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Cover Story: The Way Ahead --- Knowledge-based Economy PDF Print E-mail

Reform of the educational system is considered fundamental to providing the creativity, skills, and other forms of human capital required to raise the economy to another level. Also needed will be increased attention to research and design.

Reform of the educational system is considered fundamental to providing the creativity, skills, and other forms of human capital required to raise the economy to another level. Also needed will be increased attention to research and design.

By Tim Culpan

It's become something of a mantra, heard whenever an academic or politician talks about the future direction of Taiwan's economy. Having created its first economic miracle through a strong manufacturing economy, Taiwan now must build a "knowledge-based economy."

The idea seems so compelling, so idealistic, that few would even think to question it. Indeed, if you believe the hype from some quarters, the establishment of a knowledge-based economy would be tantamount to creating a utopia on the island. But putting one's finger on precisely what the term actually means is another story. The challenge in defining the essence of a knowledge-based economy highlights the difficulty of realizing it. After all, how can you achieve a goal if you don't quite know what it is?

In researching this article, TOPICS spoke to economists and other scholars, business leaders, human-resources specialists, and education ministers past and present, most of whom had plenty to say on the subject but struggled to come up with a concise and cogent definition. The clearest statement was this one from Education Minister Huang Jong-tsun: "A knowledge-based economy is one which emphasizes the production, distribution, and use of knowledge ... and it can cover many industries." In fact, his definition is borrowed straight from the OECD, which has written extensively on the matter.

Understanding the Mantra


If this definition at first glance seems a bit simplistic, it has a profundity that reveals itself on closer examination. "It depends on how you define 'knowledge,'" Huang elaborates. "In a classical definition, knowledge comprises the mystery that is hidden behind the curtain," he says. "Both creativity and productivity are part of the knowledge-based economy." For Taiwanese, knowledge has traditionally been what is in the textbook. But in a knowledge-based economy, the driving spirit must be to constantly strive to expand the limits of what is known, not merely to master what is already known.

Rather than rehash thousands of years of philosophical discourse on the theory of knowledge, let's let modern-day scholars in Taiwan take us to what it means for today's economy. Wu Rong-i, president of TIER, goes straight to Economics 101, which explains that economic output is determined by the three basic factors of production: land, labor, and capital (outlined in the Cobb-Douglas production function). Taiwan's traditional industries were founded on an abundance of land and labor, but not much capital. (Capital, in an economic sense, is not simply money, but also ideas and entreprenuership.)

Technical, managerial, and other kinds of knowledge were required, Wu says, "but not so much since land and labor were the most important parts."

A knowledge-based economy, on the other hand, needs knowledge capital. Heaps of it. Beyond just having the right combination of land and labor resources, for example, such an economy relies on expertise to ensure that those resources are utilized in an optimum way.

Going further in economic theory to Economics 102, an economy works most efficiently when it utilizes the factors of production that it possesses in greatest abundance. Nobel-winning economists Paul Samuelson and Robert Solow both later modified the Cobb-Douglas production function by adding on the component of technological advancement, which is realized through knowledge. For Taiwan to be truly regarded as a knowledge-based economy, it must not merely have knowledge, but it must have it in great abundance -- more than it has land and labor.

At the same time, to have knowledge, and simply to use knowledge to add value and make industry more efficient, does not make an economy knowledge-based. Going back to Minister Huang's definition, such an economy "emphasizes production, distribution, and use of knowledge." The distinction, while subtle, is important, and must be understood and remembered by academics and policy formulators who promote the goal of building a knowledge-based economy. Put simply, a knowledge-based economy has knowledge at its very core, not merely as an additional, optional feature.

Examining the Need


But is the development of a knowledge-based economy necessary? That conclusion is not self-evident, given Taiwan's 40 years of success accomplished by pursuing traditional industries from agriculture through manufacturing.

Many commentators start from a negative premise, pointing to the flight of industries and jobs across the Taiwan Strait as an "obvious" reason to move toward a knowledge-based economy. But some of the leading proponents of a knowledge-based economy regard that line of thinking as unfounded. Paul Hsu, senior partner at the law firm of Lee & Li and founder and executive director of the Epoch Foundation, notes that Taiwanese industrialists have been taking their production offshore for 15 years. Although many traditional manufacturing industries have moved to Southeast Asia and China since the late 1980s, they have still remained firmly under the control of Taiwanese companies. "Even though Taiwan manufacturers moved out of Taiwan, Taiwanese industries were not losers," he says.

