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Achieving sustainable growth Will new Europe fly or crawl in the 21st century global knowledge economy Symposium: „The Future of Europe. Sustainable Development and Economic Growth?” Vienna September 12-13, 2007 Dr Krzysztof Rybiński* National Bank of Poland Deputy Governor Email: [email protected] Blog: www.rybinski.eu * Views presented here are my own and they do not necessarily represent the official position of the National Bank of Poland or the Financial Services Authority. Presentation based on paper Radzikowski, Rybiński (2007) Economic growth in the long run… GDP per capita in 1990 US$ (converted at Geary Khamis PPPs, US=100) 100 90 80 70 60 50 40 30 20 10 EU-15 USA NIE's 04 01 20 98 20 95 19 92 19 89 Latin America 19 86 19 83 19 80 19 77 19 74 19 71 19 68 CEE-4 19 65 19 62 19 59 19 56 19 53 19 19 19 50 0 China Source: Groningen Growth and Development Centre and the Conference Board, Total Economy Database, January 2007, http://www.ggdc.net. From the middle of the 70’s there has not been much convergence of Western Europe towards the U.S. NIEs recorded an enormous acceleration from the end of the 60’s. China woke up in the 80’s. After an initial decline in the beginning of the 90’s, CEE-4 had to start their convergence actually from scratch. www.rybinski.eu …and in the medium run GDP per capita in 1990 US$ (converted at Geary Khamis PPPs, 1989=100) 340 300 260 220 180 140 100 NIE's 06 05 20 04 20 03 20 02 20 01 Latin America 20 00 20 99 20 98 19 97 USA 19 96 19 95 CEE-4 19 94 19 93 19 92 EU-15 19 91 19 90 19 19 19 89 60 Although CEE-4 are the most successful group among the postcommunist countries, their growth since 1989 has been negligible when compared to NIEs and China. China Source: Groningen Growth and Development Centre and the Conference Board, Total Economy Database, January 2007, http://www.ggdc.net. www.rybinski.eu Institutional factors and policy-mix Index of economic freedom in 1990 Size of Government 10 9 8 7 6 5 4 Regulation 3 2 Legal System & Property Rights 1 0 EU-15 CEE-4 USA Freedom to Trade Internationally In the beginning of the transition most institutions in CEE-4 were yet fledgling. Policies were being transformed from centrally planned into market oriented. Latin America & the Carribean NIEs Sound Money China Source: Fraser Institute. www.rybinski.eu Institutional factors and policy-mix Index of economic freedom in 2004 Size of Government 10 9 8 7 6 5 4 Regulation 3 2 Legal System & Property Rights 1 0 EU-15 CEE-4 USA Freedom to Trade Internationally Since then many institutions have been founded and policies improved but… Some maintained weak. Others converged to the EU’s welfare state model. Latin America & Carribean NIEs Sound Money China Source: Fraser Institute. www.rybinski.eu Social development Poverty headcount ratio at $2 a day (PPP) (% of population) 80 70 60 50 40 30 20 10 Korea, Rep. Source: World Development Indicators 2007. 04 03 20 02 20 01 20 00 20 99 20 98 Latin America & Caribbean 19 97 19 96 19 95 19 94 19 19 93 92 CEE-4 19 91 19 19 90 19 19 89 0 China “The key to solving the problem of crisis-induced poverty lies in guaranteeing stable economic growth and creating new jobs (Górniak 2001).” The UN’s goal of halving the world’s poverty by 2015 from its 1990 level is likely to be reached mainly due to a spectacular and sustained growth recorded by East Asia and the Pacific and South Asia. www.rybinski.eu Income inequality It is important to stress that globalization reduces 60 250 inequality, as documented in Sala-i-Martin (2006). 