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Elsewhere recently, I argued that advanced, sophisticated services with an international focus might significantly help the future growth of the Slovak economy. (1) With the manufacturing sector’s dynamism petering out, a more multi-prong policy focus would likely bring strong growth benefits.
Activity in fields like IT services, advanced consulting services, and higher-end tourism are examples of such advanced services. Other examples would include international trade companies, commercial fairs organizers, high-end medical services, top marketing or interior design studios, or even as specialized services as tennis academies or local showbiz (also popular in Czechia). All these services can have a significant international orientation ( perhaps also focusing on China and other eastern markets) and thus tap vast global markets bringing massive export or quasi-export earnings for the Slovak economy in the future.
Which are the policies that would conduce to the development of such an advanced sophisticated services base? These services derive their value mostly from the human talent augmented by education – hence an urgent need to bolster the human-capital capacity of the country. Utilizing the announced massive EU sponsored aid within the Recovery Fund framework would be one way of supporting the proliferation and growth of such services in a foreseeable time horizon.
In a nutshell, aiding the formal education and lifelong learning sectors, engineering reverse brain drain to Slovakia, and helping diffusion of knowledge in the economy would all combined go a long way towards boosting human capital in Slovakia.
Which specific policies would likely be helpful in human capital formation? Helping a formal education sector at all levels would be one way of supporting the growth and prosperity of such firms in the medium to long-term horizon. First, some resources should be channeled to increasing wages in the whole education sector so that the sector attracts better talent than previously. Other specific policies – such as free laptop computers for all children in elementary and high schools or technological upgrades of labs in many fields would go some way towards aiding the formation of technical capabilities of pupils and students. Gratis vouchers of a specific value per year issued for book purchases would prompt children in elementary schools to read more. Importantly, the availability of scientific articles at low or no direct cost to the researcher would help readier adaptation of frontier knowledge in basic and applied research. Hence, some resources from the Recovery Fund could go towards a country-wide subscription to the primary databases of scientific journals. So could the resources be earmarked for more R&D activity via grants subsidized from the Recovery Fund. Efforts to continually redesign and update school curricula at all levels to keep abreast of the best practices internationally should be sine-qua-non.
There are many reasons why lifelong learning can have positive spillover effects on the economy. First, the AI revolution will bring a tremendous amount of innovations and ensuing disruption to the marketplace. The Slovak economy- like most others – will have to undergo a structural change. Some workers will be released from their previous occupations, and many of them will be seeking retraining programs to start economic activity in a new sector. Second, other workers during their careers will need to specialize further and deepen their skills to keep abreast of the knowledge progress – lifelong learning provides an opportunity for such additional expert-skilling. Third, yet some others might have “missed the right career train” when young or at some point. Nevertheless, a well-functioning society aspiring to be creating prosperity for all should not overly penalize weakness or failure and give individuals multiple chances to succeed in the workplace during their lifetime.
Which are the examples of policies that could help trigger massive lifelong learning in the economy? Tax incentives such as no VAT on textbooks and learning instruments could be one way of supporting learning in general. Individual tax credits for undertaken high-quality but oftentimes expensive executive training is another way of incentivizing more training by individuals. Additionally, a lot of education is happening within the corporate sector. Super-tax deductibility of training costs with a higher than 1.0x coefficient – thus increasing tax shield, reducing the effective cost of the corporate-level trainings – would incentivize more training activity in the corporate world.
Importantly, Slovakia has suffered for decades from a massive brain drain. Some of the most talented people of the nation have left the country for better career opportunities outside of Slovakia. The Slovak economy would tremendously benefit from the return of at least some of these workers – they could be the future entrepreneurs, high-level managers, or experts in sophisticated services firms or elsewhere. Given that the pool of the local talent is limited and probably represents a bottleneck to further development, even pecuniary ways of incentivizing the return of Slovak professionals from abroad (such as via tax breaks) could be considered for implementation.
The diffusion of international frontier knowledge in many fields of the economy – so that the knowledge pool can be tapped into by private firms in Slovakia – is quintessential for having internationally competitive domestic firms. Expert scientific and other advanced conferences with foreign experts participating organized in Slovakia could help such diffusion. Subsidizing the costs of hosting such expert conferences could be one direct way of promoting the spread of frontier knowledge in the Slovak economy. The exchange of academics at all levels internationally, perhaps subsidized also from the funds made available by the EU, could be another way of bringing academics closer to the knowledge frontier. Slovak firms could thus tap into such a further augmented talent pool and strengthen their competitiveness.
Aiding the formal education as well as the lifelong learning sectors, engineering reverse brain drain to Slovakia, and helping diffusion of knowledge in the economy would all combined go a long way towards boosting human capital in Slovakia. While valuable in its own right, this could also help the country develop an internationally competitive services sector and return the Slovak economy onto the path of fast growth and convergence in the medium term from which it was derailed.
(1) Vladimir Zlacky, Slovak Economy: What next, Slovak Spectator, July 2020