Lin et al navigating intellectual capital after the financial crisis (2014)

In comparison to her 2011 book, this series increased the number of countries studied to 48 and particularly focuses on the impact of intellectual capital on the 2008 global fi nancial c

Carol Yeh-Yun Lin · Leif Edvinsson Jeff rey Chen · Tord Beding

Navigating

Intellectual Capital After the Financial Crisis

Navigating Intellectual Capital

Carol Yeh-Yun Lin • Leif Edvinsson

Jeffrey Chen • Tord Beding

Navigating Intellectual

Capital After the Financial Crisis

ISBN 978-1-4939-1294-0 ISBN 978-1-4939-1295-7 (eBook)

DOI 10.1007/978-1-4939-1295-7

Springer New York Heidelberg Dordrecht London

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Department of Business Administration

National Chengchi University

Foreword I

The economic crisis is a consequence of many parallel factors which are all related

to globalization and digitalization My main concern, assessing this in more detail from the European perspective, is that revolutionary global forces have not been taken early nor seriously enough by most national and regional decision makers The Heads of European States and Governments have once again recalled the importance of fi scal consolidation, structural reform and targeted investment to put Europe back on the path of smart, sustainable, and inclusive growth The main ques-tion is how capable and ready are the national governments to tackling the complex and manifold issues of crises and to renewing even radically many of our public and private structures and processes

The fi rst basic requirement is that all the European Union Member States remain fully committed to taking the actions required at the national level to achieve the objectives of the Europe 2020 Strategy The second basic requirement is that the national and regional governments, as well as people, are ready for radical changes This volume, and the other 11 booklets by the experienced authors, focus on national intellectual capital and give necessary insights and facts for us the readers and espe-cially for our in-depth systemic thinking of the interrelationships of NIC and eco-nomic recovery

How should the national and regional decision makers tackle the existing edge of intangible capital? The focus needs to be more on the bottom-up approach stressing the developments on local and regional levels I highlight our recent state-ments by the EU Committee of the Regions The key priorities are to get more inno-vations out of research and to encourage mindset change towards open innovation The political decision makers are fi nally aware that the traditional indicators cre-ated for and used in industrial production cannot be applied to a knowledge- intensive, turbulent and innovativeness-based global enterprise environment Indicators that perceive the intangible dimensions of competitiveness—knowledge capital, innovation knowledge, and anticipation of the future—have been developed around the world, but their use has not yet become established in practice This booklet accelerates the development and the use of these indicators

This helps the local and regional, as well as central, governments in taking brave leaps forward on a practical level—giving greater ownership and involving all the stakeholders This means the need of actions towards increasing the structural and relational capital of regions, both internally in communities of practice and in col-laboration with others

The new generation innovation activities are socially motivated, open and lectively participated, complex and global by nature The regions need to move towards open innovation, within a human-centered vision of partnerships between public and private sector actors, with universities playing a crucial role

Regions should be encouraged to develop regional innovation platforms, which act as demand-based service centers and promote the use of international knowl-edge to implement the Europe 2020 Strategy, smart specialization and European partnerships according to the interests and needs of regions For this to happen, we need to apply the new dynamic understanding of regional innovation ecosystems, in which companies, cities, and universities as well as other public and private sector actors (the “Triple Helix”) learn to work together in new and creative ways to fully harness their innovative potential

New innovative practices do not come about by themselves One major potential

is the use of public procurement The renewing of the European wide rules must increase the strategic agility and activities of municipalities and other public opera-tors as creators of new solutions Especially the execution of pre-commercial pro-curement should be reinforced even more in combination with open innovation to speed up the green knowledge society development, i.e., for common re-usable solutions in creating the infrastructures and services modern real-world innovation ecosystems are built upon Conditions must be created that also allow for extensive development projects which address complex societal challenges and which take the form of risk-taking consortia

One of our working instruments within the Committee of the Regions is the Europe 2020 Monitoring Platform, which broadly reviews and refl ects the opinions and decisions on regional level all around Europe It gives a fl avor of cultural and other socioeconomic differences inside the EU This brings an important perspec-tive to the intellectual capital, namely the values and attitudes needed for citizens supporting policymakers on appropriate long-term investments and policies Emphasizing the importance of these issues, decision makers in all countries and regions worldwide need a deep and broad understanding of the critical success fac-tors affecting the national intellectual capital With all the facts and frames for thinking this booklet gives a valuable insight in today’s challenges

Advisor to the Aalto University PresidentsMember of the EU Committee of the RegionsFormer Member of the Parliament of Finland

Foreword II

Financial crisis—words very much heard today What is all this about, actually, and how to get a grip on what we experience today? The booklet gives an important insight on the factors affecting competitiveness and productivity in modern knowl-edge society We need to see behind the obvious, and we need to have increasingly

“qualifi ed guesses” as the character of the society and industry has fundamentally changed

What is very important to notice is the shift towards intangible value creation beyond the deterministic phenomena we saw very clearly in the industrial era Cost drivers were the important ones throughout the industry Mass production, bigger is better; very traditional productivity factors were the mantra

However, the production picture is changing Increasingly value is created by the intangibles, often services related to the tangible components, and even totally in immaterial value creation, where perceptions and expectations determine the mar-ket value of the “extended product” We also see rapid change in organizational forms, we see new type of entrepreneurship growing besides the traditional industry clusters, we see smart specialization of regions and countries

This means also that there will be clearly different and complementary roles of the actors in innovation and value creation ecosystems Large companies, small ones, and even microenterprises together with the public sector are traditionally seen

as the active partners in such innovation environments The real issue in the dynamic

markets is however that the end users are increasingly to be taken on board as active

subjects for innovation, and not merely treated as objects, customers Markets need

to be shaped and created in much more dynamic way than ever before Open tion beyond cross-licensing includes the societal capital as an important intangible engine for productivity growth Innovation happens only when the offering is meet-ing the demand Otherwise we can only speak about inventions or ideas…

We need to have a close look at the intellectual capital and the different factors within it when we design our policy approaches Short-term investments in process capital (infrastructures) and market capital seem to be very important for the manu-facturing base as such, but at the same time measures for longer term intellectual capital development and effi ciency need to be taken

Increasingly important is the structure and the open processes related to intangible capital and knowledge pools For sustainable long-term development

both the human capital and renewal capital are crucial , as they are directly related

to the innovation capability of the region The correlation between these factors and the GDP growth is undisputable In knowledge intense industries talent is attracting talent, and the connectivity which modern ICT provides makes this talent pool fl uid across disciplines, organizations, and geographical settings It is imperative to mod-ernize the innovation systems enabling the full dynamics needed for success in knowledge intense industries, beyond the traditional boundaries

Measuring performance of innovation systems becomes increasingly complex due to the mash-up of different disciplines, having new types of actors and interac-tions between them Hence, the importance of analysis of the various components

of the national intellectual capital (and equally on national innovation capability) as done in this booklet cannot be underestimated when making qualifi ed guesses for operational choices to create functioning innovation ecosystems The only predict-able in true innovation is the unpredictability and the surprises The role of the public sector is to drive strategy and measures enabling the unpredictable, and to catalyze a fl uid, seamless and frictionless innovation system to grow, with strong interplay with the surrounding society

We need to have courage to experiment, to prototype in real-world settings, to have all stakeholders involved to fi nd and remove the friction points of innovation and to achieve sustainable innovation ecosystems for knowledge intense products and services