50 200 However, while 40 150 globalization allows poor 30 countries to catch up, 100 20 which reduces 50 10 international income 0 0 inequality, at the same time there is a trend of rising intra-country Source: WIDER World Income Inequality Database; World inequalities. Development Indicators 2007; U.S. Census Bureau; Korean Decile dispersion ratio (10th income decile/1st income decile) 48.0 200 38.8 154 143 125 124 123 109 18.5 11.9 7.1 8.7 3.8 EU-15 5.4 Hungary 1989-91 11.1 10.1 5.9 Poland 2002-2005 USA 7.4 9.9 9.3 Latin Korea America & Carribean 6.4 Taiwan China Percent change (1989-91=100, right scale) Statistical Information Service; Report on The Survey of Family Income and Expenditure in Taiwan Area, National Statistics Republic of China (Taiwan). www.rybinski.eu Income distribution Compensation of employees (in % of GDP) 70 102 96 99 96 89 60 82 58 59 57 54 52 50 93 52 52 50 49 48 42 43 40 51 44 41 37 36 32 29 30 20 EU-15 Czech Slovakia (excl. Republic Portugal, Ireland) 1990 2000 Poland (20002005) 2006 USA Japan India Singapore* (20002004) In many countries compensation of 100 employees as a share of 80 GDP declined. 60 It suggests, that 40 globalization of the labor 20 market was accompanied by the rising bargaining 0 power of corporations. Percent change (2000=100) * Data on Singapore refer to earnings and exclude employer social contributions. Source: Ecowin Databases: Ecowin Economic and OECD QNA. www.rybinski.eu Health Life expectancy at birth, total (years) 82 80 79.6 79.3 107 77.7 78 76 106 75.8 75.2 74.4 74 105 72 74.3 105 72.5 70.6 71.8 104 70 103 68 68.9 68.1 66 64 62 EU-15 CEE-4 1990 2005 USA Latin America NIE's (excl. & Caribbean Taiwan) China Percent change (1990=100, right scale) Source: World Development Indicators 2007. The 70’s saw a major deterioration in health 108 trends in all CEE-4. 107 It reflected an overall 106 negative situation of health 105 in communist states. 104 Although many common 103 health problems in CEE-4 102 still remain more prevalent 101 than in the EU, overall health conditions have improved dramatically. www.rybinski.eu Health Infant mortality rate (per 1,000 live births) 45 42.8 64 40 38.0 61 61 35 54 52 30 26.1 40 25 23.0 20 5 40 30 14.2 15 10 While these trends in CEE-4 are highly positive 70 the superior performance 60 of NIEs in this area is also 50 meaningful. 20 9.4 7.8 5.8 4.0 6.0 7.3 10 4.0 0 0 EU-15 CEE-4 1990 2005 USA Latin America NIE's (excl. & Caribbean Taiwan & Hong Kong) China Percent change (1990=100, right scale) Source: World Development Indicators 2007. www.rybinski.eu Environmental protection CO2 emissions (kg per 2000 PPP $ of GDP) 1.4 1.32 90 1.2 83 78 1.0 0.86 67 67 60 0.8 0.68 0.58 0.6 0.60 0.56 0.43 0.4 The communist economies led to an intensive and 100 90 excessive use of natural 80 resources. 70 0.65 50 40 0.38 0.34 0.33 49 0.40 30 20 0.2 10 0.0 0 EU-15 1990 CEE-4 2003 USA Latin America NIE's (excl. & Caribbean Taiwan) China Percent change (1990=100, right scale) Source: World Development Indicators 2007. www.rybinski.eu Environmental protection CO2 emissions (metric tons per capita) 25 152 19.3 20 19.9 103 103 15 106 102 80 10 9.3 9.6 10.1 8.3 8.0 8.8 5 2.4 2.4 3.2 2.1 0 The transition process itself as well as the mixture 160 of pressure and incentives 140 from the West brought 120 about a number of 100 80 significant changes (e.g. a 60 switch to less share of 40 heavy industry in the 20 economy). 0 EU-15 CEE-4 1990 2003 USA Latin America NIE's (excl. & Caribbean Taiwan) China Percent change (1990=100, right scale) Source: World Development Indicators 2007. www.rybinski.eu Environmental protection CO2 emissions (million kt) 7 173 6 173 180 160 5.79 140 4.82 5 125 120 4 4.14 102 120 100 3.12 3.19 83 3 80 As a consequence CO2 emissions slumped. CEE-4 was the only group of countries that managed to reduce the absolute amount of CO2 emissions. 