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- [00:00]
A
Welcome to another Kuwait breakfast. The subject is today the knowledge economy and the Gulf, and I'm delighted to have with me Will Hutton on my right, who barely needs an introduction, and Christopher Davison on my left, whose academic books on the Gulf some of you may know, but I will mention them briefly for those who don't know, but many of you probably do. The Kuwait program has now been running at the LSE for. For some three years. It is a very intensive research program on the Gulf countries and its neighbors. We publish regularly a series of working research papers which are commissioned by the LSE on most key aspects of the Gulf economy, society and politics. These papers are available outside some of them, and they're available free online at the LSE Kuwait website, which contains a lot of contemporary analytical work on the Gulf economies. It's worth saying that, I think, and it's also worth mentioning that we're about to publish, well, actually early next year, a book called the Transformation of the Gulf, which brings together the first phase of our research on the Gulf economies and so on, and I hope we'll have the chance to present it on these occasions. Anyway, this morning it is the knowledge economy in the Gulf, and Will will start first. There's been a bit of technological problem. We don't have a PowerPoint for some reason, but I hope he'll manage. Anyway. Will is, of course, has worked for the Work foundation for a number of years, but is best known to us as one of the preeminent commentators on the British economy and the world economy in general, having been a commentator first of all with the BBC and then of course as editor of the observer and now as a regular columnist for the observer, and of course, he writes extensively for other papers. Will is as close as he gets as a journalist to a household name, and many of his books have sold remarkably over a long period of time. The ones that are best known, of course, are the State we're in the State to Come, his most recent Bhagwan book on China, the Writing on the Wall, China and the west in the 21st century, and his most most recent, Them and Us Changing why We Need a Fairer Society. He is also, I should mention, he's been asked by the Prime Minister recently to chair the Public Sector Fair Pay Review. Chris Davidson is a reader in the Middle east politics and deputy head of the School of Government and International affairs at Durham University. He has made a very distinguished contribution to the state study of the Gulf, and among his books are Dubai, the Vulnerability of Success, Abu Dhabi Oil and Beyond and most recently the Persian Gulf and Pacific From Indifference to Interdependence published by all by Columbia University Press and his co editor also very recently of a very relevant book for this session, Higher Education in the Gulf States Shaping Economics, Politics and Cultures. Will will speak first, setting the scene, Christopher second and then we may come back to you. Yes afterwards and we'll hope to finish by half past eight or so and open it up to questions. As you wish.
- [03:26]
B
Good morning everybody. I'm going to sit down because it's a what I thought I would do. We may yet manage to rescue it but I brought a slide deck along with me with some quite interesting slides but I will talk to them rather than probably better actually because as Bill Gates said, PowerPoint is an obstacle to understanding first of all, a few remarks about the knowledge economy. I do take the view. This idea has been a little while getting off the ground. I mean when Peter Mandelson when he was Trade secretary back in 97 began talking about it, there was a general feeling it was a new labor. Thank you very much, that's superb. It was a kind of New Labour contrivance with little correspondence to reality. I think in 2010 there is a grand recognition that actually the dynamic part of our economies in the west is knowledge based goods and services. And the definition of the OEC OECD supply includes in the private sector of course, information communication technologies, high tech, manufacturing, business services, financial services, the culture and creative industries, some parts of transport, but not all and in the public sector, education and health. In the UK the knowledge based economy is about 2 is about 45% of GDP, about close to 2/5 of our workforce are employed in it and those figures are broadly twice what they were in 1970. It's a very similar phenomena across the western industrial economies and proof positive of this for example, is the growth of intangible investment over tangible investment. Investment in plant buildings and machinery is if you take an index of 100 for that in 1970, investment in intangibles, I.e. brand equity, R and D, non scientific R and D organizational capital, leadership training was running with about an index level of about 40 or 50. Intangibles now stand at around 130. 