I wish you interesting reading with this mind opening report

Advisor, Innovation SystemsEuropean Commission

DG CONNECT

Foreword III

The 2008 global fi nancial crisis hit the whole world with unprecedented speed, causing widespread fi nancial panic Consumer confi dence dropped to the lowest level since the Great Depression Taiwan, with an export-dependent economy, was seriously impacted by the crisis and the unemployment rate hiked while household consumption levels dropped At the onset of the fi nancial crisis, Professor Lin was the Dean of Student Affairs here at National Chengchi University in Taipei, Taiwan She was the dean in charge of fi nancial aid and student loans and thus saw fi rsthand the direct impact the fi nancial crisis had upon our students The crisis was so devas-tating that Professor Lin, along with the university, was compelled to launch several new initiatives to raise money and help students weather the diffi cult times

I am very glad that she took this painful experience to heart and set herself upon the task of investigating the impact of the crisis; trying to look into the causes and consequences for policy implications, not only for Taiwan but for an array of 48 countries In particular, she approaches the crisis from the perspective of “national intellectual capital,” which is very important in today’s knowledge-driven economy Taiwan is an example of a knowledge economy and has enjoyed the fame of being referred to as a “high-tech island.” Without an abundance of natural resources, Taiwan’s hardworking and highly educated population is the single most precious resource that the island has Acknowledging the value of such human resources and intellectual capital, we established the Taiwan Intellectual Capital Research Center (TICRC) under my leadership in 2003 Ever since then, Taiwan’s government has continuously funded the university to conduct relevant research projects aimed at enhancing the intellectual capital of Taiwan Having been thus endowed with the responsibility of nourishing future leaders in the public and private sectors, we have focused on building up our strength in innovation, entrepreneurship, and technology management related research and education

To enhance intellectual capital research, we recently formed a joint team of professors for a 4-year project in order to leverage their respective research capa-bilities Through this project we hope to provide policy suggestions for the govern-ment by exploring the creativity, innovation, and intellectual capital at national,

regional, city, and county levels The goal is to come up with an intangible assets agenda for Taiwan’s future sustainability Professor Lin is an integral member in this research team

Following her 2011 book National Intellectual Capital : A Comparison of 40

Countries , this booklet series is Professor Lin’s second attempt at presenting her

research, conducted under the sponsorship of TICRC, to international readers As the Founding Director of TICRC and her President, I am honored to give a brief introduction of the value of this booklet series

In comparison to her 2011 book, this series increased the number of countries studied to 48 and particularly focuses on the impact of intellectual capital on the

2008 global fi nancial crisis Rarely has an economic issue been systematically ied from the view point of intangible assets, particularly at such a large scale of 48 countries The research results show without a doubt that national intellectual capi-tal is indeed an important economic development enhancer In particular, the fact that countries with higher national intellectual capital experienced faster recoveries from the 2008 fi nancial crisis provides a strong message for the policy makers

In addition to providing insights to national policy, the booklet also summarizes the background of each country before the crisis, the key events during the crisis, economic development afterwards, and future prospects and challenges Each volume affords readers a holistic picture of what happened in each country in an effi cient manner The linkage between national intellectual capital and this fi nancial crisis also provides a different perspective of the crisis

We are happy that Professor Lin continues to share her valuable research results with international readers I sincerely hope that her insights can garner more atten-tion concerning the benefi ts of developing national intellectual capital for the well- being of every nation

Professor, Graduate Institute of Technology

and Innovation ManagementPresident, National Chengchi University

Taipei, Taiwan

Prefa ce I

There are “mounting risks of a breakup of the Euro zone.” Such comments are frequent today on how the European leaders are handling the escalating crisis and its potential impact on non-European countries But few leaders, reporters, or researchers are actually addressing the situation of national intellectual capital (NIC) and its signals In addition to the fi nancial crisis, is there an emerging NIC crisis as well? Why is it emerging? How should policy makers think about NIC? In what way does it need specifi c attention? When will the outcome and impact of taken NIC policy steps be realized?

In the midst of the European crisis, there are national interventions to address the issues mentioned above In leading economical nations the investments going into intangibles now exceed tangibles, and are positively correlated to income per capita However, these still do not show up clearly in national mapping as well as policy making insights Therefore the New Club of Paris is focusing the knowledge agenda setting for countries on Societal Innovation (see www.new-club-of-paris.org ) Chairman Ben Bernanke of the US Federal Reserve was addressing some of these same aspects in a key note speech in May 2011 hosted by Georgetown University: http://www.icapitaladvisors.com/2011/05/31/bernanke-on-intangible- capital/ OECD and the World Bank are developing NIC statistics, often based on the model from Corrado-Hultén Japan has been developing both NIC and Intangible Assets (IA) at METI for some time now Their research on IC/IA has resulted in a National IA Week with various key stakeholders, such as government agencies, uni-versities, stock exchange, and enterprises Japan is so far the only country in the world to hold such activities, and they have been doing so for the last 8 years Australia, Singapore, South Korea, and China are currently undertaking various NIC initiatives Other countries are also becoming more and more aware of NIC, with policy rhetoric centered on innovation, education, R&D, and trade Despite this, the map for a more justifi ed NIC navigation has been missing

This volume highlights NIC development for a number of countries, based on 48 different indicators, aggregated into four major NIC components of human capital, market capital, process capital, and renewal capital The model here is a refi ned and verifi ed statistical model in comparison to the Corrado-Hultén model We call it the

L–E–S model after the contributors Lin–Edvinsson–Stahle Based on a deeper understanding and the timeline pattern it sets forth, this model will add to a better NIC navigation, not to mention knowledge agenda setting for countries

Upon looking at a global cluster NIC map, it is evident that the top leading tries seem to be small countries, especially Singapore, the Nordic countries, Hong Kong, and Taiwan For the USA, Finland, and Sweden around 50 % or more of its economical growth is related to NIC aspects Sweden, Finland, Switzerland, the USA, Israel, and Denmark are strongly infl uenced in its GDP growth by focusing on Renewal Capital

It might be that we will see a clearer map of the NIC ecosystem and drivers for wealth emerge in the extension of this ongoing unique research of NIC This book-let will present a NIC map for various clusters of countries It can be used for bench marking as well as bench learning for policy prototyping The starting point is awareness and thinking of NIC, and its drivers for economic results Based on this more refi ned navigation, NIC metrics can be presented

Deeper understanding will emerge from this research, such as the scaling up of limited skilled human capital in one nation by using the globalized broadband tech-nologies for migration and fl ow of knowledge (such as tele-medicine or mobile banking in Africa) This is also referred to as the IC multiplier It might also be the way the old British Commonwealth was constructed, but without the IC taxonomy

In modern taxonomy it might be the shaping of NIC alliances for the migration and

fl ow of IC between nations?