Hsu is quick to dismiss the economic doomsday theories. "A lot of politicians talk about 'hollowing out' and 'selling out' Taiwan -- it's rubbish," he says. "The reason Taiwanese went into Southeast Asia is the same reason why the Americans came to Taiwan" several decades ago -- a division of labor extending beyond the utilization of cheap manpower to encompass such areas as sourcing, supply-chain development, and resource management.

The growth of Southeast Asia and China into manufacturing centers "is exactly the game Taiwan was playing 30 years ago," Hsu says. "But should we play that game now? Of course we shouldn't. That's the old game. Why should we try to exert all this effort fighting for labor-intensive manufacturing?"

To Hsu and others who look on Taiwan's current economic structure as an opportunity and not a problem, the importance of building a knowledge-based economy is not simply to replace the industries that have migrated to Southeast Asia or China. Rather it is to manage those industries using the experience, skills, and worldwide contacts that Taiwan has accumulated. Already, while manufacturing is done in China or Southeast Asia, the sourcing, negotiating, and delivery is managed out of Taiwan.

"We are now integrating all of the resources available in other countries," Hsu says. "The question is, if we don't play [the old] game [of labor-intensive manufacturing], then what's the new game?" It's precisely this new game that requires a move to a knowledge-based economy. Simply seeking to be better and better at the old game will not be enough. To use a sports analogy, rather than training harder and longer to try to stay at the top of the league, Taiwan needs to take up a new sport entirely, with a change in team members and equipment.

Taking Up the Challenge


Having pondered it for some time, Taiwan's leaders officially took up the challenge to build a knowledge-based economy in August 2000. At that time, three months into President Chen Shui-bian's term, the Cabinet approved a plan drawn up by the Council for Economic Planning and Development (CEPD) designed to steer Taiwan toward that goal.

Then-CEPD Chair Chen Po-chih pointed out that Taiwan's prospects to build a knowledge-based economy along the same lines as the United States or Europe were limited by the fact that Taiwan's foundation in science and technology is not as advanced. In a May 2001 interview with the Taipei Times, Chen cited three ways to overcome that disadvantage. The first was to focus on increasing the use of knowledge in Taiwan's already strong and competitive production sectors. Second was to pay heightened attention to the creation and marketing of knowledge. Finally, Chen proposed developing closer ties between industry -- particularly small and medium-sized enterprises -- and the island's research institutes.

In its final form released in January 2001, the government policy statement consisted of six parts: Setting up a job-creating mechanism to help establish new enterprises, building up Taiwan's Internet infrastructure, expanding applications for information technology and Internet websites, reforming the educational system, fostering a service-oriented government, and taking steps to prevent Taiwan from losing its technological edge.

When the government officially adopted the program, it pledged to spend NT$30 billion (US$862 million) on a series of 57 programs over five years. One of the shorter-term goals was an "e-government" initiative to set up a single website within three years for citizens to access all government services. That has so far not been achieved.

Perhaps the most significant aspect of the government policy was the long-term goal it set for itself. The pass/fail point for the government's knowledge-based economy program was defined as whether the production value of knowledge-intensive industries increases to 60 percent of GDP by 2011. In 1996, the proportion of knowledge-intensive industries was 31.6%, while by 2001 it had climbed to 36.1%, according to the CEPD. By that measure, building a knowledge-based economy will clearly be a tough task, though one that ought to be achievable if the right steps are taken.

Why 'Jan-ni' Can't Analyze


The most important of those steps, nearly everyone agrees, is to revamp the educational system to make it suitable for the development of knowledge workers.

That need was addressed by Stan Shih, chairman and CEO of the Acer Group and the father of Taiwan's PC industry, in a recent speech to the APRICOT2003 conference on Internet development. "A knowledge-based economy should be supported by a good social infrastructure, consisting of intellectual capital as the major element of production," he told the group. Such an economy "generates product and service added-value through consistent innovation, and by utilizing IT applications thoroughly in all industrial and enterprise activities," he continued.

The intellectual capital that Shih referred to is a well-trained, free-thinking, far-sighted workforce, one that is still lacking in Taiwan today. The problem is not the absence of an educated workforce, but that employees have not received the right type of education.