140. In other words, they've broadly trebled expenditure on intangibles over the last 40 years against the investment intangibles and that's because most manufacturing companies are transmuting from being manufacturing companies into what the Americans call Manu service companies over 3/5 now of US manufacturing companies define themselves as Manu service companies. In Britain, one of the most obvious examples is Rolls Royce, a manufacturer, of course, but the servicing of its engines is a major and leasing of them is a major profit center in its own right. James Dyson, who is after rolls Royce, the second biggest patenter in the UK, 1200 patents lodged last year, would also call himself a Manu service company. The knowledge economy is driven by the, on the one hand, the escalating pace of scientific and technological development, which grows exponentially and actually crosses disciplines and frontiers and much more sophisticated demand. Consumers are willing to be early adapters of these new technologies. You can see it on your I don't know who's got what app on their mobile phone this morning, but it's a classic example of consumers and technologically led producers co producing a whole new array of a service which, if you're in the mobile phone business, where does actually producing the hard kit end and the soft apps begin? And the boundary is increasingly fuzzy and much of the value added actually is in the apps rather than the hard kit. Most of you will have an iPod. Only 15% of the value of an ipod sits in the manufacturer of it. The rest of it sits in the clever things the ipod does. Developing a knowledge economy requires a highly sophisticated institutional investment system, investment innovation system. Of course, it requires extraordinary centers of research, not just in your universities, but in your independent research centers. It requires a capacity to transmute those that knowledge and that IP, if you like, into commercially applicable goods and services. It requires sophisticated regulation in order to help producers bring forward goods and services that necessarily the market doesn't know about and will be tentative about using in the first instance. And these credence goods do require actually, you know, regulatory support before consumers want to use them. That's most classic in the drugs industry. None of us would swallow a drug without the regulatory stamp that it's safe. And that to a greater or less degree is the story of all knowledge economy goods and services. The companies that deliver these, these operating knowledge economy are extraordinarily, extraordinarily sophisticated. Managing knowledge workers and these innovation presences is extremely sophisticated and difficult. How they are banked to, how they are financed, the skills of the people going into them, the interoperability of the people as they move from post to post. These are extraordinarily difficult things to do. It is my view that this is the knowledge economy is not just the story of our times, it's an accelerating story of our times. And I challenge the conventional wisdom and this will be quite controversial. But I do challenge the conventional wisdom that the BRIC countries are going to over and Asia in general are going to overwhelm the west in the decades ahead. The knowledge economy is so hard to do and the institutions required to do it from patent law, competition law, procurement, financing, leadership, management, distribution systems are so difficult to do. You can't do it off the shelf. And Western economies have such a leadership edge here over the rest of the world that I have no doubt that per capita incomes will grow much faster in the west in the decades ahead and that the story will be widening gap between the west and the rest and extremely difficult to manage the expectations of countries who find it so difficult to do. The Norwich economy for the Gulf states and for done some work in some of the Gulf states. This I think is particularly challenging because the old model for development was you can use your petrodollars and you can put hard industrial infrastructure on the ground, whether it be a desalination plant or a petrochemical plant. You can use these surpluses to, you can get branches of banks to demonstrate how your own Islamic bank should operate. And actually you can catch up to the frontier of technology without this actually being too big a challenge to the institutional structure of your country. To do the large economy well, however, requires the construction of these innovation and investment ecosystems and they are extraordinarily difficult to do. Relationship to build a university which has got its own capacity for frontier of research, to find ways of networking that into what are necessarily undeveloped private sectors where there isn't a tradition of entrepreneurialism, where actually the local markets, although rich, are extraordinarily small and it's hard to get scale where there's not a tradition of investing in intangibles, brand equity, non scientific R and D, the creative industries, this is design advertising, all that cluster of activities which have risen so strongly in every Western economy and which house the new Manu Service companies exist to a very scarce degree in the Gulf and are very difficult to build from first foundations. And then of course there's the human capital story where a lot of these countries are because of extraordinary oil wealth, the young men and women do not feel that the need actually to get educated in the same driven way that for example, some Asian countries used to and still remains a kind of strong tradition in the west. And the educational structures, the standing of teachers, the standing of education attainment is very, very low. And of course you can't do the knowledge economy. And I'll bring my remarks to an end on this Note, you can't do the knowledge economy. The soft institutional infrastructure, which I've taught, relates very strongly to the governance, wider governance issues, a press that holds truth to power, the rule of law, accountability and transparency, a tradition of argumentation. Because you can't arrive at some of these very sophisticated goods and services in the British economy