2.40 60 2 1.30 1.04 1 0.62 0.52 40 0.54 0.31 20 0 0 EU-15 CEE-4 1990 2003 USA Latin America NIE's (excl. & Caribbean Taiwan) China Percent change (1990=100, right scale) Source: World Development Indicators 2007. www.rybinski.eu Environmental protection Electricity production from coal sources (% of total) 80 77.9 71.2 70 49.8 50 66 53.1 50.4 95 42.2 57.5 53.7 109 93 84 40 30 126 59.1 60 27.8 20 10 3.8 4.7 0 Market energy prices broke the tradition of 160 140 excessive coal 120 consumption in favor of, 100 less harmful to the 80 environment, energy 60 40 sources such as oil and 20 gas. 0 EU-15 CEE-4 1990 2004 USA Latin America NIE's (excl. & Caribbean Taiwan & Singapore) China Percent change (1990=100, right scale) Source: World Development Indicators 2007. www.rybinski.eu Environmental protection Exposure of companies transmitting and 120 distributing energy to 100 market competition as well 80 as liberalization and partial 60 privatization reduced 40 wasteful practices. 20 Electric power transmission and distribution losses (% of output) 116 18 16.7 106 16 14.3 92 87 14 80 12 69 10 8 6 9.0 7.7 9.3 7.9 6.4 6.1 6.9 7.3 6.9 6.3 4 2 0 0 EU-15 1990 CEE-4 2004 USA Latin America NIE's (excl. & Caribbean Taiwan) China Percent change (1990=100, right scale) Source: World Development Indicators 2007. www.rybinski.eu What matters? Romer (1986) argued that one of key factors of economic progress are innovations, ideas or more broadly knowledge. His second observation was non-rivalry of ideas, which has a number of important consequences. Knowledge, however, is only one of the three components of intellectual capital. Structural and relationship capital are the other two. The ability to source knowledge globally has become a key advantage that can be exploited by small countries with excellent knowledge infrastructure (such as Finland or Ireland). It can be used to leverage growth by large corporations or small companies. Thus knowledge economy seems to be the growth engine in the 21st century. www.rybinski.eu Large corporations did better … Employment and profit share of the 150 largest corporations listed in the U.S., 1994 and 2004. 100% 80% 54 61 60% 72 71 28 29 40% 20% 48 39 0% 1994 2004 1994 2004 100%=570 bn 100%=1393 bn 100%=33.8 bn 100%=59.6 bn Profit share 150 largest corporations Employment share Corporations ranked 151-2000 in size In 10 years the share of largest firms in employment remained unchanged while their share in profits rose. What contributed to this massive increase of profit per employee? Is this question valid for entire countries or regions? Source: Bryan, Zanini (2005). www.rybinski.eu … amid development of IC The share of intellectual capital in the market value of corporations listed in the U.S. (in US$ trillion) 100% 36 80% 60% 48 60 75 40% 64 52 20% 40 25 0% 1994 2004 1994 2004 100%=1.8 tr 100%=11.9 tr 100%=2.5 tr 100%=10.8 tr 150 largest corporations Remaining market value Source: Bryan, Zanini (2005). Corporations ranked 151-2000 in size Book value Partial answer to this question is that in the case of largest corporations the value of intangibles rose at a very fast pace. Although there could be several explanations, the most plausible one is that the level of intellectual capital in large corporations exceeds that in the medium ones, which is adequately priced by the financial markets. www.rybinski.eu Globalization strategies adopted by new global challengers Model 1: Taking RDE brands global Model 2: Turning RDE engineering into global innovation Model 3: Assuming global category leadership Model 4: Monetizing RDE natural resources Model 5: Rolling out new business models to multiple markets Model 6: Acquiring natural resources Source: Aguiar et al. (2006), The Boston Consulting Group. www.rybinski.eu Higher education important for knowledge potential School enrollment, tertiary (% gross) 90 80 70 60 50 40 30 20 10 EU-15 CEE-4 USA Latin America & Caribbean Source: World Development Indicators 2007. 