Crisis and funding of research

By Katka Svickova

In normal times, politicians of all strands are unanimously committed to the support of education, research and development. They never forget to stress how important these areas are to secure future prosperity. In crisis times, the “now” becomes more important than the future prosperity as governments are confronted with hard choices how best to use public funding to alleviate the negative effects of the economic crisis and help to re-start the up-cycle. Instead of the promised growth, public budgets for education and research either stagnate or fall in several Central and Eastern European countries (and as might be the case elsewhere in Europe, too).


A few months ago, investing in research and development was still promoted as one of the solutions to the economic crisis. Accordingly, the Czech national anti-crisis plan committed to increasing the R&D public spending over the next three years. Originally, the spending on research should grow by 8 % in 2010. Yet at the end of June, the government decided to freeze the annual outlays on research over the next three years at the level of 2009.

In addition to this, the Czech university and research community is in a sharp dispute over the allocation of these research funds. The conflict in essence boils down to rebalancing the spending to favor applied at the expense of basic research. The prevailing “now before then” logic favors the applied research – as a means to give a boost to industrial innovations. The funding allocations should be more result - and performance - oriented but the criteria, according to which the evaluation of performance is done, are far from perfect and heavily disputed.

Within Central and Eastern Europe, the Czech Republic actually belongs to countries with comparatively high governmental outlays to research: in 2007, it was 0,58 % of GDP as compared to the CEE average of about 0,4 % of GDP. However, both Czech Republic as well as the region are below the EU-27 average of 0,67 % of GDP spent on research from public funds (comparisons and calculations are based on available Eurostat data).

The education and research budget is now under strain not only in the Czech Republic. In Latvia, for example, the spending was reduced by about 65 million EUR affecting teachers’ salaries and resources to vocational schools, scientific institutions, state universities and colleges. The cuts were adopted under the pressure to trim the public budget in a country perhaps most stricken by the economic crisis in Central and Eastern Europe so far. They brought students and teachers to demonstrate in the streets in the course of spring. Also in Poland, discussions are under way to cut educational and research spending.

The developments show that despite the continuous mantras about the importance of research and development, these sectors are also subject to economic cycles and the workings of politics. A question that emerges from the Czech debate and governmental action is whether the cuts as well as the new rules for dividing public funding for research were passed after a profound weighing of short-term and long-term consequences of these decisions. To the most important consequences of the current decisions affect the capacity to engage in basic research. The abrupt shift of funding from research institutions such as Academy of Sciences (and to lesser extent universities) that are focused on basic research to institutes of applied research that are connected to various ministries and major industrial firms, may in the long term undermine both.

From the short-term perspective, more support to applied research in the situation when the budgets of the private sector are strained might bring more immediate results and help to increase the competitiveness of the industry. However, the private sector is also more likely to finance this type of research itself after the worst effects of the crisis on firms are over. On the other hand, basic research requires a lot of funds with uncertain and long-term results, and is thus not so attractive for the private sector. Moreover, the institutes focused on basic research are fundamental for creating the necessary human capital that allows applied research institutes to operate successfully within the global research networks. It is therefore here where public funding plays a crucial role.

Making public choices about educational and research priorities, and subsequent reforms of the system, including how public funds are allocated, are relevant in all conditions. However, the “now” perspective of crisis times should not prevent a decision-making based on sound weighting of both short-term and long-term consequences of the different options.

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Anti-crisis policies in the Czech Republic and Slovakia: what do they have in common?

By Lucia Kurekova and Katka Svickova

Czech Republic and Slovakia have diverged in their developmental paths and policy choices over the course of transition. In spite of common institutional legacy and very similar export profiles, sixteen years after separation, the policy choices frequently differ, perhaps not least because of opposing political orientations of their governing elites during different periods of transition. This is the case also today, when individual countries are facing the world economic downturn in their local shapes and forms: Slovakia is governed by social democratic/third way SMER in coalition with centre-right HZDS and nationalist SNS while the Czech Republic is headed by a centre-right government of Miroslav Topolanek. In spite of many similarities in how the crisis has been affecting these two countries, which are both heavily dependent on automotive industry, the remedies that the governments have passed are quite different.

