Sunday, October 29, 2006

The Brain Business

As nations are transitioning from industrial to knowledge based economies, the economic statistics have not kept up. Here is one attempt in Europe to measure who is doing best at fostering and using knowledge and skills.

Until now, though, it has been frustratingly hard to measure who is fostering knowledge best. Instead, there have been partial indicators, such as who spends what on research and development. Or there have been indicators of something slightly different, such as competitiveness rankings compiled by the World Economic Forum, the organisers of annual conferences in Davos.

Hence the value of a brave stab at measuring knowledge and skills, broadly defined. It comes from two European think-tanks, the Lisbon Council in Brussels and the Frankfurt-based Deutschland Denken (Think Germany), and has been devised by Peer Ederer of the Zeppelin University in Friedrichshafen.

Mr Ederer's scorecard has four columns. First comes a country's knowledge base or, as economists call it, “human-capital endowment”. This is the imputed value of all the effort that has gone into educating and training everyone in the country. Formal study is part of it, but so is the value of time spent parenting. Results here vary surprisingly widely between countries, with Sweden doing brilliantly and Italy poorly.

This column also includes adult education and in-house training by companies. In turns out that these have at least as big an impact on a country's ability to create knowledge as the relative performance of its education system does. The resulting score for human-capital endowment is then depreciated, for what is called, with delightfully euphemistic tact, “obsolescence in the knowledge base and some level of forgetting”.

Next comes employment. It is no good training people and giving them splendid skills if they don't have a job, so the second measure is “human-capital utilisation”. That is a bit like a traditional employment rate but weighted for education, training and the rest of it. And as it is not much use training people and giving them jobs if they are working inefficiently, the study therefore includes a third measure, of productivity, to capture how well a country is using knowledge. It divides economic output by the human-capital stock (normal productivity measures, in contrast, divide output by the number of hours worked). Lastly, Mr Ederer included demographic change, since even if a country has well-trained people, with good jobs, working effectively, its knowledge base will still decline if low fertility means its working-age population is shrinking.
I think that sounds pretty good and wouldn't mind someone doing a similar study by state in the US.

And who are the winners in Europe?
Putting that lot together, you come up with an overall score. European countries divide into three groups: A-grade students (with Sweden easily the best, followed by Denmark, Britain, Austria and the Netherlands); muddlers in the middle (Finland, Ireland, France and Belgium); and lastly duffers who ought to be held back a year (Spain, Portugal and—oddly—Germany, with Italy trailing way behind).
And how does this compare with just looking at standard economic measurements?
In some ways, these grades might not look all that surprising. They are similar to what you would get if you looked at countries' general economic management over recent years: the Nordics (including Britain and Austria as honorary members) are doing well; Mediterranean and large continental economies are in trouble.
And there is the rub. While the current economic statistics might not capture the information that seems most relevant, they still end up being a good proxy and give similar results.

via The Economist

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