04 20 03 20 02 20 01 20 00 20 99 19 19 91 0 Korea Tertiary enrollment is an important indicator of future knowledge potential. The gap between U.S. and other regions has narrowed. Interestingly, South Korea has become the leader. China is closing its gap China with the Latin America. CEE countries last year reached 50% ratio. www.rybinski.eu Higher education – absolute values are important too Higher education students (incl. universities) in thousands 30000 25000 20000 15000 10000 5000 EU-15* USA 06 05 NIE's 20 04 20 03 Latin America & Caribbean 20 02 20 01 20 00 20 99 20 98 19 97 19 96 19 95 19 94 19 93 CEE-4* 19 92 19 91 19 19 19 90 0 China * Data for Germany are available from 1992 and for the Czech Republic and Slovakia from 1993. Source: Euromonitor International from national statistics/UNESCO. Bearing in mind that the quality of education is not similar in all regions it is also worth to look at the absolute numbers as it may be a good proxy for the future number of domestic researchers. Recent years have witnessed an important shift in this area. www.rybinski.eu Higher education – absolute values are important too University students in thousands 14000 12000 10000 8000 6000 4000 2000 EU-15* USA 06 05 NIE's 20 04 20 03 Latin America & Caribbean 20 02 20 01 20 00 20 99 20 98 19 97 19 96 19 95 19 94 19 93 CEE-4* 19 92 19 91 19 19 19 90 0 China * Data for Germany are available from 1992, for Luxembourg from 1999 and for the Czech Republic and Slovakia from 1993. Source: Euromonitor International from national statistics/UNESCO. We can safely predict that the number of students will increase further in China. The absolute number of students in CEE-4 has also increased significantly, but the gap with NIEs remained. It is also worth noticing that LAC countries make steady progress. www.rybinski.eu Current ability to innovate Researchers in R&D (per million people) 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 Latin America & Caribbean 04 20 03 20 02 20 01 20 00 99 98 USA 20 CEE-4 19 EU-15 19 19 97 19 96 0 NIE's (excl. Taiwan & Hong Kong) Source: World Development Indicators 2007. China The current ability to innovate can be assessed by the number of researchers. The U.S. continues to dominate the world both in terms of researchers intensity and absolute number of researchers in R&D. However in terms of researchers’ intensity both the EU-15 and the NIEs are closing the gap. www.rybinski.eu Current ability to innovate Researchers in R&D in thousands 1600 1400 1200 1000 800 600 400 200 EU-15 CEE-4 USA Latin America & Caribbean 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 19 19 96 0 NIE's (excl. Taiwan & Hong Kong) Source: World Development Indicators 2007. China In absolute number of researchers China is the third biggest in the world, although the quality of researchers there may not be as good as in the U.S. or the EU. It is evident that in the last ten years the research gap between the NIEs and the CEE-4 has been growing. www.rybinski.eu How much on R&D and ICT Research and development expenditure (% of GDP) 3.0 2.5 2.0 1.5 1.0 0.5 Latin America & Caribbean 04 20 03 20 02 20 01 20 00 99 98 USA 20 CEE-4 19 EU-15 19 19 97 19 96 0.0 NIE's (excl. Taiwan & Hong Kong) Source: World Development Indicators 2007. China R&D expenditure measures funding available to people with great ideas. The EU has been closing the gap with the U.S. in terms of R&D spending as a ratio of GDP. In the last ten years there was no improvement in R&D spending in CEE-4 countries; it lags badly behind China. www.rybinski.eu How much on R&D and ICT Information and communication technology expenditure (% of GDP) 10 9 8 7 6 5 4 EU-15 CEE-4 USA Latin America & Caribbean 20 05 20 04 20 03 20 02 20 01 20 00 3 NIE's (excl. Taiwan)* Source: World Development Indicators 2007. China ICT expenditure is a proxy for country ability to source knowledge globally. ICT is likely to facilitate factors that are important in achieving technical progress. The EU lags badly behind the U.S. in terms of ICT expenditures. With growing importance of ICT using industries for productivity growth it may signal the Europe’s troubles lying ahead, despite its improvement in R&D spending. www.rybinski.eu How much on R&D and ICT Total R&D spending per capita (in ECU/euro) 630.2 .8x + y = 33 1.7 + 38 2.3x 4 = y 1200 1000 800 600 6.1 y = 16.1x + 25 In terms of absolute levels of spending per capita U.S. and Japan still top the league and exhibit similar volatility pattern. 