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Innovation in Poland – Addressing the €10 billion Question

International Finance Desk — Fri, 20 Sep 2013 14:34:37 +0000

Innovation is considered a key component for growth in Poland and the country is utilizing €10 billion in structural funds from the European Union to stimulate commercially oriented research, particularly in the private sector.

20th September

Poland, as a high income country, is committed to fostering sustainable income growth for the bottom 40% of its population.

Utilizing World Bank Group Reimbursable Advisory Services (RAS), policymakers engaged experts from around the globe – including Chile, Israel, and Denmark – to develop strategies and design programs that would best leverage these funds.

It has been nearly a decade since Poland joined the European Union (EU), during which time the country has implemented a series of economic and social reforms that have transformed Poland’s economy and allowed the country to converge with other EU member states at an astounding pace. Although Poland has been one of just a handful of countries that has managed to expand at a relatively rapid pace during the ongoing financial crisis, the country’s economy is now slowing, with growth expected to reach only around 1% in 2013.

Amidst this slowdown, Poland continues to implement key economic initiatives, including those set forth in the Europe 2020 strategy, and remains steadfast in its commitment to foster sustainable income growth for the bottom 40% its population – as evidenced by the recently approved Country Partnership Strategy with the World Bank Group. As part of these efforts, policymakers have highlighted the overarching need for Poland to advance in private sector driven innovation – one of the most challenging areas for the country.

Despite efforts in recent years to improve innovation in the country, Poland remains a laggard in terms of overall spending on research and development (R&D). In 2010, spending on R&D in Poland amounted to just 0.74% of total gross domestic product (GDP) – less than half of that spent by the neighboring Czech Republic, which spent 1.56% of GDP. Furthermore, current spending on R&D in Poland is far below the 3% target set forth in the Europe 2020 strategy and only slightly closer to Poland’s own target of 1.7%. Now, buoyed by EU structural funds, Poland is taking measures to rectify this situation.

A New Relationship

In order to bolster innovation in the country, Poland is actively deploying numerous financial instruments, upgrading its research infrastructure, and building strategic international partnerships. With nearly €10 billion in EU structural funds earmarked specifically for improving innovation outcomes, the government in Poland is developing new strategies to help ensure the overall efficacy of new and ongoing initiatives in the sphere of innovation. Recognizing that past public expenditure in supporting private sector innovation may not have been as efficient as expected, officials in Poland are now exploring new avenues for these funds. As part of this process, the Ministry of Regional Development in Poland engaged the World Bank through Reimbursable Advisory Services (RAS) to develop a review of strategic and operational documents that can guide the country’s national and regional innovation policy until 2020, based on the new smart specialization concept developed by the European Commission.

This new relationship highlights the Polish government’s commitment to go beyond previous initiatives and explore new opportunities more capable of transforming innovation throughout the country – and the region as a whole. A recent workshop conducted by the government of Poland and the World Bank Group, held on June 28, exemplifies this new direction. This workshop was designed to present early findings from the World Bank’s review of national and regional innovation strategies – based on the new specialization concept – and analyze specific instruments that could potentially be applied in Poland to spur growth in innovations. This workshop included key officials and policy makers from both Europe and beyond – including Israel, Denmark and Chile. By engaging expertise from beyond the region at this workshop Poland is demonstrating a serious willingness to explore innovation from a global perspective – learning from best practices in order to calibrate its policies and scale programs.

Technology absorption in an economy like Poland’s will still be needed, of course,but there is no reason to continue subsidizing this absorption through government grants.

Marcin Piatkowski
Senior Financial Economist at the World Bank and co-author of the Poland Enterprise Innovation Support Review

From Catching Up to Moving Ahead

Scaling innovation in Poland to a global level is a pivotal element in the country’s drive toward continued economic growth. Over the last two decades, Poland’s economic trajectory has been guided by a need to catch up with Western European partners. Since 1989, incomes for more than 38 million people living in the country have more than doubled in real terms, the best result in the whole of Europe, and the country has grown faster than any of its neighbors in central Europe in recent years. However, a gap in income relative to western Europe still remains. To close this gap and continue its rapid convergence, Poland is now shifting its focus toward reigniting its economic engine by moving into a new economic future. Innovation – the development and commercialization of products, processes, and services that are new to the market – represents both a challenge and an opportunity for Poland as it looks to this future.

Growth in Poland over the last decade has relied more on technology absorption – the application of existing technologies and processes in a new environment where their market and commercial implications are not fully known – than on R&D and innovation. Now, as the Polish economy begins to slow while the global financial crisis drags on, policymakers must transition beyond the growth model of the past and begin looking toward new areas that can allow for an emulation of this past growth.

