uzbekistan passages toward the knowledge ......passages toward the knowledge-based economy master...

UZBEKISTAN

PASSAGESTOWARDTHEKNOWLEDGE-BASEDECONOMY

TillaKoriMedresehinSamarkand,Uzbekistan.PhotocourtesyZulyaRajabova

MASTERPLANFORTHETRANSITION

May2005

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UZBEKISTANPASSAGESTOWARDTHEKNOWLEDGE-BASEDECONOMY

MASTERPLANFORTHETRANSITION

AStudyconductedbytheEuropeanInstituteofInterdisciplinaryResearch(EIIR)

17,SquareEdouardVII75009ParisFrance

www.eiir.org

OnbehalfofandincollaborationwiththeCenterforEconomicResearch(CER)

BuyukIpakYuli71700137Tashkent

Uzbekistanwww.cer.uz

andthe

UnitedNationsDevelopmentProgramme(UNDP)inUzbekistan

16a,ShahrisabzStTashkentUzbekistanwww.ddi.uz

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Ref:EIIR-ISO-IDP20050830EuropeanInstituteofInterdisciplinaryResearch17,SquareEdouardVII75009ParisFRANCEWeb:www.eiir.orgLegalNoteandDisclaimersThe information in this document is subject to change without notice. The European Institute ofInterdisciplinary Research (EIIR), The Centre of Economic Research (CER), and the United NationsDevelopment Program (UNDP) Uzbekistan make no warranty of any kind with regard to thisdocument, including,butnot limited to, the impliedwarrantiesofmerchantabilityand fitness foraparticularpurpose.Noneof theparties thathavecollaborated for theproductionof thisdocumentshallbeheldliableforerrorscontainedhereinordirect,indirect,special,incidentalorconsequentialdamagesinconnectionwiththefurnishing,performance,oruseofthismaterial.ThedataandanalysispresentedinthisdocumentaretheresponsibilityofEIIRunderacontractwiththeCER and theUNDP (Uzbekistan). Although thework has been conducted in close collaborationwithCERandexpertsoftheGovernmentofUzbekistan,theviewsexpressedinthisdocumentarenotnecessarilyreflectiveof,orinagreementwith,theofficialpositionsoftheGovernmentofUzbekistanortheUNDP.AuthorshipTheleadauthorofthisstudyisDrTakisDamaskopoulos,ExecutiveDirectorandHeadofResearchofEIIR. The contributors have been Mr Ulugbek E. Olimov, Research Coordinator at CER, Mr TimurMinibaev,ResearchAssociateatCER,MrRavshanGulyamov,DeputyChairman,TheCentralBankofUzbekistan, Mr Kamolidin Talipov, Deputy Director, Institute for Forecasting of Development andLiberalization of Banking and Financial System, Central Bank of Uzbekistan, Mr Anvar Yuldashev,Officer-in-Charge,DigitalDevelopmentInitiativeProgrammeattheUNDP,Uzbekistan,andMrDmitryA.Ravin,MBA,BusinessAdvisoratUSAID.

ãThematerialpresentedinthisdocument,unlessotherwiseindicated,iscopyrightedtotheEuropeanInstitute

of Interdisciplinary Research (EIIR) and as such protected by all applicable laws governing scientificpublications.

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TableofContentsExecutiveSummary 6Introduction 8

Settingthescene:parametersoftheknowledge-basedeconomy 9Theknowledge-basedeconomyindevelopingandtransitioneconomies 10Methodology 12

1.Rationaleandobjectives 14

1.1.OverviewoftheeconomyofUzbekistan 141.2.CompetitivenessoftheeconomyofUzbekistan 161.3.Oldandnewchallenges 201.4.DoesUzbekistanneedaknowledge-basedeconomy? 21

2.Aconceptualframeworkoftheknowledge-basedeconomy 242.1.Theconceptoftheknowledge-basedeconomy 242.2.Knowledgeasanenablerofeconomicperformance 252.3.Organizationalaspectsoftheknowledge-basedeconomy 262.4.Nationalinnovationsystems 282.5.Aknowledge-basedeconomyconceptfordevelopingandtransitioneconomies 30

3.ChallengesforUzbekistanfortheknowledge-basedeconomy 353.1.Challengesoftheknowledge-basedeconomy 353.2.CompetitivenessprofileoftheeconomyofUzbekistan 363.3.ChartingthecompetitivenessofUzbekistan 37

4.Educationandtrainingfortheknowledge-basedeconomy 404.1.GeneralcharacteristicsoftheeducationsystemofUzbekistan 404.2.TheNationalProgramofPersonnelTraining(NPPT) 414.3.TheNationalProgramofPersonnelTrainingin1997-2003 444.4.Regulatoryandlegislativeframework 464.5.Trainingandretrainingofthepedagogicalpersonnel 474.6.Introductionofneweducationalstandards 474.7.NationalProgramonPersonnelTrainingto2010 484.8.DevelopmentofcomputerizationandapplicationofICT 494.9.Educationreform:humancapitalforscienceandtechnology 534.10.Lifelongeducationprograms 544.11.ICTdevelopmentinpersonneltraining 554.12.Formaleducationandbusiness 56

5.Nationalinnovationsystem:connectingresearchandbusiness 585.1.ThenationalinnovationsystemofUzbekistan 585.2.Institutionalbodies 595.3.Prioritydirectionsofscientificandtechnologicaldevelopment 625.4.Statescientificprograms 635.5.Financialandbusinesssupportprograms 665.6.Linkingresearchandbusinessdevelopment 69

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5.7.SWOTanalysisofthenationalinnovationsystem 695.8.Assessmentofthenationalinnovationsystem 71

6.MasterPlan 74

6.1.StrategicPolicyMatrix 756.2.MasterPlanImplementation:Preliminaryobservations 83

References 84

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ExecutiveSummaryKnowledge and the development of organizational and institutional conditions that enable itsconversionintobettereconomicperformanceareincreasinglybecomingtheintangiblequalitiesthathaveadecisiveimpactonthecapacityofeconomicandsocialsystemstogenerategrowthandfuelemploymentcreation.Assuch,thedevelopmentoftheseconditionsisrapidlybecomingthecenterofattentionofgoverningbodiesofprivateandpublic,nationalandinternationalorganizations.Indeed,todaycountriesregardlessoftheirstageofeconomicdevelopmentaredevelopingknowledge-basedeconomy strategies in order to enable them to utilize new information and communicationtechnologies (ICT) and develop organizational forms and institutional arrangements geared towardinnovationandimprovedeconomicperformance.However,differentcountriesduetotheirspecifichistoricaltrajectoriesofdevelopmentandlocationintheworldeconomyhavedifferentialabilitiestodevelopthenecessaryinstitutionalconditionsandcapacitytomakethetransitiontotheknowledge-basedeconomy.SinceitsindependenceUzbekistanhasmade remarkable progress in aspects ofmacroeconomic stabilization and educational reform.However, such progress lacks a strategic policy-making framework on a national level that wouldenablethecountrytoconstructasustainableknowledge-basedeconomythatcouldhelpaddressthehistoriceconomicchallengesthatthecountryconfronts.AgainstthisbackgroundtheCenterforEconomicResearch(CER)oftheGovernmentofUzbekistan,incollaboration with the United Nations Development Program (UNDP), launched in August 2003 aresearchcomponentonknowledge-basedeconomydevelopment.Inthiscontext,CERandtheUNDPcontracted the European Institute of Interdisciplinary Research (EIIR) to act as their internationalscientificadvisorinthedevelopmentofaresearchstudyonthecriticalelementsoftheknowledge-basedeconomyintransitioneconomies.Themainobjectiveoftheresearchistoexploreandanalyzethecurrentorganizational,institutional,and regulatory conditions that structure the economy of the country and develop a set of policyrecommendationstoallowtheGovernmentofUzbekistanbettertargetitspoliciesforthetransition.It isexpectedthattheresultsoftheresearchwillassisttheGovernmentto identifypolicypatterns,targets, approaches, and instruments for the support of the transition to the knowledge-basedeconomyandtheknowledgesocietymoregenerally.Thisstudyistheoutcomeofthisresearchinitiative.Thestudyexploresstrategicissuesthatneedtobe tackled through consistent and coherent policies in order to allow the economy of Uzbekistanmake the transition to a more knowledge-intensive mode of development in alignment with theleadingtrendsintheemergingglobaleconomicsystem.ItsfinaloutcomeisaMasterPlanpresentedasa‘policymatrix’whichlaysoutstrategicpolicyareasthataresubjecttopolicyintervention.It is usually the case that when reference is made to the knowledge-based economy the primaryemphasis is on ICT or the forms and kinds of knowledge that underpin competitive economicactivities. This is not the case in this study. Though both ICT and knowledge are critical to theemergence of a knowledge-based economy, the study takes the view that it is the conversion oftechnological capabilities and knowledge into improved economic performance that is the ultimatecondition that decides the competitiveness of national and regional economic systems. As such thestudy is primarily concerned with the environmental ‘enabling frameworks’ that facilitate theemergence of sustainable knowledge-intensive and competitive economic systems in transitioneconomies.ThestudylocatesthechallengesconfrontingtheeconomyofUzbekistaninahistoricalperspectiveinordertoelucidatetheavailablepolicyoptions.Itdoesthisbyaddressingthreesetsofissuesthathavebeen at the centre of the current debates over the appropriateness of the concept of knowledge-basedeconomyfordevelopingandtransitioneconomies:

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• The first set is located at the conceptual level. It concerns questions of definition and

answerstoquestionssuchaswhat istheknowledge-basedeconomyandhowdifferentisitfromtheneweconomyorthenetworkeconomy?

• The second set relates to the relevance of the knowledge-based economy to developing

countries. It involves questions ofwhether the concept of the knowledge-based economyhasanyrelevancetotheneedsofdevelopingandtransitioneconomies;

• Thethirdsethastodowithimplementation.Ithastodoquestionsofhowtoconvertthekey

conceptsoftheknowledge-basedeconomyinto‘enablingframeworks’ofaction.The study is structured in six sections that address strategic fieldsof policy intervention. Section1provides a short overview of the macroeconomic environment of Uzbekistan, its key competitivestrengthsandthechallengesthathavehistoricallymarkeditseconomy,butalsothenewchallengesthathaveemergedinthecontextofthetransitiontoamarketeconomy.Oneofthemainobjectiveshere is to answer the question of whether a knowledge-based economy can be considered as anappropriatestrategicresponsetothehistoricchallengesUzbekistanfacestoday.Section2develops a conceptual tourd’horizon that laysout key conceptsof the knowledge-basedeconomy. Apart from its objective to establish an actionable strategic concept of the knowledge-based economy the section examines critical issues of ICT implementation, organizational andinstitutional aspects, not in abstract theoretical terms but rather in concrete terms that seek tospecifytheknowledge-basedeconomyconceptfordevelopingandtransitioneconomies.Section3outlinescentralfeaturesoftheeconomyofUzbekistanintermsoftheirpreparednessforthe transition to the knowledge-based economy. It explores aspects of the competitiveness of theeconomywith reference to industrial structure,qualityofhuman resources, ICTpreparedness,andtheregulatoryandpolicyenvironment.Section 4, explores challenges for the education and training systems of the country. It addressesissuessuchasrecentgovernmentinitiativesforeducationalreform,trainingandretrainingprogramscurrently in place, the state of ICT and its implementation in educational institutions, educationalreformwithemphasisontheformationofhumancapitalforscienceandtechnology,lifelonglearningprograms,andtheconnectionsbetweenformaleducationandtheworldofbusiness.Section 5 concentrates on the national innovation system of the country and the challenge ofconnecting research and education with business and economic development. It examines theinstitutional structureof thenational systemof innovation, thestateof innovationpolicy, researchcapabilities, the state of the regulatory environment, finance and business support programs, andgovernmenteffortsandinitiativestomobilizetheprivatesectorthroughvarioussupportprograms.Section6developstheMasterPlanforthetransitiontotheknowledge-basedeconomy.ThePlanisstructuredasa‘policymatrix’thatoutlinesspecificactionablepolicyareasandrecommendationsforeachpolicydomainonthebasisoftheanalysisdevelopedintheprecedingsectionsofthestudy.

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IntroductionKnowledge and the development of organizational and institutional conditions that enable itsconversionintobettereconomicperformanceareincreasinglybecomingtheintangiblequalitiesthathaveadecisiveimpactonthecapacityofeconomicandsocialsystemstogenerategrowthandfuelemploymentcreation.Assuch,thedevelopmentoftheseconditionsisrapidlybecomingthecenterofattentionofgoverningbodiesofprivateandpublic,nationalandinternationalorganizations.Indeed,todaycountriesregardlessoftheirstageofeconomicdevelopmentaredevelopingknowledge-basedeconomy strategies in order to enable them to utilize new information and communicationtechnologies (ICT) and develop organizational forms and institutional arrangements geared towardinnovationandimprovedeconomicperformance.However,differentcountriesduetotheirspecifichistoricaltrajectoriesofdevelopmentandlocationintheworldeconomyhavedifferentialabilitiestodevelopthenecessaryinstitutionalconditionsandcapacitytomakethetransitiontotheknowledge-basedeconomy.SinceitsindependenceUzbekistanhasmade remarkable progress in aspects ofmacroeconomic stabilization and educational reform.However, such progress lacks a strategic policy-making framework on a national level that wouldenable the country construct a sustainable knowledge-basedeconomy that couldhelp address thehistoriceconomicchallengesthatthecountryconfronts.AgainstthisbackgroundtheCenterforEconomicResearch(CER)oftheGovernmentofUzbekistan,incollaboration with the United Nations Development Program (UNDP), launched in August 2003 aresearchcomponentonknowledge-basedeconomydevelopment.Inthiscontext,CERandtheUNDPcontracted the European Institute of Interdisciplinary Research (EIIR) to act as its internationalscientificadvisorinthedevelopmentofaresearchstudyonthecriticalelementsoftheknowledge-basedeconomyintransitioneconomies.Themainobjectiveoftheresearchistoexploreandanalyzethecurrentorganizational,institutional,and regulatory conditions that structure the economy of the country and develop a set of policyrecommendationstoallowtheGovernmentofUzbekistanbettertargetitspoliciesforthetransition.It isexpectedthattheresultsoftheresearchwillassisttheGovernmentto identifypolicypatterns,targets, approaches, and instruments for the support of the transition to the knowledge-basedeconomyandtheknowledgesocietymoregenerally.Thisstudyistheoutcomeofthisresearchinitiative.Thestudyexploresstrategicissuesthatneedtobe tackled through consistent and coherent policies in order to allow the economy of Uzbekistanmakethetransitionto theknowledge-basedeconomy. It isusually thecase thatwhenreference ismade to the knowledge-basedeconomy theprimary emphasis is on ICTor the forms and kinds ofknowledgethatunderpincompetitiveeconomicactivities.This isnotthecase inthisstudy.Thoughboth ICT and knowledge are critical to the emergence of a knowledge-based economy, the studytakes the view that it is the conversion of technological capabilities and knowledge into improvedeconomicperformancethatistheultimateconditionthatdecidesthecompetitivenessofnationalandregional economic systems. As such the study is primarily concerned with the environmental‘enabling frameworks’ that facilitate the emergence and sustainability of knowledge-intensive andcompetitiveeconomicsystems.ThestudylocatesthechallengesconfrontingtheeconomyofUzbekistaninahistoricalperspectiveinordertoelucidatetheavailablepolicyoptions.Itdoesthisbyaddressingthreesetsofissuesthathavebeen at the centre of the current debates over the appropriateness of the concept of knowledge-basedeconomyfordevelopingandtransitioneconomies:

• The first set is located at the conceptual level. It concerns questions of definition andanswerstoquestionssuchaswhat istheknowledge-basedeconomyandhowdifferentisitfromtheneweconomyorthenetworkeconomy?

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• The second set of issues relates to the relevance of the knowledge-based economy to

developingcountries. It involvesquestionsofwhethertheconceptoftheknowledge-basedeconomyhasanyrelevancetotheneedsofdevelopingandtransitioneconomies;

• Thethirdsetofquestionshastodowith implementation. Ithastodoquestionsofhowto

convert the key concepts of the knowledge-based economy into ‘enabling frameworks’ ofaction.

The study is structured in six sections that address strategic fieldsof policy intervention. Section1providesashortoverviewofthemacroeconomicenvironmentoftheUzbekistan,itskeycompetitivestrengthsandthechallengesthathavehistoricallymarkeditseconomybutalsothenewchallengesthathaveemergedinthecontextofthetransitiontoamarketeconomy.Oneofthemainobjectiveshere is to answer the question of whether a knowledge-based economy can be considered as anappropriatestrategicresponsetothehistoricchallengesUzbekistanfacestoday.Section2develops a conceptual tourd’horizon that laysout key conceptsof the knowledge-basedeconomy. Apart from its objective to establish an actionable strategic concept of the knowledge-based economy the section examines critical issues of ICT implementation in the economy,organizationalandinstitutionalaspectsoftheknowledge-basedeconomynotinabstracttheoreticaltermsbut rather in concrete terms that seek todefine the knowledge-basedeconomyconcept fordevelopingandtransitioneconomies.Section3outlinescentralfeaturesoftheeconomyofUzbekistanintermsoftheirpreparednessforthe transition to the knowledge-based economy. It explores aspects of the competitiveness of theeconomy of Uzbekistan with reference to economic structure, quality of human resources, ICTpreparedness,andtheregulatoryandpolicyenvironment.Section 4, explores challenges for the education and training systems of the country. It addressesissuessuchasrecentgovernmentinitiativesforeducationalreform,trainingandretrainingprogramscurrently in place, the state of ICT and its implementation in educational institutions, educationalreformwithemphasisontheformationofhumancapitalforscienceandtechnology,lifelonglearningprograms,andtheconnectionsbetweenformaleducationandtheworldofbusiness.Section 5 concentrates on the national innovation system of the country and the challenge ofconnecting research and education with business and economic development. It examines theinstitutional structureof thenational systemof innovation, thestateof innovationpolicy, researchcapabilities, the state of the regulatory environment, finance and business support programs, andgovernmenteffortsandinitiativestomobilizetheprivatesectorthroughvarioussupportprograms.Section6developstheMasterPlanforthetransitiontotheknowledge-basedeconomy.ThePlanisstructuredasa‘policymatrix’thatoutlinesspecificactionablepolicyareasandrecommendationsforeachpolicydomainonthebasisoftheanalysisdevelopedintheprecedingsectionsofthestudy.Settingthescene:parametersoftheknowledgeeconomyThe convergence and dynamic interrelationships among leading technologies, especially, ICT,biotechnology,nanotechnologies,anddevelopmentsinthehumansciencesistodayrecognizedastheepicenter of a profound economic dislocation associatedwithwhat has come to be known as thetransitiontotheknowledge-basedeconomy.Inthistransitionthecapacityoforganizationstoengagein learning processes has increasingly come to be viewed as a crucial determinant of innovation,enterpriseperformance,andeconomicdevelopmentinnationalandregionalcontexts[LundvallandJohnson, 1994,Nonaka and Takeuchi, 1995,OECD, 2001]. In this context, the central challenge fordecisionmakersineconomicorganizationsoftheprivatesectorandinstitutionsofthepublicsectoris

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to identify theorganizationaland institutionalpassagesthat facilitatetheacceleratedconversionofknowledgeembeddedinorganizationsintoinnovationandimprovedeconomicperformance.In theemergingknowledge-intensiveeconomicenvironment, innovationconstitutes the foundationof the competitiveness and value-creating capabilities of economic organizations. Innovation hasemerged as a strategic issue because of the disarticulation of established economic, social, andindustrial structures and processes that the knowledge-based economy and the knowledge societybring in their path. This disarticulation is the product of the interplay of technological, industrial,economic,andsocialtransformations.Thealignmentandre-articulationoftechnologicalcapabilitiesthroughnovelknowledge-creatingorganizationalformsgearedtoconstantinnovationandimprovedeconomic performance is the intangible quality that determines the competitiveness of economicorganizations and the national and regional environmentswithinwhich they operate [OECD, 2001,Damaskopoulos,et.al.,2002,WorldBank,2002].In this context innovation is not something happening ‘inside’ organizations but rather at thenetworked interfaces of organizations with the business, regulatory and institutional environmentwithinwhichtheyoperate.Theprocessofinnovationisincreasinglydrivenbyopen-sourcenetworksof cooperation and involves dynamic interrelationships between technological transformations,organizational capabilities of firms, and public institutional and regulatory structures supportive ofinnovation andentrepreneurship. In otherwords, for new technologieswhichpower the emergingknowledge-based economy to be able to spread throughout the whole economy, thus enhancinginnovation, productivity and employment growth, business firms, the institutions and culture ofsociety,andthefactorsengagedintheproductionprocessneedtoundergosubstantialchange.This iswhy the agenda of research and policy-making on the dynamics of adoption of knowledge-based economy practices, innovation, economic growth and productivity needs to be expandedbeyond the level of the individual unit of economic organization. It needs to be built around thedynamic interrelationships between technological transformations, firms’ organizational andknowledge-creatingcapabilities,emergingmarketandindustrystructures,andpublicinstitutionsandregulatory environments [Boyer and Saillard, 1995; Berger and Dore, 1996; Castells, 2000; Crouch,2001;OECD,2001;WorldBank,2002].Theknowledge-basedeconomyindevelopingandtransitioneconomiesTheknowledge-basedeconomyisusuallydiscussedwithreferencetoadvancedeconomiesthatfindthemselvesamidstthetransitiontoapost-industrialera.However,therearecompellingreasonstobelieve that the knowledge-based economy is equally relevant for developing and transitioncountries,eventhoughitsrealizationmustremainsensitiveandadapttotheirhistoricalspecificities.Processesof knowledge creationandapplication are far frombeing all thatmatters in thehistorictaskofeconomicdevelopment.However,theyareclearlyafundamentalpartofit.The combined effects of globalization and ICT, including the technologies centered around theinternet,havegivenrisetohopesthattransitionanddevelopingcountrieswillbeabletoaccessandutilize relevant knowledge and thus enter a path of accelerated development that wouldprogressivelyclosethegapbetweendevelopedanddevelopingcountries.However,experiencedemonstratesthatthisisnotthecase.Knowledgefordevelopmentisnoteasilytransferable from developed to developing countries. Knowledge-intensive resources such as R&Dactivities, patents, publications, etc. are even more unevenly distributed among developed anddeveloping or transition countries than income andwealth in general. In addition, there are clearindications of a growing ‘knowledge divide’ which, if not addressed through targeted policyintervention, is likely to have long-lasting implications that would further complicate the historicchallengeofdevelopment.

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Knowledge isproducedat acceleratedpaces in theadvanced countriesof theglobal economy.Yetthe ability of transition and developing countries to access, adapt and utilize such knowledge foreconomicdevelopmentremainslimited.Theenhancementofthisabilityshouldbeacentralaspectofnational and international programs dedicated to development, in order to help such countriesstrengthentheirresearchcapabilities.Thisisamatterofimportancebecausegoodresearchcapacityincreasestheabilityofacountryanditseconomicandsocialsystemstoadaptandutilizeknowledgeproduced elsewhere. It also increases the ability to generate knowledge endogenously at home[Johnson&OlmanSegura-Bonilla,2001].The difference in the relative availability of ICT among developed and developing economies hasincreasinglybecomethefocusofattentionamongpolicymakers,academicsandnon-governmentalorganizations.ICT,itisgenerallyagreed,increasesproductivity,thoughhowquicklyandbyhowmuchis thesubjectofmuchdebate.Thedifferentialavailabilityof ICT,goes theargument,will thereforeenablewealthysocieties togetwealthier,whilepoorsocietiesare likely tobe leftbehind. Inshort,notonlyisthereaworrying‘digitaldivide’betweenadvancedanddevelopingsocieties,thedivideiswidening,withominouslastingconsequencesforeconomicandsocialdevelopment.This argument has been widely held for some time. But recent research questions the logicunderpinning it inways thatplace theemphasisonthingsother than ICT.Researchshowsthat themagnitude and importance of the ‘digital divide’ have been overstated, and that current trendssuggestthatitisactuallyshrinking,notgrowing,whichmeansthatpoliciesdesignedtobridgeitareinneedofrethinking.Theterm‘digitaldivide’isgenerallyusedtodescribethegapinrelativeaccesstoICTbetweendevelopedanddevelopingcountries,andtheresultinggapinadoptionandusage.Thedivide is almost alwaysdescribed in termsof thedifference in thenumberof telephones, internetusersorcomputerspercapitaindevelopedanddevelopingcountries.Thedivideasdefinedusingtheseper-capitameasureslooksindeedenormous.However,therelativegrowthratespaintaratherdifferentpicture.Overthepast25years,telephonepenetrationhasbeenincreasing faster indevelopingand transitioncountries than inhigh-incomecountries,which isnotsurprisinggiventhemarketsaturationinthelatter.Butthesameisalsotrueofinternetusage,whichgrewbyaround50%peryearinadvancedcountriesinthelate1990scomparedwith100%peryearin developing and transition ones. The implication is that advanced countries are ahead, but thedevelopingonesarecatchingup.Indeed,themoststrikingfeatureoftheper-capitadivideinaccesstoICTisnothowlargeitis,buthowrapidlyitisclosing.However,suchper-capitafiguresmaynotbetherightwaytomeasurethedivide.Itistobeexpectedthatdevelopingcountrieswouldhave fewer telephonesandcomputersper-capita.Butphonesandcomputers are routinely shared between many users in developing countries. Mobile phones areoften rented out by the call, and cybercafés provide internet access to people who could nototherwiseaffordit.Onealternativemeasureisper-incomeavailabilityofICT.ThenumberofphonesandinternetusersperdollarofGDPprovidesameasureoftherelativeimportanceattachedtoICTindifferent countries and population segments. On this measure, the digital divide is reversed, asdevelopingcountriesareinfactaheadoftheadvancedones.Thisfindingisevenmorestrikinginlightof the fact that income inequality between the developing and developed world seems to havewidenedslightly.ThisdoesnotmeanthattheexistinginequalityinICTdistributionbetweendevelopedanddevelopingcountriesisnotamajorfactorthatislikelytohindereconomicdevelopment.OneconcernisthatICTmighthave less impactonproductivity indeveloping countries than indevelopedonesbecauseoflower adoption and diffusion levels. It is possible, for instance, that a certain threshold level ofadoptionisrequiredbeforetheproductivitybenefitsofICTcanproducetheireffects.Butevenifthisistrue,highrelativegrowthratesofadoptionsuggestthatthereareperceivedbenefitstoadoptingICT in any case, even if productivity benefits have yet to materialize, so that the threshold willeventuallybereached.