400 200 EU-15 Liniowy (Japan) 05 20 04 Japan Liniowy (CEE-4) 20 03 20 02 20 01 20 00 USA Liniowy (EU-15) 20 99 20 98 19 97 19 96 CEE-4 Liniowy (USA) 19 95 19 94 19 93 19 92 19 91 19 19 19 90 0 06 y = 3.4x + 8.6 y = 1.3x - 4.2 China Liniowy (China) Source: Eurostat, CEIC Data ISI Securities China Premium Database. www.rybinski.eu How much on R&D and ICT Total R&D spending per capita (in ECU/euro, 1991=100) 1200 1000 800 600 400 200 EU-15 CEE-4 USA Japan 06 05 20 04 20 03 20 02 20 01 20 20 00 99 20 98 19 97 19 96 19 95 19 19 94 93 19 92 19 19 19 91 0 While U.S. and NIEs are world leaders in terms of R&D and ICT spending, China has made an enormous progress, raising R&D spending per capita 12 times over the last 15 years. China Source: Eurostat, CEIC Data ISI Securities China Premium Database. www.rybinski.eu Now the outcomes Scientific and technical journal articles per million people 800 700 600 500 400 300 200 100 EU-15 CEE-4 USA Latin America & Caribbean NIE's (excl. Taiwan)* * From 2000 data for NIEs exclude Hong Kong Source: World Development Indicators 2007. 03 20 02 20 01 20 00 20 99 19 98 19 97 19 96 19 95 19 94 19 93 19 92 19 91 19 19 90 0 China Similar picture emerges when one looks at the outcomes, e.g. number of scientific and technical journal publications. The U.S. and EU-15 dominate the world in terms of publication intensity. In early 1990s CEE-4 published twice as many papers per million of citizens than NIEs, but in recent years these proportions have changed dramatically. www.rybinski.eu Now the outcomes Patent filings by office in 2005 in thousands 400 381.5 359.4 352.4 350 300 250 202.8 200 179.0 100 50 150.4 149.7 150 133.2 122.5 94.2 93.2 40.0 27.9 24.0 3.5 0 EU-15* 0.4 4.4 3.9 CEE-4 USA 4.1 Latin America-6* residents 22.1 8.4 NIE's (excl. Taiwan) non-residents China total Japan The statistics showing patent filing do paint an interesting picture. Japan and the U.S. are the leaders, while China, NIEs and EU-15 are high in rank. CEE-4 does not exist on the world patent map. Instead of focusing on generating more innovations companies, regions and countries should find and analyze their weakest links in the innovation value chain, and take corrective actions. * Data for EU-15 are the sum of patent filings from national patent offices and the European Patent Office. According to WIPO, EPO patent filings in 2005 amounted to 60.8 thousands. The total number of patent filings for EU-15 may be overstated as the EPO grants patents on behalf of the member states of the European Patent Convention (EPC), the membership of which is larger than that of the European Union because some EPC member states are not members of the European Union. Furthermore many European patent applicants seek patent protection in multiple EPC member States, therefore, nonresident patent filings by Europeans in other EPC member State offices and at the EPO have become common. For the same reasons the total number of patent filings for CEE-4 may be underrated. Data for Italy are not available. Latin America-6 includes: Brazil, Chile, Colombia, Cuba, Ecuador and Peru. Source: World Intellectual Property Organization. www.rybinski.eu Now the outcomes Researchers in R&D and total number of patents filed No. of total patent filings by office in 2005 in thousands 400 USA 350 300 250 200 NIE's (excl. Taiwan) 150 EU-15* China 100 50 0 CEE-4 Latin America-6* 0 200 400 600 800 1000 Researchers in R&D in thousands (average in the years 1996-2004) 1200 * Data for EU-15 are the sum of patent filings from national patent offices and the European Patent Office. According to WIPO, EPO patent filings in 2005 amounted to 60.8 thousands. The total number of patent filings for EU-15 may be overstated as the EPO grants patents on behalf of