Knowledge Economy for Education Carl Dahlman World Bank World Education Market Lisbon May 20, 2003 ©Knowledge for Development, WBI

Structure of Presentation 1: The Knowledge Revolution 2: Knowledge Economy: Definition and Framework 3: Implications for Education and Training 4:Key Trends in Education and Training 5: Challenges to Education and Training 6:Challenges to Developing Countries 7: The Way Forward ©Knowledge for Development, WBI

The Knowledge Revolution - 1 Ability to create, access and use knowledge is becoming fundamental determinant of global competitiveness Seven key elements of “Knowledge Revolution” Increased codification of knowledge and development of new technologies Closer links with science base/increased rate of innovation/shorter product life cycles Increased importance of education & up-skilling of labor force, and life-long learning Investment in Intangibles (R&D,education, software) greater than Investments in Fixed Capital in OECD ©Knowledge for Development, WBI

The Knowledge Revolution - 2 Greater value added now comes from investment in intangibles such as branding, marketing, distribution, information management Innovation and productivity increase more important in competitiveness & GDP growth Increased Globalization and Competition Trade/GDP from 38% in 1990 to 52% in 1999 Value added by TNCs 27% of global GDP Bottom Line: Constant Change and Competition Implies Need for Constant Restructuring and Upgrading ©Knowledge for Development, WBI

Implications for Developing Countries Developing Countries run of risk of being left behind as a result of increasing importance of knowledge and of a widening knowledge divide with advanced countries. They need to develop coherent strategies to deal successfully with the constant restructuring resulting from the knowledge revolution. They will need to make more effective use of knowledge for their development--to become knowledge economies. ©Knowledge for Development, WBI

World GDP/Capita and Population

Growing Differences in GDP/Capita

GDP/Capita Growth: Korea vs Ghana ©Knowledge for Development, WBI

2.1: The Knowledge Economy There are many definitions of the “Knowledge Economy”, many emphasizing just information technology and high technology We take a broader definition: “An economy that makes effective use of knowledge for its economic and social development. This includes tapping foreign knowledge as well as adapting and creating knowledge for its specific needs.” ©Knowledge for Development, WBI

2:2 Framework for Using K4D Four Key Functional Areas Economic incentive and institutional regime that provides incentives for the efficient use of existing and new knowledge and the flourishing of entrepreneurship Educated, creative and skilled people Dynamic information infrastructure Effective national innovation system ©Knowledge for Development, WBI

K-Assessment Benchmarking Methodology KAM: 76 structural/qualitative variables to benchmark performance on 4 pillars Variables normalized from 0 (worst) to 10 (best) for 112 countries and nine regional groups. www1.worldbank.org/gdln/kam.htm Basic scorecard for 14 variables at two points in time, 1995 and 2002 Aggregate knowledge economy index (KE) ©Knowledge for Development, WBI

Education in Global Context ©Knowledge for Development, WBI

3: Implications for Education and Training Education and training are the key enablers of the knowledge economy There is an increased premium on education because need education and new skills to adapt and use new technologies Developing countries are handicapped by low enrollment rates and low educational attainment among the working population Dealing with this challenge will require greater coordination among different ministries and between government and the private sector ©Knowledge for Development, WBI

4: Key Trends in Education and Training Increasing educational attainment Continued high returns to higher levels of education Increasing contribution of education to GDP growth Increasing globalization of education Increased prevalence of life-long learning Growing role of corporate training ©Knowledge for Development, WBI

Increasing Educational Attainment Average Years of Schooling of the Total Population Aged 15 and Over Difference in Average Years of Schooling Between Income Groups (unit: years; % indicates reduction of the gap in comparison to the previous decade.) Data Source: World Bank and Robert Barro and Jong-Wha Lee’s International Data on Educational Attainment Updates and Implications (2000). ©Knowledge for Development, WBI

Continued High Returns to Higher Education Relative to Upper Secondary (1999) ©Knowledge for Development, WBI

Increasing Contribution of Education to GDP Growth Extensive empirical research shows positive contribution of education to growth Most recent OECD study finds: Human capital has been one of key factors tied to recent growth in OECD countries Estimated effect on GDP of one additional year of education among year olds is around 6% on average In developing countries, human capital increases have a higher impact on growth than in OECD countries That impact is bigger for the relatively more advanced developing countries, suggesting there is a threshold effect at higher levels of upper secondary and tertiary attainment OECD Financing Education Investment and Returns (2002) ©Knowledge for Development, WBI

Increasing Globalization of Education At higher education level there are more than 1.6 million students studying outside their home country Education institutions are also going global through: Physical presence in foreign countries Associations with local universities Internet based courses GATS is pushing for increasing liberalization in trade in educational services Therefore there is growing competition in educational services which will be putting increasing pressure on educational systems in developing countries ©Knowledge for Development, WBI

Growing Role of Adult Learning-1 ©Knowledge for Development, WBI

Growing Role of Adult Learning-2 ©Knowledge for Development, WBI

Growing Role of Corporate Training In 1994, US corporations spent $17 billion on salaries of formal trainers, and the opportunity cost of wages and salaries paid to those being trained was $74 billion This sum of $91 billion was almost as much as total public expenditures on higher education, which was about $110 billion. Corporate training has been growing and includes not only training in firms by own trainers, but training in formal institutions as well as specialized training such as ICT certificate training by Microsoft, CISCO, etc.