without actually the organization that's kind of thinking about bringing them forward itself, being able to manage dissent, understand the role of argument, give and take. And it's just. It's a very, very difficult culture to grow in the kinds of regime that exist in the Gulf. Some great attempts have been made. I think some of what's been happening in the uae, in Bahrain is courageous and very interesting and some important building blocks have been put in place. Some of the Gulf states are further behind the curve and they do know that. But of course, one of the difficulties is the rise of religious fundamentalism is a big challenge. Rather, the rise of Tea Party movement in the States is a big challenge to the kinds of prejudices that you need for the knowledge economy. So there's a kind of. This is a rather precious flower. Incubating it and growing it, I think, is extraordinarily challenging. I've got a lot to say about what firm strategies you can adopt. I think it's quite interesting if you think about yourself as a. Imagine you're running the economic development, you're in the economic development Ministry of a Gulf state, and your challenge is to try to catch up with the frontier and develop companies that will be at the frontier of the knowledge economy. What should the firm's strategies be? Should they be local optimizers? Should there be vertical integrators? How can you build a business franchise from where you stand? It's an amazingly challenging and difficult thing to do when you think of it in these terms. Thank you very much.
- [16:16]
C
Good morning, ladies and gentlemen. Maybe that's a bit too loud. I have to confess, up till a few years ago, I was never quite sure what knowledge economy meant. It was this. These buzzwords around me and I never really got a clear definition. But that all changed in summer 2007. I had a very surreal job, summer job, as it were. Had some brief leave from Durham University and I worked for a, well, at the time, quite infamous British consultancy company, because they'd just lost the Home Office's memory stick at the time, I think. But I had a job back in Dubai where I used to live and work before, and it was to help set up what was known as the knowledge and human Development Authority khda, which was based in a building on the periphery of the city. Well, that's quite a kind way of putting it. It was in the middle of the desert. It was a brand new building, so new that I remember my office chair and desk still had the cellophane wrappers on. And to inspire me every morning I had to walk past a life size 6 foot effigy of the ruler of Dubai, Sheikh Mohammed Al Maktoum, with the slogan Education, Education, Education underneath which I didn't think was entirely original. I'm sure I'd seen that somewhere else before, perhaps here in the uk. What became quickly apparent to me is that all of the consultancy companies that were working in Dubai at that time, which I think can be best described as the, the very height of the boom in Dubai, they were all having to sing to the same tune. And that tune was being made up by a document called the Dubai Strategic Plan 2015, one of these long term planning documents that was supposed to carry through the vision of the ruler for the economy, society, political system, et cetera. And it became quite clear that any consultancy company that was to succeed in renewing their contracts had to somehow find a way of getting Knowledge Economy, which was the main headline in one part of this strategy document, into almost all of their documents too, ours included. So I remember one meeting we had with stakeholders where members of the consultancy team and myself and a few others, we were going through our articles in the document, trying to insert the words knowledge economy wherever, wherever we could, sometimes in completely random places. So that was my first encounter with the term. I'm not sure I understand it much better today, but I'll do my best in the Gulf context. Anyway, what also became apparent in Dubai at least, was that knowledge economy, higher education, research and development, et cetera, were being treated by the government at that time primarily as a means to feed into the economic development of the country. Rather than knowledge being some kind of privilege or right or tool for lifelong learning, it's very much about economic development. And I think in some ways we can forgive Dubai for that at that time, given that Dubai was one of the first parts of the Gulf to really start to move into a post oil future. Declining oil and gas reserves, need for very urgent diversification of the economy in order to have some kind of sustainable future. And up until that point, Dubai had been diversifying into trade, tourism, real estate, means of getting foreign direct investment into the country. And at least this new strategic plan gave some kind of future vision for an economy which would Have a little bit more than that. It would have some kind of research going on, universities would somehow be central, there'd be a high technology sector, etc. I think in some ways though, the centrality of knowledge to the economic development of the country for me was symbolized by some of the developments that had taken place in Dubai up until that point. There was something called Knowledge Village which any of you familiar with the region perhaps been to. Knowledge Village was essentially a free zone park for foreign universities to set up branch campuses. And when you walked around this area you quickly thought, well, this doesn't have the feeling or the atmosphere of a university campus