the member states of the European Patent Convention (EPC), the membership of which is larger than that of the European Union because some EPC member states are not members of the European Union. Furthermore many European patent applicants seek patent protection in multiple EPC member States, therefore, nonresident patent filings by Europeans in other EPC member State offices and at the EPO have become common. For the same reasons the total number of patent filings for CEE-4 may be underrated. Data for Italy are not available. Latin America-6 includes: Brazil, Chile, Colombia, Cuba, Ecuador and Peru. Source: World Intellectual Property Organization. The U.S. has only marginally higher number of researchers than EU-15, but records twice as many patent filings. NIEs are much more effective that China, but smaller number of researchers produces almost as many patents as EU-15. It does indicate many weak links in the innovation generation process in Europe. www.rybinski.eu Now the outcomes R&D spending and total number of patents filed No. of total patent filings by office in 2005 in thousands 400 USA 350 300 250 200 150 China EU-15* NIE's (excl. Taiwan) 100 50 Latin America-6* CEE-4 0 0.0 0.5 1.0 1.5 2.0 2.5 Research and development expenditure (% of GDP) (average in the years 1996-2004) 3.0 When the effectiveness of money spent on R&D is taken into account we see that the U.S. holds a supreme position. China files almost as many patents as EU-15 with half of the EU-15’s level of R&D expenditure as a share of GDP. CEE-4 spend much more on R&D than LAC countries, and produce fewer patents. Both regions hardly exist on the world R&D map. * Data for EU-15 are the sum of patent filings from national patent offices and the European Patent Office. According to WIPO, EPO patent filings in 2005 amounted to 60.8 thousands. The total number of patent filings for EU-15 may be overstated as the EPO grants patents on behalf of the member states of the European Patent Convention (EPC), the membership of which is larger than that of the European Union because some EPC member states are not members of the European Union. Furthermore many European patent applicants seek patent protection in multiple EPC member States, therefore, nonresident patent filings by Europeans in other EPC member State offices and at the EPO have become common. For the same reasons the total number of patent filings for CEE-4 may be underrated. Data for Italy are not available. Latin America-6 includes: Brazil, Chile, Colombia, Cuba, Ecuador and Peru. Source: World Intellectual Property Organization. www.rybinski.eu FDI may help… Inward FDI stock (in % of GDP) 60 50 40 30 20 10 USA Source: UNCTAD, World Economic Outlook. 05 04 NIE's 20 20 03 02 Latin America & Caribbean 20 01 20 20 99 98 00 20 19 19 97 96 19 19 95 94 CEE-4 19 93 19 19 92 91 EU-15 19 19 19 90 0 China As documented above CEE-4 countries lack ability to generate great ideas and to transform them into new products or services. Therefore it appears that foreign direct investments become the most important modernization channel. Indeed CEE-4 became a very large recipient of FDI. www.rybinski.eu FDI may help… Only NIEs economies managed to attract higher FDI stock in relation to GDP and enjoy higher FDI annual inflows. FDI, net inflows (% of GDP) 20 18 16 14 12 10 8 6 4 2 EU-15 (excl. Luxembourg) CEE-4 USA Latin America & Caribbean 05 04 20 03 20 02 20 20 01 00 20 99 20 19 98 97 19 96 19 19 95 94 19 93 19 19 92 91 19 19 19 90 0 NIE's (excl. Taiwan) China Source: World Development Indicators 2007. www.rybinski.eu …if well-targeted High-technology* exports (% of manufactured exports) 45 40 35 30 25 20 15 10 5 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 0 EU-15 CEE-4 USA Latin America & Caribbean NIE's (excl. Taiwan)* China * High-technology exports are products with high R&D intensity, such as in aerospace, computers, pharmaceuticals, scientific instruments, and