The governments of both countries, however, shared a similar initial denial that the global crisis might have any significant effects on their domestic economies. In both countries, too, the opposition was coining a different message and suggesting their own recipes for a remedy. And in both countries, the governments have not been really listening to these voices. While the wounds to the economies of both countries have been caused by a deep dip of external demand for their exports of consumer durable goods, the reactions of both countries in the form of adopted anti-crises measures have been different. Is the reason for these different reactions an underlying difference in the state of these economies, as persuasively argued in the last week’s issue of the Economist, or is it purely an outcome of different ideological orientations and tastes of the governments steering the countries?

To summarize, the set of Czech anti-crisis measures has a strong pro-business flavor while the Slovak government has concentrated more on supporting the ‘ordinary citizens’ and keeping employment almost at any cost. Further, while the Czech measures are partially forward-looking and have a modernizing aspect (support for environmental measures, increase of R&D investment), this can hardly be said about any of the three Slovak anti-crisis packages. While the government of Robert Fico fiercely refuted any opposition calls to decrease further the 19% flat tax rate, the “tax package” that it passed in the end will make most of working Slovaks richer by about 10 euro per month via the raised tax deductible minimum. The Czech Republic, on the other hand, will not only reduce the corporate tax by another 2% in the next two years (only reaching, however, the current Slovak level of 19 %) but has also decreased social insurance deductions on salaries for employees by 1,5%. Instead of up to 2000 euro ‘srotovne’ (bonus on buying a new car and recycling an old car) passed after its success in Germany last week also in Slovakia, the Czech Republic decided to reduce the VAT for cars. Additional changes to the administrative and institutional business environment in the Czech Republic include an amendment of the insolvency law, faster depreciations, an abolishment of the obligation to pay an advance on income tax for self-employed and small enterprises (below 5 employees) or enhancing the provision of export loans to businesses and loan guarantees for SMEs. The overall goal is to reduce the cost of labor and thus, desirably, preserve employment and facilitate the cash-flow for businesses. Fairly enough, Slovakia passed a handful of pro-business oriented measures too, among them easier book-keeping for self-employed and SMEs, faster depreciations, a quicker return of VAT to businesses or state guarantees for loans (up to 55% of the loans for companies employing less than 100 people).

However, the core of Slovak anti-crisis tools is in its ‘social package’. The leitmotif of the government is ‘keeping employment at any price’, which is not surprising in the light of the Slovak structural (read “high and persistent”) unemployment nightmare that has been present during the whole transition. Yet the set of job creation measures passed by the government is not only extremely complicated, but there are fears that many of them are very corruption-prone and might lead to more – rather than less - red tape. Measures such as state help to employers who are experiencing serious operational problems to cover the compulsory health and social insurance payments for their employees for a maximum of 60 days, or intentions to subsidize new jobs for a period of 12 months up to 15% of the costs of a new job in Bratislava region and 30% in the other regions of Slovakia are only examples of ways where crony practices and potential waste of money are likely to loom in unless the system is properly monitored and the support is given to enterprises with good prospects of future growth and innovation. The law on the support for one-man businesses started during the crisis, for example, had to be amended shortly after it came into effect following cases of its misuse.

There are a few instances, however, where the countries seem to stand out in a positive way. Bratislava has been praised for keeping its investment incentives to foreign firms - and extending them to domestic investors. Czech Republic, on the other hand, plans to invest more into R&D, a field where nearly every country has been trying to save during the crisis. Both of these measures are forward-looking. And although they are unlikely to act as immediate fire-fighters against the slump, which is projected to be the deepest in the next moths, the countries will be grateful for them in the mid-term to long-term period.

To answer our question from the beginning on the cause of the divergence of policy reactions in the two countries, the color of the governing coalitions seems to explain a lot of the outlined differences. At the same time, however, Slovakia has a long-lasting experience with high unemployment to which the society is extremely sensitive. In addition, both countries will need to deal with the issue of migration, but from very different ends: the Czech Republic is trying to figure out how to send back some of its foreign labor that has served it well until now, while Slovakia should start monitoring who and in which proportions is coming back to the country from nearer (Czech Republic) or farther abroad (Britain and Ireland). Lastly, Slovakia, now an EMU member, is not spending any of its energy on defending its currency, while the Czech Republic is less lucky in its respect. But then – it has one more tool at hands in dealing with the crisis cycle and its exporters are more competitive than the Slovaks exporters.