where research is taking place. It certainly doesn't have the atmosphere of a place where any research or development that is taking place is being transferred to the local population. And my studies really try to show that this, this knowledge free zone was more about bringing foreign direct investment into Dubai by removing red tape for foreign companies, in this case foreign universities, British, American, Australian, etc. To come and set up branch campuses to then charge fees to students who would come not just from Dubai but around the region. And in fact, most of the students registered on these degree programs were foreign students from elsewhere in the Gulf, Middle East, South Asia, et cetera. So what we had really was some kind of educational tourism going on, students coming from near and far, paying their fees, paying their education, rent, transport, etc. Thus feeding into Dubai's economy. I suppose this emphasis on knowledge being part of the economy was also evident in the universities, the indigenous universities that did exist at that time too. Very little research output in the universities, no real culture of research, no measurement of research, no proper research objectives in place, and certainly minimal if any, transfer of technology and research to the broader population. For the other Gulf states it's been the same picture. For the most part, knowledge, research, higher education, etc. Are all supposed to feed into this diversification of the economy in order to push the region beyond a post oil future. But it's been more than that in some cases. Abu Dhabi, Qatar, Kuwait and to some extent Saudi Arabia are treating higher education in particular as a means of addressing this very serious labor nationalisation problem or conundrum the Gulf is facing. As many of you in the room are perhaps aware, the Gulf States have some of the most skewed demographics in the world. A long term reliance on foreign labour, both menial construction work all the way up to clerical skilled professional expatriates too. And over the years, the Gulf states have all been experimenting with ways of nationalizing their labour force, trying to get more locals, more Gulf nationals into the workplace. Both in public sector and private sector, the strategies that have been used have not been particularly successful. They've been based on quota systems, financial incentives to try and get nationals into the workplace. None of these have really created a very happy work environment. After all, if you have people of different nationalities in one of the Gulf's big cities, all doing the same job or working on the same team, but you're aware that people of different nationalities are getting paid different amounts or there's some kind of quota system in place, it's not a very healthy environment. So the only real long term solution is that of increased competitiveness of the local population. Trying to get local people involved in the new sectors of the economy. Not just manufacturing, oil and gas, etc. But trying to get nationals to the level of skills, qualifications, language abilities, etc. That can actually allow them to out compete expatriates for jobs in the new sectors of the economy, many of which are oriented towards knowledge. What we've seen, we see some evidence of this. The new universities that have popped up in Qatar, for example, many prestigious American universities are involved and also a British university, very recently, a London based university, there's been some kind of agreement in place that these universities must try and recruit at least some nationals into their student body to try and train a new generation of Gulf nationals so that by the time they graduate they can better feed into these jobs and be more competitive vis a vis the expatriates. We've also seen some positive developments too in these countries, again especially in Qatar and Abu Dhabi, when it comes to trying to develop research objectives for the country as a whole. Ways that the various research institutes, universities, etc. Can actually feed into national development priorities, not just for the economy, but for society as a whole. We've even seen attempts to set up regulatory bodies for the research environment. Abu Dhabi has enlisted both Australian and American advisors to help set this up and we've seen some positive benefits so far. Qatar as well has its National Research foundation which has set up a very rigorous peer review system to make sure that the research that's being done firstly feeds back into Qatar somehow and secondly is of an international standard. These are all positive steps and I'm confident they can become some kind of building blocks for knowledge economy and a proper research culture in the future. However, it's a very challenging environment for all these developments to actually succeed in. One thing I always used to notice is that we've got this push from the top into universities R and D. But the actual foundations are still very weak. Primary and secondary education still very poor. Again, there have been positive developments, better organizations of these sectors, but it's still falling woefully short of the national objectives. I remember myself, I used to work at a university called Zayed University in the United Arab Emirates where there was an almost bizarre situation back in 2003, 2004, where you had students arriving at the university and all my students were Emiratis from the, from the uae. And they were expected to switch at the tertiary level from Arabic as their primary language in primary and secondary sectors to English for