Human Capital and the National Innovation Strategy for

CompetitivenessThe case of Chile

Hernán AranedaHead, Centre for Innovation in Human Capital

Fundación Chile

Prepared for the OECD/Germany WorkshopAdvancing innovation: human resources, education and training

Bonn, 17-18 November 2008

Who we are:Fundación Chile is a non-profit, privately owned corporation, created in 1976 by an agreement between the Chilean Government and ITT Corporation (U.S.A.).In 2005 BHP Billiton became a co founder.

Our Mission:To increase the competitivity of human resources and productive sectors and services, by promoting and developing high impact innovations, technology transfer and management for the country.

About Fundación Chile

“There are three proven models worldwide that are examples for emerging economies: The industrialization model of China, The outsourcing model of India and the model of Fundación Chile” (OECD)

“…by 1982, Fundación Chile had its first salmon farm up and running. Seven years later it sold it to a Japanese company for $22 million” (Businessweek)

“In 2004, its first year, the laboratory turned out 1.7m partially fattened lilly bulbs, using up-to-date biotechnology. Vitro Centre is a joint venture between local investors, Fundación Chile and a Dutch firm… (The Economist)

Strong Brand Name Recognition

16 million people, native language spanish

Upper Middle income country, per capita GDP US$ 12.000 (purchasing power parity)

Average GDP Growth 1990-2005: 5,5 %

Global Competitive Index 2007: 26

Significant progress in poverty reduction: 44% to 18% (1986-2006).

Unemployment rate: 7.3 (best in 8 years)

High coverage in primary and secondary education

Participation in Tertiary Education has tripled in the last 15 years.

Chile’s background

Corruption Perception Index Ranking

Among Latin

American Countries

1st

Overall Ranking Among 146 Countries

20th

Source: Transparency International (www.transparency.org), 2005

5.9

5.5

4.5

3.1

2.6

2.5

2.4

2.0

1.3

0.6

9.0

6.1

Czech Republic

Hungary

Brazil

Argentina

OECD

Poland

Mexico

Indonesia

Chile

South Korea

Singapore

China

GDP : Annual Growth Rates

Selected Countries: average 1990-2005

Chile is performing fine in several rankings…

POVERTY 19872006

% of population 44% 18%Source: ECLAC

But…

Percapita income still lacks behind the OECD (40% of OECD average income level)

Unequal income distribution (0.55 Gini; 0.75 excluding the highest income decile)

Economy too dependent on commodities: more R&D investment required

Relatively low labour productivity

Low quality of learning outcomes across the education system (Simce, TIMMS, PISA, IALS)

Uneven distribution of opportunities in higher education and training

Low participation of women in the labour force

The country’s most important goal: doubling percapita income in the next 15 years to become a developed country

… and this is a major challenge. Only once in our history have we managed to double our per capita GDP in 16 years: 1988-2004.

IMF: per capita GDP(US dollars, Sept. 2006)

Estonia (17,802)

Lithuania (15,443)

Argentina (14,838)

Latvia (13,875)

Malaysia (11,915)

CHILCHILEE

Singapore (29,743)

Taiwan (29,244)

Spain (27,542)

N. Zealand (25,655)

Slovenia (23,159)

Korea (21,887)

USA (43,236)Canada

(35,779)Hong Kong

(35,396)

Finland (32,822)Australia (32,127)

UK (31,585)Sweden

(31,264)France (30,150)

Business as usual is not sufficient; We must decisively move towards a Knowledge Based Economy

Growth depends less on capital and labour accumulation than on efficient use of these factors (Total Factor Productivity).

We need to move from static comparative advantages linked to natural resources to a stage where the incorporation of more knowledge into products and services is crucial.

In brief - the capacity to transform knowledge into wealth, the capacity to INNOVATE.

Are we prepared?

Over the last decade TFP contribution has fallen dramatically…and forecasts are frightening. TFP would account for less than 25% of Chile’s growth in the 2007-2011 which compares poorly with the

figure for competing economies (40% to 50% according to The Economist Intelligence Unit)

Growth TFP Capital Labour

1984-1997 7.1 2.8 2.1 2.2

1998-2005 3.6 0.9 2.4 0.4

CHILESelected

countries** Bálticos, Europa del Este y países de rápido crecimiento de Asia.

TFP contribution to growth 2007-2011

Three decisions to move forward Innovation

1. Increasing public funding to support the strategy (new mining tax).

2. R & D tax incentive for companies.

3. Creation of a National Innovation Council for Competitiveness – National Innovation Strategy

To propose a roadmap for a development process based on competitiveness supported by human capital and knowledge.