This brief comparison of reactions to the domestic repercussions of the world economic crisis in two Central and Eastern economies also contributes to underline a broader trend of divergence in the development of the countries from the whole Central and Eastern European region, despite a shared legacy as centrally-planned economies.

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Roadmap for Czech tertiary education reform

By Katka Svickova

In January 2009, the Czech government adopted the White Book on Tertiary Education, a document which defines where the Czech tertiary education should be heading in the next ten to twenty years. It foresees a complete overhaul of the Czech tertiary system in terms of structure, governance and financing. In addition to their two traditional roles of education and research, tertiary education institutions shall play a third, equally important role: in the “production of knowledge and creation of the innovation potential of the society“.


The White Book promises to let fresh wind into the whole system that faces similar problems like systems in the whole Europe (also in my post from May 2008). However, given the low proportion of tertiary educated people in the population and comparably low spending on education overall, the overhaul is particularly pertinent in the Czech Republic. How to make tertiary education more open and accessible while at the same time not to undermine the quality of teaching? How to make tertiary education more sustainable financially? How to increase the volume and quality of research and its application in the economic sphere? These are just examples of questions that the White Book promises to answer. So what does it propose?

The Czech Republic is an EU leader in inequality of access to tertiary education by social background. The proposed solution focuses on lifting the disadvantages of a student´s social background on the one hand, and broadening of the educational offer on the other. The first goal should be achieved, above all, through a change in the financing of the tertiary system – instead of all public finances going directly to the educational institutions, part of them should be redirected to the students themselves in the form of educational grants and special educational loans. This shall allow students to pay tuition fees, enable students from socially disadvantaged families that cannot afford to support their child at university to cover his or her expenses, and bring more competition for students among tertiary education institutions. The second goal of broadening the educational offer should be achieved by a greater diversification of tertiary education and expanding considerably the two and three year long bachelor programs both in terms of capacity and variety of offer. The bachelor degrees should be practice- and profession oriented.

The White Book also correctly posits, though, that the solution to the problem of accessibility lies to a large extent outside the tertiary education institutions. Decreasing the selectivity and improving the quality of primary and secondary education are also of key importance, together with spreading the culture of overall appreciation of tertiary education and the aspirations for acquiring it in all groups of the society.

The diversification and the financing reform (increase in financing from both public and private sources, the latter predominantly in the form of tuition fees, but also better spending of these resources) shall go hand in hand with a change in governance of the tertiary sector towards more autonomy. This autonomy will also relate to internal structuring of the individual institutions and allocation of funds in research-related activities inside them. The White Book also seeks to eliminate barriers between the university research and the private sector whereby higher autonomy should create the necessary space for finding the best arrangements for individual tertiary institutions.

Of course, the brief summary above cannot go into all the complexities of the reforms outlined in the strategic document. And surely, the White Book does not address all needs of the tertiary sector in sufficient detail and thoroughness. What the document does, though, is a fair attempt at an analysis of the strengths and weaknesses of the current system, perceiving them in their complexity and inter-relatedness. The reform outlined on this basis reflects these complexities well.

In all, the document is well thought-through and well argued, taking clear positions e.g. on the above mentioned overhaul in the financing structure of tertiary education and introduction of tuition fees, on broadening of the bachelor level education and connecting it with practice, or on the concept of universities as places of “knowledge production” for the market. This poises it to become a subject of controversy among experts and politicians – and rightly so given the pertinence of the issue. It would be a pity if the current financial crisis pushed such a debate too much into the background. A high-quality and well-functioning educational system is not only one of the essential ingredients of a sustainable, diversified and sophisticated domestic economy but can also serve as an important social cushion. Tertiary educated people have generally better chances on the labor market and so far, the lay-offs in Central Europe caused by the crisis have taken their toll predominantly among the lower educated labor force (see one of my previous blog posts on this topic). Even though this might change as the crisis unfolds, tertiary education can significantly increase one´s chances of finding another job.

The problems that the Czech tertiary education is facing and the directions proposed in the White Book do not differ substantially from the situation and debates in other European Union countries. However, hidden in the text of the document is a precondition for undertaking and success of the reforms outlined: the existence of healthy and well-financed tertiary sector institutions in which teaching as well as basic research are at high level and independent of commercial activities. Reaching this standard alone is a daunting task: yet we all should wish and care about its successful completion.

