Human Capital and the National Innovation Strategy for

CompetitivenessThe case of Chile

Hernán AranedaHead, Centre for Innovation in Human Capital

Fundación Chile

Santiago, April 26th, 2010

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.).In2005 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 last15 years.

Chile’s background

Corruption Perception Index

20thOverall Ranking Among 146 Countries

1stAmong Latin

American Countries

Ranking

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 1987 2006% of population 44% 18%

Source: ECLAC

But…

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

� Unequal income distribution (0.55 Gini; 0.75 excludingthe highest income decile)

� Economy too dependent on commodities: more R&Dinvestment required

� Relatively low labour productivity

� Low quality of learning outcomes across the educationsystem (Simce, TIMMS, PISA, IALS)

� Uneven distribution of opportunities in higher educationand 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)

CHILECHILE

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 labouraccumulation 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 forCompetitiveness – National Innovation Strategy

� To propose a roadmap for a development process based oncompetitiveness 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 CAPITAL

HUMAN 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

cial

de

crec

imie

nto

(%

)

Servicios financieros

Plataforma de negocios para LA

Industria química

Minería no metálica

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 INNOVATIONBUSINESS 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

Nzeala

ndKor

eaFinl

and

Chec R

ep Che

caHolla

ndIre

land

Hungar

yGre

ece

Argenti

naChile

Mala

ysia

Spain

Mex

icoColom

biaPor

tuga

lBra

zil

Tertiary education graduates in theworkforce

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

01020304050

Finlan

dHolla

ndChec

Rep

Nzeala

ndIre

land

Spain

Hungar

yKore

aColom

biaMex

icoMala

ysia

ChileBraz

il

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 attainmentof the adult population: the stock problem

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%G

erm

any

Swed

enU

nite

d St

ates

Uni

ted

King

dom

Chi

leC

zec

Rep

ublic

Hun

gary

Portu

gal

Adult Functional Literacy Survey (1998)

Level 4/5Level 3Lever 2Level 1

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

PERFORMANCE LEVEL

% of Enrollment in HigherEducation

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

Per

cen

tag

es

1990 2003

Primary & Secondary Education: highcoverage, 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

Per

cen

tag

es

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

Per

cen

tag

e

Participation in training

Most participants in training come from bigcompanies…

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

Rat

e

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 initialeducation lacking basic skills

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

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

� Expansion of the market of post-secondary ed. andtraining providers (esp. private universities) but no publicinformation 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 forcompanies; no funding arrangements for individual workers.

� Vocational education not well funded by government: poorquality and relevance for industry

� A significant amount of (competent) workers withoutformal recognition for their skills

� Lack of a shared vision and agenda among ministeriesrelevant for LLL: education, labour, economicdevelopment.

LLL drivers and issues (2)

� Adult education, technical-vocational education, workforce training and career guidance systemsseen 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 vocationaleducation (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; IndustryAssociations; 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

IndustryEndorsed

CompetencyStandards

CompetencyAssessment & Certification

System

Labour MarketIntermediation /

InformationServices

HR Management(recruitment, selection, performance appraisal,

training, sucession plans, rewards, etc.)

TechnicalVocational Education

(secondary, postsecondary)

NationalTraining System

A systemic view fromthe 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

Estándares

6. 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

Estándares

6. 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 economicsectors

500 occupstandards, + employability skillsmodels (8 competencies) +entrepreneurshipskills

Methodologytransfer to300 VET providers

40.000 workers certifiedEmployability skills for7.000 students

-Web site competencystandards-New regulation-Media coverage

15 industry specific associations, 150 leading companies

A case of best practice in CompetencyDevelopment: the chilean Mining Sector

2000

INTEGRACIÓN EMPRESAS

(Estandarización)

CodelcoCollahuasiEscondida

Barrick

PILOTO EVALUACIÓN

1371 Trab.Codelco

CollahuasiEscondida

2001

ESTUDIO DE IMPACTO ECONÓMICO

CERTIFICACIÓN DE COMPETENCIAS EN

MINERÍA

Depto. AdministraciónUniversidad de Chile

2002

GIRATECNOLÓGICA

España - Inglaterra – Francia

Consejo MineroFundación Chile

CollahuasiEscondidaCodelco

Antofagasta Minerals

2008

PROMULGACIÓN LEYDE CERTIFICACIÓN DE

COMPETENCIAS

EXPERIENCIAS DEMOSTRATIVASEN EMPRESAS PRIVADAS Y PÚBLICAS

Codelco ChileEnami

CollahuasiBarrick – ZaldivarAnglo American

2009

LANZAMIENTO CATÁLOGOCOMPETENCIAS

SECTOR MINERO 2009

2003

INTEGRACIÓNGUBERNAMENTAL

ChilecalificaSence

Acuerdo

Fundación ChileConsejo Minero

Bid-Fomin

1999

CREACIÓN ÁREACOMPETENCIAS

LABORALESFUNDACIÓN CHILE

Gerencia deCapital Humano

1998

Where do we stand against the LLL agenda?

� Several pilots and demostrative projects articulatingsupply and demand at a regional level. Impactevaluation going on (WB).

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

� Competency “movement” underpinning curriculumdevelopment in most higher institutions across thecountry. “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 itsupports human capital in strategic economic clusters

Current issues

� Competing policy agendas still a problem: M.Educationtoo busy with the unfinished school reform andM.Labour with the pension reform and persistent youthunemployment

� A new policy for secondary and postsecondary TVET

� Qualifications framework informing pedagogicalinnovation and new learning materials

� Quality framework for QA and accreditation

� Diversifing funding mechanisms for learners beyondinitial education

� Innovation in education & training.