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Another concern is that the adoption of ICT within developing countries themselvesmay becomehighly unequal, and limited to a relatively affluent minority, so that the ‘digital divide’ withincountriesmaygrowevenasitshrinksbetweenthem.Moreover,itislikelythatdevelopedcountrieswith high penetration levels of ICT may be more inclined to do business online with other suchcountries,attheexpenseofdevelopingcountrieswithunderdevelopedICT infrastructures. Inotherwords, it seems more likely that access to ICT will overall enlarge developing countries’ tradingopportunitiesandtheirparticipationintheemergingglobaleconomy.Allthishasimportantimplicationsforpolicymakersindevelopingandtransitioneconomies.ThereisnodoubtthattheadoptionofICTplaysamajorroleineconomicandsocialdevelopment.However,itismisguidedtoplaceexclusiveemphasisonbridgingthe‘digitaldivide’bytryingtonarrowtheper-capita divide in access. For one thing, the divide is narrowing. More importantly, funds spent ondevelopmentmightbebetterspentelsewhere.Inmanydevelopingandtransitioncountries,peoplefacefarmore importantchallengesthanthe lackof internetaccess.Suchchallenges include lackofaccesstosafewater,food,medicaltreatment,educationandskillsdevelopment,andemployment.Inotherwords,lookedatfromthestandpointofdevelopingcountries,the‘digitaldivide’appearsasasymptom,ratherthanacause,ofwiderinequalityandlackofdevelopment[FinkandKenny,2003].MethodologyPassagestowardtheknowledge-basedeconomyarehighlydifferentiatedacrossnationalandregionalenvironments. The spatial topology of the knowledge-based economy develops through differentorganizational forms across various economic, regulatory, institutional, and cultural contexts.Differentcountriesandregionstendtogeneratetheirownorganizationalarrangementsthatsupporttheemergenceandapplicationofknowledgeforimprovedbusinessandeconomicperformance.Newtechnologies,especiallyICT,expandthescopeofeconomicactivity,whichmeansthateconomicand business systems can interact on a global scale. In the process, organizational forms spread,emulate each other, and create organizational and operational configurations that respond tocommon patterns of economic and business organization and competition, while adapting to thespecific social environments within which they operate. This is to say that forms of economicorganizationthatanimatetransitionstotheknowledge-basedeconomyaremediatedbyantecedenteconomic, organizational, institutional structures, and cultures. This mediation is of fundamentalimportanceintheconditionsthatstructurepassagestowardtheknowledge-basedeconomy.Passages to the knowledge-based economy display considerable variety in their key organizationaland structural features. This variety is reflected in the relative balance of private and publicinvolvement in the system, market and industry focus, the composition of their skills andcompetencies,andtheregulatory,institutional,andculturalenvironmentswithinwhichtheyoperate.Inotherwords,successfultransitionstowardtheknowledge-basedeconomyareconditionedbythebroadereconomic,market,social,political,andinstitutionalfabricswithinwhichtheyareembedded.This ‘environmental’varietyacrossnationalandregionaleconomicandsocial systemspoints to thelimits of the value of ‘best practices’, since such practiceswhen they are implemented are alwaysmediatedbythespecificitiesofthelocalandregionalcontext.A critical methodological question then concerns the organizational, managerial, institutional, andcultural specificities that shape the dynamics of the knowledge-based economy and the innovativecapabilities of the agents involved in its making. Such a question can only be answered in aglobal/comparativeperspective to thestudyofemergingorganizationaland institutional formsthatfacilitateandsupportprocessesofknowledgecreationanditsapplicationtowardinnovation[RobertBoyer et Yves Saillard, 1995; Colin Crouch etWolfgang Streeck, 1996; Suzanne Berger and RonaldDore,1996;ManuelCastells,2001].

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It is such aperspective thathasunderpinned the researchpresented in this study. Thenetworkednature of the knowledge-based economy allows economic systems to interact on a global basis.However, theapplicationof leadingpractices ineconomic competitiveness remains conditionedbynationalandregionaleconomic,social,political,andinstitutionalarrangementsthatultimatelyshapethe organizational and managerial structures and processes involved in the knowledge-basedeconomy. The purpose of rigorous scientific and policy analysis of the comparative differentiatingfactors that account for success efforts toward the knowledge-based economy is to isolate theorganizing principles, managerial practices and market, industrial, regulatory, institutional, andculturalfactorsthatenabletheadaptationofsuchprinciplesinspecificcontexts.

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1.RationaleandObjectivesThis section provides a short overview of the macroeconomic environment of Uzbekistan, its keycompetitivestrengthsandthechallengesthathavehistoricallymarkeditseconomybutalsothenewchallengesthathaveemergedinthecontextofthetransitiontoafunctioningmarketeconomy.Oneof the main objectives of the section is to answer the question of whether a knowledge-basedeconomy can be considered as an appropriate strategic response to the historic challengesUzbekistanfacestoday.1.1.OverviewoftheeconomyofUzbekistanOne of the basic parameters of development of the knowledge-based economy is a high share ofservicesintheformationofthegrossdomesticproduct(GDP),namelythatpartwhichisconnectedtoeconomicactivitiesinvolvingtheproduction,diffusion,andapplicationofknowledge.Inthiscontext,theanalysisofthestructureanddynamicsGDPallowsustodeterminetherelativestageofeconomicdevelopmentofacountryandthemaintrendsofitsdevelopment.In2002theGDPofUzbekistanwasestimatedtobe7469.3billionsoums(approximatelyUSD7821billion).AnanalysisofthestructureofGDPindicatesthata4,2%growthhastakenplaceduringthepast five years. This growth has been driven largely by increases in the agricultural production,industryandtransportationservicessectorsoftheeconomy.Oneofthefactorsthathasconstrainedgrowthinthesedomainshasbeenthereductioninretailcommodityturnover.GDPpercapitain2003isequalto292913,7soums(approximatelyUSD306,7).During the period of 1998-2001 GDP growth was driven by all sectors of the economy. Thus thestructureoftheGDPdidnotchangesignificantly.Initsnumericalrepresentationthecompositionofthe GDP during the past five years has been structured by agriculture (29,3 %), services (19,4 %),industry(14,3%),trade(9,5%),andtransportandcommunications(7,4%)(SeeTable1).

Table1Uzbekistan’sGDPStructure,1992-2002(in%)

Year Agriculture Services Industry Other

1992 35,4 29,4 26,6 8,6

1993

1994

1995 28,0 34,7 17,1 20,2

1996 22,4 37,1 17,8 22,7

1997 28,3 36,4 15,6 19,7

1998 26,8 36,4 14,9 21,9

1999 29,0 36,2 14,3 20,5

2000 30,1 37,0 14,2 18,7

2001 30,0 38,0 14,1 17,9

2002 30,6 38,5 14,1 16,8

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Source:OfficialStatisticsoftheGovernmentofUzbekistanEconomicdevelopmentindevelopedcountriesintheprocessofthetransitiontoapost-industrialerashowsthatthestructureofGDPchangesrapidlyaseconomicgrowthoccurs.Thehistoricalpatternofthis development involves a reduction in the share of agriculture in GDP formation and anaccompanyinggrowthofindustrialdevelopment.Atsubsequentstagesofeconomicdevelopmentandas incomespercapita increase, thetertiarysectorof theeconomy,namelyservices,playsa leadingroleinGDPformation.InthecaseofUzbekistan’seconomythepatternoverthepastfiveyearshasbeenlessstraightforwardthana linearprogression fromanagriculture-basedeconomy toan industrialoneand thenapost-industrialonemightsuggest.For instance,duringtheperiod1998-2003thefollowingtrendscanbeobserved:theshareofagriculturalsectorhasincreasedby3,8%,servicesby2,1%,andtheshareofindustryhasdecreasedby0,8%.However, more recently several important trends seem to have accelerated. For example, during2002thevolumeofservices,incomparisonto2001,increasedby8,3%andwasequalto709,3billionsoums(approximatelyUSD7,4billion).Thevolumeofhouseholdservicesincreasedby10,6%.Inthestructure of household services the share of repair services increased up to 38%, and transportservicesby15%(SeeTable2).

Table2GDPStructureintheworldandUzbekistan,1999

2730

43

10

36

55

2

30

64

5

31

63

29

20

51

010203040506070

Low-incomecountries

Medium-incomecountries

High-incomecountries

World Uzbekistan

Agriculture Industry Services

Source:OfficialStatisticsoftheGovernmentofUzbekistan

Intheforeigntradeturnovertheshareofservicestendedtogrowinexport-importtransactions.So,ifin1998theshareofservicesinexportwasabout8,8%,andimport5%,by2002itwasequalto15,9%and10,6%,respectively.The volume of communication services in Uzbekistan tends to increase by approximately 1,4-1,7times per year. It should be noted that the share of communication services by enterprises withforeigninvestmentshasincreasedupto49,5%in2002(SeeTable3).

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Table3Informationandcommunicationservices

Countries Phones,Per1000p.,1999

Cellularphones,Per1000p.,1999

PCconnectedtoInternet,per10,000p.,1999

Lowincome 102 33 3,5Mediumincome 190 136 48Highincome 526 383 982Uzbekistan* 67 7 N/A


1.2.CompetitivenessofUzbekistan’seconomyOneofthekeyindicatorsofinternationalcompetitivenessofnationaleconomiesistherateofgrowthofnewbusinesses,especiallyinknowledge-intensivesectors.InUzbekistanthenumberofregisteredsmallandmediumenterprises(SMEs)byJanuary1,2003was239500.Mostofthesebusinessesareconcentrated in theagricultural sector (43%); the remaining are concentrated in trade (25,6%) andindustry(9,8%).Inaggregatetermstheyproduced34,6%ofGDPin2002.Bycomparison,in2000thisindicatorwasequalto31%.Intheknowledge-intensivesectorsoftheeconomy,suchaseducationandscientificservices,by2002therewere7800registeredenterprises,or3%ofthetotalnumberofregisteredSMEs.Comparablefiguresfor2000and2001were3,4%and3,1%respectively.Thesefiguresindicatethattheshareofthe knowledge-intensive sectors of the economy remains relativelymarginal in the context of theeconomicconditionsprevailinginthecountry.UzbekistanisoneoftheleadingeconomiesintheCommonwealthofIndependentStates(CIS)inthedomainofpublic investments in thesocial sphere. In1998public investments in thisareawasofamagnitudeofmorethan160,2billionsoums(approximatelyUSD1,7billion).By2000thisfigurestoodat309,8billionsoums(approximatelyUSD3,2billion)in2002at619,1billionsoums,(approximatelyUSD 6,4 billion). It is important to note that as in past years the share of investments into non-productivesphereequals40%ofthetotalamount.Yet the most significant increases in budgetary expenditures have been registered in the field ofeducation.Forinstance,in1995totalpublicinvestmentinthedevelopmentofformaleducationwas21,5billion soums (approximatelyUSD2,2billion). In1999 this amounthad increased sevenfold to158,9billion soums (approximatelyUSD16,6billion). In termsof its shareofGDPduring the sameperiodthisfigureincreasedfrom3,3%to7,9%.

Table4Employmentbysectorsofeconomy(in%)

17

Diagram 1.1. Number of employed by economic sectors, %

0%

20%

40%

60%

80%

100%

1995 1996 1997 1998 1999

agriculture industry services


It is importanttoemphasizethatthesignificant increasesofpublicexpenditure informaleducationarenotreflectedinincreasesintheshareofscientificandtechnicalworkersinthetotalstructureofthe labor force (See Table 4). Indeed, during the period 1995-1999 the number of scientific andtechnicalworkersdecreasedfrom12,3peopleper10000peoplein1995upto11peopleper10,000(bycomparison,intheUSAthisindicatorisequalto1262peopleper10000people,whiletheworldaverageis234peopleper10000people).Thisdecreaseislikelytoberelatedtothecurrenteconomicrestructuringassociatedwiththetransition(SeeTable5).Nevertheless, it isalsoimportanttostressthat the increases in public spending on formal education are critical to the preparation of theeconomyforamorecompetitivepositionintheglobaleconomy.

Table5Numberofmanpowerbysectorsofeconomy

number in % number in %industry 578947 12.95 552477construction 197853 4.43 165816agriculture 1495585 33.46services 2197013 49.16 2177844Total 4469398 100

2001 2002


In terns of indexof developmentof humanpotential, calculatedon thebasis of threeparameters,amongthecountriesof theCISonlyUzbekistancouldexceedthe levelof1990.Onthebasisof thedatafor2001thisindicatorwas0,729.GDPpercapitain2001,whichwasequalto2460USdollars.

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Table6Investmentsinfixedcapitalbybranchesofeconomy,2000-2001(onethousandsoums)

2000 in % 2001 in % 2002 in %

industry 213422423 30,7 478268786 40,0 467392604 32,4agriculture 35272422 5,1 55119950 4,6 83752502 5,8construction 1587459 0,2 3921606 0,3 6419901 0,4transport 89827020 12,9 136761577 11,5 109611005 7,6communications 15688305 2,3 24740992 2,1 33962028 2,4healthcare and social protection 17833187 2,6 42756671 3,6 60888183 4,2education 103193633 14,8 121305326 10,2 152478731 10,6total inveatments 696310282 100 1194218781 100 1442421988 100


AmoredetailedanalysisoftheeconomicpotentialofUzbekistanbasedon23indicators(SeeTable7)showsthefollowingfeatureswhichcouldplayakeyroleinassistingthecountryinitstransitiontotheknowledge-basedeconomy:

• InsomeareasUzbekistan(likesomeothertransitioneconomies)isatasufficientlyhighlevel.

This mostly concerns social indicators characterizing life expectancy and provision withhouseholdICT-relatedappliances;

• Ahigh levelof literacyandpublicexpenditureoneducation is also conducive toa relativecompetitivenessinthedevelopmentofaknowledge-basedeconomy;

• A relative diversification of exports and a high proportion of capital investment creatingconditionsforeconomicdevelopmentshouldalsobementioned;

• The economic reforms now underway are increasingly reflected in the establishment of alegalframeworkthatshouldfacilitatetheemergenceofafunctioningmarketeconomy;

• However, economic repercussions have had their impact on the lowGDP growth rates ascomparedtoothercountriesoftheworld,andforeigndirectinvestment;

• PatentapplicationsthathavepassedregistrationattheUSpatentdepartmentarepracticallyabsent.Althoughpatentacquisition isa rather relative indicator itnonetheless reflects thequalityofscienceandeducationandtheextentofdevelopmentofinnovations.

ForthepurposesofcomparisonthesameTablecontainsthemapofcompetitivenessbasedondatafortheperiod1996-2001.ItisclearthatprogresshasbeenmadeintheHumanDevelopmentIndex1,and the economic regulation system. A certain drop in the investment level nonetheless reflects apositive trend towards a better quality of capital investment and a reorientation of investmenttowardamarketbasis.However, there isnoprogress in theattractionof foreigndirect investmentandtheestablishmentofamechanismofregistrationofpatentapplications.

1CalculatedbytheUNDP.

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Table7MapofcompetitivenessofUzbekistan,1996-2001

Diagram 1.2. Map of competitiveness of Uzbekistan, 1996 и 2001 (based on 23 indicators)

-5

0

5

10

GDP growthHD index

Fixed assets gross increase

Budget deficit

Property rights

Regulation

Regulative environment

Rule of law

Governance efficiency

Voice and accountability Political stability

Corruption controlLevel of literacyLife expectancy

Public expenditure on education

Foreign direct nvestments

Trade in industrial goods

Number of patents

Number of stationary telephones

Number of mobile telephones

Number of TV sets

Number of radio setsInvestment in telecommunications

1996 2001


ToplacethecurrentstateoftheeconomyofUzbekistaninperspectiveitisworthwhiletocompareitscompetitiveness with that of neighboring countries in the midst of transition. Table 8 presents acomparisonofcompetitivenessofUzbekistanandKazakhstan. Itmustbenotedthatbothcountriesare similar from the standpoint of development of a knowledge-based economy. Similarities areparticularly pronounced in indicators such as a high level of literacy andquality of the labor force,developmentoftheregulatoryenvironmentandavailabilityofhouseholdICT-relatedappliances.However,therearealsodifferencesrelatedtothespecificitiesofthestructureoftheireconomies.Forinstance,asubstantialshareofthefuelandenergysectorinKazakhstan’seconomyexplainsahigherlevelofforeigninvestmentsandalowershareofexportofindustrialgoods.Ontheotherhand,thesystematic implementation of theNational Program of Personnel Training in Uzbekistan explains ahighlevelofpublicexpenditureoneducation.Apart from illustrating the current status, an analysis of the competitivenessmap also indicates inwhatdirectionthecountry’seconomycan,orshould,developinordertomakebetterprogressinthedevelopmentofaknowledge-basedeconomy.ItisclearfromtheanalysisthatitiscriticallyimportantforUzbekistantodevelopcomponentsrelatedtothe innovationsystemandtheshareof ICT intheeconomy.Besidesthat,itisalsoimportanttoincreaseforeigndirectinvestment,especiallyintheICT-enabledsectorsoftheeconomy,furtherliberalizationoftheeconomicregulationsystem,andgreaterstabilityandtransparencyinpublicandcorporatesystemsofgovernance.

20

Table8MapofcompetitivenessofUzbekistanandKazakhstan,2001

Diagram 1.3. Map of competitiveness of Uzbekistan and Kazakhstan, 2001(based on 23 indicators)

-5

0

5

10

GDP growthHD index

Fixed assets gross increase

Budget deficit

Property rights

Regulation

Regulative environment

Rule of law

Governance efficiency

Voice and accountability

Political stabilityCorruption controlLevel of literacy

Life expectancy

Public expenditure on education

Foreign direct investments

Trade in industrial goods

Number of patents

Number of stationary telephones

Number of mobile telephones

Number of TV sets

Number of radio setsInvestment in telecommunications

KazakhstanUzbekistan


1.3.OLDANDNEWCHALLENGESIn order to analyze the national development situation and identify key development issues oftoday’sUzbekistanthepresentstudysituatesthetransitionprocessinahistoricalcontext.Thus,thetransition isseen inthisstudyasadefiningfeature inthedevelopmentofUzbekistantoday. Issuesrelated to economic growth, income disparities, education, and governance, for instance, haveemerged in all their complexity, largely during the course of transition. However, in historicalperspective it becomes obvious thatmany of these issues have roots in the systemof the FormerSovietUnion(FSU)andinthehistoryofUzbekistan.The transition to amarket economy has been characterized in all ex-Soviet countries by dramaticdeclines in incomeandemployment,growingpovertyand inequality,aswellasgreatuncertainties.ThepersistenceanddeepeningofpovertysincethecollapseoftheSovietUnionhavecontributedtoaprofoundshift inperceptionsabouteconomicandsocial reality.Thestabilityandsecuritypeoplehadenjoyedhasgonecausingunprecedentedlevelsofsocialandeconomicstress.In economic terms, at independence Uzbekistan inherited a number of positive factors, the mostnotableofwhichwere:a) limitedparticipation inthecomplexdivisionof laboroftheSovietUnion,whichcausedmanufacturingtocollapseinotherrepublics immediatelyfollowingthedissolution;b)limitedparticipationinindustrialproduction;andc)theexistenceoflargesharesofeasilymarketable

21

rawmaterials,suchascottonfiberandgold,intotalexports.Inadditiontothesefactors,Uzbekistanhasarichnaturalresourceenvironment.However, the transition brought with it a number of profound dislocations that had a significantimpactuponthecountry’sfinancialstability.First,therewasalossofconsiderablefiscaltransfersandsubsidiesfromtheFSUbudgetthataccountedforapproximately21%ofthecountry’sGDPin1991.Second, the deteriorating terms of external trade and the increased oil price, as the country washeavily dependent on imports of essential food and energy products which had previously beenimported at a subsidized price from the Soviet Union. Third, there was a heavy disruption ininternational and inter-republic trade and the exodus of a large number of non-ethnic Uzbek,professionalcadrewhohadoccupiedtechnicalandmanagerialpositions.This set of problems has its roots in the past. Within the FSU, Uzbekistan had a role of primaryproducer,particularlyofcotton,andsupplierofnaturalresourcessuchasgold,thatreliedonarigidform of central planning closely linked to the Soviet economy. This resulted on the one hand, independenceon irrigated agriculture at the expenseof the environment and, on theother hand, ahighly specialized but underdeveloped cotton-based industrialization, at the expense of thediversificationoftheeconomy.AgriculturehasalwaysbeenthefoundationoftheeconomyofUzbekistanandcontinuestoplayanimportant role to this day. The quality of the environment and the livelihood and well-being ofUzbekistan’spopulationareheavilydependentonirrigatedagriculturewithapproximately95%oftheavailablearable landunder irrigationandapproximately60%ofthepopulation living inruralareas.Thesectorcontinuestobedominatedbycotton,astrategiccommodityforUzbekistan,butonethatisalso labor intensive,andthus isthemajorsourceofruralemploymentandtheprimarysourceofincomeforfarms.Itcanbenotedthatthestrategiesundertakenbythegovernmenttomanagethetransitionprocesshaveinprinciplemetmanyofthechallengesposedbythetransition.Unfortunately,theyhavedoneso mainly at the expense of the agricultural and SME sectors, the potential engines of growth inUzbekistan’seconomy.Thus, despite achievements in macroeconomic stability, the main economic problems facing thecountrycanbesummarizedasfirstly,thelowandnon-diversifiedindustrialgrowth;secondly,exportcontractionandlowexportdiversificationawayfromrawmaterials;thirdly,growingunemploymentratesboth in industryandagricultureandthe lackof improvement in incomesand livingstandardsamidgrowinginequalitieswhichcompoundgeographicdisparities;andtheunnecessaryinvolvementofgovernmentinthedevelopmentofSMEsalongwithinappropriatetaxationlevels.21.4.DoesUzbekistanneedaknowledge-basedeconomy?Againstthisbackgroundtherelevanceoftheconceptofaknowledge-basedeconomyforUzbekistanisnotself-evident.Yet,theknowledge-basedeconomy–asitisconceivedinthisstudy–isofdecisiveimportance for Uzbekistan. The knowledge-based economy will provide a fundamentally differentglobal context forUzbekistan’s development, one thatwill bedifferent from the context of recentdecadesandfarremovedfromthatthroughwhichthedevelopedcountrieshaveachievedsustainedgrowth.Thisnewcontextmeansthatthetraditionaldevelopmentstrategybasedonindustrializationisunlikelytobesufficient,asglobalmanufacturingbecomeshighlyproductive,intenselycompetitive,andprovidinganeversmallershareoftotalemployment.ItalsomeansthatUzbekistan’sresponseto

2UnitedNations,Uzbekistan,CommonCountryAssessment,2003.

22

theknowledge-basedeconomywillnotsimplyinvolveanincrementaladaptationtotheinstitutions,systemsandpoliciesprevailinginadvancedcountrieswhichweredesignedfortheindustrialera.It is our view that new and flexible approaches to development strategy,which take into accountbothUzbekistan’s specific circumstances and the new global realities, need to be thought throughand planned as amatter of urgency. Such approacheswill require new emphases in a number ofareas.Thesemayincludedirectlystimulatingservicesectorgrowth;maintainingabalancebetweenlabor-intensivesectorsoftheeconomywhichfavorsemploymentcreationandcapital-intensiveoneswith an emphasis on output and productivity; new product and quality-enhancing processtechnologies rather than labor-saving new process technologies; and improving rural output andrelatedactivitiestoenablecontinuedhighlevelsofemploymentandsocialinclusioninruralareas.Theknowledge-basedeconomyremainsacontestedtermanddevelopmentstrategyfordevelopingand transition economies. In the debate about the knowledge-based economy and transitioneconomies’development strategy, it is possible to identify threebroadperspectives.Onemightbedescribedas the irrelevanceperspective. Thosewhoadopt thisperspectiveargue that focuson theknowledge-basedeconomyanditsattendantemphasisonhigh-techisadistractionfilledwithperilsasittakesattentionawayfromthecentralchallengefacingdevelopingeconomies:thatofincreasingoutputandemployment in low-tech industrieswhereadeveloping country canhavea competitiveadvantagebecauseoflowcosts.Theknowledge-basedeconomyinthisperspectiveisoftenpresentedas one based on a broad science and technology base and on high-tech industries. Given thatdevelopingcountriesarestilllaggingbehindintheseareasandarestrugglingtoprovidejobsfortheirworking populations, does it make sense to talk about a knowledge-based economy? The generalpositionwithrespecttothisquestionisthatit ismainlyatrendyapproach,particularlyattractivetoscientificandpolicyelitesthatcandivertattentionfromthetasks involvedin increasingoutputandemployment in a still relatively poor economy. It is thus irrelevant to the central issues facing acountry’sdevelopment.The second perspective might be described as the enhanced industrial economy approach. In thisperspective the knowledge-based economy involves the intensification of processes alreadyunderwayintheindustrialeconomywheretherolesofknowledgeandglobalcompetitionacquireamajorimportance.Asuccessfulknowledgeeconomyisonethatfostersthecreation,acquisitionandapplicationof knowledge toall aspectsofeconomicand social life.However, theknowledge-basedeconomy involves not a fundamental change in the structures of the economy but rather thereinforcement and expansion of processes already underway. The implication is that a developingcountry needs upgraded knowledge and skills, especially in the domains where it might hold acompetitiveadvantage,betheyinmanufacturingoragriculture,inordertoincreaseproductivityandoutput.Henceacountryneedstofollowinthefootstepsandapproachesthathaveproveneffectivein advanced economies, and to develop their innovation systems in this direction over time. Arelatively well-defined path is already available and needs only the necessary policies to movedeterminedlyinthisdirection.The thirdperspectivemightbedescribedas theglobal transformationview. In thisperspective theknowledge-basedeconomyinvolvesafundamentalchangeinthestructureandnatureoftheglobaleconomy. Thus the strategies appropriate for a developing country are quite different from thosesuccessfulinthedevelopedcountries.Thesestrategiesneedtobethoughtoutanewinlightofbothemergingglobal transformationsandtheparticularcharacteristicsofadevelopingcountry.There isnoguaranteethattraditionaldevelopmentpathswillyieldacceptableresultsintheknowledge-basedeconomy.Onthebasisoftheforegoingdiscussioninitimportanttostressthattheknowledge-basedeconomyisnotsynonymouswithhigh-techindustrialdevelopment,butisastructuraltransformationaffectingall economic sectors in different regionsof theworld economy.Against this background it is not aviableoptionfordevelopingandtransitioncountriestoignoretheknowledge-basedeconomyandto

23

pursue growth in industries in which they are currently cost competitive. The forces of theknowledge-based economy are transforming precisely those industries, and the basis ofcompetitivenesswithinthem.Nevertheless,theissuesraisedbythosescepticalabouttherelevanceoftheknowledge-basedeconomyremainofcentralimportanceandneedtobewithintheframeworkof analysis and policy development of any initiative toward its attainment. For it will form theessential global context within which development will proceed, even as strategies must remainfocusedthebasicrealitiesofthecurrentsituation.

