Business Analysis: Is the Knowledge Economy getting closer?

  • 2010-10-06
  • By Charles Cormack

Right from the start I want to come clean; I am a business man and not a scientist. My interest in the development of Baltic Knowledge Economies is financial rather than scientific.
I have been working in the Baltic States for the past 10 years, helping companies from the UK trade here, and vice versa. During that time I have become fascinated and convinced of the potential sitting in Baltic academic institutions, and have been working with colleagues here and in Scotland to try and help commercialize that potential. I have to say it has been a frustrating journey, and it still feels like we have a long way to go.

All three Baltic States have a long, proud reputation of learning and research. The Baltic people have always believed that the pursuit of education is of fundamental importance, and that mindset and history must have contributed to the decision taken by the Soviet regime after the invasion to base much of the fundamental and applied research in the Baltics, leading to the Baltic States becoming known as the Silicon Valley of the Soviet Union.
Following the regaining of independence, the initial focus of the governments was understandably the rebuilding of the State, and not the commercialization of the science base.

This, coupled with an old fashioned, Soviet mindset displayed by some of the senior academics meant that little real progress in the development of commercialization activity has been made. There was also a feeling that business and science cannot mix, and a belief that all business people and investors, especially those from abroad, were on some sort of smash and grab raid.

This mentality has stuck for a long time, and still pervades many discussions; however, maybe things are getting better, and in Lithuania the government has been instrumental in trying to make this happen. They seem to have grasped the importance of the development of a modern knowledge-based economy, and realize that for a small country like Lithuania, whose only natural resource is the brains of the people, the full adoption and promotion of the goals articulated in the Lisbon Agenda is the only viable future.

That political will is key to any future success, but political will alone is not enough, and the clever and consistent use of EU structural funds is also key. In the other Baltic States this has been lacking. I have seen programs started and stopped, directions changed for no apparent reason, and no benefit. The development of a functioning knowledge economy, that is capable of creating high growth international companies, which bring high quality and well paid jobs, does not happen overnight - it requires a clear vision and patience.

In Lithuania the “Valley” program looks like an initiative which might just work, the bringing together of the science base universities and private business in a well funded commercialization environment. Specializing in a certain sector has the correct ingredients, but the trick will be to make sure that this vision is delivered, and the focus is on the soft, rather than the physical infrastructure. It would be a tragedy if in five years we had five architecturally impressive, but empty, “Valleys” littering the Lithuanian landscape.

However, before the commercialization of research and IP can become a major engine room for the economy, and provider of high quality employment, there are still many fundamental building blocks which need to be put in place.
There needs to be effective and readily available pre-seed money, which will be available to scientists and researchers who want to explore possible commercialization routes.  Most of this money will be lost, and it is vital that the governments understand this, but still make it available; without it all the rest of the programs and grand plans will not work. It is the spark that will start the ignition. In Latvia there is pre-seed funding, (but there needs to be more) but as yet in Lithuania there is none.

There also needs to be much greater clarity around the ownership of IP developed in universities and government institutions; there is nothing which is more likely to put off a potential investor than debate about who owns the IP.
The tax system also needs to encourage local investors to put their money behind fledgling companies. Without these changes there will be no real local business angel activity.

There also needs to be continuing education of the science base about the importance of conducting research that could have a commercial value, and then the importance of commercializing it. The governments are looking for a total culture change within the universities, and this will take many years, along with the appointment of forward-thinking and enlightened management within the universities.

But despite the very serious issues, I still believe that there is huge potential across the Baltics for the development of exciting and innovative businesses based on the brainpower that resides with the countries; the trick the governments still seem to be struggling with is how to harness it.