Another understanding that might emerge for policy making is the issue of employment versus unemployment The critical understanding will be deployment

of IC drivers This will require another networked workforce of value networkers on

a global scale, such as volunteering software and apps developers However such volunteers do not show up in traditional statistics, for the mapping on behalf of policymakers

On another level there might be a clear gap analyses between nations to support the vision process of a nation On a deeper level it is also a leadership responsibility

to address the gap of NIC positions versus potential positions Such a gap is in fact

a liability to the citizens, to be addressed in due time

This will take us to the need for the continuous renewal of social systems The so-called Arab Spring is explained by some as resulting from three drivers: lack of renewal of social systems, Internet, and soccer as cross class interaction space The lack of social renewal and innovation is most likely critical early warning signals For Greece, we can see such a tipping point occurred back in 1999

On a global scale we might see that the concern for the Euro zone crisis should and can be explained by a deeper and supplementary understanding of National Intellectual Capital, in addition to fi nancial capital So we need to refi ne our NIC understanding, NIC mapping, NIC metrics, and NIC organizational constructs into societal innovation for the benefi t of wealth creation of subsequent generations

The World’s First Professor of Intellectual CapitalChairman and Cofounder of New Club of Paris

Prefa ce II

Our fi rst book National Intellectual Capital : A Comparison of 40 Countries was

published in early 2011, at a time when the 2008 global fi nancial crisis had been declared over yet the European region was still plagued with sovereign debt prob-lems Before we fi nalized the book, we were able to retrieve some of our raw data concerning the troubled countries, such as Greece, Iceland, Ireland, Portugal, and Spain The results of our analysis based on data spanning 1995–2008 revealed some early warning signs of the fi nancial turmoil in those countries In my preface of that book, I mentioned the warning signs might reveal only the tip of an iceberg At that time, my coauthor, Professor Edvinsson and I decided to do a follow up study to trace the development of national intellectual capital (NIC) in as many countries as possible, particularly through the lens of the 2008 global fi nancial crisis This vol-ume, and previous series of 11 booklets, is the result of that determination

The 2008 global fi nancial crisis came with unexpected speed and had such a widespread effect that surprised many countries far from the epicenter of the initial

US sub-prime fi nancial problem, geographically and fi nancially According to reports, no country was immune from the impact of this fi nancial crisis Such development clearly signifi es how closely connected the world has become and the importance of having a global interdependent view By reporting what happened during 2005–2010 in 48 major countries throughout the world, the series of SpringerBriefs booklets and this summary volume serve the purpose of uncover-ing national problems before the crisis, government coping strategies, stimulus plans, potential prospects and challenges of each individual country, and the inter-dependence between countries The 6 years of data allow us to compare NIC and economic development crossing before, during, and after the fi nancial crisis They are handy booklets for readers to have a quick yet overall view of countries of personal interest The list of 48 countries in 11 clusters is provided in the appendix

of each booklet

Searching for fi nancial crisis related literature for 48 countries is itself a very daunting task, not to mention summarizing and analyzing it For fi nancial crisis related literature, we mainly relied on the reports and statistics of certain world organizations, including OECD, World Bank, United Nations, International

Monetary Fund (IMF), European Commission Offi ce, the US Congressional Research Service, the US Central Intelligence Agency, and International Labor Offi ce (ILO) Some reliable research centers, such as the National Bureau of Economic Research in the USA, World Economic Forum, the Heritage Foundation

in the USA, and government websites from each country were also our sources of information Due to the requirement of more update and comprehensive informa-tion, we were not able to use as much academic literature as we would have liked, because it generally covers a very specifi c topic with time lag and with research methods not easily comprehended by the general public Therefore, we had to resort

to some online news reports for more current information

In the middle of 2012, the lasting fi nancial troubles caused the European omy to tilt back into a recession, which also slowed down economic growth across the globe However almost 4 years have passed since the outbreak of the global

econ-fi nancial crisis in late 2008; it is about time to refl ect on what happened and the impact of the fi nancial crisis By comparing so many countries, we came to a pre-liminary conclusion that countries with faster recovery from the fi nancial crisis have higher national intellectual capital than those with slower recovery In other words, countries that rebounded fast from the crisis generally have solid NIC fundamen-tals, including human capital, market capital, process capital, and renewal capital

We also found that the higher the NIC, the higher the GDP per capita (ppp) This booklet series provides a different perspective to look beyond the traditional eco-nomic indicators for national development

In an era when intangible assets have become a key competitive advantage, investing in national intellectual capital development is investing in future national development and well-being

Executive Summary

R&D will no longer be treated as a mere expense… It will be categorized on the government’s books as an investment, akin to constructing a factory or digging a mine … original works of art such as fi lms, music and books will be treated for the fi rst time as long-lived assets.

(US Bureau of Economic Analysis, July 2013)

On July 31, 2013 the US Bureau of Economic Analysis rewrote US history on a grand scale by restating the size and composition of the gross domestic product all the way back to the fi rst year it was recorded (1929), through the re-categorization

of R&D as an investment (Coy 2013) This announces the offi cial re-dawning of the intangible asset era In light of this event, this book series about the intangible national intellectual capital and the fi nancial crisis comes at the right time

As the last volume of the book series Nation intellectual capital and the fi nancial

crisis in ( 48 countries ), this book aims to summarize the co-developments between

national intellectual capital (NIC) and GDP growth, as well as NIC and the events

of 2008 global fi nancial crisis covering pre- and post-crisis years (2005–2010) Chapter 2 provides an overview of the macroeconomic development compari-sons of 48 countries by updating the fi ve macroeconomic indicators reported in volume 1–11 with the most current 2012 data This chapter maps the graphs of Global Competitiveness Index (GCI), GDP growth, government debt, unemploy-ment rate, and consumer price infl ation (CPI) by NIC ranking groups of ten each to examine the outlier countries (large distance from counterparts) In general, better NIC countries (ranked between 1st and 24th) had matching GCI (within 30th) When calculating the correlation of the two rankings for the fi rst half 24 NIC coun-tries (deleting three outliers), the result was 0.71 Although the two rankings had different measurement model with different indicators and assessing different num-ber of countries (48 vs 144), this high correlation endorses our belief that better NIC countries are more competitive globally and supports our call for paying more attention to the development of intangible national intellectual capital

For 2012 real GDP growth, Chile had the highest growth rate of 9.49 % and Greece the lowest −6.22 % (negative) For 2012 general government debt in percent

of GDP, Japan (228.18 %), Greece (156.86 %), Iceland (131.76 %), Italy (127 %), Portugal (123.64 %), Singapore (111.41 %), and the USA (106.53 %) were the high debt countries For 2012 unemployment rate, Spain (25 %), South Africa (24.9 %), Greece (24.3 %), Ireland (14.8 %), and Colombia (10.37 %) had high unemploy-ment For 2012 consumer price infl ation, Venezuela (21.07 %) and Turkey (8.91 %) are the two highest CPI countries Except the above mentioned outliers, the macro-economic status of the countries in the same NIC ranking group does not differ very much In other words, the macroeconomic outlook of the countries in the same NIC ranking group is compatible, showing the value of NIC ranking as another reliable indicator for national well-being

Chapter 3 introduces the insights from the co-development of NIC and GDP Data analysis shows that Denmark, Finland, Israel, Japan, Sweden, Switzerland, and the USA have both high human capital and renewal capital (long-term NIC), whereas India and Indonesia are the two lowest long-term NIC countries For short-term NIC, Hong Kong and Singapore have both high market capital and process capital, whereas Argentina and Venezuela have the lowest short-term NIC Four distinctive countries that have both high long-term and short-term NIC are Denmark, Finland, Sweden, and Switzerland In other words, these four countries not only possess high degrees of NIC currently, but also have great potential in sustaining it into the future Further analysis of the long-term and short-term NIC ranking changes uncovered

fi ve rising countries in NIC, namely Argentina, Malaysia, Poland, South Africa, and Turkey In addition, we found that countries that improved their NIC ranking after the fi nancial crisis generally had a higher average GDP growth rate over the 6 years than those countries that declined in rank