“Poland’s future will depend on its ability to nurture and scale internationally oriented companies that will position Poland on the global innovation map. With the forthcoming Smart Growth Operational Program 2013-20, the Polish authorities are well positioned to assume the necessary level of risk to significantly support entrepreneurial ventures and capitalize on the €10 billion boon,” says Natasha Kapil, Senior Private Sector Development Specialist and author of the report.

This latest commitment by Poland to expand the focus of innovation beyond both the country’s borders and the European region, along with the reinvention of its strategic relationship with The World Bank Group, demonstrates the country’s willingness to explore new avenues for innovation in the country and its desire to answer the challenges of innovation. The question, now, is whether the private sector will follow them into this new future.

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Romania has a great advantage on developing countries: It is part of the most important economic club in the world, the EU

International Finance Desk — Thu, 19 Sep 2013 06:07:51 +0000

The World Bank experts are involved in a consultancy project which will provide assistance to the Romanian authorities to develop the regional development strategy.

19th September 2013

The experiences and expertise of the World Bank goes back to the 1940s, with the first loan being offered to France – to help with the post-war reconstruction. Since then, the Bank has worked closely with many countries and has seen several of them -become advanced economies.

The experience of some of the new EU Member States (especially. Poland, Slovakia, Hungary, the Czech Republic) and of other developed countries throughout the world, may be most relevant for Romania. There are however other developing countries which could offer important insights for Romania. For example, Georgia has managed to complete an ambitious administrative reform, reducing bureaucracy and curbing corruption in a short amount of time. In Colombia, the World Bank has worked with local governments (e.g. the City of Bogota), to implement sustainable transport initiatives (e.g. the Bus Rapid Transit system). In India, the World Bank has helped implement a number of successful eGovernment initiatives.

When it comes to thinking about development, I would venture to say that there are few institutions in the world that can match the experience of the World Bank.But , naturally, I am biased.

Having regard to your recent visit in Romania, what is your opinion about the development potential of Romania, in particular regarding the economic geography of our country?To what extent do you think that similar experience on regional development issues in similar countries could be useful for a long term sustainable development of Romania?

IG: The development potential of Romania is very good. I do not know Romania as well as I should, but I generally assess the economic potential of a country by the willingness of its people to move to access opportunities. The plainfact that there are between two and three million Romanians working and studying abroad is a positive sign. Many see migration as a bad thing, but a high degree of mobility is a good thing. On the one hand, a high degree of mobility indicates that people in Romania have the education and skills that allow them to find jobs in developed economies. On the other hand, the experience and skills acquired by Romanians abroad will be important for the future development prospects of the country.

In my presentation on February 18th I talked about the experience of Ireland. Just a few decades ago, Ireland was one of the least developed countries in Western Europe, and with one of the highest emigration rate. In the past century, as much as 40% of the Irish population had emigrated looking for opportunities elsewhere. Now, Ireland is one of the most developed countries in the world, and it has welcomed job-seekers from other parts of Europe, including Romania.

Ireland is of course not the only country that has witnessed large emigration rates before reaching a developed stage. At the turn of the previous century, in 1900, the top emigrant-sending countries were: the British Isles, Norway, Portugal, Italy, Spain, Sweden, Denmark, Switzerland, and Finland. The one thing all these countries have in common now is that they are all developed, and some of them (such as the UK or Italy), continue to have high migration rates.

So, only knowing this small indicator (and not much about the make-up and dynamism of the Romania economy), and knowing that Romania is part of the biggest economic bloc in the World (the EU), I can say that your future prospects are good.

There is a fairly new strategic thinking promoted by World Bank regardingregional development and the approach on how to reduce regional/territorial disparities within a country. In this respectcould you explain what this about and what main ideas and messages that the World Bank is trying to convey?