24

2.Aconceptualframeworkoftheknowledge-basedeconomyThissectiondevelopsaconceptualtourd’horizonthatlaysoutsomekeyconceptsoftheknowledge-based economy. Apart from its objective to establish an actionable strategic concept of theknowledge-based economy the section examines critical issues of ICT implementation in theeconomy,organizationaland institutionalaspectsof theknowledge-basedeconomynot inabstracttheoretical terms but rather in concrete terms that seek to define the knowledge-based economyconceptfordevelopingandtransitioneconomies.2.1.Theconceptoftheglobalknowledge-basedeconomyTheeconomic,organizational,technological,andpolicyrealitiesassociatedwiththeemergingglobaleconomicsystemaredrivingtheemergenceofanewsetofactivities,structures,andarrangements.Thecentralpolicyoptionsassociatedwiththetransitiontoaknowledge-basedeconomyderivefromtheinterrelationshipsoftechnological, industrial,economic,andsocialtransformationsintheglobaleconomy. The term knowledge-based economy makes explicit reference to the definingcharacteristicsoftheglobaleconomyemergingasaresultoftheinterplayoftwosetsoffactorsthatcanbetakenasthekeyparametersthatdefinetheeconomicandpolicyrealitiesofourtime:theriseintheknowledgeintensityofeconomicactivitiesandtheincreasingglobalizationofeconomicaffairs.Theknowledge-basedeconomyreferstothenewoverallstructurethatisemerging,togetherwithitsassociated institutions,activitiesandarrangements.Attention isoftengivento individualaspectsoftheemergingeconomy,suchastheneweconomyortheonlineeconomy,thenetworkeconomy,thelearning economy and the information economy. But these are individual aspects rather than theoverallreality.Theinternetplaysanimportantpartintheknowledge-basedeconomy,andnetworksofmanydifferenttypesarealsovital.Learningisclearlycentraltoaknowledge-basedeconomy,asistherapidexchangeofinformationandotherformsofknowledge.Innovation,beingtheprocessofapplyingideasnewtothefirminmanydifferentareas, isclearlyattheheartofavibrantknowledge-basedeconomy.Eachoftheseconceptsviewstheoverallrealityofthe knowledge-based economy through a different lens, thereby highlighting parts of the picture.Thus, the knowledge-based economy is neither a purely theoretical concept nor a vision ofdevelopment. It is a descriptive concept that expresses the central reality of the current stage ofglobaleconomicdevelopment.Theworldeconomyismovingfromtheindustrialeratowardaglobalknowledge-based economy organized increasingly on a planetary basis. Countries and social andeconomicsystems,whetherdevelopedordevelopingneedtorespondtothisemergingreality,andtoadapttheirdevelopmentstrategiestotheemergingstructuralconditions.One defining feature of the knowledge-based economy is the growing integration of knowledgeembeddedinsocialsystemsintoeconomicactivitiesinvolvingtheproductionandcirculationofgoodsand services. Knowledge becomes integrated into productive activities in many different ways,ranging from learning by doing by operators on the shop floor to formal processes of knowledgegeneration and application, of training and of investment in advanced equipment. The economicvalueofaknowledge-intensivegood,suchasanadvancedaircraft,adrug,asoftwareprogramora‘smart’ card, goes far beyond the value of thematerials ofwhich it is composed, by virtue of theknowledgeembodiedintheproduct.The second defining feature is equally important: the globalization of economic activities. Theextraordinarypaceofglobalizationoverthelasttwodecadeshasreflectedtheintertwinedeffectsofboth policy change and developments in ICT, with the computing and communications revolutionprovidingthebasicinfrastructure.Theprocessofglobalizationhasnotinvolvedonlyincreasedtradein goods, although this is of great importance. Indeed, there are at least five matters involved inglobalization:foreigndirectinvestment,capitaltransfersotherthandirectinvestment,tradeflowsofgoodsandofservices,andknowledgeandtechnologytransfers.Otherfeaturesincludetheexistence

25

in all major markets of global competition between competitors from all major countries, theincreasingly multinational origin of the inputs to production of both goods and services, and thegrowth of trade between countries within the same industry and indeed in the same product orservice.Taking these threads togetherwecometoasyntheticdefinitionof theknowledge-basedeconomy.Theglobalknowledge-basedeconomy isanewsetofactivities,structuresandarrangementsthat isevolvingonaglobalbasisofplanetarygeographicalextent,asaresultoftheintegrationofICTintheproduction and distribution processes supported by policy initiatives to promote openness andderegulation.Assuchitrepresentsanewstageofdevelopmentoftheworldeconomy,subsequenttoandinkeyrespectsdifferentfromthatoftheindustrialera.2.2.KnowledgeasanenablerofeconomicperformanceIn discussions about the knowledge-based economy it is often the case that themain emphasis isplacedon ICT andhigh-tech industrial development. Yet the eclipseof the techno-enthusiasm thataccompaniedthedot.comphenomenonhashighlightedthefactthattheICT-enabledcomponentsofeconomic activity are manifestations of a wider process of change that involves more than theimplementation of ICT – in both advanced and developing economies [De Soto, 2001]. The ICT-enabled portion of economic activity is a central element of an emerging economic system that ispoweredbyICT,isdependentonhighlyknowledgeablelabor,andisorganizedaroundelectronicandorganizational networks. The historical specificity of this emerging economic system is that it isknowledge-based, it is global and it is networked in terms of technology and organization. It isknowledge-based because the productivity and competitiveness of economic organizations dependupon their ability to create, process and convert information into knowledge geared to innovationandvaluecreation.Itisglobalbecausethecoreprocessesofproduction,circulationandconsumptionareincreasinglyorganizedonaglobalscalethroughfunctionallinkagesamongeconomicagents.Itisnetworked because productivity and competition are organized through networks of interactionbetweenandacrossbusinessnetworksonaglobalbasis[Castells,2000].Oneofthekeydriversofchangeintheemergingeconomicenvironmentiscloselylinkedtotwokeyindustries that not only introduced process and product/service innovations, but also applied suchinnovationstotheirownstructuresandprocesses,whichresultedinhighergrowthandproductivity,and throughcompetition, to thediffusionofnewbusinessmodels throughout theeconomy.Theseindustriesare ICTandfinance.AtthecoreofthenewICTindustriesaretheInternet-centeredfirmsandInternet-relatedcomponentsof‘oldeconomy’typesoforganizations.However,thecentralityofInternet-relatedeconomicactivityisnotrelatedtotheuntil-recentlyexponentialrevenuegrowthandmarket capitalization value of Internet-related firms. Instead, their economic and businesssignificance lies with the potentially dramatic impact of Internet-related technologies on the waybusiness,especially‘oldeconomy’business,isconducted[Castells,2000;Cairncross,2002].Thefinancialdynamicoftheneweconomyisrelatedtothesuccessiveroundsofinnovationthathaveresulted inaprofound transformationof financialmarkets in termsof the technology,organizationand regulatory structures [Strange, 1986; Moran, 1991, Cerny, 1993; Helleiner, 1994]. FinancialmarketsareincreasinglyglobalizedandinterdependentwhiletheyareoneoftheleadingdomainsofapplicationofnewICT.Theglobalfinancialmarketisacentralaxisoftheknowledge-basedeconomy.It constitutes the central instrumentality that enables capital and investment to flow in andout ofsecurities,currenciesandeconomicsystemsacrossmarketsandinvestedonaplanetarybasis.ThedialecticalinterplaybetweenICTandfinanceisinmanywaysthecentralaxis,theflywheel,thatpowersthedynamismandinnovationpotentialoftheknowledge-basedeconomy.Ontheonehand,thetechnological infrastructureoffinancialmarketsallowsforprocessesoffinancial innovationandthedevelopmentofnewfinancialproductsthatcreatevalueoutoftradeinsecurities.Ontheother,

26

ICT-enabledfinancialinnovationencompassesanincreasinglylargersphereofsociallifewherealmostanypotentialsourceofvaluecanbeconvertedintoasecurityandtradedinfinancialmarketsthroughICT-enabledtransactionsystems.Financialmarkets, inthisrespect,constituteastrategicnetworkofthe knowledge-based economy. For it is there that value is assigned to economic activity as this isrepresented by its stocks, bonds, derivatives or any kind of security. The valuation of economicorganizations, and thus their capacity to attract capital, depends in a fundamental sense on thejudgmentofthefinancialmarket[Castells,2000].Thequestionofhowthisjudgmentisandshouldbeformedisoneofthemostcomplexquestionsincontemporary economic analysis and is the subject of considerable debate. Nevertheless, recentexperienceandresearchsuggestthatexpectations(onthepartoffinancialmarkets)aboutthefuturegrowthprojectionsofenterprisesintermsofactualprofitabilityandfuturefinancialvalueandtrustinthe institutional environment within which financial markets and enterprises operate are centraldeterminantsofinvestment[Castells,2000;Castells,2001].However, to reach the financial market, and to compete for higher value in it, firms have to gothrough innovation in technology, processes, product/service lines, management quality, andbranding. Indeed, the ability to innovate in these domains becomes the cornerstone ofcompetitiveness in theemergingeconomic environment [Tuomi1994]. Innovation in eachof thesedomains is driven by complex forms of interrelationships of three main factors. The first is thegenerationofnewknowledgeintheformofscientificandtechnologicalknow-why,know-how,know-what and know-when and the practice of management. This presupposes the existence of well-developed public and private R&D systems able to provide the key ingredients of innovation. Thesecond is theavailabilityofhighlyeducated,motivated,andautonomous labor, capableofapplyingnewknowledge in innovativewaysto increaseproductivityand improvebusinessperformance.Thethird factor is the existence of entrepreneurs. Entrepreneurial drive is a key element of innovationsince it functions as a catalyst in the transformation of new business ideas and projects intoinnovationinprocess,productsandservicelinesandimprovedbusinessperformance[Castells,2000].2.3.Organizationalformsoftheknowledge-basedeconomyIt isthissetofstructuralconditionsthatlargelyaccountsfortheascendingimportanceofintangibleorganizational assets in the process of value creation [Lev, 2001]. The growth of the strategicimportanceof intangibleassetscanbeunderstoodasashiftthatplacesincreasinglyhighervaluetothe information assets, or more correctly, knowledge assets of economic organizations. Thedifferentiation of information from knowledge, in this context, acquires strategic significance. Thevalueofinformationgeneratedbycomputersystemsdependsonhumaninterpretation.Knowledge,bycontrast, resides inasocial inter-subjectivecontextand thehumancapacity foractionbasedonthatinformation.Thus,knowledgeinanorganizationalcontextcanbedistinguishedfrominformationsince it ismore directly linked to action and organizational performance. Organizations, of course,cannotmanageknowledgeperse.Theycan,however,createanenvironmentthatfosterscontinuity,creation,andsustaineduseandofknowledgeanditsapplicationwithintheorganization[DavenportandPrusak,1998;VonKrogh,Ichijo,Nonaka,2000].In the emerging economic environment timely access to information related to each market anorganization isoperating in is critical for competitive success.However, suchaccess ina constantlychanging economic environmentmarked by highly diversemarket dynamics is not feasible on thebasisofrigidandtop-downorganizationalstructures.ICTallowsforthesimultaneousdecentralizationoftheinformationretrievalprocessfromdifferentspacesandforitsintegrationintoaflexiblesystem.This technological structure spans different institutional and regulatory spaces which present thepotential for large multinational firms to link with small and medium size enterprises (SMEs)according to contingent project demands forming networks that are able to innovate and adaptcontinuously.Businessprojectsareimplementedindiversedomainsandcanbedirectedtoproduct

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and service line development and organizational tasks across different territorial areas. Successfulbusiness project implementation is a function of information that is generated by and processedthroughICTsystemsbetweenandacrosscompanies,onthebasisofknowledgeacquiredfromeacharea. In otherwords, the key passages of information and knowledge that underpin the process ofinnovation run through networks: ICT and organizational networks within, between and acrosscompanies[Castells,2001].Lookedatfromthestandpointoftheprocessofvalorizationthismeansthatthetransitiontotheneweconomyinvolvesashiftintheparametersoftheprocessofvaluecreationwhichincreasesthevalueof the intangible assets of organizations and more specifically their ‘organizational capital’.[Brynjolfsson, Hitt and Yang, 2000, Bounfour and Damaskopoulos, 2001]. The term ‘organizationalcapital’ refers toanodal concept that is composedof several subcategoriesof intangible capital. Itencompasses,butisnotrestrictedto,thefollowing:Marketcapital:notthephysicalqualitiesoftheproducts a firmproduces, but the intelligence and know-how that go into creating anddevelopingnewproductsandservices. Italso includes intangibleattributes thatarecloselyrelatedtoproductssuchastrademarks,patents,brandreputation,corporatereputation,andothermarketingmaterials;Intellectual capital: theknowledge, skills,andcompetencies thatmanagersandemployeespossess;Structuralcapital:anytypeofknowledgeor innovationthataffects ITplatforms, internalprocesses,which are critical to theproduction anddistributionof a firm’s products and services;Relationshipcapital: the company’s relationship with its customers and other stakeholders, including financialmarkets and the investment community, government and community institutional structures;Communicationscapital:thebenefitsof leveragingandcommunicatingintangibleswhichmayresultinpositiveanalystrecommendations,increasedinvestordemand,premiumpricing,morecommittedemployees,andsoon.Successfulmanagementof‘organizationalcapital’dependsontheknowledge-creatingcapabilitiesoforganizations and the deployment of organizational knowledge and the development of learningcapabilitiesforinnovationandvaluecreation.Thecorrelationbetweenknowledgeandorganizationalchange and adaptation is a function of the fact that in the new economy though investment intechnology is important, it is innovation in processes, product and service lines that is the keydeterminantofanorganization’scompetitiveness [Brynjolfsson,HittandYang,2000].However, thisprocess depends on the availability of labor able to navigate, both technologically and in terms ofcontent, the emerging information-intensive environment, to organize information, to identify itsrelevance,andtransformitintospecificknowledge,appropriateforthepurposeoftheworkprocess.Thiskindoflabormustbehighlyeducated,motivatedandautonomousintermsofitscapacitytotakeinitiatives[Castells,2000].Thequalityofknowledgeinthiscontextisnotafunctionofthedurationofformaleducation.Insteadqualityreferstothe‘type’and‘relevance’ofeducationtospecifictasksinvolvedinparticularbusinessprojects.Laborintheknowledge-basedeconomyrequiresspecifictypesofeducationcharacterizedbycontinuousmodification and expansion of the workers’ knowledge throughout their working lives.Themostimportantfeatureofthislearningprocessislearning‘howtolearn’,sinceinthecontextofaccelerated economic and technological change most context-specific information is likely to beobsoleteinshortperiodsoftime[Castells,2000].Learning‘howtolearn’involvesaddressingthekindof learningthatgoesbeyondmereacquisitionof facts forthepurposeofperformingaspecific taskbetter.Itinvolvesdevelopingtheabilitytoforgemeaningfulconnectionsthatresultsinanawarenessofdifferentperspectives,andteachesonetoasktherightquestions.Italsoinvolvesthedevelopmentof theability to transform the informationobtained from the learningprocess into knowledgeandactiongearedtoimprovingorganizationalperformance[Freeman,2002].Efficientlymanaging‘organizationalcapital’andtheknowledgeassetsofanorganizationdependsinafundamental sense on the development of organizational forms that generatemutually reinforcingdynamic interrelationships between ICT, organizational flexibility, and highly skilled andmotivatedlabor [Bresnahan, Brynjolfsson and Hitt 2000, Bounfour and Damaskopoulos, 2001]. Indeed, it is

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arguable that a flexible andagile organizational structure is the vehicle that valorizesboth ICT andorganizationalknowledge.Recentresearchpointstoaparticularorganizationalformthathasemergedasacriticalcomponentofcompetitiveness in the new economy: the ‘network enterprise’ [Powell, 1990, Powell and Smith-Doerr, 1994,Applegate et. al., 1999;Hagel and SeelyBrown, 2001]. In contrast to earlier verticallyintegratedhierarchicalorganizationalstructures,the‘networkenterprise’ isaflexibleorganizationalform of economic activity, built around specific business projects and strategic objectives. Businessprojects themselves are set inmotion through the cooperation of networks of various and flexibledurationperiods,diverseoriginsandcompositionsofskillsandcompetencies. Intermsofitsinternalorganizational structure the ‘network enterprise’ is characterized by several main features: itsorganization is structured around process, not task, it has a flat organizational hierarchy, theworkprocessisorganizedonthebasisofteams,customersatisfactionistheprimarymeasureofbusinessperformance, the structureof reward isbasedon teamperformance, themaximizationof contactswithsuppliersandcustomersisanintegralpartofthebusinessprocess,andinformation,continuoustrainingofemployeesatalllevelsareconsideredcriticaltobusinesssuccess[Castells,2000].Processes of innovation often involve the participation of several firms and other organizations. Inparticipatingin‘distributed’innovationprocesses,organizationsaretypically(thoughnotalways)alsoinfluenced by pre-existing relationships with the other participants, which are concerned with theproduction and distribution processes for their existing products and services. In fact, the vastmajority of products and services are developed and delivered through several coordinated andcontributing organizations. These arrangements vary from ‘arms-length’ market arrangements tomuch more intimate relationships. Co-production takes other forms beyond formal alliances,including supply chains and other forms of co-ordination. Few final products or services reach theconsumer (or the business user) without depending on a number of coordinated and contributingorganizationsactingtogether.2.4.NationalinnovationsystemsItissynergyamongtheseorganizationalnetworksandtheirinteractionwiththebusiness,regulatory,and institutional environment in which firms operate that decides the innovative capabilities andcompetitivenessof organizations in the knowledge-basedeconomy. ICT and the Internethave longbeenconsideredasbringingaboutthe‘endofgeography’sincethetransparencytheyintroduceintotheeconomicprocessmakes location less important -organizationshaveaccessanywhereandanytime.Yet theprocessofglobalization is leading to the re-emergenceof thestrategic significanceoflocality. Indeed, recent researchdemonstratesa remarkablegeographicalconcentrationofnotonlytheproductionprocessoftechnologiesthatpresumablyannihilategeographybutalsothecontinuingconcentrationofsignificantancillaryserviceskeytotheknowledge-basedeconomy,servicesrangingfrom finance to legal services and advertising.Why is this happening? Research shows that spatialconcentration and geographical proximity continue to be of fundamental importance in fosteringinnovation. Innovation, in otherwords, is a function of processes and knowledge generated at theinterfaceoforganizationswith thebusiness, regulatory,and institutionalenvironmentwithinwhichthey operate [Saxenian, 1994, Castells and Hall, 1994; Porter, 1998a, 1998b; Fujita, Krugman andVenables,1999;GambardellaandMalerba,1999;Sassen,2000,Crouch,2001,OECD,2001].A key element in this spatial concentration has to do with national and regional ‘clusters ofinnovation’ which refer to organizational, social and institutional constellations that underpinacceleratedpacesof technologicaluptake,organizationalknowledgecreationandtheirdeploymentfor innovation. These constellations incorporate specific sets of relationships of production andmanagement, embedded in social and institutional structures that support a culture ofentrepreneurshipandencouragethedevelopmentofnewbusinessprocessesgearedto innovation.Thecentralfeatureoftheinstitutionalinfrastructureofthesespatialconcentrationsisthesynergistic

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networkrelationshipstheyfosteramongandacrossprivatefirmsandinstitutionsofthepublicsector.Typical components of a ‘cluster’ include companies that are networked within and through thecluster, venturecapital firms,public institutions suchasboardsof tradeanddedicated investment-attracting and promotion agencies (necessary for the creation of a business-friendly environment),universities and research centers (necessary for the support of networked R&D activities and thegeneration of know-why, know-how, know-what and know-when). The key in the competitivepositionof‘clusters’istheirabilitytogeneratesynergy,thatis,theaddedvaluethatresultsnotfromthe cumulative economic impact of the critical elements present in the cluster but from theirinteractioninawaythatfostersinnovationandvaluecreation[CastellsandHall,1994,Morganetal.,1999,Castells,2000,OECD,2001].Spatial proximity across organizations is a crucial condition that facilitates the emergence andapplication of organizational learning in processes of innovation [Storper, 1995]. However, it isimportanttodifferentiatebetween‘organizationalproximity’and‘spatialproximity’.Theformerdoesnot necessarily depend on the latter. The growing sophistication of ICT systems of inter-organizationalcollaborationprocessesopensupnewpossibilitiesforthegrowthofeffectivelearningnetworksacrossorganizationsbaseduponspatiallydispersedinteraction[Castells,2000].However,itremains thecase that thecriticalelementsoforganizational learningcontinue to takeplacewithinnetworksoforganizations thatarespatiallyproximate.Spatialproximitymay foster thecreationofconditions that favor organizational learning through channels of social interaction. For instancesocialinteractionthroughfrequentpersonalcontactsamongtheagentsofaninnovationsystemmayfacilitatetheemergenceoforganizationalknowledge.However,morefundamentallysomeofthekeyelementsofknowledgewhicharegeneratedanddisseminatedthroughpersonalinteractionaretacit,thatistheyareembeddedinparticularlocalsocialsystemsofinteraction.Asaresult,accesstosuchfieldsofknowledgedependsonparticipationinthelocalsocialsystemwithinwhichsuchknowledgeisproduced[OECD,2001].Theimportanceoflocalizedaccesstocertainkeyformsofknowledgehighlightsthecentralityoflocalinstitutions,especiallythatof‘socialcapital’,inprocessesofinnovation.Inbroadterms‘socialcapital’comprisesthesocialnorms,values,assumptionsandbeliefsthatprovidetheorganizingprinciplesofeveryday interaction within social networks in ways that enable the coordination of social actiontowardtheachievementofdesiredgoals[Woolcock,1998].Inotherwords,theinteractionbetweentheorganizationalentitiescomprisinga‘clusterofinnovation’reflectsnotonlymarketrelationships,but also the broader social and cultural context in which such relationships are embedded. Thisinstitutionalmediation is a crucial factor in structuring the relationshipsamong the centralentitieswithin a ‘cluster’ since institutions are the main agencies that articulate the social rules, norms,routines and conventions that regulate the interactionbetweenorganizations. Institutions are alsokey instances in a ‘cluster’ since they influence thebehaviorof organizationsbyputting intoplaceconstraintsonorincentivesforlearningandinnovation.Nowhereisperhapstheroleofinstitutionsinthe structuring of clustersmore noticeable than in the development of trust across organizations.Where interrelationships across organizations is marked by high levels of trust, that is, theexpectation of honest, collaborative, non-opportunistic behavior, uncertainty with respect toknowledgeexchange is reduced,stableandreciprocal interactionsaredevelopedandconsequentlyinnovative capability is considerably enhanced. The opposite tends to be the case in hyper-competitive and unpredictable environments that increase uncertainty and reduce trust inrelationshipsacrossorganizations[Edquist,1997,OECD,2001].Thus, while there is accumulating evidence of structural changes that sustain trends toward theglobalizationofeconomicprocessesthisdoesnotrenderthecomparativedifferenceamonglocalitiesandregionalconstellationsofcompetitiveadvantageany lesssignificant.Onthecontrary,acriticalissue in the growing importance of locality has to do with the modalities and patterns oforganizational learning that are implicated in the complex interactions between global and localprocesses.Thespecificelementsthatstructurethesocialandeconomicfabricofregions,thatis,theireconomicstructures,patternsofsocialandpoliticalrelations,culturaland institutionalsettings,are

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critical factors that condition and shape emerging patterns of economic development andorganizationalforms.Henceakeyquestionregardingalocality’seconomictrajectoryistheextenttowhich its social institutions canoperateas frameworks enabling responses to the challengesof thenew knowledge-based competitive environment [OECD, 2001]. In other words, in order to benefitfrom the innovation and economic potential associated with ‘clusters of innovation’ firms,institutional bodies and all the public elements that compose the cluster need to be ‘learningorganizations’alignedaroundtherequirementsoftheknowledge-basedeconomy[Morgan,1997].2.5.Aknowledge-basedeconomyconceptfordevelopingandtransitioneconomiesThetransitiontoaknowledge-basedeconomydependstoalargeextentonthecapacityofasocietyto develop and apply new knowledge in all sectors of economic activity. As the preceding sectionsshowthisisnotaneasytask.Anygovernmentthatsetsouttoenhancenationalresearchcapacitywillexperiencethat it isnotatall self-evidenthowtocopewithsucha task. In fact, it involvesdifficultstrategicchoicesovertheappropriatebalancebetweenprioritiestostrengthensecondaryeducationoruniversityeducation,supportingeducationofresearcherswhichistargetedorfundingofconcreteresearchprojects,givingprioritytoprivatesectorresearchorpublicsectorresearch,concentrateonbridging between the sectors through, for example, science parks, or concentrate on technologydiffusion through technology service systems and so on. Furthermore, having decided upon theimplementation of a specific plan, important choices have to be made about measurement andevaluation. Should these be based on the numbers of papers published in international, refereed,scientificjournals,thenumberofpatentsgenerated,orproductivitygrowth?Enhancing research capacity is a complicated process in advanced countries with already well-developededucationandresearchinfrastructures.Itismoresofordevelopingcountries.Onereasonforthisisthatitinvolvescross-context‘transferofknowledge’.Thisisnevereasy,butwhenitinvolvescountriesatdifferentlevelsofdevelopment,whenthetransfertakesplaceinacontextofknowledgeasymmetries,andwhentheknowledgeinquestioniscomplexthedifficultiesincreaseexponentially.Expectations about technology transfer remain high on the part of national governments ofdeveloping countries and international agencies of development. However, knowledge transferbetween advanced and developing societies is an area fraught with difficulties and failures. Thereason for thismight be the inability to distinguishbetween information and knowledge. The veryconceptof ‘knowledgetransfer’ is inawayamisnomer.Knowledge isnottransferreddirectly fromone person to another. Tacit knowledge cannot be separated from the person or organization inwhichitexistsandcanonlybelearntthroughcontext-specificinteractivelearningprocesses.It isofcoursealittledifferentwithcodifiedorexplicitknowledge.Codifyingknowledgemakesitpossibletosendmessagescontaininginformationfromapersonororganizationinonecountrytoapersonoranorganizationinanothercountry.Thisdoesnotmean,however,thatknowledgehasbeentransferred.Atthereceivingendofthetransferlinepeoplehavetousetheinformationasinputinaprocessoflearning,whichlikelyrequiresotheradditionalinputsandinstitutionalcapacities.Codification is not enough for successful knowledge transfer because there are knowledgeasymmetries and context dependencies. Many development aid projects aiming at technologytransfer have failed because of knowledge asymmetries. There aremany different reasons for thefrequent failures of knowledge transfer, but often they have to do with both the complexity andcontext dependency of knowledge. Themore complex the knowledge is (for example if it is about“research capacity” rather thanabouthow tobuild a road), themoredifficult it is to transfer. Themorecontext-dependent it is(forexample if itrequires institutional,educationalandinfrastructuralsupport),themoredifficultitistoutilize.Itoftenneedstobebacked-upbyaninstitutionalcapacitytobeusefulorevenmeaningfulinthenewcontext.Andoftenevenrelativelysimpleknowledge,likehowtobuildausefulroad,turnsouttoneedsomuchlocalbackingoftacitknowledgethatitleadstoprojectfailures.

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It is this realization of the critical mediating role of institutional, educational and infrastructuralsupport in the utilization of knowledge that underpins contemporary approaches to nationalinnovationsystems(NIS)inbothadvancedanddevelopingeconomies.NISpoliciesandprogramsthatseek to enhance a country’s innovative and technological capacity, already popular in developedeconomies,havemorerecentlycomeunderexaminationinthecontextofdevelopingcountries.Themovementawayfromlinearapproachestowardsattemptstoconceptualizethecomplexinteractionsin innovation systems (See Figure 1), was the result of the realization that answers did not lie inpoliciesthatreliedsolelyoneither‘technologypush’,aimedatstrengtheningscienceandengineeringeducation in the nascent universities, or on locally generated ‘demand pull’ for scientific andtechnological research [Mytelka, 1999]. Rather, successful economic and industrial development isintimately linked to a country’s capacity to acquire, absorb and disseminatemodern technologies.Whereasindevelopedeconomiestheinnovationsystemservestheroleofmaintainingorimprovinganalreadyestablishedlevelofcompetitivenessandgrowth,developingcountriesarefacedwiththetaskof“catching-up.”