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Who loses in the economic crisis?

By Katka Svickova

As the crisis progresses from the financial into the real economy and starts hurting the businesses as well as their staff, what is a better defense of an individual against its vagaries: his or her brain- or muscular power?

At the moment, we do not yet have a clear picture about how badly hit in terms of real production cuts and subsequent unemployment the Central European economies really are and will be by the global financial crisis. Yet there are already a few signs of who is affected...

In the Czech Republic, especially the trouble of the car and car part manufacturing sectors are put into spotlight. Skoda Auto, the Czech Republic's largest car manufacturer and a subsidiary of Volkswagen since 1991, has cut down production. The Czech Automotive Industry Association predicts that nearly 10 percent of the country's auto workers, or around 10,000 people, could lose their jobs within six months. So far, however, the redundancies started with contractual manual workers, partially „imported“ from countries like Vietnam and Mongolia to overcome bottlenecks on the domestic labor market. Also in the case of the glass, textile and logistics branches, the unemployment hit predominantly manual workers. In the whole Czech economy, up to 40 000 more redundancies are expected in 2009. Conversely, Slovakia, called also the Detroit of Europe, has not yet heard of any mass lay-offs by the automotive investors or in any other economic sectors.

At the same time, reading these forecasts, one should not forget that the seasonally adjusted unemployment rate in the Czech Republic was 4,4 % in October 2008 (Eurostat) – one of the lowest in the EU. Besides lay-offs, there are also many vacant positions on the labor market (albeit their number is lower than a few months ago). Qualified and skilled IT workers and engineers are still in high demand.

Also in Hungary, which was hit very hard by the financial crisis, the real economy started to feel the pain. National Labour Service (AFSZ) reported that there were 420 000 job-seekers in October 2008 whereby their number increased by 21 000 in a single month. As of February, further 14 000 employees could lose their jobs besides the already announced lay-off plans. Firms cutting their staff are for example Laird Technologies (electronics component manufacturer), Suzuki, Foxconn (manufacturer of spare parts for mobile phones), Videoton or General Electrics. In all, the crisis is felt most in the construction, automobile, electronics, IT and equipment manufacturing, tourism, hotels and processing industries.

Hungarian government plans to linder the effects of the crisis on workers by creating jobs in public work programs: in 2008, 25,000-30,000 poor and jobless Hungarians had temporary work and further 50,000-90,000 jobs should be created. This indicates a message about the skill level of workers made redundant – these public work programs can be hardly dominated by highly-skilled positions. Moreover, engineers, IT graduates and other tertiary educated workers are still demanded by employers.

Polish economy is also bracing for lay-offs in its glass, steel, chemical, automotive and electronics branches. At the same time, exporters in Poland were threatening to lay off staff already in summer 2008 (so before the economic crisis). According to forecasts, the unemployment may exceed 10 % - but this is hardly a steep jump compared to 9,6 % in June 2008. One of the sources of increased unemployment is going to be, according to expectations, a return of a part of the large Polish emigrant workers pool from Western Europe.

In all, at this stage, it seems that the adverse development in the real economy has not yet bitten the well-educated core of the labor force in Central Europe. Rather, it will probably lead to tuning down of the outcries about the scarcity of welders, metal turners and other manual professions, and the need for more young people to learn these professions.

In the end, therefore, the cloud of unemployment might have a silver lining: a clear message to the policy makers as well as individuals that investment into people´s brains has good and stable returns. Moreover, this kind of investment may not vanish into thin air so easily, like the billions sunk in sub-prime financial investments did.

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Reforming Slovak primary and secondary education. Or not really?

By Katka Svickova

After the summer holidays, the roughly 830 thousand Slovak pupils and secondary school students should return into a different school than the one they left at the end of June. At least this is what the new Law on Education passed by the Slovak Parliament in May 2008 envisages. And at least for a part of the pupils at first, as the law will be implemented gradually. However, what this new school will ultimately really be like, and how new it really will be, is uncertain as the real changes can only be seen in the classroom and in a few years at the earliest. In spite of this uncertainty (or perhaps facilitated by it), the reform triggered a strong critical reaction.



