Human Capital and National Innovation Strategy for Competitiveness in Chile

1. Human Capital and the National Innovation Strategy for Competitiveness The case of Chile Hernán Araneda Head, Centre for Innovation in Human Capital Fundación Chile Prepared for the OECD/Germany Workshop Advancing innovation: human resources, education and training Bonn, 17-18 November 2008

2. About Fundación Chile 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.

3. “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)

4. Strong Brand Name Recognition

5. Chile’s background • 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.

6. GDP : Annual Growth Rates Selected Countries: average 1990-2005 Chile is performing fine in several rankings… POVERTY 1987 2006 % of population44% 18% Source: ECLAC Corruption Perception Index Source: Transparency International (www.transparency.org), 2005

7. 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

8. The country’s most important goal: doubling percapita income in the next 15 years to become a developed country IMF: per capita GDP (US dollars, Sept. 2006) 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) Singapore (29,743) Taiwan (29,244) Spain (27,542) N. Zealand (25,655) Slovenia (23,159) Korea (21,887) Estonia (17,802) Lithuania (15,443) Argentina (14,838) Latvia (13,875) Malaysia (11,915) CHILE … 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.

9. 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.

10. 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) TFP contribution to growth 2007-2011 Selected countries* CHILE * Bálticos, Europa del Este y países de rápido crecimiento de Asia.

11. Three decisions to move forward Innovation • Increasing public funding to support the strategy (new mining tax). • R & D tax incentive for companies. • 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

12. INNOVATION STRATEGY HUMAN CAPITAL BUSINESS INNOVATION (value creation) R&D strategycally oriented COMPETITIVENESS EFFICIENT INSTITUTIONALITY (long term vision, “accountability”, regionally focused) SELECTIVITY Focus on economic clusters

13. 0.17 0.16 0.15 0.14 0.13 0.12 0.11 0.10 0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0.00 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 Selectivity: focus on clusters Outsourcing Serv.medio ambiente Industrias Crecimiento PIB en 10 a ñ os creativas 1 bill ó n de pesos Alto Alimentos Acuicultura procesados de Sectores que se Servicios consumo humano destacan financieros Vitivinicultura Fruticultura Pl á stico primaria Comunicaciones Plataforma de negocios para LA Horticultura Potencial de primaria Porcicultura y avicultura crecimiento (%) Educaci ó n superior Medicina Miner í a no met á lica Medio Log í stica y Farmac é utica especializada Construcci ó n transporte Consultor í a Bovino Alimentos proc . para Comercio minorista y ovino consumo animal L á cteo Miner í a del Industria cobre y qu í mica subproductos Turismo 1 Productos de madera Silvicultura Celulosa Bajo y papel Metalurgia Medio Bajo Alto Esfuerzo para lograr la competitividad necesaria (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

14. Science with strategic orientation BUSINESS INNOVATION Human Capital 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. 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. 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

15. Human Capital Stock

16. Tertiary education graduates in the workforce

17. Educational attainment of the adult population: the stock problem Source: Education Trends in Perspective – Analysis of the World Education Indicators. UNESCO-UIS/OECD 2005

18. Basic competence (prose): 50% of the population in performance level 1 PERFORMANCE LEVEL

19. % of Enrollment in Higher Education 90 80 70 60 50 1991 40 2004 30 20 10 0 Chile S.Korea Estonia Ireland Latvia Lithuania

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

21. Tertiary education enrollment by income quintiles

22. Participation in training

23. Most participants in training come from big companies… Source: SENCE and CASEN Survey 2003

24. 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

25. LLL drivers and issues (2) • 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.

26. LLL drivers and issues (3) • 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)

27. 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

28. Labour Market Intermediation / Information Services Industry Endorsed Competency Standards Competency Assessment & Certification System HR Management (recruitment, selection, performance appraisal, training, sucession plans, rewards, etc.) National Training System NATIONAL LABOUR COMPETENCY SYSTEM Technical Vocational Education (secondary, postsecondary) A systemic view from the National Competency System

29. Where we stand 2. Movilizar Actores Claves 3. Definir Estándares 1. Seleccionar e Identificar Sector Productivo 8. Actualizar Estándares según Necesidades 4. Validar Estándares con Actores 7. Promover y Claves MANTENIENDO LA Difundir VENTAJA COMPETITIVA 5. Adaptar Currículum y 6. Evaluar y Certificar Formación según Trabajadores Estándares 15 industry specific associations, 150 leading companies 500 occup standards, + employability skills models (8 competencies) + entrepreneurship skills MOBILIZE STAKEHOLDERS 2. Movilizar Actores DEFINE OCCUPATIONAL AND EMPLOYABILITY SKILLS STANDARDS 15 economic sectors Claves 3. Definir Estándares SELECT AND IDENTIFY INDUSTRY 1. Seleccionar e Identificar Sector Productivo UPDATE STANDARDS AS NEEDED VALIDATE STANDARDS WITH STAKEHOLDERS 8. Actualizar Estándares según Necesidades 4. Validar -Web site competency standards -New regulation -Media coverage PROMOTE AND DISSEMINATE Estándares con Actores KEEPING THE COMPETITIVE EDGE 7. Promover y Claves MANTENIENDO LA Difundir VENTAJA COMPETITIVA ADAPT CURRICULA AND TRAINING TO STANDARDS EVALUATE AND CERTIFY WORKERS / STUDENTS 5. Adaptar Currículum y Methodology transfer to 300 VET providers 6. Evaluar y Certificar Formación según Trabajadores Estándares 40.000 workers certified Employability skills for 7.000 students

30. 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

31. 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.