Figure1InnovationinTheoryandPolicy

Consistentwiththenationalinnovationsystem’sholisticapproach,afirm’scomprehensivecommandof a particular technology necessitates not just its physical acquisition, but also a thoroughunderstandingofhowandwhy itworks.Knowing the ‘how’andnot the ‘why’prevents firms fromfixing inevitable technical problems and frommodifying the technology to fit local circumstances.Conversely, knowing the ‘why’ and not the ‘how’ makes operations on the shop floor nearlyimpossibleandtypicallypresentsanimpassetoefficientproduction[DahlmanandNelson,1995].The NIS approach has advantages over alternative frameworks that approach technologicaldevelopment in terms of inputs (e.g. science funding) and outputs (e.g. publications and patents).Whereasthe inputs/outputsapproachoffersstaticglimpsesofnational innovationonthebasisofalinearmodeloftechnologicaldevelopment(i.e.scienceleadstoimprovedtechnologies,whichleadstoindustrialimprovements),theNISapproachstressesdynamicnetworksofpolicies,institutionsandpeoplethatmediateknowledgeflowsacrossnationalbordersandwithindomesticindustries.TheNIS

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approachalsooffersamore realisticpictureofdevelopmentprocessesbecause itviews innovationefforts as intimately linked to broader macroeconomic and educational policies. This systemicapproach isarguablybettersuitedforpolicy-makersas itallowsthemto identify leveragepointsorweaklinkswithinthenetwork. Ingeneral,NIScasestudiessuggestthatpublicandacademiceffortscan “support,butmaynot substitute for the technological effortsof firms” [NelsonandRosenberg1993], that the development of human capital via education and training is essential for fosteringabsorptive capacity, and that economic policies must be designed to compel internationalcompetitiveness.The complexity of innovation systems precludes generalizations. There is broad agreement thattechnological development is primarily a country- and industry-specific phenomenon. Within theconcept of ‘developing country’ there is a significant amount of variation,which leads to country-specificissuesforapplyingtheNISperspective.Inanyhistoricalera,developedcountriesoccupytherole of technological leaders while developing countries act as technological followers. The key todevelopment success lies in closing the ‘technological gap’ through the importation of existingtechnology and creating the internal capabilities to utilize and create value through thesetechnologies. The acquisition and implementation of technological capabilities, however, involvesheavyinvestmentsintechnologicalandsocialinfrastructures.From the standpoint of developing countries research has focused on Systems of Innovation forDevelopment (SID),whichstressessomekeydifferenceswith theNISapproachgenerallyapplied indevelopedeconomies.TherearefourmainareaswhereSIDdivergesfromNIS:

• Productinnovationsaremoreimportantthanprocessinnovationsbecauseoftheireffectontheproductstructure;

• Incrementalinnovationsaremoreimportantandattainablethanradicalones;• Diffusionismoreimportantthandevelopmentofinnovationsthatarenewtotheworld;• Innovations in lowandmedium technology sectorsaremoreattainable than those inhigh

technologysystems[Edquist,1997].In parallel to these insights, development research has placed primary importance on developingcountries’ ‘absorptive capacities’, or their ‘ability to learn and implement the technologies andassociated practices of already developed countries’ [Dahlman and Nelson, 1995]. Althoughdeveloping countries can either buy foreign expertise, it is the promotion of national absorptivecapacitythroughvariouscomponentsofthenationalinnovationsystemthatisrequiredforlong-termindustrialandeconomicdevelopment.Thisfocusonabsorptivecapacityshiftstheemphasisfordevelopingeconomiesfrominnovationtolearning, both passive and active. Passive learners ‘absorb the technological capabilities forproduction,usingakindof‘black-box’approach;activelearners,bycontrast,master‘technologyand its improvementsthroughadeliberateeffort’ [Jumaetal.,2001].Thechoiceofapassiveoractivelearningstrategyhasaprofoundimpactonacountry’sabilitytoachievethetypeofgrowththatwillimprovethelivingstandardsandwellbeingofitscitizens.A fundamental problem confronting analysts of national innovation systems is the danger ofexpanding the concept to the point where it includes virtually all aspects of a country’s social,economic,political,andculturalstructuresandactivities.Sincethewholethewholesocio-economicsystemcannotbeconsideredtobeincludedinthesystemofinnovation,acriticalquestionconcernstheidentificationoftheelementsthatarefundamentalinitsformationandfunction[Castells,2000,Edquist2002].Onewayofapproachingthisquestion is to identifythe ‘functionalboundaries’ofanNIS,beyondthe‘overallfunctionofproducing,diffusingandusinginnovations’.Recentresearchconcentratesonfiveprimaryfunctionsinvolvedinnationalinnovationsystems:

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• Create‘new’knowledge;• Guidethedirectionofthesearchprocess;• Supplyresources,i.e.capitalandcompetence;• Facilitate the creation of positive external economies (in the form of an exchange of

information,knowledge,andvisions);and• Facilitatetheformationofmarkets.[JohnsonandJacobson,2000].

Otherresearchershaveprovidedasomewhatexpandedlistincluding:

• Createhumancapital;• Createanddiffusetechnologicalopportunities;• Createanddiffuseproducts;• Incubateinordertoprovidefacilities,equipment,andadministrativesupport,• Facilitate regulation for technologies,materials,andproducts thatmayenlarge themarket

andenhancemarketaccess;• Legitimizetechnologyandfirms;• Createmarketsanddiffusemarketknowledge;• Enhancenetworking;• Directtechnology,market,andpartnerresearch;• Facilitatefinancing;and• Createalabormarketthat[canbeutilized].[Rickne,2000,citedinEdquist,2001].

These functionsenvisionactive absorptionof knowledgewhich generatesopportunitiesof learningthat usually go beyond production ability and is one of the bases for the development of thetechnologicalcapabilitiesofadebelopingcountrty.AframeworkofNISisoutlinedinFigure2.

Figure2FrameworkofaNationalInnovationSystem

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Source:HenriCapronandMicheleCincera(2001).

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3.ChallengesforUzbekistanintheknowledge-basedeconomyThissectionlaysoutthestrategicchallengesfortheeconomyofUzbekistanforthetransitiontotheknowledge-basedeconomy.ItexploresissuessuchasICTpreparedness,qualityofhumanresources,andtheregulatoryandpolicyenvironment.3.1.Challengesoftheknowledge-basedeconomyThe knowledge-based economy is likely to provide an entirely new global context for thedevelopmentofUzbekistan.Thenewcontextmeansthatthetraditionaldevelopmentstrategybasedon industrializationwill hardly be sufficient because as global production processes become highlyproductive and more competitive they are likely to translate into a decreasing share of totalemployment. Thiswill alsomean thatUzbekistan’s response to the challengesof knowledge-basedeconomywillnotsimplyinvolveanincrementaladaptationofpolicies,institutions,andsystemsthathavetakenshapeduringtheperiodofindustrialization.Inthiscontext it isnecessarytothinkthroughnewapproachestoadevelopmentstrategythattakeinto consideration both the peculiarities of Uzbekistan and the emerging global realities. Theseapproachesrequireanewfocusinmanyareassuchasincentivesforthedevelopmentoftheservicessector;priorityofemploymentcreationoverthevolumeofoutputandproductivitygrowth;priorityoftechnologiesfortheproductionofhigh-qualitygoodsoverlaborsavingtechnologies;improvementof agricultural production, both in product and process, with the aim of securing a high level ofemploymentinruralareas.In order to support and increase the competitiveness of its national economy, Uzbekistan mustconcentrate on amore active use of innovations andnew technologies,which remains a relativelyweak spot in the country. Innovations and introduction of new technologies promote economicgrowth and become amajor factor of global competitiveness. There are a number of reasons thatexplain the need for the formulation of such strategy during the current phase of development.However,thereareanumberofchallengesthatgovernmentpolicywillneedtoconfront.Thesecanbegroupedasfollows:Achieving faster and more sustainable economic growth rates: Over the recent past Uzbekistan’seconomy has achieved remarkable growth rates (4-5% annually). This is a good indicator, butgovernmenteconomicpoliciesshouldbetargetedatacceleratingeconomicgrowthsoastoachievearateof7-8%by2010.Inthisconnectionthegovernmenthastoconsiderthepossibilityofdevelopinga knowledge-based economy with the aim of achieving a faster and more sustainable economicgrowthbasedontheknowledgecapacitiesoftheUzbekpeople.Raising efficiency and competitiveness of traditional economic sectors: As the world economybecomesmoredynamicandcompetitive,therearisesaneedtodevelopanoriginalnationalstrategyfor a knowledge-based economy in order to secure high production efficiency of the economy’straditional sectors. The introductionof innovationsandnew technologies into traditional economicsectors will promote growth in the volume of output, more extensive utilization of the availableproductioncapacities,andincreasedcompetitivenessofthegoodsandservicesproduced.Needtoestablishamorediversifiedeconomicbase:ConsideringthatallCentralAsianeconomiesarebasedlargelyonagrarianandindustrialproductionitisimportanttodevelopneweconomicsectors.The transition to a knowledge-based economy leads to the emergence of new internationallycompetitiveeconomicsectors.Theexperienceofsomecountries,suchasFinlandandIreland,showsthat it is thedevelopmentof theknowledge-basedeconomy thathelped them turn from relativelyweakandpredominantlyagrarianeconomies intogloballycompetitiveeconomies invarioussectorsoftheknowledgeeconomy.

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Export of professional education: It should be noted that some countries such as Australia,Netherlands,HongKong,Singaporeandothershavebegantospecializeintheexportofprofessionaleducation. According to recent estimates Australia generates about 10% of its GDP in this area.Citizens fromChina, Taiwan,Malaysia andotherAsian countries go there in largenumbers to gainhigher education.Given theeducational capabilitiesofUzbekistan the government shouldexaminepaths toward making the key institutions of higher education in the country centers of regionalexcellenceandpolesofattractionofinternationalstudentsfromneighboringcountries.Useof intellectual staffcapacity:Aswasnotedearlier, thedemandforscientistsandengineershastended to decrease in Uzbekistan over the past several years. This is largely a function of theeconomic restructuring associated with the transition to a functioning market economy. Thedevelopmentof a knowledge-basedeconomymayaddress thisproblem through theestablishmentanddevelopmentofscience-andtechnology-intensiveeconomicsectorsaswellasasectorcreatinganddisseminatingnewknowledgethroughouttheeconomyofthecountry.Creation of new employment: The establishment of new economic sectors and introduction ofinnovationsintothetraditionalonespromotesthecreationofnewjobsandraiseemploymentlevels.Thisisborneoutbyinternationalexperience.Forinstance,inthepasttwodecadesIreland,whichwasa relatively poor and predominantly agrarian country fromwhere thousands of young people fledannuallytoseeknewopportunitiesinothercountries,hasturnedintoacountrywithoneofthemostdynamicknowledge-basedeconomiesinEurope.3.2.CompetitivenessprofileoftheeconomyofUzbekistanThemostimportantoutcomeofongoingstructuralchangesshouldbeahighercompetitivenessofthenationaleconomy.Competitivenessitselfdependsonvariousfactorssuchasproductioncosts,laborproductivity,andknowledge-intensityof the laborprocess,whichhaveadirect impactonthepriceandqualityofgoodsandservices.At present in most economic sectors of Uzbekistan production costs are 2-5 times higher than indeveloped countries. Industrial production concentrates on metal and energy which is less costeffectivethanindevelopedcountries.Asaresultitisdifficulttocountonthepricecompetitivenessofdomestic goods in international markets given such expensive material production factors. At thesame time, the average level of individual wages is considerably lower in Uzbekistan than inindustrializedcountries.One of the main indicators determining commodity competitiveness in the world market is laborproductivity because it is the process of production that lays the material basis of competitionmanifested in themarket through a comparative level of prices and profitability. At present, laborproductivityinUzbekistanlagsbehindnotonlythatofindustrializedandindustrializingcountriesbutalsothatofmanydevelopingcountries.Laborproductivityintheagriculturalsectorisevenlower.At present, non-price factors such as the quality of goods, their innovativeness, science- andintellectual-intensity assume the leading position in global competitiveness. However, most ofindustrialgoodsproducedinUzbekistanareofinferiorqualityascomparedtothosemanufacturedinindustrialized, and developing countries. In this context, low prices remain the main competitiveadvantageofUzbekistan’sexportersintheworldmarket.Of all national producers only those operating in the export-oriented sector of raw materials areinternationallycompetitive,andmoreoftenthannottheyselltheirgoodsatdumpingpricesinordertoentertheworldmarket.However,thispolicymayhaveanadverseeffectinthelongrunasitmay

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leadtoareductionofthemarketshareorcompleteexclusionfrominternationalmarkets,insteadofexpansionofthesalesmarketandpreservationofcompetitiveness.Ofall the sectorsof thenationaleconomy themostcompetitive inworldmarketsare suchexport-orientedindustriesasthelightindustry(almostexclusivelycottonfiberandyarn),thefoodindustry,the chemical industry (mostly nitrogen fertilizers), non-ferrousmetallurgy, and fuel and the energysector.Atthesametime,mostofthemechanicalengineeringproductsarenotcompetitiveinworldmarkets.In thesesectors thecountry loses itsmaincompetitiveadvantages,namely, relativelycheapenergyresourcesandlaborforce,whichreducesitscompetitiveness.Uzbekistan has considerable advantages that are the main prerequisite for competitiveness andsuccessofnationalmanufacturers.Theseare the richmineral resourcesof thecountryand its vastfarmlands.ThelocationofUzbekistaninthecenterofEurasiamayalsoberegardedasanadvantage.A major advantage of Uzbekistan is its labor force with a high level of education and skills. Theintroductionofnewtechnologieswillnotrequireanin-depthretrainingofstaffandspecialexpenseson education. Foreign companies operating in Uzbekistan often note the quick adaptation andlearning capability of Uzbek specialists who are quick to grasp the principles of management andmarketing, as well as a high level of their technological literacy. This advantage becomes evenstrongerduetoarelativelylowcostoflabor.At present Uzbekistan possesses considerable resources of knowledge and research schools inchemistry, biology, geology and agriculture, which may prove to be important factors in thedevelopment of competitive processing industries. However, there is a real danger that the mainfocusinthecountry’seconomicdevelopmentwillbeontheuseofprimaryresourceadvantagessuchasmineralresourcesandcheaplaborforce.In comparison to international indicators Uzbekistan has low living standards. Low paying capacityand lowdemand standardsare typical, and this isnot conducive to improving thequalityof goodsintended for thedomesticmarket. Regionswith low living standards and their predominantly ruralpopulationarevast,whilemarketswithahigheffectivedemandarerelativeexceptionsandconfinedto large cities. Thismarket structure is not in a position to generate internal demand required forintensivecompetitionamongnationalproducersorientedtomeetthisdemand.This factor slows down the expansion of domesticmarkets due to low demand. The internationalexperience of developed countries shows that throughout practically the entire 20th century realwagesgrewfasterthanlaborproductivity.Thiscreatedpossibilitiesforexpandingdomesticmarketsandmade theproblemof the formationofnationalmarkets less acute. The rising costs associatedwith this factorwere compensatedby technicalprogress, and thanks to this, productionexpansionwasnotaccompaniedbyanysubstantialincreaseinthecapital-outputratio.3.3.ChartingthecompetitivenessofUzbekistanTo assess the prerequisites available in Uzbekistan for developing a knowledge-based economy itmightbe instructive todrawa comparisonwithother countries. For thepurposesof this studywehave used the World Bank’s methodology of producing a map of competitiveness as regardsknowledge-basedeconomy.3.

3 See the World Bank methodology and the data on a number of countries at

www.worldbank.org/wbi/knowledgefordevelopment

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Themapreflectsthelevelachievedbyacountryindifferentareasofeconomicactivityascomparedtoothercountriesoftheworldortheregion:themaximumindicatoris10andtheminimumis0.Ofcourse,highindicators indifferentareasdonotmeanthatthatagivencountryhasreachedcertainprogress inthedevelopmentofaknowledge-basedeconomy;theyonlyshowthattherearecertainprerequisitesandadvantagesforit.The standard assessment is typically carried out based on 14 indicators, and a broader diagram isbasedon23 indicators.The indicatorscharacterizeeconomicdevelopment, thequalityof the laborforce,thelegalandregulatoryframework,theextentofdevelopmentoftheinnovationsystem,thestateof ICT infrastructure,andsocialfactors.Foraroughestimate,4to6main indicatorsareused,suchas theeconomic status, economic regulation, governance system,national innovation system,qualityofhumanresourcesandthelevelofICTdevelopment.TheauthorsofthepresentstudyhavemadetwomapsofcompetitivenessofUzbekistanbasedon6and23indicatorsavailableintheWorldBankdatabaseandusingtheirownestimates.Theavailableindicatorswerecomparedwith theaverageglobalstandard levelusingdesignratiosandtheWorldBankdatabase.Therefore,althoughthemapcannotclaimabsoluteaccuracy, itnonethelesspermitsustocarryoutaqualitativeanalysisofthediagramsobtained.BelowispresentedanabridgedversionofthemapofcompetitivenessofUzbekistanbasedon2001data.Forthepurposesofcomparisonthesamediagramcontainsthemapofcompetitivenessbasedonthe1996data(Table9):TheTableindicatesthefollowing:

• Asregardsthequalityofhumanresourcesandeducationalsystem,Uzbekistan,liketheothertransitioneconomies, is in anadvantageouspositionagainst the international background.Althoughsince1996this indicatorhasslightlydecreased, itnonetheless isabovetheworldaverage;

• The country’s socioeconomic status is somewhere at the average world level, and it hassomewhat improved since 1996,when the economic decline that followed the collapse oftheUSSRwasovercome;

• According to an assessment of international specialists, the economic regime in 2001wasworsethanitwasin1996.Itshouldbenotedthatthemainreferencepointusedbyforeignexperts intheassessmentof theeconomicregimewastheneedtosecureconvertibilityofthe national currency. Therefore, the efforts taken by the government in 2002-2003 toliberalizeeconomicactivitywillundoubtedlyraisethisindicatorinthenearfuture;

• TheICTsystem,althoughithasbeendevelopingthroughtheperiodunderconsideration,stilllagsbehindaverageworldindicators,whichexplainsitsrelativelylowstatus.Obviously,thisarea needs some comprehensive development interventions, and the same is true of theinnovationssystem.

Table9MapofcompetitivenessofUzbekistan,1996-2001(Basedon6mainindicators)

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Diagram 1.1. Map of competitiveness of Uzbekistan, 1996 и 2001(based on 6 main indicators)

0

5

10Socioeconomic status

Economic regime

Governance

Innovations system

Human resources and education

ICT

1996 2001


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4.Educationandtrainingfortheknowledge-basedeconomyThissectionexploreschallengesfortheeducationandtrainingsystemsofthecountry. Itaddressesissuessuchasrecentgovernmentinitiativesforeducationalreform,trainingandretrainingprogramscurrently inplace, thestateof computerizationand ICT implementation ineducational institutions,educational reformwith emphasis on the formation of human capital for science and technology,lifelonglearningprograms,andtheconnectionsbetweenformaleducationandtheworldofbusiness.4.1.GeneralcharacteristicoftheeducationalsystemofUzbekistanHistorically the government of Uzbekistan has paid great attention to the development of theeducationalsystem.Thecountry,bymain indices,suchaspopulation literacy level, (99,34),averagenumberofeducationalyears (11,4)and thestateexpenditures foreducation in%ofGDP isamongtheleadingcountriesoftheworld.Onlyduringtheperiodofreforms,expendituresallocatedfromthestatebudgetforthedevelopmentofeducationgrewby5.7%(withoutoffbudgetallocations).Witheveryyear theshareofnon-budget revenues fromthechargeablecontract formsofeducationandothereducationalservices,fundsofnationalsponsorsandforeigninvestments,isgrowing.

Table10Shareofexpenditureoneducation(withoutcapitalinvestments)

Diagram 4.1. Share of expenditure on education (without capital investments)

0123456789

10

1997 1998 1999 2000 2001 20020

5

10

15

20

25

30

% of GDP % of total budget spending


Thenumberofstudentsatalleducationallevelsper10000citizensequalled2710in2002;in1995thisfigurewasonly2563.In1990142citizensper1000hadhigherorincompletehighereducation,190 specialized secondary education, 480 secondary education, and 127 incomplete secondaryeducation.In2002thisfiguresequalled143200,485and150respectively.Government authorities have managed to avoid the drastic reduction of students enrolled ineducationalinstitutionsduringthetransitiontoamarketeconomyandensurethat100%ofchildren

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of school age have access to primary schools.Unfortunately, it is not the casewith the pre-schoolinstitutions,wherethenumberofchildrendeclinedfrom35.1%in1991to19.9%in2002alone.Overthepastfiveyearsthenumberofstudentsintendingtocontinueeducationafterfinishingthe9thgradehasbeengrowing.In1997thenumberofstudentsattending10thgradewas280000;in2002theirnumberexceeded315000.Thenumberofyoungstudentswhodidnotcontinueeducationafterfinishingthe9thgradeexceededannuallyover80000.In 2004 it is planned to enroll into the new type educational institutions, academic lyceums andprofessionalcolleges63,3%ofthe9thgradegraduates,andin2010allgraduatesfromthe9thgradeshouldenteroneoftheseinstitutionstogetsecondaryspecialorprofessionaleducationaccordingtotheirchoice.Starting in 1998 the number of entrants into institutions of higher education has been growingsteadily.In1997158200studentsstudiedininstitutionsofhighereducation.In2002thisnumberhadincreased to 232 300. Yet, this figure constitutes only 68% of all students attending institutions ofhighereducationin1990.Accordingtorecentestimationsover7,8millionstudentsstudyatalllevelsoftheeducationalsystemin theRepublic,while thenumberof teachersexceeds600000.Thereare9799generalsecondaryschools,821institutionsofsecondaryspecializedandprofessionaleducation,62institutionsofhighereducation,141post-graduatecoursesand79doctoratecourseseducating6,33million,603100,232300,2,500and323students,respectively.Education in general secondary schools is provided in 7 native languages spokenby the citizens ofUzbekistan. The dominant language is Uzbek. About 100 000 specialists are trained annually atcoursesorganizedwithinthere-trainingandqualificationimprovementsystemforpedagogicalstaff.In order to expand access to education for different strata of the population and provide socialprotectionofyoungstudents’interestssomerepublicanbankshavestartedtograntbeneficialcreditscovering the education cost since 2001. On the other hand, relations with international donororganizationsandfundskeeponstrengthening.ThetotalnumberofforeigninvestmentsreceivedbythesectorthroughthischannelduringtheperiodofreformationexceededUSD150million.Thenumberofcomputersinuseineducationalinstitutionsisgrowing.ICTisintroducedineducationas well as respective methods of education. The draft project on establishment of the NationalEducationalComputerNetworkisbeingstudied.Theprocessofcompilationofelectronicinformationdatabasecontainingtextsof lectureshasbeen initiated.Currentlyover2,500of themareplaced intheeducationalportaloperatedbytheNationalUniversityofUzbekistan.4.2.TheNationalProgramofPersonnelTraining(NPPT)Upon gaining state sovereignty, and while designing the country’s mode of economic and socialdevelopment,theUzbekistanfacedtheneedtoreorganizethestructureandcontentofeducationalsystem.OnAugust29,1997,theParliamentadoptedanewversionoftheLawonEducationandtheLawon theNational Programof Personnel Training (NPPT)with the aimof radically reforming theeducationalsystem,bringing it intoalignmentwithmodernrequirements,creatinganewsystemofnationalpersonneltraining.TheNPPThasthefollowingtargets:

• ReformtheeducationalsystemincompliancewiththeLawoftheRepublicofUzbekistanonEducation and secure its progressive development as a single educational, scientific and

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production complex based on public and non-public educational establishments andformationofacompetitiveenvironmentintheareaofeducationandpersonneltraining;

• Link the educational and personnel training system with the reforms taking place in thecountryandestablishmentofademocraticruleoflaw;

• Providepersonneltrainingestablishmentswithskilledspecialists,andraisetheprestigeandthesocialstatusofthepedagogicalactivity;

• Reorganizethestructureandthecontentofpersonneltrainingbasedontheprospectsofthecountry’s social and economic development, people’s needs, and latest achievements ofscience,culture,engineeringandtechnology;

• Develop and introduce effective forms and methods of spiritual and moral upbringing ofstudentsandeducationalwork;

• Introduce an objective system of assessment of the quality of education and personneltraining,certificationandaccreditationofeducationalestablishments;

• Establishment of a regulatory, logistical and information framework securing the requiredlevel and quality of education, guaranteeing its functioning and sustainable development,andthepriorityofthepersonneltrainingsystemundernewsocialandeconomicconditions;

• Secure an effective integration of education, science and production, and developmechanisms of identification of public needs as well as a system of orders of non-publicstructures, enterprises and institutions on the number and quality of the personnel to betrained;

• Develop and introduce real mechanisms of attracting extra-budgetary funding includingforeigninvestmentsinuninterruptededucationandpersonneltraining;

• Promotemutuallyadvantageousinternationalcooperationintheareaofpersonneltraining.Thesemeasuresaretobeimplementedinthreestages:Thefirststage(1997–2001.)wasconsideredastheperiodforcreationoflegal,scientific-methodicalandfinancialconditionsforreformofthepersonneltrainingsystemanddevelopmentoftheexistingpersonneltrainingsystemmaintainingapositivepotential.The second stage (2001-2005) involves full-scale implementation of the National Program, itsadjustment against the experience of implementation, labor market development and real social-economicconditions.The third stage (2005 and the forthcoming years) concentrates on further improvement anddevelopment of the personnel training system based on analysis and summary of the obtainedexperienceinaccordancewiththeperspectivesforthecountry’ssocialandeconomicprogress.Uzbekistan is one of the few CIS countries that, in spite of constraining financial conditions, haslaunchedwidescale reforms ineducation introducingthecontinuouseducationsystem.Oneof thebasicunitsof the reforms is the free compulsory12-yeareducation for all students. The systemofspecializedsecondaryandprofessionaleducationhastoundergothehighestrateoftransformation.It is planned to provide seats in new educational institutions, i.e. 3-year academic lyceums andprofessionalcolleges,by2010.Every graduateof the secondary specializedor professional collegewill get equal opportunities forentering republican institutions of higher education of their choice. All graduates of professionalcollegeswillmaster several professions thatwill give them additional chances to look for a job inconditionsofheightenedcompetitionatthelabormarket.Graduatesfromacademiclyceums,whosenumber will soon constitute about 10% of all secondary specialized and professional educationalinstitutions,willreceivespecializedknowledgeoncertainsubjects.

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The continuous education system is based on the state educational standards and succession ofvariouslevelsofeducationalprograms.Thissystemincludesthefollowingtypesofeducation:

1. Pre-schooleducation2. Generalsecondaryeducation3. Specializedsecondary,professionaleducation4. Highereducation(Bachelorandmaster’sdegrees)5. Post-graduateeducation(post-graduatecoursesanddoctor’sdegree).

In addition, there exists a system of non-school education and the system on staff qualificationimprovementandre-training.Pre-schooleducation is implementedforchildrenunder6or7yearsofageingovernmentandnon-government pre-school educational institutions and in the family. The main task of pre-schooleducationistoensuretheformationofahealthy,developedchild,urgethemtostudyandpreparethemforsystematiclearning.TheDecreeoftheCabinetofMinistersoftheRepublicofUzbekistandatedJune24,1999#313“Onmeasuresoncreationanddevelopmentofthenon-governmentpre-schoolinstitutionsfunctioningonthe commercial basis” determined the ways of expansion of the non-government commercialinstitutions’ network. The Statute “Onnon-government children’s pre-school institutions”hasbeendeveloped.AccordingtotheStatutethenumberoftheseinstitutionswas61in2002.Currentlythereare6899governmentand61non-governmentpre-schoolinstitutionsservingto631500childrenoftheagefrom1.5to3years.Itconstitutes19.9%ofthetotalnumber.Specialized secondary education is the 9-year compulsory education (I-IX school forms), includingprimaryeducation(I—IVforms).Themaintasksofthegeneralsecondaryeducationare:

• Layingthefoundationsofsciencesthroughsystematicknowledge;• Developmentofneedforlearning;• Masteringof basic educational, scientific, general cultural and spiritual –moral knowledge

basedonnationalanduniversalspiritualvalues;• Formationoflaborskills,creativethinking,deliberateattitudetothesurroundingworldand

choiceoftheprofession.Duringthereformperiodaqualitativelynewsystemof9-yeargeneralsecondaryeducationhasbeenformedthatensurescontinuityofpre-schoolandspecializedsecondaryandprofessionaleducation.The system of the general secondary education includes 9,692 schools, of them 79.3 % are ruralschools.Non-school institutions serve fororganizationofoff-hourworkwithchildrenand teenagers to trainthemforactivityandcreativityinvariousspheresofscience,technique,cultureandsport.Clubsandcenters for children and teenagers’ creative work, children-teenagers’ sport schools, art schools,musicschools,studios,libraries,sanitaryandotherorganizationsofthiseducationaltypefunctioninUzbekistan. IntotaltheRepublichas621non-schoolorganizationsemployingover11,000thousandpedagogicalcadres.Specialized secondary and professional education is a 3–year compulsory education based on thegeneral secondary education. Thedirectionof the specialized secondary education is the academiclyceumorprofessionalcollegefreelyselectedbythestudents.Theeducationalprogramofthislevelallows all graduates to participate in the contest tests or profile exams in order to enter a highereducationinstituteoftheirchoice.