Chapter 4 describes the internal and the external factors that had profound infl ence on the success or failure of how countries weathered the fi nancial crisis For easier reference, the following table summarizes the internal and external issues extracted from the literature Internal issues were categorized into eight dimensions, whereas external issues cover six dimensions, including the support obtained or dis-turbance encountered which either speeded up or slowed down a country’s recovery

1 Experience learned from past fi nancial crises or

recessions

External fi nancial support

2 Financial systems and pre-crisis fi nancial conditions Governance of world organizations

3 System changes during or after the fi nancial crisis Trade dependence

recovery

6 Unconventional crisis management strategies Unexpected interference during the

fi nancial crisis

7 Political milieu

8 Over reliance on a single commodity

Chapter 5 elaborates on the impact of various types of stimulus and tions International Labor Organization reported that in response to the fi nancial

crisis, Asia and the Pacifi c (excluding Japan and Korea) spent about 9.1 % Particularly, China had a stimulus package worth 12.7 % of its 2008 GDP Africa and Middle East spent about 5.9 %, Central and Eastern European and former Soviet republics spent about 4.3 %, advanced economies 3.4 %, and Latin America and the Caribbean 2.6 % In terms of absolute size, the US package stands out as 5.6 % of its 2008 GDP of around US$ 800 billion Among the G20 countries, Russia, UK, Indonesia, Mexico, Brazil, and France all had stimulus packages less than 2 %

To introduce different stimulus packages and consolidations during and after the

fi nancial crisis, we use two simple categories—reduction and addition Reduction

as a stimulus contains tax cuts, interest rate cuts, self-initiated consolidation, and enforced consolidation Addition as a stimulus contains infrastructure expenditure, social welfare, training, and support for small and medium enterprises Confi dence building is also mentioned to particularly pinpoint its importance during a fi nancial crisis In a table, we further summarize government increased spending on four dif-ferent levels, namely national/societal, fi nancial sector, company, and individual In addition, we touch upon the pros and cons of in-budget and off-budget stimulus packages, provide country cases of effi cient and/or effective stimulus measures, and then give examples of countries that particularly rescued the auto industry to miti-gate job losses

Chapter 6 delineates the enhancing and impeding factors before and during the

2008 global fi nancial crisis Enhancing factors are introduced based on EU’s call for smart growth, sustainable growth, and inclusive growth upon the outbreak of this

fi nancial crisis to guide both short-term and long-term stimulus planning Country cases are given to show their real practices Impeding factors provide important information for country reforms and are particularly explained in the sequence of (1) unsustainable government subsidies, (2) overly generous unemployment subsi-dies, (3) non-constructive tax systems, (4) heavy government spending, (5) labor market rigidity, (6) excessive licensing or excessive formalities, and (7) problematic growth policies We further summarize in Table 6.1 examples of enhancing and impeding factors of all the 48 countries for readers to capture the key factors in a succinct and effi cient manner

Chapter 7 explains structural reforms after the fi nancial crisis Various kinds of structural reforms have been proposed and some already implemented; a summary

of different practices provides valuable reference A total of eight types of reforms are described for advanced countries and developing countries They are (1) fi nan-cial system reform, (2) legislation reform, (3) tax reform, (4) government and public sector reform, (5) education reform, (6) labor reform, (7) pension and health care reform, and (8) social reform When there are unique country cases, we devote individual paragraphs to elaborate on their practices, such as Denmark and the Netherlands with the launching of comprehensive fi nancial system reforms Chapter 8 fi rst discusses the potential navigation for national intellectual capital development and then concludes with some refl ections During the course of this study, covering 48 countries with 6 years of data (2005–2010), rich information has been discovered Since policy implications have been proposed in the previous 11 Executive Summary

volumes, in the last chapter of this fi nal volume, we present our general tions and suggestions for navigating intellectual capital after the fi nancial crisis in three sections The fi rst section describes our fi ndings of drawing connections between NIC and macro indicators Data analyses revealed that there are strong connections between NIC and global competitiveness, sustainability, current strength, potentiality, and country size

The second section proposes that major national reforms can be undertaken under the framework of NIC Specifi cally, increasing the level of human capital, education reform and labor reform are important To increase the level of market capital, fi nancial system reform and tax reform are suggested To increase the level

of process capital (representing national infrastructure), investing in various nations of legislation reform, government and public sector reform, pension and health care reform, and social reform is the guideline To increase the level of renewal capital, governments can allocate more resources on R&D and green tech-nology to achieve the smart growth and sustainable growth

The third section elaborates some key success factors in three categories to build

a more resilient economy after the global fi nancial crisis The fi rst category duces three rulers by which to measure national development: the fi rst ruler mea-sures NIC and GDP per capita (ppp) co-development; the second ruler measures NIC status for progressive improvement; and the third ruler measures whether the NIC development path is off the main continuum The second category suggests three levers to test the balance of two opposing forces, namely short-term versus long-term, surveillance versus autonomy, and integration versus independence The third category proposes three golden means to achieve national well-being, includ-ing diversifi cation to enhance risk management, governance to assure policy imple-mentation in the right course, and trust and confi dence to help achieve national goals We then project a holistic picture of NIC for readers to know that human capi-tal, market capital, process capital, and renewal capital are actually highly interac-tive and mutually reinforcing

Finally, we briefl y walk through the logic of input, process, output, outcome, and impact for policy makers to draw their national development blueprint In an econ-omy that is increasingly reliant on intangible assets, attending to the creation or development of NIC is not a diffi cult task and does not require extra resources They are parallel to what a country needs to do for national development and GDP growth The difference between high NIC and low NIC country is the awareness of NIC importance and followed through with matching resources allocation for sustain-able development Therefore, assessing NIC status continuously, discovering NIC strength or weakness, benchmarking other countries, and then strategizing for NIC development are our proposed procedures to enhance NIC The continuous awareness of potential problem areas and the strategizing of coping measures are very important For example, the Swedish student’s PISA performance has been sliding since 2003 Recently, it aroused the attention of the Swedish government and a commission was appointed to create a coping policy within 2 years

Having envisioned the importance of national sustainability, we have prototyped

a new model of sustainable national intellectual capital (SNIC) for our next research project We conclude this book series by posing the following questions for further discussion:

1 What are the real challenges ahead, subsequent to all these fi nancial crisis rescue efforts and the painful cleaning up of government debts?

2 Are we pursuing economic growth or national well-being?

3 What will be the outcome and impact if “the tangible” dominates the criteria of national growth?

4 What roles can national intellectual capital play to promote a balanced smart, sustainable, and inclusive growth under resource constrain?

5 What potential gains can the world achieve if we encourage developing countries

to drive for smart and intelligence-based growth?