5: Challenges to Education and Training The Irony of Low Productivity of the Educational Sector Improving the productivity of education and training Financing needs of education and training Role of Public vs Private ©Knowledge for Development, WBI

Productivity Irony Education is the fundamental enabler of the knowledge economy Yet it has very low productivity improvement over time Education is one of the most traditional sectors in the economy Production function basically has not changed over several centuries Not clear there has been much of an improvement in quality as measured by standardized tests ©Knowledge for Development, WBI

Increasing Cost Per Student (US Data) Public School Resources in the United States, Source: U.S. Department of Education (2002) ©Knowledge for Development, WBI

Virtually No Increase in Quality Source: US Department of Education *NAEP: The US National Assessment of Educational Progress ©Knowledge for Development, WBI

Why Has Productivity Been So Low? Education policies are very input based They ignore incentives to improve student performance or to conserve on costs Until recently education sector has had characteristics of public monopoly There is also evidence of little correlation between educational expenditures and performance Education sector has very long lead times so accumulating evidence is slow Education also has very important social and consumption features, not just economic ©Knowledge for Development, WBI

Improving the Productivity of Education Use new ICT technologies more extensively Improve the incentive regime and management of education systems Improve knowledge management in the education sector Improve the pedagogy of education Reduce the time it takes to get different levels of education ©Knowledge for Development, WBI

Financing Needs for Education Estimate size of formal education market is at least US $1.9 Trillion Adding training, it is likely to be $2.4 trillion Improving access and quality is likely to raise it significantly over next decade Most of this additional financing is likely to have to come from the private sector ©Knowledge for Development, WBI

Global Shares of Education Market (2001)

Expenditures by Education Level (Public vs Private as % GDP ) ©Knowledge for Development, WBI

Tapping More Private Resources Rely more on private tuitions Develop student loan systems Rely more on private providers of  formal education  specialized education and training But address growing equity problems as there is growth of private share

Role of Public and Private Increasing role of private education increased from 13%n in 1996 to 18% in 2000 Increasing focus on life-long learning Implies need for system with multiple pathways and multiple providers Implies setting up institutional and regulatory system that permits this Implies changing the role of government ©Knowledge for Development, WBI

Changing Government Role from Provider to Coordinator Policy IssueCurrent RoleK-Economy Role Integration & coordination at national level Compartmentalized, sectoral approach Coordinator for multi- sectoral approach Coordination across governance levels One-way control and regulation Two-way mutual support & partnerships Government as enablerControls and regulatesCreates choices, provides information & incentives, facilitates cooperation/provision Linkage between education & labor market/society Supply is institutionally driven Demand is learner driven Qualifications assurance system Natl standards linked to curriculum & student assessments Diverse system of recognition and quality control Administration and management Rules and regulations, provision Incentives Facilitation of providers ©Knowledge for Development, WBI

6: Challenges for Developing Countries Increasing access to basic education Increasing access to secondary and higher education Providing education for population already outside standard formal system Increasing quality Increasing equity Responding to increasing international competition ©Knowledge for Development, WBI

 In 1990 the UN Conference on Education for All called for universal primary education by  But in 2000 there were still 113 million primary-school- age children not in school, 60 percent of them girls and 80 percent living in South Asia and Sub-Saharan Africa.  The Millennium Development Goals (MDGs) set a more realistic but still difficult deadline of achieving universal primary education by  They have also set a target of obtaining gender equality in primary and secondary education by 2005 and at all levels no later than The Millennium Development Goals for Education © Knowledge for Development, WBI

Challenge of Meeting Universal Primary Education ©Knowledge for Development, WBI

Implications for Tertiary Education Gaps remain in basic education, but higher secondary and tertiary education is becoming increasingly critical for effective use of knowledge creation and adaptation of knowledge global competition But not just full degrees and PhDs, but also shorter degrees from polytecniques and junior colleges specialized high level technical training in multiple institutional settings and across disciplines Developing countries are even further behind in enrollment ratios, flows, structure and quality of upper and tertiary education than in basic education ©Knowledge for Development, WBI

Implications for Lifelong Learning Stock challenge: rapid creation and diffusion of knowledge means even adults constantly have to learn, therefore need Multiple mechanisms for continuous training beyond formal education system To exploit potential of information and communications technologies to expand training opportunities Effective system for skills assessment and certification Flow challenge: education system must teach students how to learn through their lifetime regardless of when they leave it: implies need for Better teaching and learning pedagogies for core skills Broader interdisciplinary approaches Financing mechanisms to expand access and improve quality Developing countries need to address both stock and flow challenges, though severely financially constrained ©Knowledge for Development, WBI