their tertiary education. And this led to no end of confusion. There were students in the class who couldn't understand a word the teachers were saying. But on the other hand there were students who'd been educated in the private sector who were almost fluent in English and could hold a full conversation and were comparable to fluent English language students here in the uk. So it led to enormous disparities in the student body. And the universities in the Gulf are still trying to grapple with this Now. We've seen a lot more English being introduced into the curriculum back in the secondary and even primary schools. Now another big challenge for knowledge economy and education in the Gulf is the political and economic reality of a rent based economy. In the Gulf's case, the government accruing rent from oil and gas surpluses, distributing this to the population in the form of various benefits, the free housing, education, health service, etc. But also in the form of almost guaranteed public sector employment, at least up until the last few years. And this has created a system which in my mind has stripped away incentives, firstly for people to actually find meaningful employment and secondly to actually be motivated to complete studies at higher education level. After all, if university and college are optional, why do it if you know you're going to get a public sector job that's reasonably well paid, or that you have a family business that's been in existence for many years, which will also be very well paid. So the incentives have just not really been there in the way they have in an extractive economy like in Western Europe, where most of our graduates know full well that they have to do well, they have to finish their classes at university graduate if they stand any chance of getting good employment. The other aspect to that is actually recruiting people to work in higher education, schools, etc. Very difficult. These are still regarded as not particularly high status, but professions, especially by nationals in the Gulf very much dominated by expatriates difficult to really switch people from family businesses and public sector jobs which come with impressive titles and salaries to work in schools and universities. I remember when I used to work in Dubai, one of the consultancy projects I was involved in was trying to look at ways to increase the number of national school teachers. And at one point we thought, well, we can't offer more money, we have to come up with something else. Should we have some kind of medal system, some kind of honour system? You're performing your national duty. Should you be guaranteed a personal audience with the ruler to congratulate you on becoming a schoolteacher? Either way, it was a big challenge. And I remember at one point I had all four of the male Dubai National School teachers in my office at one point discussing this. That's how serious the situation was. Not so bad with female school teachers, but there was a real scarcity of male role models at the time. Another big challenge is the patriarchal society. The patriarchal society still very difficult in some ways for female graduates to really find their niche. Although many females do study at university at the undergrad level, it's more difficult for them to pursue higher education overseas to get their Masters or PhD degrees if their family shy away from that. Also difficult for them to work in private sector employment. If it could be a male dominated environment, though there are certainly improvements just very quickly. A few other challenges. Constraints to civil society, concerns about freedom of media, free speech, Internet censorship. How can prestigious universities be setting themselves up in countries where many websites are blocked? Not just websites officially blocked, such as pornography or websites defamatory to Islam, but websites concerning political participation, concerning human rights, amnesty, etc. Many of these are blocked. A few of the little problems. The higher education and knowledge economies in the Gulf are still plagued by prestige projects that still connect to the personality of the various rulers or sheikhs involved. We've seen cases of this where universities have been set up that clearly have no connection to the anthropological reality of the country they exist in. For example, Sorbonne being set up in Abu Dhabi a few years back, teaching in French and finding it very difficult to recruit students, especially when English is not quite fluent. Very difficult to then establish a French language university. Even New York University and Abu Dhabi will have no minimum requirement for number of national students to enroll and doesn't seem to be teaching anything connected to the reality of the region. It's not even teaching Gulf studies in any shape. Finally, there's a concern about regional relations and international politics, relations with Israel, Iran, et cetera. Can students of Israeli or Iranian origin either work or study at these universities. These are big questions ahead. In conclusion, I don't want to sound too bearish. There are certainly many positive developments here. The Gulf States, after all, can devote quite a chunk of their GDP to education and knowledge economy at the moment in a way the west cannot. These obstacles, for the most part, can be overcome. I think. There's certainly an opportunity here for the United Kingdom. UK universities can move in, can try and serve as some kind of blueprint both for the wider education sector, knowledge economy and perhaps even civil society. I think I'll finish there. Thanks, David.