6 What can national intellectual capital do to help repair the damaged environment?

7 How can we pass on a healthy globe and harmonious society to the next generation?

Executive Summary

3 Insights from NIC and GDP Co-development 27

4 Internal and External Infl uence 39 Internal Infl uence 39 Experience Learned from Past Financial Crises or Recessions 40 Financial Systems and Pre-crisis Financial Conditions 41 System Change During or After the Financial Crisis 41 Internal Partnership 48 Private and Household Debt 48 Unconventional Crisis Coping Strategy 50 Political Milieu 51 Over Reliance on a Single Commodity 51 External Infl uence 53 External Financial Support 53 Governance of World Organizations 56 Trade Dependency 57 External Alliance 59 External Relationships that Impede Recovery 62 Unexpected Interference During the Financial Crisis 63

5 Types of Stimulus Packages and Consolidation 67 Types of Stimulus Packages and Consolidation 69 Reduction as a Stimulus and Consolidation 69 Tax Cuts 69 Interest Rate Cuts 69 Self-Initiated Consolidation 70 Enforced Consolidation 71 Addition as a Stimulus Measure 73 Infrastructure Expenditure 73 Social Welfare 74 Training 75 Support for Small and Medium Enterprises 75 Measures that Boost Public Confi dence 77 Off-Budget or in-Budget Stimulus Packages 77 Effi cient and/or Effective Stimulus Measures 78 Stimulus Measures Intended to Rescue the Auto Industry 79

6 Enhancing and Impeding Policies Before and During the Crisis 81 Enhancing Policies 81 Smart Growth 82 Sustainable Growth 83 Inclusive Growth 84 Impeding Policies 85 Unsustainable Government Subsidies 85 Overly Generous Unemployment Subsidy 86 Non-constructive Tax Systems 86 Heavy Government Spending 86 Labor Market Rigidity 87 Excessive Licensing or Excessive Formalities 87 Problematic National Growth Policies 87

7 Structural Reforms After the Financial Crisis 109

Financial System Reform 109 Denmark 110 The Netherlands 111 Legislation Reform 111 Tax Reform 112 Government and Public Sector Reform 113 Advanced Countries in Trouble 113 Advanced Countries 115 Developing Countries 115 Education Reform 118 Advanced Countries 118 Developing Countries 120 Labor Reform 121 Advanced Countries 121 Developing Countries 122

Pension and Health Care Reform 123 Social Reform 124

8 Navigating Intellectual Capital After the Financial Crisis 127

Connections Between NIC and Macro Indicators 127 NIC and Global Competitiveness 127 NIC and Sustainability 129 NIC and Current Strength 130 NIC and Potentiality 130 NIC and Country Size 130 National Reform Issues Under the Framework of NIC 133 Key Success Factors in Building a More Resilient Economy 136 Three Rulers of National Development 137 Three Levers to Balance Two Opposing Forces 138 Three Golden Means to Achieve National Well-Being 141 Conclusion 143

Appendix A Important Meetings Held by World Leaders

to Address the 2008 Global Financial Crisis 147 Appendix B Indicators in Each Type of Capital 149 Appendix C Book Title of the 12 Book Series 151 Appendix D 48 Countries by Continent 153 Appendix E National Intellectual Capital Scores and Ranking

Comparison for 48 Countries 155 Appendix F Graphs of National Intellectual Capital

and GDP per Capita (ppp) 161 Appendix G Scores of Long-Term NIC and Short-Term NIC

for 48 Countries (2005–2010) 195 Appendix H Ranking Changes of 48 Countries

by Capital and by Country 197 Appendix I Country Profi le—Additional Statistics 201

List of Figures

Fig 2.1 GCI ranking development of the top ten NIC countries 7Fig 2.2 GCI ranking development of the 11th–20th NIC countries 8Fig 2.3 GCI ranking development of the 21st–30th NIC countries 9Fig 2.4 GCI ranking development of the 31st–40th NIC countries 9Fig 2.5 GCI ranking development of the 41st–48th NIC countries 10Fig 2.6 Real GDP growth of the top ten NIC countries 11Fig 2.7 Real GDP growth of the 11th–20th NIC countries 12Fig 2.8 Real GDP growth of the 21st–30th NIC countries 13Fig 2.9 Real GDP growth of the 31st–40th NIC countries 13Fig 2.10 Real GDP growth of the 41st–48th NIC countries 14Fig 2.11 General government debt of the top ten NIC countries 15Fig 2.12 General government debt of the 11th–20th NIC countries 15Fig 2.13 General government debt of the 21st–30th NIC countries 16Fig 2.14 General government debt of the 31st–40th NIC countries 17Fig 2.15 General government debt of the 41st–48th NIC countries 17Fig 2.16 Unemployment rate of the top ten NIC countries 18Fig 2.17 Unemployment rate of the 11th–20th NIC countries 19Fig 2.18 Unemployment rate of the 21st–30th NIC countries 20Fig 2.19 Unemployment rate of the 31st–40th NIC countries 21Fig 2.20 Unemployment rate of the 41st–48th NIC countries 21Fig 2.21 Consumer price infl ation of the top ten NIC countries 22Fig 2.22 Consumer price infl ation of the 11th–20th NIC countries 22Fig 2.23 Consumer price infl ation of the 21st–30th NIC countries 23Fig 2.24 Consumer price infl ation of the 31st–40th NIC countries 24Fig 2.25 Consumer price infl ation of the 41st–48th NIC countries 24

Fig 3.1 Scatter plot of long-term NIC for 48 countries 30Fig 3.2 Enlarged graph of low degree long-term NIC countries 30Fig 3.3 Enlarged graph of middle degree long-term NIC countries 31Fig 3.4 Scatter plot of short-term NIC for 48 countries 31Fig 3.5 Enlarged graph of low degree short-term NIC countries 32Fig 3.6 Enlarged graph of high degree short-term NIC countries 32Fig 3.7 Scatter plot of long-term versus short-term

NIC in four quadrants 33Fig 3.8 Scatter plot of long-term and short-term NIC ranking changes 34Fig 4.1 Selected countries with strong trade relationship

with China during the fi nancial crisis 60Fig 8.1 NIC vs GDP per capita (ppp) for 48 countries in 2010 137Fig 8.2 Suggested NIC progression 138Fig 8.3 Chile’s process capital development path

falls off the continuum 139Fig 8.4 Balance between short-term and long-term efforts 139Fig 8.5 Balance between surveillance and autonomy 140Fig 8.6 Balance between integration and independence 140Fig 8.7 Three golden means to achieve national well-being 141Fig 8.8 Interactions of NIC components—human capital (HC),

market capital (MC), process capital (PC),

and renewal capital (RC) 143

List of Tables

Table 3.1 National intellectual capital, human capital,

market capital, process capital, renewal capital,

and fi nancial capital group comparisons 28Table 3.2 Ranking changes of the 48 countries comparing

the most current 2009–2010 with the average 2005–2010

ranking—by capital and by country 35Table 3.3 Ranking changes of the 48 countries comparing

the most current 2009–2010 with the average 2005–2010

ranking—by capital and by NIC rankings 36Table 4.1 Past fi nancial crises or recessions that made countries

more resilient 40Table 4.2 Pre-crisis fi nancial conditions that enhance

or impede national recovery 42Table 4.3 System change during or after the fi nancial crisis 47Table 4.4 Countries that had heavy private and household debts 49Table 4.5 Political milieu that exerted positive or negative effects

on the crisis recovery 52Table 4.6 Countries that requested bailouts, loans,

and external fi nancial support 54Table 4.7 Recovery or economic downturn attributed to the trade

ties with China 58Table 4.8 Major unexpected events that hurt national recovery

from the crisis with various degrees 64Table 5.1 Tax cuts in various countries during the 2008 global

fi nancial crisis 70Table 5.2 Sample countries with self-initiated consolidation 71Table 5.3 Summary of stimulus that increased spending at four levels 76