Main features of the Slovak educational reform

On paper, the reform goes with the freshest winds of change blowing across Europe: education should be based on new, creative approaches, explorative, project- and problem oriented methods, on own activity and participation of the pupils in their education, on new content of subjects stressing competences and capabilities rather than memorized knowledge. The number of pupils or students per class should be reduced. Schools are promised more autonomy in determining the content and the form of the subjects taught. Parents, pupils and representatives of employers´ organizations should obtain more space for direct participation in the governance of schools and in the creation of educational programs. Last but not least, the choice between schools should be free and so should be the offer of educational opportunities. So can the pupils be looking forward to an educational paradise unfolding over the next few years?

Not really, say the critics. While they agree that the educational reform is long overdue, most of them call for its further postponement – for reasons connected both to its content and to the capacity of the current system to implement it. Indeed, the reform was really fast, and there was little time for a thorough public debate: the draft was presented in September 2007, the law was passed in May 2008 and its implementation starts in September 2008. In other countries, a similar process took normally between 3 and 4 years. In the Czech Republic, for example, the educational reform, launched in September 2007, was more thoroughly debated in its preparation phase and schools got more than 2 years to get ready for it.

Given the almost astronomic speed of the reform in Slovakia, the question is how significant changes it indeed brings. And if it really signals a watershed change - breaking with the traditional centralised system oriented at pupils cramming and reproducing facts - why the scope for the discussion was deliberately so limited. Reform of the educational system turns almost all members of the society into stakeholders. One would hardly find a person today, who would doubt that education is of crucial importance for the development of the individual as well as the whole society. Yet even the short time allowed for public debate could hardly hide lack of interest from the public.

What is really in the magic box?

The critics, who raised their voice most loudly, pointed out that the new law is not a reform at all but rather a bundle of atomistic and often second-rate regulations. Moreover, its effect will be contrary to the one promised. Instdead of more autonomy, it will bring more centralization and control. Yes, individual schools should create their own educational programs. Yet according to the critics, the binding framework educational programs set by the Ministry of Education, prescribing obligatory content and conditions of education, do not give much space for schools to add their own content. As a representative of a secondary schools association said, the secondary schools will copy the ministerial framework educational programme to 95 %. And yes, the law proclaims more freedom of choice; yet at the same time, there will be always only one textbook available for free for individual subjects, approved by the Ministry. The freedom of choice of school will allegedly be limited by the power of the Ministry to set limits for the number of pupils in the individual study programs of secondary professional schools. The critics also say that the reform does not address a serious problem of inequality of chances in education. (However, besides a call for personal assistants and an improvement of the quality of elementary education, they also do not suggest any concrete proposals how to solve this complex problem). In all, despite the huge need for reform, the new law does not deviate too much from the old system.

Perhaps, the character of the law was best pronounced by the Minister of Education, Jan Mikolaj, when presenting its draft: „Do not search for liberal values in this reform, I openly say, I think that we are not in such a deep mess.“ But perhaps, the audience should look for nationalistic values instead. The Ministry of Education is in the hands of the Slovak National Party, whose leader, Jan Slota, is (in)famous for numerous anti-Hungarian statements. The Hungarian minority in Slovakia feels the limitation in the choice of schoolbooks as a measure against them. No wonder - after a statement by Slota who called Stephen, the Hungarian king and saint who is depicted on the cover of a current textbook used by the minority, “a Hungarian clown on a horse.“ In its introduction, the law also states that one of the aims of education is to enhance the respect to national traditions, values and state language by all citizens.

What can pupils expect when they return to school in September?

Based on the Czech experience, where educational reform, on paper very similar to the current Slovak one, has been implemented since last September, not much groundbreakingly new should be expected from the initial phases of the reform implementation. The Czech discussion shared some similarities with the Slovak one. Its conclusions and lessons learned from a year of implementation indicate that much more depends on the individual teachers and school directors than on what is written on paper in the Ministry. Many schools started experimenting with new methods and new teaching approaches much earlier than they were told by the law. Those which did not want to or could not do this, just produced and handed in the obligatory school programe, and (with a few cosmetic changes) continued their business as usual. This might be the case of many Slovak schools too. Since indeed, the teachers and schools got very little time to prepare for the changes.

