Makarov Valery L. (CEMI, Moscow) E-mail: makarov@cemi.rssi.ru ; Web: http//cemi.rssi.ru/

1. Knowledge Economy (Case of Russia) Makarov Valery L. (CEMI, Moscow) E-mail: makarov@cemi.rssi.ru; Web: http//www.cemi.rssi.ru/

2. Plan of Presentation • Indicators of Knowledge Economy • Who measures knowledge. • 3. Difficulties for cross countries’ comparisons • 4. Growing competitive structure • (Case of economics research institutions) • 4. Examples of Empirical Studies. • 5. Theory: Economics of Knowledge vs Standard Economics. • 6. Knowledge management. Points of Attraction 1. Centers of Knowledge Production. Concentration of intellectual capital. 2. New institutional structure in the epoch of Knowledge Society. 3. Generation of demand on Knowledge – direct function of state. 4. Tacit Knowledge – competitive advantage of Russia.

3. Knowledge measurement • Investments into Knowledge production grow faster then investments into production at large. (3.4%per annum vs.2.2%average) • in 90-s yearsforOECDcountries • (See. OECD (2001)) • 90%scientists and engineers live at present. • 90% quantity of knowledge is produced at the period of last 30 years.

4. Investments into the sector of knowlegde production % of GDP

5. Supply (production): • Natural (physical) units: number of pages, papers, articles, patents, inventions, new products, innovative firms etc. • Expenditures on R&D, higher education, computer software; • Cost of public goods. Demand (consumption): • Citations; • Publications in mass media; • Hits in Internet; • Indicators of patents and inventions application; • Value added in companies of high technology and science consumption sector

6. Indeces, ratings PPi ,Progressive Project institute, USA Annually issued started by 1999 года The 2002 State New Economy Index. 21 indicators across 50 statesof US as a base for Integrated index Centers of Knowledge production Production of Knowledge is located in few centers. Consumption of Knowledge is distributed evenly across states according to PPi measurement. OECD department, number of international associations, government and private institutions

7. Production of sectors with high rate of technology in billions of PPP dollars Russia 1999 data RUSSIA

8. High technology's products plus services in billions of PPP dollars RUSSIA

9. Transfer of technologies in millions of PPP dollars

10. Examples of empirical studies First phase: collection of data, second phase: empirical analysis, third phase: developing theory • 1.Porter M. E. and Stern S., (2000) measure knowledge by quantity of patents. The tree findingd of the paper are: • Annual flow of the patents is proportional to the stock of the patents in the country. • There is negative relationship between total (international) stock of patents and national productivity of R&D.It means that total international stock of knowledge press national R&D in contrast to common intuition. • Small but positive effect o the patents’ flow on TFP(Total Factor Productivity) • 2.KellerW. (2002) Geographic Localization of International Technology Diffusion” American Economic Review: The paper based on data of OECD countries, including expentitures on R&D and TFP for manufacturing industries at the periodfrom 1970 to 1995. • Two conclusions: • High technologies (expenditures of which are concentrated in 5 countries: USA, UK, Japan< Germany, France)expand to other countries back proportional to (physical) distance (with correction to intercontinental dummy) Speed and amount of technology diffusion grow with time. 3.Bloom N., Griffith R., and Van Reenen J. (2002) “Do R&D tax credits work Evidence from a panel data of countries 1979 – 1997” Journal of Public Economics 85, pp.1 –31. : The paper gives an empirical proof that investments of private sector to R&D depend on tax holidays. The paper based on data of 9 OECDcountries for the period of 19 years (1979 – 1997). The result: 10% of tax free adds 1% for R&D investments in short run and 10% in long run.

11. Share of expenditures on basic research in total R&D expentitures ( %)

12. Distribution of generated profit • Pazhitnov - $ 15 000 • Computer Center of Russian Academy of Sciences - $ 4 mln. • Company Nimtanda > $ 1 bln market value Tobin's Q = book value Average Q for Russian companies less then 0.3 Paragraph International Q = 40

13. Tacit knowledge Introduced by Polanyi, M. (1966) The Tacit Dimension, London: Routledge and Kegan Paul. Specific features of Russian culture: tacit knowledge must be competitive advantageof Russia. Follow traditions, transfer of knowledge on personal basis, less division of labor.Informal (groups, family, firms, clubs) education. • Tacit knowledge of institutions • Design teams in military industrial complex. • Submarines, nuclear ice break ships • Bill Gates: Knowledge Workers. Measurement, capitalization of institution’s tacit knowledge • Human capital: • Competence • Experience • Skill • Structural capital • Processes • Information systems • Data bases • Customers’ capital • Relations to clients • Brands • Trade marks

14. An Example of Breakthrough Fullerens • Publications480 (7%of total) • Authors 750 ( 460has one paper) • Patents44 + 5 • Grants of National Foundation 122 • Dissertations15 (1997-98) • 85% - Acad. Sci, 15%Universities

15. New features of Knowledge Economy • See, for example, Gibbons, M., Limoges, C., Nowotny, H., Schwartzman,S., • Scott, P. and Trow, M. (1994) The New Production of Knowledge:The Dynamics • OfScience and Research in Contemporary Societies,London: Sage Publications. • Number of sites of (applied) knowledge production, grows rapidly. Distributionof publications says about it. Significant part of studies does not go to publications. • Greater variety of institutions, involved into knowledge production. They are • communicate with each other widely. • New institutions appear in relation to a problem or substance, not in relation • to standard classification. • Emerged links are soft and volatile, its depend on a problem. • In general the system of knowledge production, distribution, consumption is • growing exponentially in terms of quantity of links.

16. Traditional system New system Laboratory – mediator – – consumer of knowledge Explicit division of labor Market of knowledge is organized by mediator Knowledge consumer participatesin creation of knowledge Market of products (knowledge itself)substitutes by market of services The concept “Knowledge Society” perfectly fits into the new system

17. Competitive environment in the field of economic research • State universities: National Academy under Federal government; Moscow State university (Economics Department, Moscow school of economics); Higher School of Economics; Plechanov’s Academy; Financial Academy; State institute of management; • Russian Academy of Sciences: 7 research institutes including CEMI; • Government research institutes: Institute of macroeconomics, SOPF, bureau of economic analysis, center of reforms, center of strategic analysis and monitoring institute under ministry of economics of RF; research group under ministry of finance of RF. • Non-government research bodies: New Economic School under CEMI, RESEP, CERIR, Gaidar institute, Illationov Institute, Shanin’s School, Institute of open economy under UCOS, EERC, research department in ALFA bank and others.

18. Lessons for Russia • 1. Leading Russian companies are going to be major players in Knowledge Economy. (Major investors in particular) • 2. The government should provide: • incentives to develop high technology business including its export • (taxes, tariffs, insurance, etc) • 3. Protection of small business by big corporations, by local governments