THE KNOWLEDGE ECONOMY!!!

THE KNOWLEDGE ECONOMY: IS SRI LANKA HEADING TOWARDS IT?

By Dr. J.M. Ananda Jayawickrema

A knowledge economy is defined as one that creates, disseminates and uses knowledge to enhance its growth and development. This definition is quite broader than the general perception of the knowledge economy which often refers to the use and the advancement of information technology. The above definition reveals that the content of the knowledge economy includes a wide range of aspects of the economy including the use and the advancement of information technology.

Knowledge has many forms and contributes to growth and development in different ways. Unlike the tangible assets of the economy, there has been little understanding of knowledge as an economic factor that contributes to the advancement of the society. The emergence of the knowledge-based economy is simply the outburst of information, data and codified and scientific knowledge. This explosion of knowledge is propelled by a revolution in information and communication technology (ICT) and greater involvement in research and development (R&D) activities.

In traditional societies, the generation of knowledge is conceived as a process internal to a single entity. Families of tribes gathered new knowledge and ideas to develop their hunting or farming tools and methods. But knowledge in modern days is increasingly a product of network entities. Though different entities engage in developing knowledge, individually or collectively, they often reveal their finding to others. With the rapid advancement of the ICT, newly created knowledge rapidly moves within the knowledge searching entities (firms, institutions, cross-borders), leading to further search of knowledge. Scientific or basic research has long been contributed to the update of knowledge and is essential to the knowledge-based economy.

It is evident that tasks of knowledge and processes of knowledge creation are becoming more and more rapid and decentralized. Also many forms of knowledge are becoming more complex and context-specific. The degree of the complexity of knowledge is increasing with the expansion of the context-specific knowledge creation. The expansion of the knowledge-based economy has been propelled by the following factors: scientific research and innovation; globalization of communications and commerce; integrative information infrastructure; commoditization of ICT and codified knowledge; vertical dis-aggregation of industry, and outsourcing; and expanded industrial value chains.

The creation of the knowledge economy involves a wide range of policy issues. These policy issues include public investment priorities, dissemination of research results, technology transfer, rules and regulations and the form and scope of private controls on information and knowledge. In many instances, knowledge creation has been the responsibility of public entities such as universities and other research centers, and private firms and private research centers. However, rapid movement of knowledge across different sectors and institutions should be encouraged for further creation of knowledge. The university-industry technology transfer and research coordination, the public funding of large cross-sector and multidisciplinary research projects and the creation of new markets for technology all reflect the importance of moving research and technology across boundaries in order to facilitate commercialization.

The use of the cyber-infrastructure efficiently involves cross subsidization of many intercom facilities such as internet. A deeper understanding of knowledge is necessary to support the vast knowledge-related investments, institutions, and laws of the economy. Movements of knowledge between entities do not pass through conventional priced markets and therefore cannot be counted as transactions. Further, knowledge is continually transformed by technology, market conditions, and institutions. Yet the growing scope, scale, and economic importance of knowledge demands an assessment that contributes not only to scientific understanding but to decision-making about the future of knowledge and the policies needed to realize that vision. Knowledge economy is a product of research, education, the technical workforce, scientific discovery and innovation. It is highly correlated with economic growth. To remain competitive in the global market, countries have to update their technology through increased investments on the knowledge based economy.

Measurement of Knowledge Economy

The state of the knowledge economy can be measured by Knowledge Economy Index (KEI) which takes into account whether the environment of a country is conducive for knowledge to be used effectively for economic development, and Knowledge Index (KI) which measures a country’s ability to generate, adapt and diffuse knowledge.

Sri Lankan knowledge economy was ranked 81 among 140 countries based on these indices. The knowledge economy score of 4/10 implies that not only the relative ranking but also the absolute level of score is unimpressive. Though it is ahead of the neighbouring countries like India (rank 100) and Bangladesh (rank 127), the knowledge economy of Sri Lanka is far behind that of countries such as Singapore (rank 19), Malaysia (rank 46) and China (rank 77). None of the four pillars of the knowledge economy (incentives and institutional regime, innovations, education and ICT) in Sri Lanka is satisfactory. In the economic incentives and institutional regime cluster, the country has scored high because of less restrictiveness of international trade. However, regulatory quality and rule of law scores are very low due to unsatisfactory state of regulation, law enforcement and predictability of the judiciary. The country’s score on the innovation system is very low because of inadequate research content. The educational aspect of the country’s knowledge economy is also unsatisfactory (score 5/10) despite the high literacy rate. Compared to Asian emerging economies, Sri Lanka’s ICT facilities are still quite inadequate (score 2.4/10).