Although the critics of the educational reform in Slovakia pointed to some pertinent (but at the moment unresolvable) issues, the attention left several other, equally if not more important ones, in the background. In particular the issue of school financing, governance and teachers´ remuneration (and the level of autonomy schools really have here), the education and motivation of teachers (ensuring that they also actually have the competences they are expected to develop among the pupils in the classroom), or active involvement of stakeholders (especially parents).

All worth, at least, of prospective blog posts ;)

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To better and more open universities - through reduction of funding? Alias a special Czech way of tertiary education improvement.

The plans for financing the tertiary educational sector revealed last week by the Czech government indicate that Czech universities would experience a real decrease of teaching funding per student. This announcement came shortly after presenting the White Paper for Higher Education: with the aim to make tertiary education accessible and open to broad masses of students. Already between 1995 and 2004, the per capita funding decreased by one third, the biggest slump among the OECD countries. At the same time, more money was promised to private universities, making the Czech Republic one of the few European countries providing such support. The government and its main party, ODS (Civic Democratic Party), apparently do not see any contradiction between the White Paper goals and their financing needs. And so ODS could proudly launch one of the pillars for their regional election campaign last week: promoting and opening education for everybody.

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Fresh wind into the Czech higher educational sector?

Czech universities are allegedly too elite-oriented. Only 9 % of children from worker families are studying at university in the Czech Republic, and thus have a six times lower chance to be accepted to university than the children of tertiary-educated parents. The new White Paper for Higher Education is supposed to remedy this situation. The draft presented by Prime Minister Topolánek on 13 May envisages opening the access to universities and their massification. It also introduces new governance and financing mechanisms, which already raised opposition among the rectors. Their main complaint is about the threatening intrusion of the state into university autonomy. The debate launched on May 13 will thus center around the broader questions of university autonomy vs. accountability, responsiveness to the labor market needs, entrepreneurial universities or the relationship between research and teaching and their funding but embed them into the Czech context.

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From brawn to brain-based economies? Welcome to the Knowledge and Skills section

Have you ever heard the term “knowledge-based economy?“ And about how much knowledge, ideas and skills matter for economic competitiveness - a precondition for economic growth and prosperity? If you are reading this blog you probably have, and probably more than once. Yet what is a knowledge-based economy really? And are the Central and Eastern European countries on their way from brawn-based to brain-based economies?

According to the World Bank’s Knowledge Economy Index 2007, Sweden is the most knowledge-based economy out of some 140 economies ranked. From the countries of Central and Eastern Europe (CEE), Slovenia occupies the 23rd rank, followed closely by Estonia (25th), Hungary (28th), and the Czech Republic (29th). Lithuania, Latvia, Poland and Slovakia did not make it into the first thirty, but are close. What is more, both these Baltic countries made an impressive jump since 1995, according to the index. Romania and Bulgaria rank only behind countries like Barbados, Chile or Malaysia. Slovakia has been the only country out of the CEEs which backslid. index definition, out of the CEEs, Slovenia has the most conducive environment for knowledge to be used effectively for economic (and social) development. This means that its economic and institutional regime provides incentives for efficient use of existing and new knowledge. It has an educated and skilled population that can create, share and use knowledge well. It has an efficient innovation system of firms, research centers, universities or consultants that can tap into the stock of global knowledge and assimilate and adapt it to local needs or create new knowledge. And, last but not least, it has information and communication technology that facilitates creation, dissemination and processing of information. Again, in the CEE environment.

Without going into the nitty-gritty of this index, I used it because it shows a variation in the performance of the countries in the region of my interest. It also indicates that there are interesting stories of change over time. In my blog entries, I would like to tell something more about these stories and about the individual elements of which the Knowledge Economy Index consists. I will write about the skill- and knowledge-formation policies in the countries of the Central and Eastern European region. These include education and R&D policies and reforms but also broader measures targeting the labor market and enterprise support, which foster skill acquisition and utilization in the economy.
However, (and at the same time), my understanding and interpretation of all the above-mentioned issues goes beyond the notion of a high skills economy. Rising productivity in the twenty-first century does not only depend on new technologies, research and development, or the level of funding devoted to education and training, but also on how these are embedded in ´institutional´ and social relations. In line with Brown et al (2001), therefore, I prefer and adopt the concept of high skill society.

Katka Svickova

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