IG: The thinking of the World Bank on economic development has evolved over the years. The World Development Report 2009 is one of the latest iterations (and not the last) of our thinking on the subject. Some of the lessons that are relevant for Romania have been outlined in the “Competitive Cities” report prepared by the World Bank team for the Ministry of Regional Development. The three most important lessons are:

Development is inherently uneven – don’t get scared by the unevenness, try to embrace it. Development requires a shift of resources (people, ideas, capital) to areas where they can be more productive. These are usually areas with greater economic mass. No developed country has managed to develop evenly. In fact, almost every country in the EU has a higher level of economic concentration than Romania. If you hope to be as developed as the rest of the EU is, you should welcome concentration, not fight it. Over time, as Romania will become more developed, regional differences in welfare will even out – the same way it has happened in more developed countries.
Development is about people, not about regions or cities. Romania’s development strategies should not focus on regions or cities, but on its people. Whatever you do, some regions will develop faster than others. This means that some regions will lose people (usually the lagging regions), while other will gain people (usually the leading regions). If your goal is to promote balanced regional growth, you will almost certainly fail. If however you aim to offer as many people as possible access to opportunities—by providing essential institutions (especially public security, education and health care)and good infrastructure you will create right conditions for healthy and rapid development, and with a more efficient use of limited public resources.
Development is about generating economic mass and increasing accessto economic mass. Romania has a very important advantage over other developing countries – it is close to the place with the highest economic mass in the World: Western Europe. It should take full advantage of this and try to build on it through further and deeper integration in Europe. This will require not only investments in strategic infrastructure (highway connections are critical in this respect), but also a focus on encouraging the movement of people within this space.

In the old approach on regional development more funds were allocated and invested in less developed regions. Which should be the approach to allocate the money in the future taking into consideration the vision of the World Bank? Do you think that more funds should be concentrated in the growth potential areas of the country or should the funds be allocated where it is needed the most?

IG: It is up to Romanian authorities to decide how they will use funds for development. The World Bank offer advicebased on what we have seen around the world, especially in the more successful cases in Europe.

What the World Bank has proposed in the “Competitive Cities” report is that the Regional Operational Programmecontinue with the type of investments it has done in the past, but allocate those in a more strategic way:

Investments in institutions (e.g. schools, health care centers, public services infrastructure – water, sewage, gas, etc.) everywhere.
Connective infrastructure with priority for leading areas (particularly infrastructure that connects people to the growth poles) and for lagging areas with high population density (such as the North-East).
Targeted measures for marginalized groups, whose access to opportunities is affected by external factors (e.g. ethnic discrimination).

It is up to Romanian authorities to decide how they will prioritize funds for lagging and leading areas. In the World Development Report 2009, the World Bank proposes that the priority should be given to investments in basic institutions in lagging areas. A second priority should be given to connective infrastructure in leading areas and selectively to connect lagging and leading regions. That is, it should be easy for people throughout the country to reach places with high economic mass). A good model is what Ireland did between the 1980s and until the early 2000s.

What is your opinion about the regional development policy of the European Union? Do you think the EU approach is suitable in the context of globalisation and taking into consideration the different level of development of EU Member States?

IG: The regional policy of the EU has been evolving continually, and the EU is the world’s most successful “convergence machine”. In no other place and at no other time in history have so many countries managed to reach a developed stage as they have in the EU in the past two decades. In this respect, the EU and its success in promoting development should be emulated by others.

We do consider however that the EU’s focus on balanced growth should be reconsidered. The experience of all new Member States shows that external convergence—catching up to wealthier economies—has alwayscome with internal divergence. In fact, one could say that internal divergence is a sign that development is actually happening. It is only when this internal divergence is in basic services like primary education and health care or when it becomes entrenched for long periods that it is something to worry about.

According to World Bank recent developments, cities are the most powerful economic engines and centres for innovation and employment. But cities also face challenges such as suburbanization, congestion, pollution, deprived neighbourhoods. Although the percentage of urbanization in Romania is lower than the UE average, the problems cities and town face are very similar. To what extent is it needed to address this issues and can you give some examples of solutions which have proven to be efficient in the past?

IG:Addressing the challenges you have listed above is indeed of critical importance. Growth is generated by cities, and successful cities are those that know how to deal with such challenges. The way this is done however will vary from city to city, and it should be the job of local authorities to find the best solutions. The World Bank has been workingsuccessfully with a number of cities to help them address their development challenges. I would recommend a recent World Bank book “Planning, Connecting, and Financing Cities—Now: Priorities for City Leaders”. It has a lot of useful information.

Taking into consideration you experience in delivering similar projects all over the world, can you give us one or more examples of cities that could be considered best practices in terms of urban development? And why do you see them as such?

IG: It would be presumptuous to list here best-practice cities. There are numerous examples that are worth noting, and listing only some, will not do justice to the others. But if you insist that I name a few whose experiences might be useful for Romania, I would include among them Barcelona in Spain, Leipzig in Germany, and Kazan in Russia. They are showing that economic density andlivability are not substitutes, but complements. I am sure that in a few years, I will be able to add Bucharest and many more Romanian cities to this list.

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