To look after policy coherence Defining strategic objectives Defining the roles of agents Resource allocation aligned with the strategic priorities

INNOVATION STRATEGY

HUMAN CAPITALHUMAN CAPITAL

R&D strategycally oriented

R&D strategycally oriented

BUSINESSINNOVATION(value creation)

BUSINESSINNOVATION(value creation)

EFFICIENT INSTITUTIONALITY(long term vision, “accountability”, regionally focused)SELECTIVITY Focus on economic clusters

COMPETITIVENESS

Selectivity: focus on clusters

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.10

0.11

0.12

0.13

0.14

0.15

0.16

0.17

1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3 4.5

Horticultura primaria

Metalurgia

Consultor ía

Farmac éuticaMedicina

especializada

Bovinoy ovino

Industrias creativas

Serv.medioambiente

Acuicultura

Silvicultura

Comercio minorista

Outsourcing

Turismo 1

Porcicultura y avicultura

Celulosay papel

Productos de madera

Educaci ón superior

Comunicaciones

Vitivinicultura

Logística y transporte

PlásticoFruticultura

primaria

Minería del cobre y subproductos

Construcci ón

Lácteo

Alto

Bajo

Medio

Po

ten

cia

l d

e

cre

cim

ien

to (

%)

Servicios financieros

Plataforma de negocios para LA

Industria química

Minería no met álica

Alimentos procesados de

consumo humanoSectores que se destacan

1 billón de pesos

Crecimiento PIB en 10 a ños

Esfuerzo para lograr la competitividad necesaria

Medio BajoAlto

Alimentos proc. para consumo animal

(1) Dentro del sector de Turismo fue considerado el subsector de Turismo de Intereses Especiales, que tiene un dinamismo much o mayor que el sector de Turismo tradicional

Consolidate a business system aimed at the creation of value by means of innovation – in all its forms and aspects – as a competitiveness strategy in global markets.

BUSINESS INNOVATION BUSINESS INNOVATION

To establish an accessible and top-quality life-long-learning system which allows the country to rely on the relevant human capital the Knowledge Economy requires

HumanCapitalHumanCapital

Strengthen a platform for the creation, dissemination and application of knowledge in a permanent and consistent research effort coherent with the country’s productive and social problems.

Science with strategic orientation

Science with strategic orientation

Human Capital Stock

Average years of schooling (ages 25-65)

7,89

0

2

4

6

8

10

12

14

Tertiary education graduates in the workforce

Prof. and techn. as a % of the current workforce

01020304050

Distribution of the Population aged 25 to 64 years by highest level of education completed, 2003

0

10

20

30

40

50

60

70

80

90

100

Thailand2003/04

Paraguay2002

Peru 2002 Brazil 2002 Indonesia2002/03

Jordan2002/03

Chile 2003 Argentina2002

Uruguay2002

Malaysia2002

RussianFederation

2002/03

OECDmean 2003

WEI mean2003

%

Primary Lower secondary Upper secondary Tertiary (type B) education Tertiary (tipe A) education

Source: Education Trends in Perspective – Analysis of the World Education Indicators. UNESCO-UIS/OECD 2005

Educational attainment of the adult population: the stock problem

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Adult Functional Literacy Survey (1998)

Level 4/5

Level 3

Lever 2

Level 1

Basic competence (prose):50% of the population in performance level 1

PERFORMANCE LEVEL

% of Enrollment in Higher Education

0

10

20

30

40

50

60

70

80

90

Chile S.Korea Estonia Ireland Latvia Lithuania

1991

2004

PRIMARY EDUCATION COVERAGE BY INCOME QUINTILE, 1990 - 2003

95,6 96,9 97,7 97,5 98,998,5 99,1 99,5 99,5 99,5

0

10

20

30

40

50

60

70

80

90

100

I II III IV V

Income Quintiles

Pe

rce

nta

ge

s

1990 2003

Primary & Secondary Education: high coverage, low quality of learning outcomes (TIMSS, PISA, SIMCE).

SECONDARY EDUCATION COVERAGE BY INCOME QUINTILE, 1990 - 2003

73,9 77,280,8

87,194,5

87,792,0 94,2 96,9 98,8

0

10

20

30

40

50

60

70

80

90

100

I II III IV V

Income Quintiles

Pe

rce

nta

ge

s

1990 2003

Tertiary education enrollment by income quintiles

-

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

I 4,4 7,9 9,1 8,8 8,7 9,6 14,7 19,8

II 7,7 9,8 10,2 15,4 13,3 17,7 21,4 25,1

III 12,4 13,0 17,4 21,5 23,2 31,7 33,1 33,3

IV 22,0 23,9 32,1 35,2 38,9 43,0 46,9 47,2

V 40,7 41,2 54,8 60,0 65,4 67,4 73,6 67,1

1990 1992 1994 1996 1998 2000 2003 2006

ADULT PARTICIPATION IN TRAINING (15 to 60 years people)

13,9

9,1

13,6

0

2

4

6

8

10

12

14

16

CASEN Survey 1998 CASEN Survey 2000 CASEN Survey 2003

Pe

rce

nta

ge

Participation in training

Most participants in training come from big companies…

PARTICIPATION RATE IN TRAINING PROGRAMS BY ENTREPRISE SIZE

6,0

18,3

26,0

38,6

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0

40,0

45,0

1 to 9 10 to 49 50 to 199 200 or more

Number of workers

Ra

te

Source: SENCE and CASEN Survey 2003

LLL drivers and issues (1) High coverage in initial education but low quality of

learning outcomes (TIMMS, PISA, etc.)