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Academic lyceum provides specialized secondary education according to the state educationalstandards, and ensures intensive intellectual development, advanced, profile, differentiated, andprofessionallyorientededucationthattakesintoaccountstudents’capacityandinterests.Professional colleges by their equipment, selection of pedagogical staff, organization of theeducationalprocessareeducationalinstitutionsofthenewtype,offeringopportunitiestomasteroneormoremodernprofessionsandgettingprofoundtheoreticalknowledgeofeducationaldisciplines.Starting from 1998 students of Uzbekistan upon finishing 9th form are free to choose one of thedirectionsofeducation–i.e.academiclyceumorprofessionalcollege.Highereducationisbasedonthespecializedsecondaryeducationandprofessionaleducationandhastwolevels:bachelor’sprogramandmaster’sprogram.TheBachelor’sprogramprovidesbasichighereducationwithfundamentalandappliedknowledgeonchosenspecialtywherethetermofeducationis not less than 4 years. The Master’s program provides higher educationwith fundamental andapplied knowledge ona certain specialtywithinnot less than 2 years of study on the basis of thebachelor’sprogram.Traningofspecialistswithhighereducationisimplementedby62instituionsofhighereducation,i.e.universities,academies,institutesandotherhighereducationalinstitutions.Thetwoleveltrainingofspecialists with higher education was introduced in 1998. Students enroll into higher educationalinstituionsonthebasisofstategrantsandpaymentonacontractbasis.In2002/2003academicyearthenumberofstudentsinhighereducationalinstituionsreached232,300.The system of higher education has also been gradually opened to international institutions.WestminsterUniversityoftheUnitedkingsomhasbeenfunctioningsince2002-2003academicyearwhenitwasfoundedbythe“Umid”FoundationandtheUniversityofWestminster.Post-graduate education aims at providing Uzbek society with scientific and scientific–pedagogicalcadres of the highest qualification, meeting the creative educational–professional interests ofparticularstudents.Postgraduateeducationmaybeaccessedininstitutionsofhighereducationandscientific–research organizations (e.g., post-graduate courses, courses of junior scientific assistantsanddoctor’scourses).Postgraduateeducationcanbepurseduponsuccessfulthesisdefense.Qualification improvement and personnel re-training aim at renovation and broadening ofprofessionalknowledgeandskillsofaspecialist.Personnelqualificationimprovementisimplementedin 2 specialized institutes, 15 centers and 22 faculties on qualification improvement. They aresubordinatedto22ministriesanddepartmentrs.Of them4 institutesonqualification improvementand re-training, 14 centers and 17 faculties belong to the Ministry of Higher and SpecialisedSecondaryEducation.4.3.TheNationalPersonnelTrainingProgramin1997-2003At present Uzbekistan has already implemented a large-scale complex of measures aiming at thecreationofnormative, legal,scientific,methodical, financialconditions forreformanddevelopmentof the continuous education system. Striving to train qualified personnel which complies with themodern requirements of themarket economy, new state educational standards, educational plansand programs have been introduced in parallel with large-scale work on school construction,reconstructionandequipmentwithrequiredfacilities.Theconceptof‘Creatingeducationalliteratureforthenewgenerationforthecontinuouseducationsystem’hasbeendevelopedandnewtextbooksarewritteninaccordancewiththeconcept.

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Asthepersonnelpotentialofeducationalinstitutionsrises,newpedagogicaltechnologiesanddistanttrainingmethodsarebeingintroducedandanumberofmeasureshavebeentakenwithinthescopeof spiritual–enlightening work. Non-traditional forms of pre-school education, such as homekindergartens, small size kindergartens, various centersof pre-school children’s early development,Sundayschools,educationalcomplexes“school–kindergarten”havealsobeenestablished.Withnon-traditionalpre-schoolorganizations the totalnumberof children,whoattendedallorganizationsofpre-schooleducationin2002equalled27,4%ofthetotal.Theessenceofthepre-schooleducationisrenewing. The Program on Children’s Development and Preparation for School – ‘The Child of theThirdMillenium’hasbeenworkedoutand testedduring twoyears in500pre-schoolorganizationsandnowitisbeingintroducedinastagewisemanner.Setsofmethodicalaidshavebeenpreparedforspecialists frompre-schoolorganizationsaswell as recommendations forpre-school specialists andparents.Over40ofthemwerepublishedduringthelastfouryears.Over63000teachersworkineducationalinstituions.Ingeneral,thevacanciesoftheseinstituionsarefilled in. Public and charitable organizations, international foundations and makhallas activelyparticipateinattainingofpre-schooleducationobjectivesandtasks.During the period 1997-2002, 584 school buildings and extentions had been constructed providing214081seats.Of the totalnumber,61%of schoolsare located instandardmodernbuildings.Thenumber of seats for students equipped with computers grew by 10 %. The number of computerequipped classes reached 4 975. 18.9%of themhavemodern computers. The number of studentsincreasedby15,5%duringthereformperiodandconstituted6329,1by2002.Ofthetotalcontingent40,1%or2513.3thousandattendprimaryschool(104thforms).50%or3,139.4thousandarepupilsofthegeneralsecondaryschool(5-9thforms).Duetointroductionofneweducationalprogramstherelativenumberfpupilsofthe10th-11thformsreduces,theircontingentinthecurrentyearmade10%or634000.During1997-2002periodthenumberofteachersgrewby6,7%.Thetotalnumberofteachersbythecurrentperiodhas reached466260.Within theperiodof reforms thenumberofwomen teachersincreasedby2,8%andequaled65,4%ofthetotalnumberofschoolteachers.Duringthesameperiodthesupplyofeducational instituionswithpedagogicalstaffchangedforthebest. In total, the number of school teachers reached 96,3 % of the requirements. Deficiency inpedagogical staff is filled in through training of specialists in 7 pedagogical institutes and 19universities.Starting from 1997 the number of students of pedagogical institutes has grown by 2,6 times. In2001/2002, 13 970 graduates - teachers of various specialties came from higher and specializedsecondaryeducationalinstitutions.Specialcorrespondencedepartmentsontrainingbachelorsfromteacherswithspecializedsecondaryeducation and teaching experiencewere opened in 19 instituions of higher education. They teachusingspecialized3-yearprograms.Inordertomeetindividualeducating-developingrequirementsofchildrenand teenagers,organize their leisure time the statebodies,publicorganizationsandotherjuridicalpersonsand individualsestablishnon-schoolgovernmentandnon-governmenteducationalinstitutionsofcultural–esthetic,scientific,technical,sportandotherspheres.Inorderto facilitatetheprocessofreformand improvementofnon-schooleducationthefollowingdocumentshavebeendevelopedandintroducedintotheeducationalprocess:

• Conceptionoftheoffhourpedagogicalwork;• Conceptiononschool/familycooperationwithmakhallacommittees;• Statestandardsfornon-schooleducation;• Statuteonthistypeofeducation;

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Togetherwith47governmentandnon-governmentorganizationstheProgramonYouthLeisureTimeOrganizationhasbeendevelopedandisbeingintroducedintopractice.Duringtheperiodofreform416 specialized secondary, professional educational institutions for 275 300 students wereestablished.Of them48 are academic lyceums for 27 600 thousand students and 368 professionalcolleges.81educationalinstitutions,outofthetotalnumber,arecompletelynewconstructions,and335 reconstructionsof existingbuildings.Over370billion soums (approximatelyUSD3,8billion)ofcapital investments from centralized funds and funds from the local administration budgets wereallocatedforthispurpose.Academic lyceums and professional colleges are equipped with modern laboratory facilities,computers and technical aids, tools, tractors and agricultural machines, training vehicles and etc.Fundsfromthestatebudgetandforeigninvestmentsareusedforschoolequipment.Since the 2001/2002 academic year students are accepted in existing technical schools andprofessional technical colleges (undergoing stepwise reorganization into new type specializedsecondary, professional educational institutions, i.e. 194 technical schools and 313 professionaltechnical colleges) according to recently adopted educational plans and programs for professionalcollegesandacademiclyceums.Theeducationalinstitutionsemploy84,3%ofthestaffonapermanentbasisandtheremaining15,7%aremoonlighters. Inorder tostaff theacademic lyceumsandprofessionalcollegeswith teachersthe government has approved the Program on Training and Re-training and QualificationImprovement for Pedagogical and Engineer –Pedagogical Personnel from the system of specializedsecondaryandprofessionaleducationtill2010.The system of specialized secondary and professional education operates a mechanism allowingemployingteachersforworkinacademiclyceumsandprofessionalcollegesbasedonresultsoftheircertification and preliminary retraining. Since 2001 educational credits supporting learning in thehigher education instituions have been allocated. At present 2 644 students received bank’seducationalcredits.Thisnumberconstitutes2,5%of the totalnumberof students studyingon thepayment–contractbasis.4.4.RegulatoryandlegislativeframeworkA number ofmeasures have been taken in the course of implementation of National Program onPersonnel Training inorder to createa legislative framework for all levelsof education.Asa resultgovernment standards of pre-school and out-of-school education, general secondary, specializedsecondary, vocational and higher education aswell as government requirements to retraining andadvancedtraining,underpinningcontinuityandsuccessionoftheeducation,havebeenapproved.According to these educational standards, curriculums as well as classifiers of directions andspecialties of higher and specialized secondary vocational education have been developed.Professional requirements to the leaders, pedagogical and engineering-pedagogical personnel havebeen established. There has been adopted the systemof competitive filling of vacant positions forleadersandteachersinacademiclyceumsandvocationalcollegesaswellasthemechanismoftheirperiodical attestation. As a whole about 100 normative documents have been developed andimplemented. These include regulations on education levels, educational institutions, control andmonitoringofadoptionof stateeducational standardsand improvementofeducational institutionsactivities.

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4.5.TrainingofpedagogicalpersonnelThenetworkofhighereducational institutionsthattrainpedagogicalpersonnelhasbeen increased.Today in Uzbekistan there are 5 pedagogical institutes, 16 universities and 35 technical and othervocational high schools that train general and vocational education teachers. Under every highereducational institutionmarketing units have been created. These units are assigned to study labormarketdemands,includingtheneedsofeducationalinstitutionsinthepedagogicalandengineering-pedagogicalpersonnel.Thetrainingoftheteachersfor1-4classes(lowerprimarylevel)ofgeneraleducationschoolsisbeingprovidedat15highereducationinstitutionsoninternalbasisand16highereducationinstitutionsonexternal basis. The training of scientific-pedagogical personnel of higher competence is beingprovidedbypost-graduate(306specialties)anddoctoratedegreecourses(80specialties)at33highereducation institutions and scientific-research organizations with respect to priority directions ofscienceandtechnology.Programs on improvement of professional skills of the teachers of general education schools arebeing carried out at the Institute of Retraining andQualification Improvement of Public EducationPersonnelandits14 localbranches.Morethan200000teachersofgeneraleducationschoolshavealreadyimprovedtheirqualificationsinthisInstitute.Retrainingandqualificationimprovementofthepedagogical and engineering-pedagogical personnel of academic lyceums and vocational colleges isbeingexercised in39establishmentsonprofessional skills improvementattached tovarioushighereducationinstitutions.Therearemorethan38000teachersofsecondaryspecializedandvocationaleducationinstitutionsretrainedintheseestablishments.Statestandardsofretrainingandqualificationimprovementhavebeenapproved.Teachingmethodsand curriculums have been modernized and updated. The structure of institutes of qualificationimprovement of public education personnel has been also reconsidered. The development of adistance learning systemand its follow-upapplication to theprocessof retrainingandqualificationimprovement of the pedagogical personnel has been initiated in collaboration with University ofMarylandandotherUSUniversities.Also the development of distance learning system and its follow-up application to the process ofretrainingandqualificationimprovementofthepedagogicalpersonnelhavebeeninitiatedwithintheframework of the ADB UZ-1737 Project – ‘Development of SSPO system’. The Distance LearningCenterwithin the Institute of SSPOdevelopment aswell as 14 similar centerswithin colleges on alocal levelhavebeencreated.Theactivitiesonorganizingthecoursesofqualification improvementthatmeetindividualrequirementsofteachersofpiloteducationalinstitutionsarebeingpursuednow.Inaccordancewithapprovedgovernment regulation,constantly functioningcoursesofqualificationimprovementbornebyacademiclyceumsandvocationalcollegeshavebeenorganizedstartingfromthe2002-2003academicyear.Annualcapacityofthesecoursesis15-18000learners.Incollaborationwith the ADB Project (PRSO 1961 UZB) the work on creating the system of distance learning forteachersofgeneraleducationschoolshasbeeninitiated.Forthatitisplannedtocreateandequip1center fordistance learningdevelopment,14regionalcoordinationcentersofdistance learningand70educationalresourcecentersofdistancelearning.4.6.IntroductionofneweducationalstandardsTakingintoaccountcontinuityandsuccessionofeducationthebranchstandardsfor260directionsofprofessional collegesand4directionsofacademicLyceumshavebeendeveloped.According to theresults of approbation the state standards for secondary specialized, professional education on all

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general educational subjects andbranch standardson190directionsofpreparation inprofessionalcollegesandon4directionsofacademicLyceumsareauthorized.Onthebasisoftheeducationalstandardstheappropriateeducationalplansandprograms,classifiersofdirectionsandspecialtieshavebeendeveloped.Theupdatededucationalprogramsin1-9classesofcomprehensiveschoolsare introduced.Theeducationalplansandprogramson260directionsofprofessionalcollegesand4directionsofacademicLyceumsareimplementingstepbystep.In 19 general educational subjects the continuity and succession of the educational plans andprograms on levels of education is achieved for the most part. At the same time the program ofreform has sought to build bridges across different scientific fields opening the way tointerdisciplinary approaches. However in the determination of volumes of academic hours anddevelopmentof theeducationalprogramsof generaleducational subjects thedistinctionsbetweenmaindirectionsofpreparationarenottakenintoaccount.4.7.NationalProgramonPersonnelTrainingto2010Despite the fact that since the current academic year all pupils of the general secondary schoolwilladopttheLatinalphabetthesystemofthespecializedsecondaryandprofessionaleducationhasnotbegunpreparingtextbooksinthislanguage.Consideringtheimportanceoftheissuesofdevelopmentandprintingofqualityeducationalliteratureforacademic lyceumsandprofessionalcollegesandhugevolumeof theworkunder implementationone should review the issue of establishment of the EducationMethodic Center under the aegis ofCenterforSpecializedSecondaryandProfessionalEducation.Due to the lackofproduction, the textbooksarenot supportedby thedidactic, educational– visualaids likemaps,globes,posters,tables,portraitsofscientistsandetc. It isutterly importanttoreviewtheeducationalplansandprogramsensuringtheprincipleofcontinuityandinterdisciplinaryrelationsofeducationaldisciplines,andmaintainingtheprofileofprofessionalcolleges.Theprocessofcreationandapprovalofsectorstandardsforspecializedsecondaryandprofessionaleducationshouldalsobeaccelerated.In general, the government decisions on realization of theNational Personnel Training Program arebeingimplemented.However,thesametimetheprocessof implementationoftheNPPTconfrontssignificantchallenges.Someoftheseareasfollows:

• Implementation of tasks stipulated in the Program on Academic Lyceums and ProfessionalColleges’ Creation and Stationing till 2009 throughout republican territory lag behindschedule;

• All educational types are insufficiently equipped with didactic materials and educationalfacilities,foreigninvestmentsthatmaybeusedforthispurposearenotactivelyattracted;

• TheProgramonMaterialTechnicalBaseDevelopmentinhighereducationalinstituteshasnotbeenelaborated;

• The problems of creation of efficient teachers’ retraining and qualification improvementsystemhavenotbeenresolved;

• Methodologiesofmonitoringandassessmentofpersonnel trainingquality in the systemofspecializedsecondaryandprofessionaleducationareabsent;

• The sector standards for specialized secondary and professional education have developedtooslowly;

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• Theworkonpreparationandprintingofnewgenerationtextbooks,especiallythosebasedontheLatinalphabet,isnotsufficientlyactive;

• Theefficiencyofscientificresearchworkofchairsfromtheinstitutesofhighereducationhasdroppeddrastically;

• Theproblemsoneducationalprogramsandeducationalintuitions’accreditinghavenotbeenresolved;pedagogicalstaffoftheeducationalinstitutionsissubjectedonlytocertification;

• Theretrainingofthepedagogicalstaffisinsufficient.4.8.DevelopmentofcomputerizationandapplicationofICTTherearecurrentlymeasuresbeingintroducedinUzbekistaninordertoenhancethedevelopmentofcomputerizationandICT.Amongthemostrelevantoutcomesofthepastfewyearsisthecreationofalegislative framework for informatics and telecommunications that establishes themain economic,legalandorganizationalfundamentalsforICTadoptionandoperation.However, the levels of computerization and ICT development in the country do not meet currentrequirements.Themarketofsoftwareandinformationresourcesisunderdeveloped.Thenumbersofinternetusersarestillverylow(SeeTable12).Atthesametime,therearerelativelyfeweducationalinstitutions that are equippedwith computers: To gain a sense ofmagnitude of this problem it isworth noting that only 64% of higher education institutions and 7% of secondary specializedvocationaleducationinstitutionshaveaccesstotheinternet.

Table11AccesstotheinternetofpopulationofRepublicofUzbekistan

Diagram 4.3. Uzbekistan: access of population to Internet(000 people)

55,6 120,4 182,8 246

3321

2002 2003 2004 2005 2010

Source:OfficialStatisticsoftheGovernmentofUzbekistanInregardstotheformationofthenationalinformaticssystem;massapplicationandusageofrecentinformation technologies, computer equipment and telecommunications in all spheres of theeconomy; success inmeeting informationneedsof thepopulation; creationof favorableconditionsfor joining the global information community and widening the access to the world informationresources the government has introduced the Decree of the President of Republic of Uzbekistan“AboutfurtherdevelopmentofcomputerizationandapplicationofICT”whichwasissuedinMay30,2002.

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ThisDecreesetsoutthefollowingobjectives:

1. Thecreationofmodernreliableandsecurenationalinformationdatabases;developmentofthemarketof information resourcesandservices;gradual transition toelectronic formsofinformationexchange;

2. WidespreadadoptionofcomputerandICTintherealsectorsoftheeconomy,inthespheresofmanagement,business, scienceandeducation; creationof conditionsenablingdifferentlayersofthepopulationwithaccesstomoderncomputerandintelligencesystems;

3. Application of progressive systems of training, based on mastering and active usage ofmoderncomputerandinformationtechnologies,toeducationprocessofgeneralsecondaryschools,professionalcolleges,academiclyceumsandhighereducationinstitutions;

4. OrganizationoftrainingofhighlyqualifiedpersonnelforworkinginthedomainofICT,firstofall, in the sphere of software and information databases development, formation ofrepublican, sectoral and local informational-communication networks, computer andtelecommunicationengineering;

5. An accelerated development of a technical infrastructure of ICT throughout country,including mobile communication, IР-technologies, other modern telecommunication anddatatransferfacilities,takingintoaccounttheconvergenceofinformational-communicationnetworksandservices;

6. Adoptionofhigh-speedaccesstonationalandinternationalinformationnetworks;providingsettlements,includingruralones,withaccesstothesenetworks;

7. Creationofaneffectivemechanismofencouragingdevelopmentoflocalproductionofhighqualitysoftwareproductsandtheirexport;

8. Assistance in organization of both development and production of domestic computerequipmentandcomponents.

InpursuanceoftheseobjectivestheProgramofcomputerizationandICTdevelopmentfor2002-2010theCabinetofMinistershas approvedRegulation№210 in June6, 2002. In thisProgramconcretecommissionsandtermsofimplementationareidentifiedwithrespecttothefollowing:

• Strengthening of a material and technical base, with methodological and personnelmaintenanceof specializededucationalestablishmentsand facultiesonpreparationof theexpertsinthefieldofinformationandcomputertechnologies;

• Extension of preparation in specialized high schools, professional colleges and academiclyceumsofthehighlyqualifiedexpertsandoperatingpersonnelondevelopmentandserviceof software, information databases, multimedia, computer equipment, and also users ofcomputerandinformationtechnologies;

• Ensurebroadtrainingofallpupilsofschoolsofgeneraleducationandstudentstoworkwithcomputerandinformationtechnologies;

• Creationinaccordancewitheducationalstandardsofsecondaryandhighereducationofanelectronictrainingbase;

• Formationofaninformationinfrastructureofeducationalestablishments,thoroughstudyingofEnglishlanguageinalleducationalinstitutions,andalsodevelopmentandintroductionofthe standardizedmechanism of usage of theUzbek languagewith the Latin alphabet in arepublicaninformationnetwork;

• Organizations of the issue of the specialized magazine about the world and domestictendenciesandachievementsinthesphereofinformational-computertechnologies;

• Creationoflocaldepartmentalcomputernetworksandstepbystepimplementingofinternalelectronicdocumentcirculation, formationandconstantupdatingof informationresourceswiththeirplacingintheInternet;

• CreationandplacingintheInternetownactivelyoperatingweb-pages;

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• Assistance in creation of the private companies on development of software, renderingprovider, hosting, internet-services, services in formation of information databases, web-pages,serviceofcomputerequipment,creationoflocalnetworks;

• Granting perspective scientific applied research and innovation activity in the sphere ofcomputerizationanddevelopmentofinformational-communicationtechnologies;

• Granting of target privileges and preferential for the providers and operators renderingservicesonthereducedratestoeducationalandscientificestablishments,agriculturalusersoftheInternetetc.

Theprogramsetsthefollowingobjectivestobeachievedby2010:

• Toincreasethesizeofthepopulationwithaccesstotheinternetnotlessthan60times;• To increase the number of computers in schools, academic lyceums, professional colleges

andhighereducationalestablishmentsmorethan4,10,6and12timesrespectively;• To increase access to the internet not less than 63% of schools, 92% of the academic

Lyceums,85%ofprofessionalcollegesand100%ofhighschools.In2002theseparameterswere0,3;1,5;0,5and51%respectively.

Table12ProvisionwithcomputersandaccesstoInternetateducationalestablishmentsofUzbekistan

Typesofeducationalestablishments 2002 2003 2004 2005 20101.GeneralsecondaryschoolsNumberofstudentsstudyingthesubjectofinformatics(000persons)

969 984 1000 2065 2200

Numberofcomputers(000units) 10,7 12,7 15,4 17,8 110Provisionratio(numberofPCper100students) 1,2 1,2 1,5 0,9 5ProportionofeducationalestablishmentswithaccesstoInternet(%)

0,3 1,5 5 9,7 63

2.AcademiclyceumsNumberofstudents(000persons) 17 38 51 55 160Numberofcomputers(000units) 2 3 4,1 5,3 21,5Provisionratio(numberofPCper100students) 11,7 7,8 7,9 9,5 13,4ProportionofeducationalestablishmentswithaccesstoInternet(%)

1,5 3 8 15 92

3.ProfessionalcollegesNumberofstudents(000persons) 217 355 450 530 1400Numberofcomputers(000units) 14,4 23,6 31,8 40,2 99,2Provisionratio(numberofPCper100students) 6,6 6,6 7,1 7,6 7,1ProportionofeducationalestablishmentswithaccesstoInternet(%)

0,5 2 5 9 85

4.InstitutesofhigherlearningNumberofstudents(000persons) 220 250 260 270 490Numberofcomputers(000units) 10,3 10,6 10,9 11,3 125,4Provisionratio(numberofPCper100students) 4,7 4,2 4,2 4,2 25,6ProportionofeducationalestablishmentswithaccesstoInternet(%)

51 73 91 97 100


Note: Only computers having a technical opportunity of connection to the internet are taken intoaccountintheabovestatisticalrepresentations.

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TheprogramalsoprovidesforsubstantialgrowthofthequantityofeducationalinstitutionswhicharecarryingoutpreparationofexpertsonICT:-highschoolsfrom21upto31units,academic lyceumsfrom6upto22,professionalcollegesfrom17upto51units(SeeTable13).

Table13Developmentofeducationalinstitutions,trainingpersonnelofICT

Educationalestablishment 2002 2003 2004 2005 2010

HighSchools(includingcarryingoutpreparationoftheteachers)

21 22 22 24 31

AcademicLyceums,total 6 11 12 14 22Fromthemagainentered 6 5 1 2 8Professionalcolleges,total 17 23 27 34 51Fromthemagainentered 4 6 4 7 17

Source:OfficialStatisticsoftheGovernmentofUzbekistanConsiderably increased is also thenumberof educational divisions, institutes, centers and facultiesdedicatedtotheimprovementofprofessionalskillsandretrainingoftheICTstaff:-inthesystemofgeneralsecondaryeducation-from15upto17units,secondaryspecialized,professionaleducation-from37upto45andhigheducation–from22upto36units(SeeTable14).

Table14Divisions,improvingprofessionalskillsandretrainingoftheICTstaff

Division 2002 2003 2004 2005 2006-2010

Generalsecondaryeducation 15 15 15 15 17Secondaryspecialized,professionaleducation

37 37 40 44 45

Higheducation 22 22 29 35 36

Source:OfficialStatisticsoftheGovernmentofUzbekistanInordertofulfillthepersonnelpotentialintheeducationaldomaintheprograminvolvesthecreationof specialized educational institutions, i.e. specialized professional colleges and academic lyceums,specialfacultiesatuniversitiesandtechnicalhighschools,establishmentsofanetworkonretrainingandimprovementofprofessionalskillsofthestaff.By the Decree of the President of the Republic the Tashkent Electro-Technical Institute ofCommunication has been transformed into the Tashkent University of Information Technologies,which, beginning in the 2002-3 academic year is preparing experts in the field of development ofsoftware,network technologies,mobile radio, telephone communication, electronic commerceandinformationsafety.TheDecreealsoanticipatesthatfrom2002to2010inaddition8500teachersofcomputerscience,8950expertsofhighqualificationinICTarea(programmers,expertsofdatabases,multimediaetc.),10725lowerexpertsinICTareashouldbeprepared(SeeTable15).

Table15Preparation,retrainingandincreaseofqualificationsonICTdirection

Maximumformation(education)

Parameters 2002 2003 2004 2005 Total2002-2005 2006-2010

Higheducation

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Trainingofpersonneltotal 1100 1200 1250 1450 5000 12450Fromthem: Theteachersofcomputerscience

550 600 650 750 2550 5950

TheICTexperts 550 600 600 700 2450 6500Retrainingofthestaff,total 1000 1300 1600 1500 5400 8000Including Retrainingofthepedagogicalstaff

500 600 700 500 2300 2500

RetrainingofICTexperts 500 700 900 1000 3100 5500Improvementofprofessionalskills,total

3820 3900 4000 4050 15770 27000

Including Improvementofprofessionalskillsofthepedagogicalstaff

3500 3500 3500 3500 14000 23000

Improvementofprofessionalskillsoftheexpertsofbranches

320 400 500 550 1770 4000

Secondaryspecialized,professionaleducationPreparationofthelowerexpertsineducationalinstitutions

500 730 795 2200 4225 6500

Retrainingofthelowerexperts

500 1000 1500 1500 4500 2000


4.9.Educationreform:humancapitalforscienceandtechnologyOne of the objectives of the 1997 Law on Education and the Law on the National Program ofPersonnelTraining is toraise it tothe levelofpresent-dayrequirements,establishanewsystemofnationalpersonneltraininginalignmentwiththeemergingneedsofthedomainofeducation.By now an a wide array of interventions has taken place in the country aiming to create legal,regulatory,scientific-methodological,personnel, financialand logisticalconditionsforreforminganddeveloping a continuous education system. New public education standards, curricula and syllabihavebeenintroducedwiththeaimoftrainingskilledpersonnel,meetingthemodernmarket-orientedrequirements, along with large-scale construction, modernization and overhaul of educationalbuildings.AConceptofCreatingNewGenerationTextbooksfortheUninterruptedEducationSystemhasbeenformulated,inconformitywithwhichnewtextbooksarebeingwritten.Toprovidethelabormarketwithproperlytrainedpersonnel,821secondaryspecialized,professionaleducationalestablishmentsand62 institutesofhigher learningwithastudentbodyof788000and232300respectivelyarefunctioninginthecountry,alongwithanumberofcoursesforretrainingandimproving teaching skills and those where people acquire a second profession. Hundreds of non-public institutions in the formof civil funds, training centers,business incubatorsandotherprivateestablishments,trainover60000adultsatvariouscoursesannually,toprovidethemarketwiththerequiredprofessionals.Most of such courses train students in the fundamentals of private enterprise, computer and legalliteracy, foreign languages, accounting, farming, sowing, tourism,driving, etc. 67%of their traineesare entrepreneurs and persons intending to engage in private enterprise, 12% are students ofinstitutes of higher learning, and 21% are all others (representatives of themarket infrastructure,organizationsanddepartments).