Increasing Quality On most international standardized tests, developing countries do worse than average for OECD countries In part due to lower expenditures, and less complementary resources such as less educated teachers, fewer books and facilities But also due to more antiquated teaching pedagogy, less effective incentive regimes and governance structures And generally more regulated sector Need not only to improve resources, but also to improve pedagogy and institutional incentive regime ©Knowledge for Development, WBI

Increasing Equity Share of private financing of education in developing countries is already higher than in developed It is likely to have to increase because of limited government budgets As more toward more private financing already serious problems of inequality will be increased Government will have to pay more attention to addressing the equity problem

Responding to Increasing International Competition Higher levels and better quality of education increasingly critical for intl. competitiveness Education sector itself facing greater international competition Developing countries are going to have to make major investments in increasing quantity and quality of education and training In addition,their education and training sectors are going to have to become much more efficient and competitive This is going to require major reform and innovation, as well as better realignment of public and private roles as well as domestic and foreign

7: Way Forward Must improve productivity of education Improve efficiency through better management accountability etc Use ICT technologies Change the production function Improve incentive regime Change the content of education Basic skills Teaching learning to learn Just in time knowledge ©Knowledge for Development, WBI

Summary and Conclusions The knowledge revolution and the knowledge economy are a challenge to all countries Developing countries run big risk of falling behind They need to develop coherent strategies to take advantage of the new potential Improving access and quality of education; retraining and lifelong learning are at the very center of what they have to do to improve their prospects Because of the magnitude of challenge, can’t just replicate what traditionally has been done Need to learn about cost effective new approaches, tools and techniques Need to take advantage of these to leapfrog to catch up Conferences such as these are part of the process of re- thinking what has to be done, but then need to move to how-- implementation of new policies and more public and private partnerships and investment ©Knowledge for Development, WBI

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A N N E X ©Knowledge for Development, WBI

Benchmarking Changes Over Time ©Knowledge for Development, WBI Brazil INFORMATION INFR.: -Tel. Lines per 1000 people - Computers per 1000 people - Internet hosts per 10,000 people ECON. INCENTIVE REGIME: -Tariff & Non-tariff barriers -Property Rights -Regulation EDUCATION: - Adult literacy rate - Secondary Enrollment - Tertiary Enrollment INNOVATION: -Researchers in R&D - Manuf. Trade as % of GDP - Scient. & Tech. Pub. per million people

Strong Correlation KEI & GDP/Capita ©Knowledge for Development, WBI

Virtually No Productivity Increase in Most OECD Countries © Knowledge for Development, WBI

Three Sectors Compared ©Knowledge for Development, WBI Source: Knowledge Management in the Learning Society, OECD, 2000

Educational Attainment in OECD: Adult Population ©Knowledge for Development, WBI

Low Educational Attainment Among Adult Population in LDCs ©Knowledge for Development, WBI

Challenge of Meeting Universal Primary Education ©Knowledge for Development, WBI

Higher Education Enrollment Ratio (1997)

Average Exp./ Full time Student 1999 in US$ Equivalent PPP ©Knowledge for Development, WBI

Low Secondary Enrollment Rates Relative to Per Capita Income. Tasa Neta de Escolaridad en Secundaria, 1998 PIB per c á pita (en log), Nicaragu Guyana Ecuador El Salva Paraguay Jamaica Dominica Peru Colombia Belize Venezuel Mexico Costa Ri Brazil Trinidad Chile Argentin China Indonesi Philippi Thailand Malaysia Korea Hong Kon New Zeal Canada Australi Sweden Finland United S ©Knowledge for Development, WBI

Even Lower Tertiary Enrollment Rates Relative to Per Capita Income. Tasa Bruta de Escolaridad en Universidad, 1998 PIB per c á pita (en log), Haiti Nicaragu Honduras Guyana Bolivia Suriname Guatemal Ecuador El Salva Paraguay Jamaica Dominica Peru Colombia Belize Panama Venezuel Mexico Costa Ri Brazil Trinidad Chile Barbados Argentin Bahamas China Indonesi Philippi Thailand Malaysia Korea Hong Kon Singapor New Zeal Canada Australi Sweden Finland United S ©Knowledge for Development, WBI

La calidad de la educación también es pobre Resultados académicos promedio en las pruebas de matemáticas, lectura y ciencias y su relación con el PIB per cápita. Resultados académicos en ingreso nacional ©Knowledge for Development, WBI

Global Population and GDP by Income Classification of Countries Population Global population 6.1 billion GDP Global GDP 31,121US$ bn ©Knowledge for Development, WBI

Note: For the calculations of the Education Market shares we used 6.5% of GDP for the USA, 5.8% for High Income and 5.5% for the rest of the group classifications