A significant % of adult population without initial education lacking basic skills

Students lacking academic and employability skills for a friendly school-to-work transition

Increasing demand for post-secondary learning opportunities: education seen as the vehicle for social mobility (high private returns, etc.)

Expansion of the market of post-secondary ed. and training providers (esp. private universities) but no public information about graduates labor market outcomes

Concern about quality and relevance of programs, accreditation frameworks still to be piloted

Disjointed “systems” providing LLL and training opportunities,

Public effort on training limited to a tax incentive for companies; no funding arrangements for individual workers.

Vocational education not well funded by government: poor quality and relevance for industry

A significant amount of (competent) workers without formal recognition for their skills

Lack of a shared vision and agenda among ministeries relevant for LLL: education, labour, economic development.

LLL drivers and issues (2)

Adult education, technical-vocational education, workforce training and career guidance systems seen as missing pieces in the 90’s reforms

Learning outcomes and not only “inputs” and “processes” as the best approach once universal coverage is achieved

Lack of a coherent public policy on vocational education (both secondary and postsecondary)

LLL drivers and issues (3)

Strategy

Main purpose: design and piloting new arrangements, capacities and funding mechanisms supporting LLL

Multisectorial: Min of Education; Min Labour & Social Affairs; Min of Economic Development; Industry Associations; companies

Combination of remedial actions; learning innovations; institutional innovations; ”demostrative projects”

Diverse clientele:

adults with low educational attainment (unemployed / bad jobs); young people attending VE; Workforce

NATIONAL LABOUR COMPETENCY SYSTEM

Industry Endorsed

Competency Standards

Competency Assessment & Certification

System

Labour Market Intermediation /

Information Services

HR Management(recruitment, selection, performance appraisal,

training, sucession plans, rewards, etc.)

Technical Vocational Education

(secondary, postsecondary)

National Training System

A systemic view from the National Competency System

1. Seleccionar e Identificar Sector

Productivo

2. Movilizar Actores Claves

3. Definir Estándares

4. Validar Estándares con Actores Claves

5. Adaptar Currículum y Formación según

Estándares6. Evaluar y Certificar

Trabajadores

7. Promover y Difundir

8. Actualizar Estándares según Necesidades

MANTENIENDO LA VENTAJA

COMPETITIVA

1. Seleccionar e Identificar Sector

Productivo

2. Movilizar Actores Claves

3. Definir Estándares

4. Validar Estándares con Actores Claves

5. Adaptar Currículum y Formación según

Estándares6. Evaluar y Certificar

Trabajadores

7. Promover y Difundir

8. Actualizar Estándares según Necesidades

MANTENIENDO LA VENTAJA

COMPETITIVA

SELECT AND IDENTIFY INDUSTRY

KEEPING THE

COMPETITIVE EDGE

DEFINE OCCUPATIONAL

AND EMPLOYABILITY SKILLS

STANDARDS

VALIDATE STANDARDS

WITH STAKEHOLDERS

ADAPT CURRICULA AND TRAINING TO

STANDARDS

EVALUATE AND CERTIFY WORKERS /

STUDENTS

PROMOTE AND

DISSEMINATE

UPDATESTANDARDS AS NEEDED

MOBILIZE STAKEHOLDERS

Where we stand

15 economic sectors

500 occup standards, + employability skills models (8 competencies) +entrepreneurship skills

Methodology transfer to 300 VET providers

40.000 workers certifiedEmployability skills for 7.000 students

-Web site competency standards-New regulation-Media coverage

15 industry specific associations, 150 leading companies

Where do we stand against the LLL agenda?

Several pilots and demostrative projects articulating supply and demand at a regional level. Impact evaluation going on (WB).

Some of the regulations needed in place or in final stage of approval (ie National Competency System)

Competency “movement” underpinning curriculum development in most higher institutions across the country. “Modules” and “Competency Based VET Programs” being developed.

National Agenda for Innovation and Competitiveness, a new driving force for LLL in the country, as far as it supports human capital in strategic economic clusters

Current issues

Competing policy agendas still a problem: M.Education too busy with the unfinished school reform and M.Labour with the pension reform and persistent youth unemployment

A new policy for secondary and postsecondary TVET

Qualifications framework informing pedagogical innovation and new learning materials

Quality framework for QA and accreditation

Diversifing funding mechanisms for learners beyond initial education

Innovation in education & training.