Knowledge creation in Sri Lanka

Research is one of the main ingredients of the knowledge economy. It creates new knowledge or helps absorb the existing knowledge or technology with certain adaptation. Universities and higher educational centers function as main research centers. Post-graduate degree programmes and individual or collective research of academic staff contribute to the knowledge creation greatly. University staff with PhD level training is deemed to take a leading role in research. The research content of the Sri Lankan universities can be seriously questioned as they mainly function as undergraduate teaching centers. This can be observed in the number of students and the number of degree programmes. Postgraduate training and research orientation is remarkably low and unsatisfactory. In some cases, existing degree programmes attracts students not because of the attractiveness or the brilliance of the programme but because obtaining the degree is almost certain. In such cases, the quality of the programme and therefore objectives of the research works are not met. Offering post-graduate degrees for the sake of money making or sympathy would benefit neither the degree holder nor the country. Further, there are many PhD holders in universities who have not been able to train a single PhD candidate. The lack of a conducive environment for research and the lack of performance base promotion scheme have resulted in a very unsatisfactory research culture in universities. Many university teachers are more than happy to teach at undergraduate programmes and do not actively contribute to the creation of knowledge.

In sufficient resources allocated for R&D activities is another constraint for the knowledge generation. R&D covers basic research, applied research and experimental development. Public and private R&D spending includes current and capital expenditure oncreative work under taken systematically to increase knowledge and the use of knowledge for new applications. As given in the World Development Report, developed countries like Japan and the USA spend more than 2.5 percent of their GDP on R&D activities. Countries like Singapore, China and Malaysia have increased their R&D activities in 2003/2004 markedly from its figure in 1996. Singapore spends more than 2% of their GDP on R&D works. China also recently increased its R&D spending to about 1.5% of GDP. Malaysia, India and even Bangladesh have spent more than 0.5% of their GDP on R&D activities. However, both the private sector and public sector R&D activities in Sri Lanka together accounted for only 0.14 % of GDP in the year 2000 which is 0.04 percentage point lower than the figure in 1996. The country spends relatively very less amount on the search of new knowledge and the applicability of the existing knowledge. Further, the government has allocated only 0.24% of its total budget for the Ministry of Science and Technology in 2008. This implies that only a very small amount of resources are allocated to basic and applied research in universities and other research centers. Further, as private sector do not engage in high-tech production process and do not compete for such commodities in the global market, the research content of the private sector is very low. This absolutely low level of R&D spending is not sufficient to build the country’s knowledge economy.

The expansion of the tertiary education is an essential requirement for the knowledge economy. The university student and academic staff ratio has been increased from 16.3 in 2001 to 18.3 in 2006. During the period the number of students in universities has increased from 48899 to 66166 and university academic staff increased from 2999 to 3620. At the same time the number of students registered in technical colleges has been increased from 17345 in 2000 to 27199 in 2006. However, the number of teaching staff in technical colleges has fallen from 612 t0 526 during the period. As a result the student-teacher ratio in technical colleges has increased from 28.3 in 2000 to 51.7 in 2006. This increase in university and technical college student population has implied the broaden opportunities for the tertiary education.

Innovations and knowledge generation in the production sector requires many people trained in science and engineering fields. The proportion of science (16%) and engineering (10%) students is not quite high compared to arts (35%) and commerce and management (20%) graduates. It is also revealed that many science and engineering graduates leave the country seeking foreign employment which seriously hampers the domestic knowledge creation, innovation and economic growth. It is also learnt that the job creation in the economy for science and engineering graduates is also not quite impressive. According to the Labour Force Survey 2001, only about 18% of the total employment are professionals (5.7%), technicians and associate professionals (5.5%) and plant and machinery operators and assemblers (6.6%). Another 15% of employment fall into the category of craft and related workers.

