National HR strategies in a global context Luc Soete UNU-MERIT, University of Maastricht The Netherlands OECD/Germany workshop on Advancing Innovation: human resources, education and training, 17-18 November 2008, Bad Honnef

Outline Alternative HR models between firms and countries: underlying reasons Convergence between the two models of learning because of globalisation, lessons from Europe Global international education challenges Financial crisis and knowledge investments

1. Human Resources and the Knowledge economy: back to Schumpeter Useful to start from the old Schumpeterian distinction between the Schumpeter model I and Schumpeter model II innovation. Schumpeter I model: “Entrepreneurial model”: innovation as the basis of new firm foundation (ICT, biotechnology); individual inventor-entrepreneur, science based firms, blue angel/venture capital, importance of exit framework (functioning stock market, failure tolerance). Schumpeter II model: “Incremental innovation model”: stepwise innovations based on continuous accumulation of (tacit) knowledge; role of learning; internal human resource investments; professionalized R&D labs in large firms. These two models represent two different models of learning and HR management within firms and societies.

Dominance of two models in way firms operate at country aggregate level Schumpeter I model: USA Canada Australia Ireland Great Britain China Schumpeter II model: Germany France Benelux Scandinavian countries Austria Japan

With major underlying labour market and HR differences Anglo-Saxon model: Easy hiring and firing Shorter contracts Modest unemployment benefits Weak trade unions Labor relations are more ‘conflictuous’ Wage bargaining de-centralized Rhineland (Japan) model: Protection against firing Longer stay with same firm More generous unemployment benefits Strong trade unions Labor relations are more ‘co-operative’ Wage bargaining co-ordinated and centralized

Reflected in real wages differences (1960 = 100) 200 300 400 1960 1965 1970 1975 1980 1985 1990 1995 2000 2004 Cont.-European Anglo-Saxon Anglo-Saxon countries: Australia, Canada, New Zealand, UK and USA; Cont.-European countries: Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Portugal, Spain, Sweden; Source: Database of the Groningen Growth and Development Centre (http://www.ggdc.net/). Figure I-1: Development of real wages: Anglo-Saxon versus Continental-European countries (1960-2004)

Not in terms of real GDP growth (1960 = 100) 200 300 400 1960 1965 1970 1975 1980 1985 1990 1995 2000 2004 Cont.-European Anglo-Saxon Anglo-Saxon countries: Australia, Canada, New Zealand, UK and USA; Cont.-European countries: Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Portugal, Spain, Sweden; Source: Database of the Groningen Growth and Development Centre (http://www.ggdc.net/). Figure I-3: Development of real GDP: Anglo-Saxon versus Continental-European countries (1960-2004)

Strongly in labour productivity (value added per hour worked) (1960 = 100) 200 300 400 1960 1965 1970 1975 1980 1985 1990 1995 2000 2004 Cont.-European Anglo-Saxon Anglo-Saxon countries: Australia, Canada, New Zealand, UK and USA; Cont.-European countries: Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Portugal, Spain, Sweden; Source: Database of the Groningen Growth and Development Centre (http://www.ggdc.net/). Figure I-4: Development of labour productivity: Anglo-Saxon versus Continental-European countries (1960-2004)

In labour input (working hours) (1960 = 100) Total hours worked (1960=100) 100 120 140 160 180 200 1960 1965 1970 1975 1980 1985 1990 1995 2000 2004 Cont.-European Anglo-Saxon Anglo-Saxon countries: Australia, Canada, New Zealand, UK and USA; Cont.-European countries: Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Portugal, Spain, Sweden; Source: Database of the Groningen Growth and Development Centre (http://www.ggdc.net/). Figure I-2: Development of total hours worked: Anglo-Saxon versus Continental-European countries (1960-2004)

And in capital intensity of production (capital/output) (1960 = 100)

Traditional reasons for lower labour productivity growth Negative effects of flexibilization of the labour market (shorter job duration): Less loyalty and commitment (firm secrets and technological knowledge can more easily leak to competitors) Historical memory of the ‘learning organization’ suffers from frequent changes in personnel Manpower training is less attractive (short pay-back period) Strong growth of management functions for control and monitoring due to loss of trust and loyalty (frustrating for creative people) De-centralized wage formation: workers may appropriate part of the monopoly profits from innovation Continuous accumulation of incremental knowledge in a Schumpeter II innovation model is suffering from frequent changes of personnel

2. Knowledge on the move: an industrial research “past”? Strong focus on industrial R&D a phenomenon, characteristic of the industrial revolution. Long before going back into the 19th Century, experimental development work on new or improved products and processes was carried out in ordinary workshops; Technical progress was rapid then but techniques were such that experience and mechanical ingenuity enabled continued improvements to be made as result of direct observation and small-scale experiments and improvements. Distinctive feature about modern, industrial R&D its scale, its scientific content and the extent of its professional specialisation

Characteristics of “new” technological change Clear shift in the nature of knowledge accumulation: from industrial, “tight” to more undetermined outcomes, trial and error S&T Traditional industrial R&D was based on: Clearly agreed-upon criteria of progress and ability to evaluate ex post. Ability to “hold in place”, to replicate, to imitate.from laboratory conditions to industrial production A strong cumulative process: learn from natural and deliberate experiments. “New” technological change appears more based upon: Flexibility, hence difficulty in establishing replication. Trial and error elements in research with only “ex post” observed improvements, difficulty to evaluate. Problems of continuously changing external environments: over time, across sectors, in space.