Table 6.1 Examples of enhancing and impeding policies and factors

of the 48 countries 88Table 8.1 NIC and GCI ranking comparison for the fi rst

24 NIC countries 128Table 8.2 Liability/creditability index for seven sample countries

based on 2012 GDP per capita (ppp) 129Table 8.3 The fi rst fi ve ranking countries in each NIC capital 131Table 8.4 Tangibles and intangibles of small strong countries

and large advanced countries 132Table 8.5 National reform issues under the framework

of human capital, market capital, process capital,

and renewal capital 133

C.Y.-Y Lin et al., Navigating Intellectual Capital After the Financial Crisis,

DOI 10.1007/978-1-4939-1295-7_1, © Springer Science+Business Media New York 2014

The 2008 global fi nancial crisis is considered by many economists to be the worst one since the Great Depression of the 1930s The initial sign of the crisis actually started

in mid-2007, which broke out with the Lehman Brothers’ fi nancial troubles in September 2008 Unexpectedly, what started off as sub-prime mortgage problems in the fi nancial sector of the United States snowballed into the deepest and most wide-spread fi nancial and economic crisis that disrupted global fi nancial markets in decades The spreading fi nancial turmoil has resulted in a number of fi nancial institu-tion failures; fi rst in some advanced countries, then in developing ones World politi-cal leaders, national ministers of fi nance and central bank directors coordinated their efforts to reduce fear (please refer to Appendix A for meetings held by world leaders), but the crisis continued and eventually led to a global currency crisis During this period, economies worldwide slowed, credits tightened, international trade declined, and business and consumer confi dence eroded with enormous and rapid job losses Following the lead of the United States, governments and central banks world-wide responded to this international crisis with unprecedented fi scal stimuli, mone-tary policy expansions, and institutional bailouts in their respective countries The

fi nancial rescue worked and an economic crisis akin to the Great Depression was avoided In fact, the crisis was declared over by the third quarter of 2009 (Kehoe

2010 ) In 2010, the world economy grew strongly at around 4.3 %, helped by a able, synchronized and successful policy stimulus Two factors boosted global growth

size-in 2010 One was the extent of the policy stimulus size-in the West; the other was the strength of the emerging economies, which drove two-thirds of the world’s growth that year, despite accounting for only one-third of the global economy (Lyons 2011 ) However, a short recovery in 2010 was followed by lingering fi nancial troubles exacerbated by the debt crisis in the Euro area Europe was pushed back into recession again in the second half of 2011 In 2012, the U.S economy grew but performance remained below what was expected and a slowdown surfaced in many emerging econ-omies, partly refl ecting the impact of the recession in Europe (Elliott 2012 ) In China, India and Brazil, production growth also slowed down due to both a reduction in export and lower domestic spending (CPB 2012 ) In mid-2012, European Central Bank (ECB) announced its commitment to do whatever it took to save the Euro and

Chapter 1

Introduction

to substantially bring down European government borrowing costs (Lachman 2013 ), thus confi dence in Europe returned As of late 2012, the global economic outlook remains de-synchronized, with a recession across Europe, a modest growth in the U.S., and a solid trajectory across Asia Since leaders in world organizations, such as the International Monetary Fund (IMF), ECB, and individual countries have laid the foundations for strengthening confi dence level in global economy, acute crisis risk

has been reduced in the Euro area and the United States

I n the fi rst half of 2013, it was stated that the worst of the crisis was over and a gradual European economic recovery would be underway (Lachman 2013 ) GDP was projected to increase by 0.4 % in the EU and by 0.1 % in the Euro zone in 2013 and in 2014 GDP was expected to grow by 1.6 % in the EU and by 1.4 % in the Euro zone (European Commission 2012 ) In addition, world output growth was predicted

to reach 3.25 % in 2013 and 4 % in 2014 (IMF 2013 )

In the major advanced economies, activity was expected to gradually accelerate with the U.S taking the lead Although the world economy is recovering, the heal-ing process is slow Risks remain in the Euro area pertaining to adjustment fatigue, insuffi cient institutional reform, and prolonged stagnation (IMF 2013 ) The much expected growth in China is likely to slow down, mainly because of the weak mar-ket in Europe, China’s high wage growth and the strengthening of its currency Renminbi (Nordea 2013 )

Financial crisis has been a cyclical recurrence in rich and poor countries alike over the past couple of centuries Each time, the pattern is similar: capital crunch, currency crash, high infl ation, high unemployment, undulations in housing and equity prices, and government defaults on international and domestic debts (Reinhart and Rogoff 2009 ) One key factor that did not prevent the fi nancial crisis from hap-pening was that the conventional monitoring system failed to detect the potential troubles of the shadow fi nancial system that has been playing an increasingly impor-tant role with obscured information (Bernanke 2012 ) Due to system fl aws, some banks and bank money could transform largely without notice (Gorton 2012 ) It was

a system breakdown involving people, systems, governance, market dynamics, and the global interdependence In other words, the generally ignored intangibles actu-ally played a major part in this system failure At the early stage of the crisis, man-agement scholars criticized the inability of the traditional accounting system to reveal intangible assets that explain hidden values as well as risks for proper deci-sion making (Reavis 2009 ) In line with such criticism, intellectual capital (Edvinsson and Malone 1997 ) advocates the values of intangible assets and has gained increasing attention in today’s keener global competition

After the fi nancial crisis, the Chief Adviser at Tekes—the Finnish Funding Agency for Technology and Innovation—particularly pointed out that “in the future, intangible assets, such as patents, advertising, education and training, are high-lighted increasingly as a source of growth” (Palkamo 2011 ) In addition, the U.S Bureau of Economic Analysis announced in July 2013 that R&D will no longer

be treated as a mere expense; it will be categorized on the government’s books as an investment (Coy 2013 ) In the same announcement, original works of art such as

fi lms, music, and books will also be treated for the fi rst time as long—lived assets

Such offi cial change of course pronounced the rise of the intangible economy

In other words, many advanced economies driven by the intangibles will value physical assets, such as intellectual capital more

Intellectual capital is defi ned as “intellectual material—knowledge, information, intellectual property, experience—and is the roots for future earning capabilities” (Edvinsson and Malone 1997 ; Stewart 1997 ) Originally, the concept of intellectual capital was advocated from the interest of the business fi rms to explain the differ-ences between the accounting value and the market value as possible basic source of competitive advantages in companies (Bontis 2001 ; Edvinsson 2002 ) Gradually, the fi rm level approach was expanded to national level National intellectual capital represents macroeconomic governance that gives direction to future economic development (Andriessen and Stam 2004 : 11) In the global competition, features such as educational system, international trade, infrastructure, and renewal capabil-ity affect national competitiveness According to Lin and Edvinsson ( 2011 a:1), national intellectual capital (NIC) mainly consists of human, market, process, and renewal capitals (please refer to Appendix B for the indicators of these capitals) In brief, national human capital represents a nation’s investment in nurturing qualifi ed human resources, such as higher education enrollment, skilled labor, and public expenditure in education; market capital represents international trade and relation-ships such as cross-border ventures, globalization, and exports of goods; process capital represents the infrastructure required for building a prosperous society, such

as capital availability, mobile phone subscribers, and government effi ciency; and renewal capital represents the capability of R&D and innovation, such as R&D spending, scientifi c articles, and patents

This book, also the last volume (Volume 12) of a booklet series entitled National

Intellectual Capital and Financial Crisis in 48 countries, aims to summarize the

co-developments between NIC and GDP growth, as well as NIC and the events of the 2008 global fi nancial crisis covering pre- and post-crisis years (2005–2010) Readers can refer to Appendix C for the titles of this book series and Appendix D for the details of the 48 countries The previous 11 volumes provide a different per-spective in studying national development and uncover the potential buildup of sys-temic risk Similar to Gorton’s ( 2012 ) report that a lack of data and the occurrence

of a crisis go hand-in-hand (Gorton 2012 ), we highlighted the impairment of

insuf-fi cient information disclosure that accelerated the collapse of the fl awed insuf-fi nancial system In the era of knowledge economy, our NIC data complements traditional economic indicators for policy implications