In fact, the Taiwanese have been described as among the most over-educated people in the world -- a situation frequently cited by regional and international companies seeking to hire senior and mid-level managers. "The over-riding comment that always comes is that Taiwanese candidates are always educationally over-qualified," says Julian Buckeridge of the executive search company SES Associates. "Education is still so revered here that people spend far too long studying. It's not uncommon that we get [prospects] that didn't start work until they're thirty," he says. A similar candidate in the West would, by contrast, typically have five to ten years of post-graduate work experience.

It is an issue that has been recognized by policy makers past and present.

"The problem is that students are still babies, even at twenty four," says former Education Minister Ovid Tzeng, who is currently vice president of Academia Sinica. "If you give them a job, they can't cope. They're still babies in terms of their attitude, and they can't cope with the social pressure."

Tzeng points at that the Taiwanese education system is strong in drilling students in the fundamentals, but it falls down in instilling broad-mindedness and vision. "Taiwanese people have very good basic skills in terms of memory. They are very strong on the fundamentals of science, and are good at reading and writing," he says. "But they can't take a hypothetical situation and analyze it to the end."

Opening Young Minds


By the time students take off on the oft-trodden path to overseas university or post-graduate courses, they are unprepared for what confronts them. "It's not a culture shock, it's a knowledge shock," says Tzeng. "They're very tradition-oriented, and now suddenly they learn there's a different interpretation of the same facts."

The most common path taken by Taiwanese students is to complete high-school and undergraduate education domestically before heading overseas for a post-graduate or second undergraduate degree. Educators such as Tzeng see this as a positive experience for students, who finally get to see the world outside that most of them were never aware of. "It's very important they see an alternative," he notes.

The downside is that relying on overseas educational institutions to open up the minds of Taiwanese students is expensive for them and their families, and financially out of reach for many. More importantly, training a twenty-five-year-old to think critically is far more difficult and less effective than teaching it to a youngster.

"Anybody who's been brought up in rote learning has a weakness towards critical thinking. They have a weakness in asking why -- Why do you do that? What can we do next?" says Buckeridge. "In a knowledge-based economy, you're really looking for more creativity."

Cut Back on Exams


Much of the problem can be traced back to the emphasis in primary and secondary education on formulaic textbook-based curricula. "In high school, we need to train students to be more creative and innovative, and we shouldn't create too many 'boxes' [boundaries on what is to be learned]," says the Epoch Foundations' Paul Hsu.

That Taiwan's educational system requires an overhaul is broadly accepted.

Both former Minister Tzeng and current Minister Huang instituted plans to change Taiwan's primary and secondary education systems. "We are creating an educational revolution," Tzeng said almost three years ago when he was still minister. "We will have fewer examinations and more extra-curricular activities" was his promise. The current minister says that plan is being implemented. He points to the abolition of senior high school entrance exams as a key plank of the educational reforms.

In past years, students took an exam at the end of junior high school that would determine which senior high they would be admitted to. Each year more than 300,000 students took the exam, which was seen as crucial to a child's future success and career options. That system lead to ambitious parents sending their children to hundreds of hours of cram schooling to give them an edge for entry into the most prestigious senior high schools.

The upside of this cramming is that Taiwanese teenagers are amongst the best in the world for math and sciences. Huang points to the rising number of medals won at international science and math competitions. From zero medals in the first year to 45 medals in the sixth and most recent year of the international Cyber Expo, Taiwan has progressively overtaken Singapore and then the United States.

Huang is equally enthusiastic about Taiwan's high placing in the Third International Mathematics and Science Study (TIMSS), a comprehensive 41-country study of students' math and science skills. "It's my hunch that the reason why Taiwan does well in TIMSS is that it happens at the same time" as the junior-senior high school transition, when students are cramming the most, he says.

Taiwan's students may be among the best in the world for math and science, but the society pays a high price for it. "It's too much of a burden" for the students, says Huang. Allowing them to relax a bit more might help to stimulate greater creativity, he says.

Students may have done well in exams, notes Huang, but that does not necessarily mean they have learned well. "So far, I don't think we've created a satisfactory state of learning," he says. "If you test a student with a math problem, he may get 85 percent, but if he doesn't find any fun in learning and also lacks life knowledge, then it's not satisfactory." (Tzeng makes a similar observation about students' performance in international competitions. "They may be good at these math Olympiad tests, but when it comes to the real world, they're still lost," he notes.)