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To secure a rational structure of enrolment to educational establishments and fully meet marketrequirementsinpersonnel,agovernmentresolution(#48ofJanuary28,1998)establishedmarketingunitsateachministryanddepartment,whichhaveeducationalestablishmentssubordinatetothem,andvestedthemwiththefunctionofstudyingthedemandforeducationalservicesfromenterprises,organizationsandindividuals.However, work in this area has not so far produced the intended effects due to delays in theestablishment of the relevant legal framework for the functioning of non-public educationalestablishmentsandlackofexperienceandmethodologies.At present enrolment parameters (number of students, form of instruction and language ofinstruction)atsecondaryspecialized,professionaleducationalestablishmentsandinstitutesofhigherlearningarespecifiedandapprovedbyhigherorganizationsonanannualbasis.Parametersofenrolmentatinstitutesofhigherlearning(bothonpublicgrantsandundercontracts)areannuallyapprovedbytheCabinetofMinistersmainlyonthebasisofananalysisofapplicationsfrom the institutes of higher learning, ministries and departments, assessment of the contestselectionofthepreviousyearandstandardcapacityoftheinstitutesofhigherlearning.Todevelopthesystemofprovidingthelabormarketwithskilledpersonnelfurther,itisnecessaryto:

• Developacompetitiveenvironmentandintroduceitintothepersonneltrainingsystem;• Leave a possibility of sufficient flexibility to educational establishments for operative

responsetotheeverchangingconditionsandrequirementsofthelabormarket;• Establishateacheducationalestablishmentasystemofsecondaryspecialized,professional

education,andaneffectivesystemofmonitoringandassessmentofmarketrequirementsineducationalservicesateacheducationalestablishment;

• Create relevant methodological manuals on the monitoring and assessment of marketrequirementsineducationalservicesattheregionallevel.

4.10.LifelongeducationprogramsInaknowledge-basedeconomyeducationisacontinuousprocessthroughoutaperson’sprofessionalactivity. It is generally recognized that traditional skills improvement courses have ceased tomeetmodernrequirements.Trainingmustbecomeapartoflifelongprofessionalactivity.Sincethebeginningofthereforms,aqualitativelynewsystemofcontinuouseducationincludingthefollowingtypesofeducationhasbeenestablished:

1.Pre-schooleducation2.Generalsecondaryeducation3.Secondaryspecialized,professionaleducation4.Highereducation(studiesfortheBachelor’sandMaster’sdegrees)5.Post-graduateeducation(studiesfortheCandidate’sandDoctor’sdegrees)6.Out-of-schooleducation7.Improvementofskillsandre-trainingofpersonnel

With due regard for the uninterrupted nature and continuity of education, line standards for 260areasofprofessionalcollegesand4areasofacademiclyceumshavebeenformulated.Basedonthetesting outputs, public standards of secondary specialized, professional education in all generaleducationalsubjectsandlinestandardsin190areasoftrainingatprofessionalcollegesand4areasofacademiclyceumshavebeenapproved.

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The uninterrupted nature and continuity of curricula and syllabi havemostly been achieved in 19general educational subjects. Interdisciplinary links have also been secured between some of thesubjects.However,thedifferencesbetweentheprevailingareasoftraininghavenotbeentakenintoconsideration indeterminingthenumberof instructionhoursandformulatingthesyllabiofgeneraleducationalsubjects.Atpresentoneoftheweakestcomponents forthedevelopmentofaknowledge-basedeconomy inthecountry isthesystemofre-trainingandimprovementofskills. Itrequiresreorganizationforthepracticalimplementationof‘lifelongtraining’,withdueregardforthedevelopmentofthesystemofdistancelearningandintroductionofmoderntechnologiesintotheteachingandlearningprocess.4.11.ICTdevelopmentinpersonneltrainingDevelopmentofICThasbeenrecognizedinUzbekistanasoneoftheprioritiesofitsstatepolicies.Inthis context the issues of ICT development and the draft laws ‘On Informatization’, ‘On ElectronicDigitalSignature’,‘OnElectronicDocumentCirculation’and‘OnElectronicCommerce’werediscussedatthesessionoftheparliamentduringthesecondconvocation,heldonDecember11,2003.Oneofthemostsubstantialoutputsofthepastfewyearshasbeentheestablishmentofalegislativeframework for informatics and telecommunications which specifies the basic economic, legal andorganizationalfoundationsofICTfunctioning.However,thelevelofthecountry’scomputerizationandICTdevelopmentdoesnotmeetpresent-dayrequirements. Three issues which impede further computerization are the following: the relativeunderdevelopment of the market for software and information resources, the low level of thepopulation’s access to the internet, and the low availability of computers and ICT at educationalinstitutions. Only 64% of the institutions of higher learning and 7% of secondary specialized,professional educational establishments have access to the internet. According to the UN DigitalDevelopment Initiative, only 8% of public institutions and less than 2% of the population in theRepublicofUzbekistanhaveaccesstotheInternet,andmostofthemareinTashkent.TheproblemofICTdevelopment inpersonnel training is further compoundedby the low ratesof computeraccessamongthestudentpopulationatdifferentlevelsofeducation(SeeTable16)

Table16Numberofpersonalcomputersper100students

Diagram 4.4. Number of personal computers per 100 students

0

2

4

6

8

10

12

14

16

2002 2003 2004 2005 20100

5

10

15

20

25

30

General secondary schools

Academic lyceums

Professional colleges

Institutes of higher learning(auxiliary axis)


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Expensesonprovidinginstitutesofhigherlearning,colleges,lyceumsandgeneralsecondaryschoolswithcomputers(includingtheannualneedtoestablishatleastonethousandcomputerclasses)willbemet in the following way: 30% from grants and 70% from annual budget allocations for thesepurposes.However, theweakestpoint in ITCdevelopmentand introduction inUzbekistan is thepsychologicalbarrier of managers at various levels which tends to associated ICT as an additional burden thatrequirestrainingand/orasathreattotheirpositions,andagenerallackofICTknowledge,whichmaysubstantiallyincreasetherisksinvolvedinprogramfundingandimplementation.4.12.FormaleducationandbusinessComparative international experience demonstrates that the closer the institutional and functionalrelationshipsbetweeneducation,research,scienceandproductionare,thehigheraretheefficienciesineachofthesedomainsandthehigherthelikelihoodoftheconversionofknowledgeintoimprovedeconomic performance. The example often cited in this respect is the US where educational andresearchorientedinstitutions,duetotheircloserelationshipswiththeworldofindustryareabletogeneratesignificantrevenuesfrommarket-orgovernment-relatedcontracts.Inthiscontextakeyconditionforthedevelopmentofaknowledge-basedeconomyistheformationof institutional mechanisms that foster the integration of professional training, science andproduction,which is implemented through training-research-and-production centers combining thefunctions of training personnel, conducting scientific research and integrating its outputs intoeconomicactivities.Asarule,the leadinguniversitiesactastheorganizingcoreofsuchcenterstheworldover.Thereare twobasicprinciplesofsuch integration: theverticalandthehorizontalones.Theverticalintegration principle of integration provides for the establishment of colleges within universities.Juniorspecialistsaretrainedatsuchcollegesbyuniversityprofessorsusingtheuniversitytrainingandlaboratorybase.Thehorizontalintegrationprincipleprovidesfortheestablishmentoftrainingcenterswithinmajor firmsandcorporationswherespecialistsaretrained inconformitywiththe lineof thefirm.Trainingprogramsatsuchcentersgenerally last6monthsto2yearsand includebothgeneraleducationalandspecialsubjects.ThetransitiontoafunctioningmarketeconomyinUzbekistanhashadanimpactonthefinancialstateof practically all economic actors. Large enterprises built during the Soviet times and designed tofunctionasmonopolies in theirownareasofproductionhavebeenhitespeciallyhard.These largemonopolieshavelostboththeircontactswithsuppliersandtheirsalesmarkets.However, itwastheseenterprises thathadagood logisticalbase for trainingprimaryandmedium-levelpersonnel,andmaintainingday-careestablishments,vocationalschools, technicalcollegesandothersocialfacilities.Theyoftenactedascustomersofresearchinstitutionsandinstitutesofhigherlearning,whichcarriedoutappliedresearchforthemonacontractualbasis.Branchesofsomeoftheleading institutes of higher learning functioned within some of such enterprises, which with thecollapse of the Soviet system ceased to exist due to lack of contracts and constraining financialconditions.SincethecollapseoftheSovietsystemofproductionthegovernmentofUzbekistanhastransferredsocial facilities from such enterprises to the jurisdiction of local authorities in order to relieve theformer of the financial burden.Most of these facilities have been closed downbecause theywere

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unfit for further operation due to theirwear and tear that has followedwith the transition to themarketeconomy.Theseenterprisesactedasthesecond largest link,after theStatePlan,betweeneducation,scienceand production. Although this integration existed it was ineffective due to the cumbersomecentralizedeconomicsystem.TheMinistryofHigherandSecondarySpecializedEducation,againstthisbackground,isamajoractorin seeking to establish a partnership between the educational establishments of the secondaryspecialized, professional education system and successfully functioning enterprises, who are thepotentialemployersofgraduatesoftheseeducationalestablishments.Thispartnershipisaimedataddressingthreemaintasks:

• Conductinganalysisoftheeducationalservicesfor identifyingthedemandforgraduatesof

professionalcolleges;• Improvingthesyllabiinconformitywithmodernproductionrequirements;• Usingproductionequipmentattheseenterprisesfortrainingpurposes.

Most institutions of higher learning in Uzbekistan have their own academic lyceumswith a 3-yeartrainingprogram,where special subjects are taught byprofessors from these institutionsof higherlearning. However, the process of integration of professional education, research, science, andproduction isactually in its initialphaseand isnot inaposition tomeetpresent-day requirements.TheeffortsoftheGovernment,theministriesanddepartments,theeducationalestablishmentsandenterprises are required to create a qualitatively new level of integration of education, research,scienceandeconomicactivity.This integration should be based on the experience of economically developed countries andinternational cooperation with the involvement of all research institutions, institutions of higherlearning,enterprisesandorganizationsasthekeystakeholders.Itisalsonecessaryto:

• Develop further thesystemsof integratededucationalestablishmentssuchasanacademic

lyceumandan instituteofhigher learning,aprofessionalcollegeandan instituteofhigherlearning, a professional college and a production company, an institute of higher learningandaresearchinstitutions,etc.;

• Improveexchangeofstudents,trainees,post-graduates,aspirantstothedoctor’sdegreeandinstructorswitheducationalestablishmentsandresearchcentersabroad;

• Intensify the integration of educational establishments of Uzbekistan into internationaleducationalandresearchprograms.

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5.Nationalinnovationsystem:connectingresearchandbusinessThis section concentrates on the national innovation system of the country and the challenge ofconnecting research and education with business and economic development. It examines theinstitutional structureof thenational systemof innovation, thestateof innovationpolicy, researchcapabilities,thestateoftheregulatoryenvironment,businesssupportprogramsandeaseofaccessto finance, and government efforts and initiatives to mobilize the private sector through varioussupportprograms.ThesectionconcludeswithanassessmentoftheinnovationsystemofUzbekistanincomparativeinternationalperspective.5.1.ThenationalinnovationsystemofUzbekistanTodayUzbekistan is a large scientific center in Central Asia,which has a developed an exploratorymaterial base, an extensive scientific foundation, qualified scientific personnel whose works havebeenpresentedatconferencesandseminarsallovertheworld.The research complex of the Republic comprises 362 institutions of academic, university andeconomic profile, including 101 scientific research institutes, 55 scientific research subdivisions ofeducational institutions, 65 project-design organizations, 32 research-and-production associationsandexperimentalenterprises,30information-computingcenters.Statescientific-technicalpolicy,whichisbeingformedfor2001-2005,assumesselectiveassistanceofscientificstudies,developmentsandinnovationprojectsonthefollowingdirections:

• Undertaking fundamental studies on problems of evolution of nature and societies, incooperationwith leading scientificworldcenters,makinganethical valuable system in thefield of harmonizing socio-economic development, environmental protection anddevelopmentofbiosphere;

• Making the technical premises of ecologically acceptable increases of the volumesof fuel-energyproductionandore-mineralresources;

• Development of competitive technologies, materials, design projects and technology,promotingasharpriseintheexportpotentialofthecountryandfirstofalloncomplicatedmachine-buildingproduction;

• Creation andwide-scale introductionof the basic technologies, ensuring significant qualityimprovement to the products, development of ecological safety, reduction of productioncostsandsaturationofhomemarket;

• Progressive changes to the technicianand technology inpurposeof achievementof scalesresource savings, sufficient for compensations of expensive raw materials, fuel-energyresourcesandmaterial;

• Selectionofhighproductivesortsofagriculturalandanimalcultures;• Developmentofnewhighefficientecologicalsafetechnologiesforproductionofagricultural

products,facilitiesdedicatedtothefightagainstdiseasesofagriculturalplantsandanimals,aswellasefficientfacilitiesandmethodsforirrigationofagriculturalfields;

• Creation of highly efficient, resource-saving ecologically clean provisions for productionprocessesandtechnologiesforprocessbranchesofagriculturalcomplex;

• DevelopmentofscientificbaseandrecommendationsonstageforminginUzbekistansocio-oriented market economy and its integration into the system of world economicrelationships, as well as problems of social structure transformations and politicalorganizationofsociety, improvements ingovernanceandrights intheprocessoftransitiontomarketrelations;

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• Scientific-technical maintenance of events, realizing social purposes of the society:developmentof public healthcare andeducation, social and cultural rebirthofUzbekistan,ambienceprotection.

Realizationofprioritydirectionsforthedevelopmentofscienceandtechnologywillbeaccomplishedthroughfinancingfromthestatebudgetforresearchprograms.FortheresearchpolicytheGovernmentwillsupportmostimportantprioritieswithintheframeworkof:

• Inter industry activities on creation, mastering and diffusing technologies and know-how,leadingtoprincipalchangesinthetechnologicalbaseandreducingsevereinfluencestothesurroundingambience;

• Works on large, inter-industry research projects, requiring immense concentrations ofresources,hardtorealizefortheindividualcustomers;

• Scientific-technicalsupportfortheactions,realizingsocialpurposesofsociety(throughthedevelopment of public healthcare and education, culture, ambience protection ofcorrespondinginfrastructure);

• Studies connected with forming a democratic state with strong social warranties,undertaking the economic reforms, ensuring the entry of Uzbekistan into the worldeconomiccommunityandsolveproblemsonbecomingfull-fledgedmarketeconomy;

• Worksconnectedwiththeconservationanddevelopmentofthegeneticbaseofvegetablesand bestial world; using museums, carrying out research work, as well as using nationalfoundationsofscientific-technicalinformationforthesepurposes.

In2002therewere112innovationprojectsthatwerecompletedundertheauspicesofthecountry’sresearch infrastructure. Their realizationwas achieved at an investment in the order of 73millionsoums (about 600 thousand US dollars) allocated from the state budget. One of the effectiveelementsofthemechanismofrealizationofsuchprojectshasbecomeaprincipleofpartialfinancing.It consists of a flexible combination of using budget assignments andmeans of branches, regions,enterprisesandorganizationsinterestedinthedecisionofproblemsofscientists.So,thevolumeoff-budgetfundsinvolvedforrealizationoftheprojects,in2002amountedto198millionsoums(aboutUSD200000).Thissupportforinnovationprojectshasresultedinacomparativelystronggrowthofpatents.So,ifin2001651patentsweregiven, including485patents forthe inventions, in2002totalamountof thegiven patents was 658, of them 515 patents for inventions. Quantity of the certificates given onfastening of the copyrights to the computer programs and a database, remain practically withoutchangesatalevel117-122peroneyear.5.2.InstitutionalbodiesCoordinationCouncil on Scientific andTechnicalDevelopmentunder theCabinet ofMinisters of theRepublic of Uzbekistan: For the further development of scientific and technological potential ofUzbekistan, supporting thedevelopmentof thecountryaccording tostrategic tasksand increaseofefficiency of carried out scientific research and technological development, the Decree of thePresidentofRepublicofUzbekistanfromFebruary20,2002establishedtheCoordinationCouncilonScientific andTechnicaldevelopmentunder theCabinetofMinistersof theRepublicofUzbekistan.The Council is the central coordinating body in the sphere of scientific and technical activity inUzbekistan.ItisheadedbythePrimeMinisterofRepublic.TheCoordinationCouncilisresponsibleforsettingtheparametersinthefollowingareasofactivity:

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• Determination of priority directions of fundamental and applied scientific research oftechnological development in coordination with strategy of development of branches ofeconomyandsocialsphere,andalsostructuraltransformationsinthenationaleconomyonshort-term,intermediatetermandlong-termprospect;

• Organizationofexaminationandapprovalofexperts’reportsunderlargeresearchprogramsand technological projects, on the assumption of their conformity to the interests of thecountryandstatepriorityofeconomicandsocialdevelopment;

• Affirmation of the projects of the large scientific programs and technological projectsappropriatetostateprioritiesofsocioeconomicdevelopment;

• Affirmation of the annual State program of scientific researches and technologicaldevelopment;

• Creation of system of support of the talented scientists generating progressive innovationideas, constantly tracing the new, perspective tendencies in a world science andaccumulatingthemforuseininterestsofthecountry.

Center of Science and Technologies under the Coordination council on scientific and technicaldevelopment under the Cabinet of Ministers of the Republic of Uzbekistan: The basic tasks of theCenterarethefollowing:

• Development and introduction into the Coordination Council of proposals on priority

directions of scientific and technical development on short-term, intermediate term andlong-termprospect;

• Development of the annual State program of scientific researches, technologicaldevelopment and innovation projectswithin the framework of the priority directions of ascienceandengineering,authorizedbytheCoordinationCouncil;

• Organizationandrealizationofcompetitionsontherightofperformanceoffundamentalandappliedresearchesonprioritydirectionsofascienceandengineering;

• Systemanalysisoffunctioningofscientificestablishmentsoftherepublicwiththepurposetoensure maximum rational use of intellectual potential and financial assets allocated forrealizationofscientificresearches;

• Realization of systematic work on the organization of development of scientific andinnovationactivity,meaningintroducingoftheproposalsonclosingthesubjects,whichhavelosttheirurgency,andorganizationofnewresearch,claimedbyprocessesofscientificandtechnicalprogress;

• Creation of conditions for professional growth of talented, prospective scientists, usingmethodsoftargetallocationofthegrants,organizationoftrainingabroadandotherformsofsupport;

• Organization of implementation of results of scientific and technical development inmanufacture, creation of stimulus, raising interest of the heads of the enterprises of realsector of economy in development of innovation activity, financing and co-financing ofscientificresearches;

• Developmentof the internationalcooperation in thesphereofa scienceand technologies,attractionoftheforeigninvestments,sponsor'smeansandgrantsforrealizationofscientificresearches,technologicaldevelopmentandinnovationprojects;

• Systematicmonitoringofrealizationoftheprojectsandtargetuseofmeans.CouncilonExaminationoftheLargeScientificandInvestmentProjects(undertheCoordinationCouncilonScientificandTechnicalDevelopmentandtheCabinetofMinisters):ThebasictasksofthisCouncilare:

• Organizationandrealizationofstatescientificandtechnicalexaminationanddistributionofexperts’conclusionsofthelargescientificprograms,technologicaldevelopment,investmentandinnovationprojectsandvolumesoftheirfinancing;

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• Creationandoperativeupdatingofadatabaseoftheexpertsfromtheprogressivescientistsand highly skilled experts, formation of expert councils on branches of a science andtechnologies and regular rotationof their structures, organizationof precise andobjectiveworkofexpertgroups;

• Developmentofthereasonablerecommendationsaboutthechoiceofprioritydirectionsofdevelopment of a science and engineering in republic taking into account priorities ofeconomicandsocialdevelopmentofthecountryonthebasisoftheanalysisofaconditionandlevelofachievementofaworldscienceandtechnologies;

• Developmentofobjectiveexperts’reportsonformationofthestatescientificandtechnicalprograms, programs of fundamental scientific researches, technological development,investmentandinnovationoftheprojects;

• Analysisofascientificandtechnicallevelofbranchesofthenationaleconomy,developmentand introducing proposals about perfection of state technological policy, dynamical andbalanceddevelopmentofbasicandscienceintensivehightechnologymanufactures;

• Development of proposals to use domestic and foreign works, know-how and hightechnologies inthe largebranchprograms,technologicalworks, investmentand innovationprojects;

• Monitoring of a course of works and realization of the large scientific programs,technologicaldevelopment,investmentandinnovationprojects.

HigherAttestationCommission(undertheCabinetofMinisters):TheHigherAttestationCommissionhandles the coordination of activity of an Academy of Sciences, branch academies, ministries,departments, concerns, associations, scientific organizations and other establishments of republicirrespectiveoftheirdepartmentalsubordinationandkindsofownershipinthefieldofrealizationofstate policy on preparation and certification scientific and is scientific - pedagogical of the staff ofhighestqualification,internationalcooperationinbusinessofcertificationofthescientificstaff.According to its tasks Higher Attestation Commission under the Cabinet of Ministers has theauthority:

• To develop and to approve the nomenclature of specialties of scientific and scientific -pedagogicalworkersondirectionsofdevelopmentofascience,engineering,educationandculture;

• Todevelopandtoapproverules, instructionsabouttheorderofawardofscientificdegreesandassignmentofscientificranks;

• To create the specialized councils and to approve their personal staff for defense of thedoctor'sandcandidatedissertations,expertcouncilsondirectionsofascience, toexamineandtoapprovetheproposalsofscientificcouncilsaboutawardofranks;

• Tocarryoutthesystematicandeffectivecontrolofworkofthespecializedcouncilstomakemodificationstotheirstructure,togiveoutthesanctionstorealizationofsingledefenseofthedissertations,toacceptthedecisionsaboutsuspensionofactivityorclosingofcouncils;

• To carry out state expert examination of the defended dissertations with recruiting innecessarycasesoftheprominentscientistsandexpertsofrepublic,andalsoforeignexperts;

• Toorganize republican and interstate scientific -methodicalmeetings and conferences, todirecttherepresentativesofHigherAttestationCommissionundertheCabinetofMinistersof the Republic of Uzbekistan for participation in similar arrangements which are heldoutsideoftherepublic;

• Toissuea“HigherAttestationCommissionundertheCabinetofMinistersoftheRepublicofUzbekistanBulletin”.

StatePatentOfficeoftheRepublicofUzbekistan:TheStatePatentOfficeisanauthorizedpublicbody,participating in the formation and implementation of uniform state policy in the field of legalprotection of industrial property rights including inventions, industrial designs, utility models,

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trademarks, service marks, appellations of origin (hereinafter referred to as industrial propertysubjects)aswellasinthefieldoflegalprotectionofselectionachievements,computerprogramsanddatabases,topographiesofintegratedcircuits.TheStatePatentOfficeisaccountabletotheCabinetofMinisters.ThemaintasksoftheStatePatentOfficeareasfollows:

• Providing for implementation of uniform state policy in the field of legal protection ofindustrial property subjects, selection achievements, computer programs and data bases,topographiesofintegratedcircuits;

• Grantinglegalprotectionforindustrialpropertysubjects,selectionachievements,computerprogramsanddatabases,topographiesofintegratedcircuits;

• Forming the State Collection of Patent Documentation and Data Bank for RegisteredComputerPrograms,DataBasesandTopographiesofIntegratedCircuits;

• Providingconditionsfordevelopmentofscientificandtechnical,artisticanddesignandothercreativeworksintheRepublicofUzbekistan

Academy of Sciences of the Republic of Uzbekistan: The academy of Sciences develops the majorfundamentalandappliedprograms,participates indefinitionanddevelopmentofprioritydirectionsofdevelopmentofascience,andisthebodyresponsibleforaddressingorganizationalandstructuralquestionsofthesubordinateestablishments.TheresponsibilitiesoftheAcademyincludethefollowing:

• Carry out fundamental research in the spheres of natural, technical, medical, social-humanitiessciencesandbythatpromoteseconomic,publicandspiritualdevelopmentofasociety;

• Facilitateimplementationofstatepolicyinthespheresofascienceandengineering;• Studyvariouskindsofproblemsofdevelopment,oftheenvironment,societyandhumanity

as a whole, development of the relations of nations and national cultures, states andpeoples,problemsofeducationandspirituality;

• Carryoutdevelopmentofnewkindsofengineeringandmoderntechnologies,andalsotheirpracticalintroduction;

• Promote the development of science-intensive branches of the national economy, andconduct studies latest achievements of world science and engineering and wider uses ofthem;

• Carry out work on preparation of highly skilled experts and further increase theirqualifications, and create all necessary conditions for productive creative activity of theUzbekscientists;

• Ensure organization and development of cooperation with academies, researchestablishments,fundsandappropriateorganizationsofforeigncountries.

TheAcademyof Sciences includes 48 research institutes and research-and-production associations,whichrealizeitsactivitiesinvariousspheresofscience.TheAcademyemploysabout6000employees,ofwhichmorethan2000aredirectlyinvolvedinresearch.Today140fullmembers(academicians)ofanAcademyofsciencesworkinvariousspheresofascience.5.3.PrioritydirectionsofscientificandtechnologicaldevelopmentPrioritydirectionsofscientificandtechnologicaldevelopmentoftheRepublicofUzbekistaninshort-,mid-andlong-termperiodsaregivenbelow:

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• Research of legal foundations of development of the democratic state and formation of acivilsocietyinconditionsofamarketeconomy

• Problemsofspiritualandmoralrevivalofasociety,educationofyoungergenerationonthebasisofharmonizationofhistorical,nationalandhumankindvalues

• Development of high technologymethods of prospecting, extracting, deep processing andrational use of mineral-raw resources and creation of science-intensive technologies inindustrialmanufacture

• Perfection of the system of rational use and replenishment of land and water resources,development of highly effectivemethods of increasing of fertility of soil and strugglewithdesertification,ensuringtheprotectionoftheenvironment.

• Development of progressivemethods andmeans ofmedicine, raising effectiveness of thesystemofpublichealthservices,creationofhighlyeffectivesortsofagriculturalmethodsandspecies of animals on the basis of modern scientific achievements, including the area ofgeneticengineeringandbiotechnology.

• Development of energy- and resources-economy technologies and technical facilities thatensure rationaluseand replenishmentof fuel andenergy resourcesaswell asprogressivedevelopmentofsectorsofnationaleconomy.