This book contains eight chapters Chapter 2 provides an overview of macro nomic development comparisons of the 48 countries; Chap 3 introduces the insights from the NIC and GDP co-development; Chap 4 describes the internal economic conditions and the external infl uence; Chap 5 elaborates the impact of various types

eco-of stimulus and consolidations; Chap 6 delineates the enhancing and impeding tors before and during the 2008 global fi nancial crisis; Chap 7 explains structural reforms after the fi nancial crisis; Chap 8 discusses the potential navigation for national intellectual capital development and concludes with some refl ections

fac-1 Introduction

C.Y.-Y Lin et al., Navigating Intellectual Capital After the Financial Crisis,

DOI 10.1007/978-1-4939-1295-7_2, © Springer Science+Business Media New York 2014

This chapter seeks to update the macroeconomic status of the studied 48 countries with the most current statistics for readers to further understand developments

5 years after the outbreak of the fi nancial crisis We fi rst briefl y review the abilities that caused the 2008 global fi nancial crisis Second, we report on the Global Competitiveness Index (GCI) to the most current 2012–2013 ranking Third, we update the four macroeconomic indicators of real GDP growth rate, gen-eral government debt, unemployment rate, and consumer price infl ation to the most current 2012 statistics at time of writing All the graphs presented in this chapter are based on the NIC ranking order listed in Appendix E, ten countries per graph For example, the top ten NIC countries are in the fi rst graph, the 11–20 NIC coun-tries in the second graph, and so on The rationale of such presentation is to show each country’s development path together with its counterparts for easier compari-son Attention can be paid to the country that have different development pattern with its peers

Vulnerabilities that Caused the 2008 Global Financial Crisis

According to Debelle ( 2009 ), the crisis can be viewed through the prism of risk Before the middle of 2007, risk assessment was excessively low mainly because

of the prolonged period of economic stability in many major countries dating back to the early 1990s As a result, investors become overly optimistic about the future In addition, the low interest rates also caused investors to search for higher yields in new and less well understood fi nancial products These factors accumulated higher and higher vulnerabilities over time, without arousing enough and timely attention Past experience reveals that fi nancial crises are pre-ceded typically by credit booms and tend to occur at business cycle peaks It is also related with the build-up of fragility prior to the crisis The severe conse-quence of such fragility is manifested by the catastrophic domino effect of the

2008 global fi nancial crisis In retrospect, Chairman Bernanke ( 2012 ) of the

Macroeconomic Development Comparisons

of the 48 Countries

U.S Federal Reserve explained that the 2008 global fi nancial crisis was caused

by the trigger of the sub-prime mortgage problem and the vulnerabilities of the weak fi nancial system, regulation, and supervision He elaborated the vulnerabil-ities comprehensively as:

In the private sector, some key vulnerability included high levels of leverage; excessive dependence on unstable short-term funding; defi ciencies in risk management in major

fi nancial fi rms; and the use of exotic and nontransparent fi nancial instruments that obscured concentrations of risk In the public sector, my list of vulnerabilities would include gaps in the regulatory structure that allowed systemically important fi rms and markets to escape comprehensive supervision; failures of supervisors to effectively apply some existing authorities; and insuffi cient attention to threats to the stability of the system as a whole (Bernanke 2012 )

Such vulnerabilities were associated with the shadow banking system, loosely linked to the traditional system of regulated depository institutions (Bernanke

2012 ) With the outbreak of the fi nancial crisis, some of these entities were forced to engage in rapid asset sales, which undermined confi dence and led to sharp withdrawals of funding History tells that all fi nancial crises are at root bank runs, because bank debt is vulnerable to sudden exit by bank debt holders (Gorton 2012 ) In general, a fi nancial crisis is a system breakdown involving sudden, unexpected exit from bank debt, and most important of all a loss of confi dence

In order to restore confi dence in the U.S banking system, stress tests were conducted in the spring of 2009 It turned out that many institutions’ information systems could not provide timely, accurate information about bank exposures to counterparties or complete information about the aggregate risks posed by different positions and portfolios Therefore, stronger bank capital standards and more atten-tion to the liquidity risks faced by the largest, most interconnected fi rms were requested (Bernanke 2012 ) In Europe, more stringent banking rules were also implemented by several major countries, such as the adoption of Basel III in Austria, Belgium, Ireland, Israel, and the Netherlands

Financial crises are costly Cerra and Saxena ( 2008 ) reported that downturns associated with a fi nancial crisis generally result in output losses of about 7.5 % of GDP over the subsequent 10 years Reinhart and Rogoff ( 2009 ) found that peak-to- trough declines following a crisis average about 9 % The world has become differ-ent after this unprecedented and swift global fi nancial impact Radical changes were occurring in the global banking landscape, business models were being revised, the balance of power was shifting in the markets, and new rules were being negotiated—with certain parties taking a hard line (Doerig, 2009 ) The European Commission ( 2012 ) emphasized that Europe must continue to combine sound fi scal policies with structural reforms to create the conditions for sustainable growth and

to bring unemployment down from its current unacceptably high levels The economic surveillance of EU Member States has also been enhanced To trace the economic development of the 48 countries, the global competitive index to be intro-duced in the next section provides an easy reference

2 Macroeconomic Development Comparisons of the 48 Countries

Global Competitive Index Development

Every year, the World Economic Forum publishes the ranking of Global Competitiveness Index (GCI) for around 144 countries This index is relatively robust as it takes into account the 12 distinct pillars 1 containing basic requirements, effi ciency enhancers, and innovation factors that contribute to a nation’s overall economic strength The GCI over eight time periods (2005–2006 to 2012–2013) for every ten countries was plotted in this section for a peer comparison That is, GCI

of the top ten NIC countries are presented in Fig 2.1 ; the 11–21 NIC countries in Fig 2.2 , and so on For the top ten NIC countries, their GCI ranking are also within the top ten, except Iceland, Israel, and Norway as shown in Fig 2.1 The GCI rank-ing of Iceland (from 8 in 2005–2006 to 30 in 2012–2013) was clearly infl uenced

by its fi nancial meltdown in this global fi nancial crisis Israel’s GCI fl uctuation (from 15 of 2006–2007 to 26 of 2012–2013) was likely affected by its political instability, economically it was not harshly hit by this fi nancial crisis Norway’s ranking decline (from 9 to 15) was affected by this fi nancial crisis and the stagnation

in Europe A warning for Norway is that its neighboring countries did not show such decline, not to mention it is rich in oil and should have a better standing to be competitive Other than the above mentioned three countries, Denmark and the U.S showed a downward trend and the Netherlands an upward one in GCI after the

14

23 20 26

27

15 17 23 27 24 22 26

Fig 2.1 GCI ranking development of the top ten NIC countries

For the 11th–20th NIC countries, Fig 2.2 shows that their GCI rankings are largely within the top 20 from 2006 to 2007 onward, except Ireland Ireland’s rank-ing decline from 2009 to 2010 was apparently the trailing effect of its 2010 fi nancial bailout indicating its weak economy In this group, Germany was most competitive consistently, mainly ranking between 5th and 7th among 144 countries Other coun-tries had ups and downs, yet remained in the ranking boundary of 20 In general, the GCI rankings of Australia and Canada declined and that of the United Kingdom improved since 2009–2010