Eliminating the highly competitive senior-high entrance exams leaves the problem of how to determine who gets into which school. The likely approach will be a mixture of geographical boundaries and application procedures, coupled with a K-12 system in which students would stay in the same school from entry to graduation.

Changing Curriculum


The other plank of the reform is a change in the senior-high-school curriculum. Students will now receive two years, instead of one, of general education. In addition, they will no longer have to make a choice between the sciences and humanities as their specialization for the second and third years. That approach has been effectively abolished, and instead students will be able to choose courses from all disciplines.

Another change is the elimination of the pressure-packed Joint College Entrance Exam (JCEE), which determined a student's class rank and in turn university placement. Replacing it is a U.S.-style SAT test. According to the education ministry, 160,000 students took the last round of SATs with less than one percent failing. Students will be ranked one to 15 in each of the SAT's five subjects: Chinese, English, math, science, and social science.

From there, students enter university either through a level-two appointment test taken six months after the SATs, or through an interview-and-application procedure conducted by each university. Universities are allowed to allocate up to 30 percent of places in entering classes through the interview method, though the current proportion is around 20%.

Minister Huang expresses confidence that this new approach will reduce exam pressure and give students more opportunity to relax, although it is still unclear how replacing one exam with two will make a student's study-load lighter. Further, four of the five SAT categories are still rote-learning based. When pressed, Huang was at a loss to explain how this system would make students more creative and free thinking.

Regardless, Huang says the end of the JCEE is a welcome move for students and parents -- though some say they are confused by the new system because the path to academic success is not so clearly and easily followed as before. Huang has pledged toresign as minister if the old joint ectrance exam system gets re-introduced.

(Former minister Tzeng made a similar pledge about the use of Tongyong Pinyin. He promised he would quit, if Tongyong is kept as Taiwan's romanization system. To this day, Tongyong remains, while Tzeng has gone.)

Despite his lingering concerns about the educational system, Tzeng remains upbeat about the reforms that he instigated but was not able to see through to fruition. "The past was so discipline-oriented, but now we are talking about free knowledge," he says.

Another Stellar University


"Taida has to have competition." That comment from Ovid Tzeng sums up the rationale guiding prevailing policy toward tertiary education. Every student, and every parent, seems to look to National Taiwan University (Taida) as the pinnacle of university education. "Taida is a system that takes a traditional approach, and it's a good system," says Tzeng. "But they [have grown] satisfied with their system."

What Taiwan needs, according to Tzeng, is a competitor to Taida to challenge its approach and spur universities around the island to be more innovative. Minister Huang agrees, calling for the modernization of Taiwan's universities on three levels: adjusting the structure and curricula to allow students to have more diversity in subject choice, strengthening research by both professors and post-graduate students, and increasing links between universities and industry.

To form an institution that might be able to compete with Taida, four national universities early last year joined forces by adopting the University of California model. The resulting Taiwan United University consists of Yang-ming, Central, Chiao-tung, and Tsing-hua Universities. They remain independently run campuses, but cooperate under the direction of a board of supervisors chaired by Academia Sinica president Lee Yuan-tseh. No overall chancellor has yet been named, and each university president continues as the leader of that campus.

Among the immediate benefits for  the schools within Taiwan United University (Lian-da) is the pooling of research projects and resources, allowing for better cross-discipline research.

In the longer term, students will be able to take courses at other campuses, giving them a breadth of education otherwise unavailable to them. An engineering student at Chiao-tung, for example, might spend a semester studying aspects of medical science at Yang-ming University.

Lian-da will also be expected to further the goal of bringing universities and industry closer together, hopefully enabling the schools to better understand the needs of the corporate world and to adjust their courses accordingly. The situation also has to work in reverse, notes Buckeridge of SES Associates, with established companies committing themselves to utilizing the new and broader skills of graduates.

"The reforms started with industrial business people asking why the graduates don't have suitable skills for their companies," says Tzeng. "The colleges hadn't really thought that they should meet the social and business challenges of Taiwan."

The Epoch Foundation's Paul Hsu goes a step further by suggesting that universities take a more commercial orientation that would make them more accountable, as well as more profitable. "The education ministry should recognize that education can be an industry too," he says. Tzeng doubts that a Chinese society is ready to accept that notion, fearing that commercialization would sully the purity of education.

But if a knowledge-based economy is truly in the cards, perhaps the economics of the knowledge-creating process will also come in for a rethinking.
 
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