5.4.StatescientificprogramsThereviewof thestatescientificandtechnicalprograms inshort -,mid-and long-termperiodwithappropriatenamesoftheprograms,volumesoffinancingandquantityofgivengrantsisasfollows:Stateprogramsoffundamentalresearch-PFR–2003(Number,nameoftheprogramandquantityofthegrantsintheprogram):

1. Mathematics,mechanicsandcomputerscience-372. Physics,astronomyandpowerengineering-903. Chemistry-304. Biology,biotechnologyandmedicine-695. SciencesabouttheEarth-326. Marketeconomy,theoryofthestateandright-97. Social-humanitariansciences-47

State scientific and technical programs – SSTP –2003 (Priority, code, name of the program andquantityofthegrantsintheprogram)Priority:Researchonthelegalfoundationsofdevelopmentofthedemocraticstateandformationsofacivilsocietyinconditionsofamarketeconomy.Developmentofscientificbasisofliberalizationandintensificationofeconomicreforms.Priority:Problemsof spiritual andmoral revival of a society, educationof younggenerationon thebasisofharmonizedhistorical,nationalandhumankindvalues.Priority:Development of high technologymethods of prospecting, extracting, deep processing andrational use of mineral-raw resources and creation of science intensive technologies in industrialmanufacture

• Development of new methods of the forecast, search, of prospecting, extraction, deepprocessingandrationaluseofmineral-rawresources-36

• Development of the highly effective technology of production of composite materials ofconstructionalandspecializedonthebasisoflocalrawmaterialandwastage.

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• Development of effective technologies of construction earthquake-resistant buildings andstructuresandcreationofmodernbuildingmaterialsonthebasisoflocalrawmaterial.

• Developmentalternativetechnologyofmanufactureanduseofchemicalproductiononthebasisoflocalrawmaterialforvariousindustriesandagriculture.

• Creation of science intensive technologies, devices, equipment, standard instruments,methodsofmeasurementsandcontrol.

Priority: Perfection of system of rational use and replenishment of land and water resources,development of highly effective methods of increasing of fertility of soil and struggle withdesertification,ensuringprotectionofenvironment

• Creationofasystemofrationaluseoflandandwaterresourcesensuringincreaseoffertilityof soil, economy of water, prevention of salinity, desertification and other negativeprocesses.

• Creationalternative,highlyeffective technologiesofmanufactures,processingand storageof technical production, grain, vegetable and melons and gourds, fruit, wood and othercultures.

• Thedecisionofproblemsofenvironmentprotection,stablenaturemanagementandensureecologicalsafety.

Priority:Development of progressive methods and means of medicine raising effectiveness of thesystemofpublichealthservices,creationofhighlyeffectivesortsofagriculturalculturesandspeciesofanimalsonthebasisofmodernscientificachievement,includinginareaofgeneticengineeringandbiotechnology

• Developmentandperfectionofnewmethodsandtechnologiesinmedicineandprotectionofhealthofthepopulation.

• Creationofnewmedicinalpreparationsanddiagnosticsonthebasisoflocalrawmaterialofa synthetic and natural origin and development of highly effective technologies of theirmanufacture.

• Creation of highly effective species of animals and birds ensuring stable reproduction oflivestock, development of the effective manufacture technology and processing ofproductionofanimalindustries,andalsostudyandpreventivemeasuresfromzoophytes.

• Development of highly effective methods and means accelerating selection process,deducingandintroductionqualitative,highproductive,fast-ripening,stableagainstillnesses,vermin and extreme conditions of environment sorts of agricultural cultures and effectivemethodsofprotectionofplantsonthebasisofmodernscientificachievement.

Priority: Development of energy- and resources-economy technologies and technical facilities, thatensure rational use and replenishment of fuel and energy resources as well as progressivedevelopmentofsectorsofnationaleconomy

• Developmentofhighlyeffectivetechnologiesandmeansofenergy-andresources-economy,rationaluseandreplenishmentoffuelandenergyresources.

• Creationofscienceintensive,highlyproductiveandexportorientedtechnologies,machinesandequipmentforanagricultureandindustry.

• Development of modern information systems, control facilities, databases and software,ensuringwidedevelopmentofinformationandtelecommunicationtechnologies.

Programofinnovationworks-PIW-2003Priority: Research of legal bases of development of the democratic state and formation of a civilsocietyinconditionsofmarketeconomy

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• Preparationandeditionoftheoriginalmonographies,textbooksinthefieldoflegalbasesof

formationthedemocraticstate,developmentoflegalaspectsoflocalself-management.Priority:Problemsofspiritualandmoralrevivalofasociety,educationofyounggenerationonabasisofharmonizedhistorical,nationalandmankindvalues.

• Realizationofthenationalprogramoftrainingofpersonneland introduction incontinuouseducationadvancedpedagogicalandinformationtechnologies.Developmentandrealizationineducationalprocessthestateeducationalstandards.

• Preparation and edition of the popular scientific and historical literature on spiritual andmoral revivalofa society,educationofharmoniouslyadvanced, spiritually richgeneration,increasespiritual-moralandculturallevelofthepopulation.

Priority:Development of high technologymethods of prospecting, extraction, deep processing andrational use of mineral-raw resources and creation of science intensive technologies in industrialmanufacture.

• Developmentofnewscience-intensivetechnologiesofcomplexdeepprocessingoflocalandsecondary raw resources, ways of increase of productive capacity of petroleum layers,extraction of rare, precious and non-ferrous metals from poor ores and wastages ofmanufacture.

• Developmentandsettingoftechnologiesofserialmanufactureofdevicesandequipmentforbranchesofeconomy.

Priority: Perfection of system of rational use and replenishment of land and water resources,development of highly effective methods of increasing of fertility of soil and struggle withdesertification,ensuringprotectionofenvironment.

• Creationofsystemofrationaluseoflandandwaterresourcesensuringincreaseoffertilityofsoil,economyofwater,preventionofsalinity,desertificationandothernegativeprocesses.

• Creationalternative,highlyeffective technologiesofmanufactures,processingand storageof technical production, grain, vegetable and melons and gourds, fruit, wood and othercultures.

• Thedecisionofproblemsofenvironmentprotection,stablenaturemanagementandensureecologicalsafety.

• Developmentofnewtechnologiesincreasingfertilitysoil,rationalusageofwaterresources,preventionoferosion,salinity,desertificationofsoil.

• Development and setting ecologically safe technologies of recyclingofwastes,methodsofpreventionofconsequencesofpollutionofanenvironment.

Priority:Development of progressive methods and means of medicine raising effectiveness of thesystemofpublichealthservices,creationofhighlyeffectivesortsofagriculturalculturesandspeciesofanimalsonthebasisofmodernscientificachievement,includinginareaofgeneticengineeringandbiotechnology

• Development of intensive technologies of cultivation agricultural cultures, storage andprocessingagriculturalproductionwiththepurposetoobtainhigh-qualityproduction.

• Reproduction of generically homogeneous seed material of new lines, sabadilla ofperspective sorts of cotton and other agricultural cultures; preparation for massreproductioninbestfarms.

• Development and setting of new methods and progressive technologies of diagnostics,treatmentandpreventionofvariousdiseases.

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• Development and settingof industrial releaseof substationsofmedicinalmeans and theirreadyformsfromlocalrawmaterialvegetative,syntheticotherorigin.

• Developmentandsettingofthehighlyeffectivemanufacturetechnologiesofexportorientedandimportsubstitutionproductioninlightandfoodindustry.

Priority:Development of energy- and resources-economy technologies and technical facilities thatensure rational use and replenishment of fuel and energy resources as well as progressivedevelopmentofsectorsofnationaleconomy

• Developmentofeffectivetechnologiesofuseoffuelandenergyresourcesanduntraditionalsourcesofenergy,raisingefficiencyofenergybranches.

• Developmentandsettingofnewtechnologiesofenergy-saving,equipmentofenergybranchbymeansoftheaccountandcontrol.

5.5.FinanceandbusinesssupportprogramsUp to2002 thereexisted inUzbekistana systemoforganizationand financing S&Tand innovationworksthathadacentralizedpatternwhichdidnotmeetmarketrequirements.Mostofscientificandtechnological developments were worked out within approved state or inter-sector scientific andtechnologicalprograms.Thebasicsourceoffinanceoftheseprogramswasstatebudgetallocationsforintra-industryprogramsandproject,fundsofthestate-ownedenterprisesandassociations.The attraction of resources for financing scientific and technological developments from othersources(customers’funds,sponsor'sfunds,researchgrants)wasmostlyunsystematicandoccasional.ThemainbodydistributingtheordersforscientificandtechnologicaldevelopmentsandtheirfinancewastheStateCommitteeoftheRepublicofUzbekistanonScienceandTechnology(SCST)createdin1992.ResponsibilitiesofSCSTalsoincludeddevelopmentofalegislativeandnormative-legalbasisofscientific, technological and innovation activities (patent-licensing, protection of the intellectualproperty etc.). Prior to this there existed a system composed of a combination of scientific andtechnological developments and production (research-and-production associations) which wasrenderednon-functionalduetoitsinsufficientadaptabilitytotherequirementsofamarketeconomy(isolationfromexternalcompetitionandlackofskillsofsellinginnovationproducts).Thissystemhasbeenrevampedsince2002andreconstructedinawaythatisclosertomarketneeds.TheCoordinationCouncilonScientificandTechnologicaldevelopmentundertheCabinetofMinisterswascreatedbytheDecree№-3029ofthePresidentofRepublicofUzbekistan“Aboutimprovementof organization of research activity”, issued in February 20, 2002. The Council is composed by therepresentatives of leading research institutions in the country, higher educational institutions, andresearch-and-productioncenters.KeyresponsibilitiesoftheCouncilandtheCenteronScienceandTechnologiesinclude:

• Definitionofprioritydirectionsoffundamentalandappliedscientificresearch,technologicaldevelopment in coordination with strategy of development of branches of economy andsocialsphereinshort-,mid-andlong-termprospect;

• Approvaloftheprojectsofthelargescientificprogramsandtechnologicalprojects;• Development and approval of the annual State program of scientific research and

technologicaldevelopment;• Creation of system of support of the talented scientists generating innovation progressive

ideas, using experience of studying perspective directions of the world science forintroductiontheminrepublic.

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AcentralcomponentofreformofsystemofscientificresearchisthecreationoftheFundoffinancingof innovation scientific and technical activity under the auspices of the Center on Science andTechnologies.TheresourcesoftheFundareformedfromstatesources(budgetassignments,partofpatent fees, funds of different ministries and departments), and non-state sources (sponsor'sresources, international grants, purpose funds of self-supporting structures, preferential purposecreditsofcommercialbanksandinternationalorganizations).The planning and placing of the orders to finance research and innovation works through theresources of the Fund is carried out on the basis of competition among scientific establishments,scientific collectives, and independent scientists and experts. Financing is carried out under threevariousschemes:

• Complete financing of competitive fundamental and applied scientific research in prioritydirections;

• Allocationofgrantsonco-financingof innovationprojects in industrialbranchesandsocialandhumanitiesspheres;

• Allocationofsoftloansoninnovationprojectswiththepurposeofcreatinghightechnologymanufacture,includinginthesphereofsmallbusiness(venturefinancing).Thesoftloansareallocatedinamountupto50%ofcostofinnovationprojectwiththetermnomorethan5years.

Thesystemoffinanceofinnovationisoffundamentalimportanceinthetransitiontotheknowledge-based economy. Commercial banks in Uzbekistan do not have an explicit orientation of creditextensiontocompaniesandotherorganizationsinvolvedininnovationactivities.Thegovernmenthastakensomeinitiativesinthisrespectinordertofacilitatetheextensionoffinancetoinnovation.TheDecree of the President of Republic of Uzbekistan issued on March 21, 2000 [№-2564 “Aboutmeasures on the further liberalization and reforming of bank system”] stipulates the direction ofassets of the Fund of preferential finance to give credit for the realization of high technology andinnovation projects. This builds on earlier measure such as the Decree of Cabinet of Ministers ofRepublicofUzbekistanissuedinMay19,2000[№195“Aboutadditionalmeasuresonstimulationofparticipation of commercial banks in development of small and middle business”] which providesallocationofcreditsfromtheFundofpreferentialaccesstocreditfordekhkans,farms,andSMEs.The preferential crediting of formation of the initial (starting) capital from the off-budget fundsstipulated by the Decree of the Cabinet of Ministers from September 10, 2001 [№ 366 “Aboutadditionalmeasureson financing,materialmaintenance, customsprivileges, renderingofbankandotherservices to thesmallenterprises,dekhkansand farms”]doesnotassumepurposeorientationtowardsfinancinginnovationprojects.At the same time there are no restrictions for SMEs on receiving preferential credits whileimplementing innovation projects. In addition the access to the credit lines of the internationalorganizations (EBRD, IFC, ADB, OPEC etc.) and foreign banks (Bank of New York etc.) for financingsmall-sizedbusinesshasbeenopenedwhichfacilitatesaccesstofinanceforinnovationprojects.Ofspecial interest inthiscontext isthejoint initiativeofUSAID, IFCandSECO,tocreatea“Venturefund”on share (up to49%) that isdesigned to financenewbusinessand innovationprojects. Theconditions of shareholding means investment in realization of perspective business - projects aredeemedeligibleforfinancebythe“Venturefund”intheorderof100–500000USdollarsforatermtill3-5years.Itmustbestressedthatthefund,whichistargetedmainlytoexport-orientedprojects,isavailable to candidate businessmenwho show readiness to invest in its realizationwith their owncapital. After expiry of the term of realization the share of the “Venture fund” can be sold to thebusinessmanorotherpotentialinvestors.

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Taxation policy in the sphere of scientific and technical development and innovation also is ratheruncertain. According to clause№71 of the Tax Code of the Republic of Uzbekistan “research andinnovationworkswhicharecarriedoutonthestatecontractswithintheframeworkofthescientificandtechnicalprogramsofStateCommitteeofRepublicofUzbekistanonascienceandengineering”,andalsotheroyaltiesforpurchasingrightstoobjectsoftheintellectualpropertyareexemptedfromtaxonaddedcost.According to clause № 101 of the Tax Code land-tax is not levied upon scientific organizations,experimental, training-experimental organizations, and agricultural and forestry educationalinstitutions that use land areas directly for scientific and educational purposes. But upon realizingscientific and technological and innovationprojects it is possible tousenumerous tax and customsprivilegesgiventovariouscategoriesoftheeconomicentitiesandtosomegroupsofthegoods.So SMEs canuse apreferential tax regimeworking for the given categoryof the economic agents,suchas:

• Thesimplifiedsystemofthetaxationprovidingpaymentofthesingletax,inexchangeforthegenerallyestablishedsystemofthetaxation(exceptfortheexcisetax);

• Grantingofaninterest-freedelayfor90daysforcustomspaymentsonequipment,rawandmaterialresourcesimportedforownneeds;

• Exemption of obligatory sale of the currency receipts from export of production of ownmanufacture;

• Other privileges providing reduced rates of the taxes or deductions from taxable base forvariouscategoriesofthesubjectsofSMEs.

• Alsothereisasetoftaxandcustomsprivilegesfortheenterprisescreatedwithparticipationoftheforeigninvestments.

MoreoveraccordingtotheDecreeofthePresidentofRepublicofUzbekistanissuedinMay30,2002(№-3080), imported equipment for creation of networks transferring computer data, computerequipment,componentsandsoftwareaswellareexemptedfromcustomspayments(exceptthefeesfor customs registration) till January 1, 2006. By the same Decree services on computer andinformationtechnologieseducation,their technicalmaintenanceaswellassoftwarerealization,arealsoexemptedfromVATtillJanuary1,2006.Asawhole,combineduseoftheprivilegesgrantedbythelegislationmightberathereffectiveuponrealization of innovation business-projects in terms of required funds availability and reduction ofpaybackperiod.At the same time, there is a number of problems whose solution through systematic policy canstimulatescientificandtechnologicalandinnovationdevelopment:

• Thereisanabsenceofpreciseconcentrationonprioritiesofstatepolicyandprogramsinthedirectionofstimulationofinnovationactivityandthecreationhightechnologymanufacture;

• Thereisaninsufficientlydevelopedorganizationofcomplementaryandsynergisticrelationsof researchestablishmentsandscientificand technical centerswith theneedsofbusiness,thesubjectsofscientificspherehavenofinancialopportunitiesandskillstoworkinmarketconditions,andintherealsectoroftheeconomytherearenostimulitointegratescientificandinnovationdevelopments;

• The system of venture capital and the creation of preferential venture capital funds isunderdevelopedinlegislativeandfinancialaspects.Thereasonisalowlevelofdevelopmentofthemarketofexaminationservices,engineeringandconsultingofbusiness.Theresult isthatoftenviableprojectsgetno financialbackingbecauseofpoorpreparationofbusinessplans;

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• Aquickly changing andunpredictable legislative basis of economic activity impair businessplanning,whichhamperstherealizationofnewprojects;

• Manybusinessmen,especiallyduringtheearlystepsofrealizationofbusiness-projects,facedifficulties inpledgingof rather reliable collateral to receive credit fromcommercialbanksbecause of the absence of an adequate pledge or opportunity to obtain guarantees andcreditrepaymentinsuranceservices;

• Frequent intervention of state authorities and supervising bodies into enterprise activityinfluencesnegativelythebusinessenvironment.

5.6.LinkingresearchandbusinessdevelopmentUzbekistan is CentralAsia’smajor scientific centerwith awell-developed researchmaterial base, avastscientificfundandskilledresearchpersonnel.Thepublicscientificresearchpoliciesconcentrateonselectivesupportofscientificresearch,engineering,andinnovationprojects.Researchinpriorityareasofscienceandengineeringiscarriedoutonfundsfromthepublicbudgetwithintheframeworkofscientificandengineeringprograms.In 2002, 112 innovation projects were completed in Uzbekistan. About 573 million soums(approximatelyUSD 600 000)were allocated for their implementation from the public budget. Co-sharing has become one of themost effectivemechanisms of implementation of such projects. Itconsistsofaflexiblecombinationofbudgetallocationsandfundsofsectors,regions,enterprisesandorganizationsinterestedinsolvingtheproblemstheysetbeforeresearchers.Thereisasteadygrowthofthenumberofpatentsissued.In2001,651patentswereissuedincluding485patentson inventions,while in2002 the totalnumberof thepatents issuedwas659 including515patentsoninventions.Ontheotherhand,thenumberofcertificatesconfirmingthecopyrighttosoftwareanddatabaseshaspracticallyremainedunchangedatthelevelof117-122ayear.

Table17Prevailingspecialties2001/2002(isacceptedfor100%)Specialty %fromtotalamountofstudentsTechnicalspecialties 32.15Pedagogic 26.34Humanitarianspecialties 18.13Economy 12.09Medicine 5.86Agrarian 3.37Jurisprudence 2.02

Source:OfficialStatisticsoftheGovernmentofUzbekistan5.7.SWOTanalysisofthenationalinnovationsystemThe SWOT abbreviation consists of the first letters of the English words Strength, Weakness,Opportunity and Threat. SWOT analysis is rather a widely recognized approach permitting toundertakeajointstudyoftheinternalandexternalenvironment.Thismethodologypermitstoidentifystrengthsandweaknessesoftheinternalenvironmentaswellasthreats and opportunities in the external environment, and then to establish links between them,which inthefuturemaybeusedforstrategyformulation.Table18(strengthsandweaknesses)andTable19(opportunitiesandthreats)belowpresenttheoutputsoftheSWOTanalysisofthenationalinnovationsystemofUzbekistan.

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Table18StrengthsandweaknessesoftheinnovationsystemofUzbekistan

Strengths Weaknesses

Authoritativeresearchschools;Relativelywell-developedscientific-engineeringinstitutions;Publicprogramssupportinginnovations,scienceandengineering;Legalframeworkforprotectingintellectualpropertyrights;Highlevelofliteracyofthepopulation;Well-establishededucationalsystem;ExemptionofinternationalgrantsforfundingresearchandengineeringfromtaxationincludingtheVATandcustomsduties;Increasingnumberofpeoplewithhighereducation;Increasingnumberofthetypesofnewmarket-orientedproducts.

Smallnumberofprivatecompaniesengagedinresearchandinnovationactivity;Insufficientfundsallocatedbyprivatecompaniesonresearchandinnovationworks;Ratherlimitedfundingofscience,engineeringandinnovationsbytheprivatesector;Reductionofpublicallocationsonscience,engineeringandinnovation,whichwerescarcewithoutthat;Weakcollaborationbetweenuniversitiesandtheprivatesector;Insufficientcommercializationofintellectualproperty;Insufficientintroduction/integrationofachievementsofscienceandengineeringintoproduction;Lackofventure/riskcapitalforfundingventureresearchandengineeringactivities;Lackofanytaxationincentivesforprivatesectorinvestmentsinresearchandinnovations;ReductioninthenumberofSMEcarryingoutinnovations;Reductioninthespendingofenterprisesoninnovations;ReductionintheshareofGDPoninformationtechnologies;Reductioninthenumberofspecialiststrainedinscienceandengineering;Reductioninthenumberofpeopleemployedintheproductionofmedium-andhigh-technologygoodsandservices;Averysmallnumberofregisteredpatents(0.000026permillionresidents).

Table19Opportunitiesandthreats

Opportunities Threats

Successfuleconomicandindustrialdevelopment;BettercompetitivenessofUzbekistan.

Lossofcompetitivenessbythenationaleconomy;Sloweconomicgrowth;Inabilitytolocalizesectorswithahighaddedvalue.


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5.8.AssessmentofthenationalinnovationsystemThe assessment of the national innovation system of Uzbekistan presented below is based on the2002methodology ‘EuropeanTrendCharton Innovation.European InnovationScoreboard’ 4whichwas designed at the request of the European Council in 2000 and has since been used in manycountriestomonitorcompetitivenessanddevelopmentoftheknowledge-basedeconomy.The methodology includes 17 indicators chosen to summarize the main engines and outputs ofinnovation.Theindicatorsaredividedintothefollowingfourgroups:

1. Humanresourcesrequiredforinnovation(5indicators)2. Creationofnewknowledge(3indicators)3. Knowledgetransferandapplication(3indicators)4. Funding,outputsandmarketofinnovations(6indicators).5

Human resources required for innovation. There is an alarming trend towards a considerablereductioninthenumberofgraduatesofinstitutionsofhigherlearningtrainedintheareaofscienceand engineering. From 2000 through 2003 their number has declined by more than half andconstitutesamere0,03%ofthepopulationofUzbekistanbetween20and29yearsofage.Atthesametime,theproportionofthepopulationwithhigherandsecondaryspecializededucationhas increasedandnowconstitutes1%of thecountry’s labor force.However, theproportionof theable-bodied population participating in continuous education has decreased to 2,28% of the laborforce.Equallyalarmingisthefactthatemploymentintheareaofmedium-andhigh-technologyproductionandhigh-techserviceshasdecreasedto2.24%and0.57%oftheable-bodiedpopulationrespectively.Thus, a number of negative trends in human resources required for innovations are currentlyunderway.Creationofnewknowledge:Anotherconcernisthatinthepastthreeyearsexpenditureonresearchandinnovationhasdecreasedfrom0,33%to0,27%oftheGDP,bothpublicexpenditure(from0,13%to0,11%of theGDP)andprivateexpenditureof theNGOs (from0,19%to0,15%of theGDP).Thisproblemiscompoundedwhenweconsiderthatthespendingof theprivatesectoronresearchandinnovationsremainsataratherlowlevelof0,02%oftheGDP(SeeTable20andTable21).

Table20Publicexpenditureonresearchandinnovations(%ofGDP)

2000 2001 2002

Publicexpenditureonresearchandinnovations(5ofGDP),ofthisamount: 0.33 0.32 0.27

-spendingofinstitutesofhigherlearningonresearchandinnovations 0.01 0.01 0.01

-publicspendingonresearchandinnovations 0.13 0.12 0.11

-privatespendingonresearchandinnovationsbynon-governmentalorganizations 0.19 0.19 0.15

4 European Trend Chart on Innovation. European Innovation Scoreboard (EIS).

www.cordis.lu/trendchart 5 The data presented in this section were kindly provided by the State Committee of the

Republic of Uzbekistan for Statistics.

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Source:OfficialStatisticsoftheGovernmentofUzbekistanTable21Privatesectorexpenditureonresearchandinnovation(%ofGDP)

2000 2001 2002

Privatesectorexpenditureonresearchandinnovation(%ofGDP) 0.02 0.02 0.02

-privatesectorinnovations 0.001 0.001 0.001

TOTAL(2.1и2.2) 0.35 0.34 0.29


Thus,publicspendingonfundingscienceandtechnologyisdecreasingwhilespendingoftheprivatesectoronresearchandinnovationremainsinsignificant.Thisconstraintisreflectedtherelativelylownumberofregisteredpatents.Thenumberofregisteredpatents in2002was658 in2002.Between2001and2002thisindicatordroppedto0.000026patentsper1millionresidents(SeeTable22).Thenumberof applications to theStatePatentDepartmentofUzbekistanhasalsodropped. Yet at thesametime,thenumberofapplicationsforhigh-techpatentshasincreasedtwofold.

Table22TotalnumberofpatentsofallkindsregisteredwiththeStatePatentDepartmentofUzbekistan(permillionresidents)6

2001 2002

Numberofpatentspermillionresidents 0.000027 0.000026

Totalnumberofpatents,ofthisnumber: 651 658

-inventions 485 515

-industrialsamples 152 9

-usefulmodels 10 23

-selectionachievements 4 11

Source:UNECE2003

Perhapsmoreimportantly,giventheroleofSMEsintheprocessofinnovation,thenumberofSMEsgeneratinginnovationshasalsodeclinedsubstantiallybetween2000and2002(SeeTable23).

6UNECE,2003.

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Table23SMEgeneratinginnovations(%ofthenumberofproductionenterprises)

0,37

0,45

0,53

2000 2001 2002


Funding,outputsandmarketofinnovations:Anothercriticalareaofconcernistheabsenceofventurecapitalinvestmentsinthehigh-techsectorwhichisalsoreflectedinthereductionofexpensesonICTintermsofitspercentageoftheGDP,whichwentfrom0.21%in2001to0.13%in2002oftheGDP.However, there is alsoapositivedevelopment,namely, an increase innewproductsup to3.3%ofindustrialoutput.Thevolumeofforeigndirectinvestmentsin2002constituted1.1%oftheGDP.These recent trends in the national innovation system of Uzbekistan are indeed cause for majorconcern,especially in regards to theplans the transition toaknowledge-basedeconomy.Togaugethescaleofthechallengesaheadforpolicy intervention itmightbe instructivetoplacethecurrentstateoftheinnovationsystemofthecountryin internationalperspective(SeeTable24). Itmustbenoted that we are providing this comparative view for the purposes of direct comparison, whichmight lead to emulation. Instead, the statistical representations are intended to situate theinnovation system of Uzbekistan in international comparative perspective andmap the areas thatneedtobeaddressedthroughastrategicpolicyframework.ThesearetakenupinamoresystematicmannerintheMasterPlan,whichisthesubjectmatterofthefinalchapterofthestudy.

Table24ComparativeviewoftheinnovationsystemofUzbekistan

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No Indicators Uzbekistan7

Averagevalueincandidate

countriesforEUmembership8

AveragevalueinEUcountries

1.1 Numberofgraduatesofinstitutesofhigherlearningworkinginscienceandengineering,includingBachelors,Masters,etc.(as%ofpersonsaged20-29)

0.03 6.6 10.3

1.2 Populationwithhigherandsecondaryspecializededucation(as%ofthelaborforceinactiveage)

1.25 17.5 21.2

1.3 Populationinvolvedinuninterruptededucationorimprovementofskills(as%ofthelaborforceinactiveage)

2.28 5.4 8.5

1.4 Numberofpersonsemployedinmedium-andhigh-techproduction(as%oflaborforceinactiveage)

2.24 5.4 7.6

1.5 Employmentintheprovisionofhigh-techservices(as%oflaborforceinactiveage)

0.57 2.6 3.6

2.1 Publicexpenditureonresearchandinnovations(as%ofGDP)

0.27 0.41 0.67

2.2 Privatesectorexpenditureonresearchandinnovations(as%ofGDP)

0.02 0.32 1.28

2.3.1 Totalnumberofregisteredpatentsofallkinds(permillionresidents)

0.0000269 7.1 152.7

2.3.2 Totalnumberofhigh-techpatents(permillionresidents)

0.000004210 0.5 12.4

4.1 Venturecapitalinvestmentsinthehigh-techsector(as%ofGDP)

0 0.27 0.24

4.5 Expenditureoninformationandcommunicationtechnologies(as%ofGDP)

0.13 6.0 8.0

4.6A Volumeofforeigndirectinvestments(as%ofGDP) 1.1 31.3 30.3


7DataoftheStateStatisticalCommitteeoftheRepublicofUzbekistan813 candidate countries for theEUmembership:Bulgaria (BG),Cyprus (CY),CzechRepublic (CZ), Estonia (EE),

Hungary (HU),Latvia (LV),Lithuania (LT),Malta (MT),Poland (PL),Romania (RO),Slovakia (SK),Slovenia (SI)andTurkey(TR).2002EuropeanInnovationScoreboard:TechnicalPaperNo2CandidateCountries,November26,2002.EuropeanTrendChartonInnovation.