For the 21st–30th NIC countries, Fig 2.3 shows that Korea, France, Malaysia, and New Zealand, with NIC ranking between 21st and 24th, are the four countries within GCI ranking of the top 30 over the years In other words, these four countries have relatively stable and matching status of NIC and GCI ranking Chile’s GCI was largely within the top 30 until the last two periods (2011–2012, 2012–2013) Spain, the Czech Republic, Italy, and Portugal were within the top 50 with some fl uctua-tion over the years Hungary (NIC ranked 29) was the only country that fell out of the top 50 Volume 6 has more explanation about Hungary’s political instability, which might affect its global competitiveness

For the 31st–40th NIC countries, Fig 2.4 shows that only China (from 2007 to

2008 onward) and Thailand (over the years) remained within GCI ranking of 40 Other countries in this group, except Greece, were ranked between 40th and 80th This result shows that lower NIC countries (31st–40th, except China and Thailand) are much less competitive globally than higher NIC countries Figure 2.4 also indi-cates that Greece’s GCI kept on falling irrespective to its two bailouts With NIC ranking of 40, China’s GCI ranked 29th in 2012–2013 indicating its strong competitiveness globally Thailand with a NIC ranking of 34 had a similar GCI ranking of 38th For the last time period (2012–2013), Turkey, Bulgaria, and Jordan have gained in their global competitiveness with a clear upward trend

Fig 2.2 GCI ranking development of the 11th–20th NIC countries

2 Macroeconomic Development Comparisons of the 48 Countries

For the 41st–48th NIC countries, Fig 2.5 shows that GCI of this group, except Argentina and Venezuela, were ranked within 40–80, same as most countries of the 31st–40th group After the fi nancial crisis (from 2010 to 2011), Brazil, Mexico, and the Philippines have increased their global competitiveness For Argentina, although its NIC has gradually improved, the country was hit hard by the 2008 fi nancial crisis with decreasing market capital, which might explain its declining GCI from 85 to

94 Venezuela, being the last country in NIC, also had the lowest GCI ranking in this graph A likely answer is its political unrest

23

33 38

47

42 46

Fig 2.3 GCI ranking development of the 21st–30th NIC countries

Fig 2.4 GCI ranking development of the 31st–40th NIC countries

This section indicates that higher NIC countries (ranked between 1st and 24th)

in general had matching GCI (within 30th), with the exceptions of Iceland, Ireland, and Israel for reasons Although NIC and GCI had different measurement model with different indicators, this result endorses our belief that better NIC countries are more competitive globally and supports our call for paying more attention to the development of intangible national intellectual capital

This paragraph briefl y describes the development of GCI ranking in some ging countries For example, Argentina’s economy bottomed out in 2002, with real GDP 18 % lower than in 1998 and almost 60 % of Argentines was under the poverty line due to its serious economic, social, and political crisis in the country’s turbulent history Not long after the country came out of the misery, this global recession hit and its agricultural exports declined, followed by a severe nation-wide drought With its shaky economic and fi nancial position at the outset of the crisis, Argentina was poorly positioned to deal with this protracted downturn Iceland’s and Ireland’s declining GCI were impacted by the seriousness of their fi nancial crises evidenced

lag-by their needing external fi nancial assistance and bailout Israel has its chronicle security problem that raised investors’ concern Hungary and Venezuela had lasting political strife that damaged their competitiveness

The most perplexing result is Norway’s GCI ranking, which lagged behind its Nordic peers Norway is the richest country among the 48 countries studied; how-ever its GCI was ranked 15 in 2012–2013, surpassing only Iceland and Israel in the top ten NIC group Its NIC was also behind its neighboring countries With more resources to maneuver, the country can be more advanced in many areas, such as R&D or innovation that future sustainability rested upon However, our data did not show such trend, which is a warning for Norway

98 105 113

Fig 2.5 GCI ranking development of the 41st–48th NIC countries

2 Macroeconomic Development Comparisons of the 48 Countries

Four Macroeconomic Indicators of the 48 Countries

Four macro indicators, namely real GDP growth rate, general government debt, unemployment rate, and consumer price infl ation reported in the previous 11 vol-umes are updated hereunder, extended to the most current available 2012 data Figures 2.6 – 2.25 follow the sequence of NIC top ten, 11th–20th and so on

Real GDP Growth

Figure 2.6 shows the real GDP growth of the top ten NIC countries The ment trend is largely the same for countries of this group That is, real GDP growth started to slide from 2008 to all negative in 2009, then a rebound in 2010 was fol-lowed by another decline in 2011 with a further drop in 2012 In 2009, Iceland and Finland plummeted to the lowest in this group In 2010, Singapore bounced back the fastest, followed by Sweden In 2011, all the growth turned positive, including Iceland In 2012, growth of some countries became negative again, including Denmark, Finland, the Netherlands, Singapore, and Switzerland

Figure 2.7 shows the real GDP growth of the 11th–20th NIC countries The development trend is also largely the same for countries within this group, showing real GDP growth sliding in 2008 to all negative in 2009 Then, a rebound in 2010 was followed by another decline in 2011 with a further drop in 2012, except for Australia and Japan Ireland, the country that needed a bailout, had an earlier drop

in 2008 than other countries and still remained negative growth in 2010 Its 2011

Real GDP growth per capita %

Denmark Finland Iceland Israel Netherlands Norway Singapore Sweden Switzerland USA

Fig 2.6 Real GDP growth of the top ten NIC countries

rebound was followed by negative growth again in 2012, refl ecting a still fragile economy With a relatively shallow drop in 2009, Taiwan had the highest growth rebound in 2010 followed by Hong Kong Australia had the least negative impact with only −0.65 % growth in 2009 and had continuous growth from 2011 to 2012 Japan is one of the two that showed upward trends in 2012 Besides Ireland, three other countries (Germany, United Kingdom, and Belgium) also had negative growth

in 2012 However, Germany’s negative growth was a very minor −0.09 %

Figure 2.8 shows the real GDP growth of the 21st–30th NIC countries Although the development pattern is also similar to the two previous ones, the gaps between the countries are a little wider That is, the degree of similarity is not as high as the

fi rst 20 NIC countries The Czech Republic started off as the highest growth country

in this group in 2005; however its relatively sharp downturn from 2008 to 2009 was not followed by a good rebound In 2012, the country still had negative growth of

−1.31 % Korea had the least growth fl uctuation over the years, representing its tively stable economic situation After the fi nancial crisis, Chile had the most eye- catching growth in this group Malaysia and New Zealand are the two other countries that had growth from 2011 to 2012 In addition to the Czech Republic, four other countries, namely Hungary, Italy, Portugal, and Spain had negative growth in 2012 Three of them are southern European countries that were in deep fi nancial troubles during this fi nancial crisis

Figure 2.9 shows the real GDP growth of the 31st–40th NIC countries In this group, there are two outliers—China and Greece China’s economic growth is con-sistently at the top, far above the other countries in this group Even though its growth slowed to 6.93 % in 2012, China had the second highest growth rate in 2012 among the 48 countries, next to Chile’s 9.49 % For Greece, it had a continuous growth decline from 2008 to 2011 with a little rebound in 2012 However, its 2012

Real GDP growth per capita %

Fig 2.7 Real GDP growth of the 11th–20th NIC countries

2 Macroeconomic Development Comparisons of the 48 Countries