Human Capital for Innovation and Competitiveness in Chile

What Next? Michael Crawford

The World BankSantiago, January 22nd, 2010

0 10,000 20,000 30,000 40,000 50,000 60,000360

380

400

420

440

460

480

500

520

540

560

BrazilColombia

ArgentinaJordanIndonesiaMontenegro

MexicoChile

Bulgaria

ThailandTurkey Uruguay

SerbiaIsrael

GreeceItaly

Portugal

Croatia

USARussiaSpainLatvia Norway LuxembourgHungary

Poland UKFrance

IrelandSweden

GermanySlovenia

AustriaIceland

Czech Republic DenmarkEstonia

AustraliaBelgium

New ZealandJapan

Canada

SwitzerlandNetherlands

Korea Hong KongFinland

GDP per capita (constant 2000 US$)

Me

an

PIS

A 2

00

6 m

ath

sc

ore

Figure 1. Average PISA 2006 Math Scores and per Capita GDP, by Country

The Race Between Education and Technology

• “The authors skillfully demonstrate that for more than a century, and at a steady rate, technological breakthroughs — the mass production system, electricity, computers — have been increasing the demand for ever more educated workers. And, they show, America’s school system met this demand, not with a national policy, but in grassroots fashion, as communities taxed themselves and built schools and colleges.”

--The New York Times, October 4,2008

Why Did the US do Well in the 20th Century in the Race between Education and Technology

• Two percent real productivity growth for 100 years; 7x GDP; large and relatively open market

• 1900-45: High School movement prepared large numbers of individuals to assume quasi-managerial jobs that emerged through industrialization

• 1946-76: When the challenges became more complex (post WWII), the GI Bill provided a second wave of more advanced HC

• 1900-76: Wage differentials decreased because provision did not lag demand

• 1976-present: Supply of high quality HC plateaued in the 1980’s, reigniting large wage differences

Where is Chile in this Race?

A few new sectors (Salmon, Fruit, Wine, Processed Foods) added almost 10B USD to GDP – [4% of output] but while relying mostly on knowledge embodied in capital, not in people. Growth based on “low hanging fruit.”

Chilean Growth Spurt (1985-98)Was Natural Resource Based

Singapore Korea China Thailand Japan Mexico Brazil Argentina Chile India Colombia0

10

20

30

40

50

60

70

0

50,000

100,000

150,000

200,000

250,000

300,000

2006 High-Technology Exports

High-technology exports (% of manufactured exports)

High-technology exports (current US$)

% o

f man

ufac

ture

d ex

port

s Cu

rretn U

S$ M

Source: World Bank Databases

Efficiency Should Precede Innovation

Energy Mining Financial Services

Retail Services Manufacturing Food/agriculture0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

30 33 37 39 40 41 44

70 67 63 61 60 59 56

Notional Current Productivity Compared to World Best Practice

World Best PracticeCurrent Productivity

Do Returns to Higher Education Reflect Productivity or Rent?

Basic Secondary Higher

1990 2.9 - 7.8 9.1 - 10.8 20.6 - 25.6

1992 3.6 9.9 22.1

1994 4.2 - 9.7 9.1 - 12.9 20.7 - 27.9

1996 3.2 11.3 21.4

1998 3.6 - 7.7 7.0 - 11.4 21.0 - 28.1

2000 7.0 11.0 29.3

2003 10.2 7.8 19.8

2006 9.5 6.8 19.4

Return on a year’s additional education by type of education (%)

Source: based on Mizala & Romaguera (2004) for1990-2000; www.futurolaboral.cl for 2003 and 2006

Is Tertiary Education Compensating for Weaknesses in Basic Education?

• Overall learning achievement is low (PISA 430)• Tertiary education makes up for poor development

of cognitive skills at secondary level• TE Grads earn high salaries because skills are scarce• Decent returns can be earned without risk, firms do

not have abundance of skills needed to innovate/expand

• Risk aversion by entrepreneurs lowers the demand for skills

Reaching Long-term goals depend on mitigation of disconnects in productivity

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 -

500

1,000

1,500

2,000

2,500

3,000

Chile's full-time equivalent (FTE) researchers per million inhabitants

Growing at historical rates plus Becas Chile

Growing to catch-up w/ OECD peer group

Time

FTE

rese

arch

ers p

er m

illio

n in

habi

tant

s

2,533

1,625

Three Main Questions

• What is Chile doing right in HCP?• Where can Chile do better? • What should the priorities be for

the next 5 years?

Things Chile Does Well Now

Overall-- Has a long-term(15-20 year) perspective for policy Significant efforts to improve primary and

secondary – Significant investments in human capital (tertiary

education, adult education and life-long learning) Important attempts to create a qualifications

framework Pilot for certification of competencies

Things Chile Does Well Now In Tertiary and Innovation

– Appropriate goals for tertiary coverage [50% and beyond]– Combination of market dynamism with reasonable quality assurance– Labor market info for student through Futurolaboral– Overcome the institutional resistance to provision of accurate data on tertiary

education

– Vast expansion of student aid with policy levers– Accreditation of CFTs/Ips linked to student lending– Experiments with results-based financing for universities– Incentives for retirement of retirement-age university professors– Bold program for adding an international dimension to technicians, master’s,

PhD, and post-doctoral training– Increases to R&D funding/enhanced role for CORFO

What Can Chile Do Better?– Improve PISA and TIMSS scores as an indicator of success for basic and

secondary education policy; – Vice Minister for Tertiary Education/Research– strengthened ability to

lead policy implementation – Shorten duration of university degree programs– Emphasizes CFT/IPs and create pathways for life long learning– Keep the spotlight on accreditation as a true driver of quality within

tertiary education. – Strengthen the financial rewards to efficient, high quality tertiary

institutions– Monitor closely delinquency and default rates as students begin to enter

repayment to protect the funding base of the CAE;– Encourage de facto profit-making by private universities– Clarify CONICYT’s mandate to support relevant R&D

Gaps in Knowledge for Policies

• What is driving job creation? • Who is hiring graduates and why: CFTs/Ips/Universities – by

sector?• Are tertiary graduates adding value?• What are the employment and educational profiles of EMTP

and ESHC graduates ?• Can young people with good ideas start businesses?• Will certification of labor competencies improve

productivity?• What Impacts have policy pilots initiatives had?

Where is the HC Going?

Total InactivePop. Econ Unemployed

Active Employed InformalFormal Manufacturing ISIC codes

Services ISIC codes

Futurolaboral is improving the availability of information, but the sector understanding of where HC is employed is still very partial

Learning from Experiments

• MECESUP

• Chile Califica

• Labor Competencies

Priorities Going Forward• Improve basic education as a gateway to all other gains• Increasing labor force skills – adult education and certification of

labor competencies– Document what has worked in Chile Califica and FC

• Emphasizes the role of CFTs/IPs and pathways to higher degrees– Accreditation, student aid, and community college model

• Stronger Mineduc for tertiary and research policy– Integrate MECESUP, BCP and CONICYT policies

• Revitalize Accreditation • Increase Performance based funding and reward efficient

universities• Take Mission-related research seriously – decrease investigator-

driven research