Table 2 gives Sri Lanka’s post-graduate student population by academic stream. One positive aspect of post-graduate studies is the increase in the overall enrollment of the programme. The total number of students has increased by nearly 15% from 2003 to 2006. This is indeed a good sign of the expansion of the tertiary education and the research content of the universities. However, it seems that about 87% of the total post-graduate students are in the fields of arts, education and commerce/management studies. In particular, the number of post-graduate students in arts subjects has increased from 35% in 2003 to 46% in 2006. The post-graduate student population in the fields of science and information has fallen sharply. This certainly has a negative impact on the scientific research. However, the number of post-graduate students in the fields of engineering and architecture/quantity survey has increased from 32 and 27 in 2003 to 243 and 91 in 2006 respectively.

Another measure of the knowledge creation and knowledge update is the export share of high-tech products. The share of manufactured exports of total exports indicates the expansion of the industrial sector. Sri Lanka’s manufactured exports account for 70% of total exports and remain close to the world average (72%). However, the share of high-tech exports of manufactured exports is almost negligible in Sri Lanka (1%) and the South Asia (avg. 4%) compared to countries like Singapore (57%), Malaysia (55%) and China (31%). This very low level of high-tech exports implies that the country’s manufacturing sector is limited to the production of labour intensive, less productive commodities.

High-tech production process requires the country’s ability to consistently update the technology by domestic knowledge creation or by adaptation of new technology generated outside the country. The low level of R&D activities and lack of innovations have affected the transformation of the production from low-tech to high-tech products. The country’s low foreign investment volume (0.03% of world FDI) may be due to the lack of knowledge generation and less knowledge diffuse in the country. Foreign companies requires, apart from cheap labour and other cost effectiveness, host countries to have better condition for technology adaptation and search of new knowledge. Couple with cost effectiveness, this knowledge generation and better diffuse of knowledge attracts foreign firms that produces high-tech products. The lack of innovations and applicability of knowledge has resulted in the inflow of foreign investment on labour intensive and less technology intensive products. This low-tech labour intensive production cannot contribute to economic growth significantly as their productivity potentials are not high.

Conclusions

It is evident that the extensiveness of the Sri Lanka’s knowledge economy is absolutely low. In all the pillars that measure the knowledge creation and the ability of the knowledge diffuse the country’s performance is weak. Though the country started economic restructuring and liberalization process some thirty years ago, it has failed to establish a proper institutional framework and an incentive scheme to facilitate the exploitation of resources for economic growth and development. In particular the country’s regulatory quality and the rule of law has been evaluated and ranked at very low levels implying that rules and regulations are highly unpredictable and not facilitate the market incentives. Law enforcement is mainly governed by case-by-case analysis though there is a well established institutional and regulatory framework.

The generation and the diffuse of knowledge are unsatisfactory primarily because of issues in the tertiary level education and R&D activities. It is revealed that the bulk of graduates that the country produced are from the fields of arts and commerce/management. While these graduates are important for the functioning of the knowledge economy, innovations and technology adaptation in the production side depends more on science and engineering graduates. In recent years there is an increasing trend in the number of university students and technical college students. Further, only very few students engage in post-graduate studies. Many post-graduate studies are in the fields of arts, education and commerce/management while science and engineering post-graduate students are less. Low post-graduate degree enrollment and insufficient research content of the universities greatly affects the expansion of the knowledge economy. The lack of performance-based evaluation procedure for promotion and payments has largely affected the research activities among the university academic staff. The establishment of research culture among university academic staff is important for the future knowledge creation. In this respect, the government should establish few universities as high intensity research universities and facilitate research by channeling more funds. It is also important to introduce performance based evaluation method and payment incentives for those engaged in serious research. Due to the associated high risk factor and lack of incentives, private sector firms are reluctant to invest in R&D activities and innovations. While encouraging research in government and semi-government institutions, the government should actively promote R&D activities in the private sector as well.

Dr.J. M. Ananda Jayawickrema is a Senior Lecturer in Economics at the University of Peradeniya, Sri Lanka. He earned his Doctor of Philosophy degree in Economics from the National University of Singapore in 2007. His research interests are issues in public finance, government and economic growth; trade in services and service economy, macro-econometric modeling and policy simulation, issues in time series econometrics and matching estimation. He has published several research papers in international as well as local journals and in book chapters. He has also served as a Development Economist at the International Labour Office in Bangkok and Research Fellow at the Singapore Centre for Applied and Policy Economics.

Courtesy: Ground view magazine published by the Consortium of Humanitarian Agencies (Gte) Limited