An Institutional Foundation for the Knowledge Economy in Central and East European Countries

The purpose of this research is to provide an institutional framework – economic, legal, regulatory, educational – for the Central and East European countries aspiring to reach the levels of inclusive knowledge of economy and society known in some of the most developed regions in the world. The challenge to reach such a level of development is twofold. Even in the most developed parts of the world a growing gap can be observed between the technologically, organizationally and financially advanced firms and the rest of the economy. A strong concentration of knowledge, technologies, and organization of advanced production is taking place in only a handful of leading regions. The rest of the economy and society remains organized in traditional economic, social and managerial practices. The challenge for the policy-makers in these advanced economies and societies is how to disseminate these advanced practices to the excluded sectors of the economy and society. As shown by a recent NESTA report on knowledge economy, such a restructuring would require a major shift in institutional organization of the market economy. Strengthening of competition policy, improvements in technological policies, decentralized strategic partnership between the public and private sectors, and institutional innovations in ownership structures are necessary elements in spreading the benefits of the knowledge economy to the overall economy and society. From the perspective of developing countries, including the current and prospective eu members in Central, Eastern and Southern Europe, the task in front of the policy-makers is even more challenging: how to overcome the development gap between the developed and developing countries; how to overcome the path dependency; and how to establish an inclusive modern knowledge economy and society. Only high-quality public institutions, an accountable and proactive public sector, strategic decentralized coordination between the public and private sectors, and institutional imagination can lead to such a path of inclusive development. The probability of climbing from the (semi) periphery appears increasingly low after several decades of missed opportunities during the period of transition, but the stakes are high. Only the successful institutional, economic and social restructuring of developing countries can lead toward a more balanced, more sustainable and more diverse development of the world economy.