electrical machinery. Data for Hong Kong are included from 1992. Source: World Development Indicators 2007. However, in the global knowledge economy it is important to attract high foreign direct investments to sectors that can become globally competitive. While CEE-4 significantly improved the structure of exports, the high-tech goods account for only 12 percent of manufactured exports, which is the world’s worst result. www.rybinski.eu Who will be thought, innovation and idea leaders? The 21st century will see a new paradigm. Data shown above suggest that China and NIEs will become thought, innovation and idea leaders. A very fine summary of this line of thought was offered by Hexter, Woetzel (2007): “In such a competitive hothouse, adapted practices will evolve quickly, and as China merges into the world economy best practice there will become best practice globally. More products developed in China will become global products; more industrial processes developed in China will become global processes. The ability to develop a Chinese talent pool will therefore be critical across all functions. Learning how to execute in China – the world’s most competitive market – will teach companies how to compete more aggressively elsewhere”. www.rybinski.eu Why not us? The last few years were very good for CEE-4 countries. However, the analysis presented in this section identified important structural deficiencies of CEE-4 knowledge economies. In particular they lack the ability to generate innovations. Although they have attracted large pool of FDI it seems to have been located in relatively low value added industries. It suggests that, after a period of EU-accession positive output shock, CEE-4 may find it difficult to maintain fast and sustainable growth path. Another major deficiency of Europe, which was inherited by new Europe as well, is the lack of ability to create shared and ambitious vision, strategic goals and successful implementation of strategic plans. Last but not least, new Europe is struggling with massive emigration to Western Europe which has become a significant „brain drain”. No action has been taken so far to convert it to „intellectual capital gain”. www.rybinski.eu Conclusions Data presented in this paper suggest that the ability to retain technological leadership by the U.S. and especially by the EU is rapidly vanishing because: Population of present and future innovators in Asia (China and NIEs) is rapidly enlarging; Environment is much more competitive in many Asian markets than in Europe or the U.S., and tough competition breeds success; Sharply increasing return to education (white-collar wages) will lead to even faster closing of the technology and innovation gap between the U.S. and China or NIEs; Biggest developed world democracies, the EU and the U.S. lack clear vision and strategy; Western world has failed to understand the importance of intellectual capital to future prosperity. www.rybinski.eu Recommendations Abolish present “destructive creation”. Create long-term vision reaching out to 2050. This vision has to be universally shared by citizens and politicians, based on this vision strategic action plans have to be developed. Analyze what assets are needed to fulfill that vision, invest to create these assets. Conduct a careful analysis of strategies developed and implemented by most successful global corporations, especially those from emerging markets. There will be no success in the 21st century without courage or luck. Do not bet your future on being lucky! Innovation cannot emerge without reaching an adequate level of intellectual capital. The quest for intellectual capital of the 21st century has already begun. Both the old and the new Europe have to wake up and join the race. www.rybinski.eu Thank you Comments and questions most welcome!!! Dr Krzysztof Rybiński National Bank of Poland Deputy Governor Email: [email protected] Blog: www.rybinski.eu