Users as “innovators” Particular role of users in the R&D process itself: From technically skilled, bèta users (as in workshops) to simplicity in use Underlying process of “democratization” of innovation (Eric von Hippel) Particular role of SSH in providing research insights into users: not just with respect to industrial research output but also in particular with respect to service delivery Particular role of ICT with respect to interactive services (e-business and e-government) European diversity of users comparable to a long tail of diversification? SSH research appears essential in many areas of meta social transformations: Knowledge society, sustainable development, mobility, migration, etc. where “tight” industrial S&T solutions will not do.

Two forms of HR learning The Schumpeter I model is characterized by the so-called Science-Technology-Innovation mode of learning (Bengt-Ake Lundvall), characterised by the dominance of the science-approach i.e. formalisation, explicitation and codification The Schumpeter II model is characterized by Learning by Doing, Using and Interacting. It refers to more experience-based, implicitly embedded and embodied knowledge. The old view of a UK/European ”Paradox” ’Systems with a lot of good domestic science but less successful in innovation’ reflects by and large focus on STI, neglect of DUI. Today rather the opposite paradox?

Globalisation HR challenge: a double change in context Access to elements from the science base becomes increasingly important for firms in all sectors – calls for a strengthening of Schumpeter mode I of dynamics Entry of new high tech firms (grow or go) Most firms employ large amounts of personnel with academic/technical degrees in natural science, engineering, and SSH Firms interact more closely with researchers attached to universities or other public research institutes. But these changes contribute to accelerating change and callsfor a strengthening also of the Schumpeter mode II of learning Interdisciplinary workgroups Quality circles/groups Systems for collecting employee proposals from employees Autonomous groups Integration of functions

3. European higher education challenges In the EU, the case could be made that as in the case of trade diversion, a side effect of economic integration on HE and research activities within the EU has been intra-European knowledge diversion. Gradual move from national to European borders: Bologna, ERA, ERC most easily compared with a research single market with as yet though very limited mobility, let alone any structural HE institutional change. More concentration of research (not more students) needed: 200 US research universities, how many in Europe? Need for more differentiation (e.g. focus on graduate students) amongst higher education establishments Increased autonomy and selectivity in admissions (US and Asian examples), more inter-disciplinarity, changing mindset of students and staff, more flexible employment regime

Schumpeterian HE challenges Need for reform in European HE system in direction of excellence (cost of social cohesion), specialisation, mobility alongside the lines of the Schumpeter mode I view At the same time and at both research and HE level, Europe has many high quality large multilateral research and post-graduate research organisations: CERN, ESA, EMBL…, and national organisations: CEA, Max Planck Gesellschaft, TNO, IMEC, Fraunhofer Little cross-country learning of the Schumpeter mode II sort often because of lack of critical mass, few mergers Schumpeter mode II learning based on strong localised learning features with links to universities and regional “smart specialisation” based on particularisation

4. Current financial crisis: Short term impact on R&D The current financial crisis is likely to influence private R&D investments in a number of ways: The negative impact on profitability leads to a focus on most innovative segments of production at the expense of lower value added segments; Within the R&D portfolio, focus will be on most promising development areas at the expense of longer term, more risky projects. At employment level, likely to be labour hoarding in R&D; firing of flexible temporrary employment in production Paradoxically, the deeper the recession, the more likely Europe and the Netherlands might be coming nearer to the 3% R&D/GDP target in 2010!

Longer term impacts: outsourcing In the longer term though, a renewed focus on possibilities of increased international and domestic outsourcing of R&D so as to further reduce R&D costs More outsourcing of development parts to cheaper locations Outsourcing of existing private R&D infrastructure to local/national authorities as common, public “open innovation infrastructure” Increasing amount of basic R&D activities outsourced to (porfessional) universities

Onshoring and smart specialisation Distinction between public and private R&D investments becomes less relevant, search is on for synergies: Offshoring from private to public, public private partnerships between universities, (semi-)public research institutions, private firms Onshoring from private and public: attracted by similar locational facilities Emergence of smart specialisation clusters: From a research perspective globally linked and networked, From a financial perspective based on smart investment in locational infrastructures acting as physical attractor for onshoring of R&D activities. :

A new Global Knowledge Keynesianism? The current “fire prevention” of governments in financial institutions, with the temporary (partial) nationalisation of large national banks, raises questions about stronger local financial involvement in knowledge investments: Could the new financial “nationalism” in Europe be considered an anchorage instrument for the localisation of international knowledge In HE, international outsourcing and twinning with Southern partners as new form of more organisationally embedded international partnership Imagine… about 50 universities and professional universities in the Netherlands, about a similar number of research institutes Formal twinning will need to be coordinated by whom? True internationalisation of research and higher education

“Recherche sans frontière” Global research issues should become fully integrated in all applied research and HE in the developed world. Become core part of research and higher education institutions within an open research without borders environment.. At HE level integration in curricula and research activities of university and high school departments of global challenges At research level, global development involves broadening the scope of research activities to include more systematically all users groups (BoP), and in particular various communities of practice. Involvement of those groups appears increasingly essential for successful innovation. Particularly with respect to applied research, including design, the possibilities of such collaborative innovation processes will have to involve much stronger collaboration, interactions, and partnerships with research communities in developing countries.