9 Total number of patents of all kinds registeredwith the State Patent Department of Uzbekistan permillionresidents.

10Totalnumberofhigh-techpatentsofallkindsregisteredwiththeStatePatentDepartmentofUzbekistanpermillionresidents.

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6.MasterPlanThis section develops the Master Plan for the transition to the knowledge economy. The Plan isstructuredasa‘policymatrix’thatoutlinesspecificactionablepolicyareasandrecommendationsforeachpolicydomainonthebasisoftheanalysisdevelopedintheprecedingsectionsofthestudy.

6.1.StrategicpolicymatrixWHEREWEARETODAY WHEREWENEEDTOBE HOWWEGETTHEREI.ECONOMICINCENTIVEANDINSTITUTIONALREGIMEReconfiguringtheroleofgovernmentinaknowledge-intensivemodeofeconomicdevelopmentAnalysisandassessmentoftherole Anationaleconomicenvironmentbasedon Thegovernmentshouldmoveawayofgovernmentinnationalandregional flexibilityandtransparencythatpaysclose fromdirectinterventiontotheeconomicdevelopmentwithparticular attentiontothebalancebetweentechnology- provisionofanincentiveandemphasisontheknowledge-intensive intensiveandlabor-intensivesectorsofeconomic regulatoryframeworkthatsupportsaaspectsofeconomicdevelopment activityinordertoensureproductivitygrowth wellfunctioningmarketwhile butalsothecreationofemployment addressingmarketfailuresandgaps inmarkets,promotingpublicgoods, Anationaleconomicstrategythatsupports anddealingwiththeinequitiesthat diversificationandreductionofexcessive mayresultfromthetransitiontoa relianceonafewsectors,suchasagriculture knowledge-intensivemodeof nationaleconomicdevelopment A‘businessfriendly’administrativeand institutionalenvironmentwithan Itshouldfostergraterentrepreneur- internationalreputationassuch ship,economicrestructuringand

enterprisedevelopment,withparticular Anationaleconomyunderpinnedby emphasisonthedevelopmentofSMEs macroeconomicstability Itshoulddevelopshort-andlong- termeconomicdevelopmentplans

thattakeintoconsiderationinterventions aimingtoacceleratethetransitionto theknowledge-basedeconomy

OpeninguptheeconomyandpromotingcompetitionAnalysisofpolicymeasuresthatconstrain Anopenandadministrativelytransparent Thegovernmentshouldencouragethecompetitiveenvironment,especially regionaleconomythatpromotescompetition economicopennessandliberalization,withwithregardstolackoftransparency, butalsocollaborationwithforeignfirms anemphasisonderegulationinservicescontrolsonthepriceandquantityofcredit, forthebalanceddevelopmentoftheregionentrybarriersandinvestmentrestrictions, Sustainedfocusontheremovalofobstaclesrestrictionsonforeigndirectinvestment toFDIcoupledtostrengthenedanti-trust(FDI)andexitmechanisms actionsandcredibleenforcementof competitionpolicies Foreigndirectinvestment(FDI)Analysisofformalandinformalrestrictions AliberalizedFDIregime,especiallyinthe ThegovernmentshouldencouragegreateronFDI servicesectorsthatisinalignmentwith liberalizationofFDIintotheservicesector thoseofleadingcomparablecountriesinthe inordertoincreaselocalandregionalAssessmentandbenchmarkingofrecent CentralAsia competitionandtheintroductionofbettermeasuresofliberalization managementandgovernancemodels accompanyingreformsincorporate governanceandinnovationpolicy, includingintellectualpropertyrights,will helpattractFDIandcan,inturn,generate positivelinkagesandspilloverstothe nationaleconomy

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ImprovingtheefficiencyandsoundnessoffinancialmarketsAnalysisofcapitalmarketdevelopment Arestructuredfinancialsystemthat Introducemeasurestoimprovethecredit isbasedontransparencyandsound cultureofbanksandfurthersystematizeAnalysisofbanks’incentivestoanalyze investmentprinciples regulatoryoversightofthefinancialsectorcreditandrisks inaccordancewithinternationalstandards Mechanismsformonitoringandsupervision Assessmentoffinancialtransparencyand thatareinalignmentwithinternationally OpenthefinancialsectortoFDItoaccountability recognizedprinciplesthatgovern stimulatecompetitiontodomesticbanks investmentdecisions andtobenefitfromglobalbankingand managementexpertise Upgradedaccountingandauditingstandards institutionsresponsibleforenforcingthem Implementfinancialtransparencyand standards accountabilitystandards,andmodify regulationsontheauditingprofessionCorporategovernanceAnalysisofthesystemofcorporate Aregimeofcorporatetransparency Thegovernmentshouldadoptamandatorygovernance,especiallywithrespectto throughimprovedaccountancyand codeofcorporategovernancethatisitseffectsoneconomicdiversification auditingnorms,strengthened consistentwithinternational‘bestpractice’,andleveragingandvulnerabilityto minorityshareholdersrights,and suchastheOECDPrinciplesofCorporatefinancialcrisis accountabilityofboardsofdirectors Governance (whereapplicable) Itshouldimplementasystemofsecured transactions,inalignmentwiththe nationalsystemofregistrationtofacilitate credittoSMEs VenturecapitalmarketAnalysisoftheventurecapitalmarket Aregimeofstrongregulatoryoversightand Thegovernmentshouldintroducemeasuresandcreditpracticesofbanks informationdisclosure,reducedrestrictions tostrengthenrisk-takingcultureofbanks oncapitalfundsandopentofullparticipation butalsoexplorepathsofestablishingAnalysisofcollateral-baseddebtstructure– offoreigninvestors venturefundsorientedtofinancingnewasopposedtoequity–whichmightpresentbusinessventuresabiasagainstsmallstart-upfirmsin‘soft’or knowledge-basedsectorsoftheeconomyItshouldconcentrateonreducingthewhichcanincurhighcostsforknowledgeculturalstigmaassociatedwithgatheringbuthavelittlephysicalcapital businessfailure,especiallyinnewthatcanbeusedascollateral businessventuresEnhancingtheflexibilityandinclusivenessofthelabormarketAnalysisoflaborlegislationandsystemof Asystemoflaborlawsandindustrial Thegovernmentshoulddevelopaindustrialrelations,especiallywithrespect relationsthatincreasetheflexibilityof flexiblesystemofindustrialrelationstotherigiditiesintheregionallabormarket thelabormarketbutwhichatthesame thatmakesworkers’benefitsfullyanditseffectsonthespeedofadjustment timeincreases‘upward’employability portable,reorientstrainingprogramsoftheeconomytochangingcompetitive ofworkersaffectedbythetransition tomeetthedemandsofamorepressures tobetteremploymentthroughgovernment flexibleeconomy,andeases supportedandfirm-levelretraining restrictionsontemporaryworkAnalysisandassessmentoftheregional programssystemoffirm-trainingandlabor Itshoulddevelopastrategyofretraining awareness-raisingandbuy-infrom laborGovernmentsupportforentrepreneurshipAnalysisofgovernmentpolicymeasures Avibrantentrepreneurialenvironment Thegovernmentshouldorganizeeventsdesignedtosupportentrepreneurial underpinnedbyasupportivepolicy ofhighvisibilitywhichencouragethe

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activities regimethatensurescontinuityand presentationofnewbusinessideasand increasesthechancesofcommercial plansBenchmarkingagainstothercomparable viabilityofnewbusinessideasregionaleconomicdevelopment Sucheventsshouldbringtogetherstrategies entrepreneursbutalsomembersofthe investmentcommunityFiscalincentivesAnalysisandassessmentoffiscalregime Aregionalfiscalregimethatissupportive Thegovernmentshouldtrackandmonitorfornewbusinessdevelopment oftheattractionofFDIandautochthonous fiscalmeasuresintroducedincomparable businessdevelopment countriesfortheattractionofFDIInternationalcomparisons Connectivitytolocalbusinesssupportservices Analysisoftheexistinginstitutional Aninstitutionalinfrastructurethatprovides Thegovernmentshouldintroducemeasuresinfrastructurededicatedtothe a‘onestop’solutiontoallthelegal, tofacilitatetheprocessofforeignattractionofFDI administrativeintricaciesassociated investment(reducingadministrative withforeigninvestmentpracticesin ‘friction’)butalsoestablishmechanismsBenchmarkingagainstothercomparable theregion thatfacilitatenetworkingandinformationstrategiesofregionaleconomic gatheringattheregionalandlocallevelsdevelopmentStrengtheningintellectualpropertyrightsandenforcementAnalysisofpublicandcorporateperceptions Aregimethatisinfullalignmentwith Thegovernmentshouldconsidermountingandunderstandingofintellectualcontentas internationalstandardsoflegalprotection government-sponsoredcampaignsandproperty–andofthecriminalnatureof ofintellectualpropertytightsandfull createbetterpublicawarenessofIPRsactionswhichamounttoinfringementofenforcementofIPRlaws intellectualpropertyrights Itshouldimprovedocumentationand knowledgedatabasesAddressingtherisksofthedigitaldivideTheinformationandcommunication Asociallyinclusivemodeofnational Thegovernmentwillneedtostrengthentechnology(ICT)revolutionbringswithit economicdevelopmentthatmediatesthe socialsafetynetsforthosewhoarenotonlyopportunitiesbutalsorisksof potentialinequalitiesofthetransition negativelyaffectedbytherestructuringcreatinga‘digitaldivide’betweenthose onasocialandregionalbasiswhohaveaccesstoICTandthe Itshouldputintoplacenewprogramsknowledgeitenablesandthosewho providingaccesstonewtechnologies,donot computersandtheInternetforlow-income familiesII.HUMANRESOURCES,EDUCATIONANDSKILLSDEVELOPMENTAvailabilityof‘relevant’skillsAnalysisoftheskillsprofileofUzbekistan Aworkforcefullyequippedwiththeskills, Thegovernmentshouldundertakeafull versatility,motivationandentrepreneurial reviewandprofilingoftheskillsGapanalysisoftheexistingskillsandthose driverequiredforcompetitivenessinthe compositionexistinginthecountrywithrequiredbyaknowledge-based emergingknowledge-intensiveenvironment anemphasistoupgradingtheskillsofthemodeofeconomicdevelopment andfortheattractionofforeigninvestment laborforceespeciallyinthedomainsoftheeconomicsectorsthatstructurethe Itshouldintroducesystematicincentivesnationaleconomy toupgradetheforeignlanguageskillsof theworking-agepopulationbutalsothe youth

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ComparativecostoflaborAnalysisoflaborcostsinnationaland Aninternationallycost-competitive Thegovernment,throughasystematicinternationalcontexts workforce.However,theemphasis effortthattakesintoaccounttherestofthe shouldnotbeonlaborcostsalonebut elementsoutlinedinthismatrix,should onlaborproductivity(ofwhichlabor concentratenotonlaborcostreduction costisonlyonecomponent) butratheronincreasinglaborproductivity whichcanactasapowerfulforceforFDIEducationalachievementsandrecentreformsAnalysisofthestrengthsandweaknesses Aneducationalsystemthatis‘relevant’, Thegovernmentshouldundertakeoftheeducationsystem responsiveandinalignmentwiththe systemicreviewofthecurrenteducation requirementsoftheemergingeconomic systeminordertoensurethatitsAssessmentofthealignmentoftheeducation andbusinessenvironment ‘output’isinalignmentwiththesystemwiththerequirementsofthe‘soft’, necessaryskillstounderpintheknowledge-intensivestrategyofeconomicknowledge-intensivemodeofeconomic development Inparallel,thegovernmentshouldorganize awarenesscampaignstoinformthepublic ofthebenefitsoftheproposedchangesDeregulationanddecentralizationAnalysisofthesystemofeducational An‘autonomousschoolcommunity’, Thegovernmentshouldintroduceregulationwithemphasisoncurriculum includingtheimplementationofschool deregulationandcompetitiondevelopmentandrelevance,and councilsandopenrecruitmentprocedures forteachersaccordingtomeritexaminationsforeducators Itshouldencouragethedevelopmentof Linkagesbetweenpublicfundingofeducational anoutcome-drivensystemofAssessmentoftheefficiencyand institutionstoperformanceevaluations governancewithclearlydefinedeffectivenessofeducationalbudget autonomyandaccountabilityatandsystemaccountability institutionallevel Itshouldincreaseinstitutionalautonomy toenhancelocaldecisionmakingatschools anduniversities Itshouldestablishasoundaccreditation system,undertakeassessmenttojudge thequalityofteachersandprograms,track andmonitorqualityovertime,andmake thisinformationavailabletothepublicDiversificationAnalysisofeducationsystemwith Adiversifiededucationalsystemcapable Thegovernmentshouldpromotediversityrespecttohomogeneity/diversity ofofferingcomprehensiveeducational andspecializationintheeducationsystem. programsflankedbyeducational Onewaytoachievethiswouldbetohave institutionsofferinghighlyspecialized thenationaluniversitiesprovide programsaccordingtolearnerneeds comprehensiveprogramsinabroadrange ofsubjects,andothereducational institutions–includingforeignones– providespecializedprogramstomeetthe differentlearningneedsofstudentand workingpeoplewhowanttoupgradetheir skills Itneedstoensuregreaterpossibilitiesfor students,ensuringself-determinationand choiceofsubjectareas,aswellasmobility withinthesystemtofulfillthegoalsof lifelonglearningandefficiency

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RelevanceandqualityGapanalysisoftheskillsprovided Aneducationalsystemof‘relevance’to Thegovernmentshouldintegratethethroughtheformaleducationsystem theneedsoftheemergingeconomicand curriculumtoincludetraininginnewskillsandthoserequiredbythe businessenvironmentwhoseteaching suchascommunicationskills,foreignknowledge-intensivemodeof methodsarebasedontheuseofa languagesandcapabilitytoutilizeneweconomicdevelopment varietyofeducationaltechnologies technologies thatconformtotheneedsofthelearners Analysisofthelinkagesbetween Thegovernmentshouldenhancethenationaleducationalauthorities Strengthenedlinkagesandharmonized pedagogicaltrainingwithemphasisonandotherpublicauthorities objectivesbetweenthesystemofeducation newknowledge,provideteachersresponsibleforregionaleconomic andotherpublicagenciesdedicatedto withincentives,includingoutcome-anddevelopment thepromotionofnationalandregional performance-basedschemes,and economicdevelopment developknowledgesharingsystems Itshouldencourageuniversityandindustry partnerships Itshouldencouragetheexpansionof exchangeprogramsbetweenthe

institutionsofhigherlearningandotherregional educationalcentersandforeign educationalinstitutions,encouragethe entryofforeignuniversitybranches andallowtwinningarrangements Itshouldstrengthenthelinkagesbetween theregionalauthoritiesresponsiblefor educationwiththoseresponsibleforthe developmentoflabor,commerce,industry, scienceandtechnologyinordertobetter coordinatetheneedsofthelabormarket andindustrywiththesupplyofeducationTrainingprogramsandlifelonglearningAnalysisofthecurrentsystemof Anadvancedsystemoflifelonglearning Thegovernmentshouldestablishthelife-educationalprovisionwithemphasis buttressedbytrainingprogramssupported longlearningsystembyintegratingtheonthebalancebetweenformaland bythegovernmentandtheprivatesector formaleducationsystemwithdistance,informaleducationandlifelong adultandvocationaleducationalsystemstraining Introducemeasuresthatenablecredits earnedthroughtheopeneducationalsystem ItshouldstrengtheninformallifelongAnalysisandassessmentofjob-related toberecognizedastheequivalentofa educationprogramsandprovideincentivestrainingprogramsfortheworking-age formaldegree andopportunitiesforthosewhohaveleftpopulation formaleducationtoreintegrateintothe systemwhennecessary Itshouldassisteducationinstitutionsto builduptheirICTinfrastructuretoenable themtodelivereducationaltrainingon demandIII.INFO-STRUCTUREThecurrentsituation:qualityofICTinfrastructureAnalysisandassessmentofthequality Astate-of-the-artinfo-structureonpar IdentificationofareasofgovernmentofICTinfrastructure withleadingregionalhubsandpolesofFDI interventionforthestimulationof competitionandgreaterefficienciesBenchmarkingagainstcomparablecountriesinCentralAsia

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ConnectivityAnalysisandassessmentoftheleveland Astate-of-the-artsystemofICTconnectivity Thegovernmentshouldtrackandmonitorqualityofconnectivityofregionaland thatenablesregionalbusinesses,especially weaknessesinthesysteminordertobetterlocalbusinessestotheInternet SMEstodevelopandbetterconnecttopotential targetpublicspending internationalpartners RegulationThisareawillneedcloseanalysiswithrespecttothedivisionoftheregulatoryjurisdictions–regionalornational–thatareresponsibleforregulationinthetelecommunicationindustry.Nonetheless,thegeneraltrendinternationallyistowardderegulationandtheintroductionofcompetitioninnationalandregionaldomainswhichpresumablyreducescostsandincreasesefficiencies.CompetitionandforeigninvestmentSameasaboveLocalloopservicesSameasaboveElectronicgovernmentAnalysisandassessmentofthecurrent Anefficiente-governmentinfrastructureon Umbriashouldpayattentiontoinnovationstateofprovisionofgovernmentservices– parwiththoseimplementedincomparable ingovernment,topolicyissuesthatcutespeciallyforbusinessdevelopment regions.Itshouldincludedigitizedpublic acrossboundariesofpublicauthoritiesand procurementanddocumentcirculation departmentsresponsibleforeconomic development,consistentwiththenewrole ofgovernment,andtoimproving capacityatlocalandregionallevelIV.NATIONALINNOVATIONSYSTEMANDINNOVATIONCAPABILITIESProfileofscience,technologyandinnovationactivitiesAnalysisandassessmentofUzbekistan’s Anewmodelofinnovationwithstronger Thekeychallengewilllieintheprofileofscience,technologyandinnovation universityresearchcapabilities,anenhanced implementationofthenewmodel,activitiesthroughinternational R&Deffortbytheprivatesector,greater particularlyinmakingthesystemmorebenchmarkingofcomparablecountries emphasisondiffusioneffortsbythe efficient,effectiveandinteractivebyinCentralAsia government,andmorelinkagesamong strengtheninglinkagesamongparticipating regionalactorsandbetweenthemand institutionsandactors–regionalandinter-Benchmarkingmustanalyzethecurrentmodel internationalactors nationalwithemphasisoninnovationactivitiesandbuildingcapabilitiesandlinkagesamongthekeyactors,percentageofGDPspentonR&Danditsefficiency,usesofforeigninvestmentinR&Dandgloballinkages UniversitiesandthecommercializationofresearchAnalysisofthescientificresearchagenda Auniversityandresearchcommunitywith FDIcanbeconsiderablyboostedbyofnationaluniversitiesandothernational unhinderedresearchcapabilities- strategicallytargetedgovernmenteducationalandresearchinstitutions especiallyintheeconomicsectorsthat fundingonbasicresearchatthe structuretheeconomyofthecountrywith leadingresearchinstitutionsofthecountry, mechanismssupportingthecommercialization aswellasthecreationofcentersofAnalysisofmechanismsresponsiblefor ofresearchfindingsandbusinessmodels excellencewhichsupportthecommercializationofscientificresearch commercializationofnewscientific knowlegde

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PrivatesectorR&DAnalysisofpatternsandorientationof AdynamicsystemofprivateR&Dgeared IncreaseregionalandforeignprivatesectorR&D towardsupportingSMEdevelopmentand competitionthroughimprovementsin internationallinkageswithleadingfirms, theoveralleconomicincentiveregime especiallyinthesectorsthatstructurethe whichwillencouragefirmsinthekey nationaleconomy sectorsoftheregionaleconomyfocus ontheircorecompetencies FinancialandtechnicalsupportofSMEs inordertostimulatetheirinvestment inR&Dandtechnologicalandbusiness interactionswithlargerfirmsatregional, nationalandinternationallevels SMEtechnology,training,andresearch policiesshouldbecoordinatedthroughthe establishmentofnetworksinvolvingthe regionalandlocalauthoritiesGovernmentR&DpoliciesAssessmentofgovernmentpromoted AsystemofpublicR&Dallocatingpublic ThegovernmentshouldcomplementR&Dsysteminitiativesincludingtaxand R&Dfundsonacompetitivebasisthat marketforceswhereR&Dwillyieldfinancialincentives,procurement,technical makesresearchinstitutesmoreaccountable highesteconomicandsocialresultsinformation,humanresources,SME forresultssupportprograms,supportforR&D PublicsectorR&DprogramsmustplacecommercializationandpublicR&D emphasisondiffusionandonstrengthen-laboratories ingsystemiclinkagesEvaluationofgovernmentinitiatives Thegovernmentshouldprovideincentives forR&Ddiffusionandcommercialization resultsanddevelop‘bridging’ institutionalizeduniversity-industry interfacesandspecializedresearchfirm spin-offs ThegovernmentshouldfocusR&Donlong- rermresearchbackedbysecurefunding PublicR&Dshouldnotfocusonsector promotionandsupport.Instead,the emphasisshouldbeon‘cluster’formation asisthecaseininternationallyleading regionaleconomicdevelopmentstrategiesGloballinkagesAnalysisofformalandinformalbarriers Aninternationallyconnectedsystem Re-examinepolicymeasuresinordertoagainstFDI ofresearchexcellenceabletotapinto encouragenationalfirmstotapeffectively internationalpoolsofknowledgeand intotheglobalknowledgebasethroughAssessmentofcurrentcapabilitiesfor assistnationalfirmsdevelopstrategic FDI,internationalbusinessalliances,anddevelopinglinkageswithinternationalpublic allianceswithinternationallycompetitive jointresearchprogramsandprivateresearch firmsinrespectivesectors Attractforeignscholarstouniversity Targetedcooperativeresearchprograms researchprogramsandresearch withothercountriesinCentralAsiaand institutesthroughscholarshipsandgrants beyond Thegovernmentshouldusebusinessand technologyforecastinginordertostayat theforefrontofdevelopmentsinrelevant economicsectorsandleadingdevelopments

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Introducingelementsoftheknowledge-basedeconomyintotraditionaleconomicsectorsAnalysisofthecurrentstateof Anationaleconomicdevelopmentframework Thegovernmentshouldintroducemeasurescompetitivenessoftraditional thattakesa‘total’viewofdevelopmentand toimprovetheefficiencyofmanagerialeconomicsectors placesemphasisonthedevelopmentof decisionmakingandflexibilityof traditionalsectorsinthefollowingrespects: economicactivityintraditionalsectorsInternationalbenchmarkingof introductionofmodernlogisticsand comparableeconomicdevelopment marketingmethods;improvementof strategies ofdatabasesandinformationexchange systems;facilitationofaccesstoinformation onnewtechnologies Industry:Aindustrialenvironmentbasedon Thegovernmentshouldintroducemeasures highefficiencyachievedthroughthe thatfacilitatetheintroductionofmanage- introductionofICTinbothsupplyside mentsystemsbasedonICTanddevelop (raisingproductionefficiencyandcutting auto-sourcingbasedontheexpansion costs)anddemandside(enteringnew oftheinformationbaseandimprovement marketsonthebasisofnewinformation oflogistics andimprovementoflogisticsand marketing) Agriculture:Interventionsarerequired Thegovernmentshouldintroduce tocarryouta‘greenrevolution’,i.e.,introduce measuresthatencouragethe researchoutputsintoagriculturalproduction introductionofmodernfarming onabroadscaleandobtainqualitatively technologiesandimproveprocurement, newproducts transportation,storageandsales systems Services:Theneweconomyhasastrong Thegovernmentandrelevantagencies impactonthedevelopmentofservices associatedwitheconomicdevelopment throughtheestablishmentofmarketsof musttakeanactiveroleinimplementing informationongoods,servicesand measuresaimingtoestablishin technologies,education,softwareetc.A Uzbekistanaregionalcenterof keyconditioninthishastodowithglobal transportation,communication,financial metropoles,i.e.,regionalcentersthat andinformationservicesbasedin functionasbothconsumersandproducers TashkentCityandTashkentoblastbutalso forotheractorsintheregion concentratingontheexportofservices basedonknowledgeandskillsEntrepreneurialcultureAnalysisandassessmentofgovernment Astrongentrepreneurialculture Inadditiontothemeasuresmentionedpolicymeasuresandincentivesto underpinnedbygovernmentmeasures above,thegovernment,inlinewithleadingstrengthenentrepreneurialculture whichensurefinancialandbusiness internationalpracticesshouldconsiderandactivities developmentsupportofnew settinguparegionalbusinessincubation commerciallyviablebusinessideas centersaroundtheleadingacademicand andbusinessplans researchinstitutionsGrowthrateofstartupfirmsAssessmentofthegrowthrateofnew Adynamicsystemofnewbusiness Asmentionedabove,animportantstart-upbusinessesovertherecentpast venturesgeneration(orexistingbusiness instrumentalityforpromotioninthis regenerationthatcouldactasapole domainwouldbenationalbusinessAnalysisoftheimpedimentstostarting ofattractionofforeigninvestment incubationcentersnewbusinessesinUzbekistan

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6.2.MasterPlanImplementation:PreliminaryObservationsThe implementationof theMasterPlanoutlinedabovehas tobe systematic andmust involve thedesignandimplementationofmeasureswhichareconsistentacrossdifferent,traditionallydisparateareas of policy making.While piecemeal reform can produce some improvements the results areunlikely tobepromisingor sustainableunlessa seriesof reforms isundertaken.This isparticularlyrelevant in the knowledge-based economy where networking and horizontal interactions andinterdependencies across policies aswell as actors take on added importance. The government ofUzbekistan has a key role to play in making sure that all groups are informed about the forcesaffectingthemandtheneedforchange.The challenges – short-, medium- and long-term should not be underestimated. Based on theexperience of other countries that have implemented strategies toward the knowledge-basedeconomyitisclearthatthedevelopmentofthestrategymustbeundertakeninconsultationwiththeprivatesectorandkeygroupsincivilsociety.However,buildingconsensusandbuy-infromrelevantstakeholders requires great efforts of dissemination, explanation and consultation with the widerpublic.ThegovernmentofUzbekistanmustassumealeadingroleinthisrespect.Implementation should also focus onwhether the infrastructure to implement reforms is in place.Because of the dynamic nature of the interrelationships between knowledge and informationrevolution and the global economy thatmark our era, it is important to set up amonitoring andevaluationsystemasanintegralpartoftheimplementationprocess.There is a tension between the need for some centralized locus of responsibility for overallcoordination of the strategy and its implementation, on the one hand, and the distributed powerarrangementsofanetworkedeconomy,on theother.Anappropriatebalancebetween the two inthecontextofUzbekistanhastobefoundifthetransitiontotheknowledge-basedeconomyistobesustainableinawaythathelpsaddressthehistoriceconomicchallengesthatconfrontthecountry.

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