Thank you chair. Ladies and Gentlemen, Mr. Moe,

Investing in knowledge: we do it all the time!

Whenever we pay tuition fees for the education of our children, we do so because we trust that their study will eventually translate into knowledge, certified by a diploma or degree.

We trust that these competences and credentials will enlarge their chances later in life.

Employers trust that their human capital will contribute to workplace-productivity.

Investors might be persuaded to provide them with venture capital if they want to start their own business.

And customers might have faith in the quality of their products.

We can safely say that there is a lot of trust and faith in the value of knowledge. But, Ladies and Gentlemen, do we actually have proof of this?

Of course not. And in fact we don’t even care. Because as parents we love our children, and we will simply make sure that they receive the best possible education. This is an act of intuition, rather than a rational decision.

Now, as entrepreneurs we love our firms. As private investors we love our money. And as ministers we love our countries. But for us - players in industry, capital markets and government - intuition is no longer a good enough basis for decisions about knowledge investment.

I would like to underline this by quoting an OECD report titled ‘Measuring what people know’:

‘If learning is the main characteristic of social and economic change, then human capital information and decision-making system – the determinants of learning – become central to efforts to cope with change. The need to rethink the way we make choices about the utilisation and acquisition of human capital, arises from the profound upheavals taking place in the nature of technology, wealth creation, and employment’.

End of quote. Profound changes are forcing us to rethink the way we make choices about human capital.

And as far as I’m concerned, this applies not just to human capital, but to all forms of intellectual capital.

Perhaps the most profound change – and I am sure that you are familiar with this analysis – concerns the growing importance of intangible assets. In modern economies, productivity is based increasingly on knowledge, and decreasingly on physical assets. We need to boost investment in knowledge if we want to ensure sustainable growth, and hence: employment and social cohesion, the key issues of our time.

The problem is that in decision making about physical assets, we can rely on well developed calculation models and indicators, whereas for intangibles we have to rely on intuition time and again.

Ladies and Gentlemen,

may I just raise a few issues in order to illustrate this point.

A powerful indication that something is changing in the allocation of capital, is the well known phenomenon of the gap between the book value and the market value of enterprises.

Some take a very optimistic stand in this respect, by saying that the existence of the book-to-market gap is the very proof of the fact that capital markets are perfectly able to identify the intangible factor in the value of firms. In other words, there is no problem.

I doubt that. The gap shows that intangibles exist, and that suppliers of private capital realise it. But we have no way of knowing whether their judgements are accurate. Given the lack of comparable information on the intellectual capital of enterprises, we simply cannot exclude the possibility that there is misallocation of investment resources. It might take the form of underinvestment in intellectual capital. But judging from the soaring and volatile share price of some "internet stocks", there might be overinvestment in particular forms of intellectual capital.

Likewise, we can observe that firms invest heavily in training and coaching of personnel. They even do so increasingly. But is it enough?

We observe that individuals themselves take a responsibility for their own competences. Our children will do so more than we did. Employability is the word. How do we make sure that there is no market-failure when it comes to further learning? In fact, we have indications that there actually is such market-failure.

We observe that firms invest in R&D. Next verse of same song! Is there enough information about the level of investment in R&D? And more important perhaps: is there enough knowledge about the impact of R&D on productivity? General studies indicate that the estimated return on industrial and agricultural R&D is about 30 percent and on basic research it is about the same. But more precise information would be helpful.

This takes me to the last verse of the song. Government.

As ministers, we have a responsibility for initial education and scientific research: the very first steps in the chain of knowledge that finally lead to productivity, to competitiveness, to employment, to social cohesion and to a better quality of life.

Initial education and scientific research can be regarded as the very foundation of the intellectual capital of firms and nations.

Clearly, the need to rethink decision making on intellectual capital also applies to government. Government, too, is in need of better information on the returns on its own investments in intellectual capital. Government has to be absolutely confident that the tax-payer’s money is well spent in education and research.

Of course, we do have instruments to make sure we make the right decisions, and it’s getting better all the time.

We develop systems for quality control and accountability.

We benchmark the outcomes of education and research in international surveys.

But at the same time another OECD-report – titled Human Capital Investment – points at huge gaps in the body of knowledge about human capital and its returns. And again: I think that the same can be said about other intangibles.

Indeed, I am inclined to be less confident about our present knowledge base regarding returns on the national stock of intellectual capital, when I realise how difficult it is to really demonstrate – beyond a shadow of a doubt - the need for further investment in education and science, and in training and R&D. In fact, it is not even widely accepted that expenditure on education and research should be regarded as investment at all. In National Accounts, education and research are generally treated as consumption, not investment.

And indeed, I agree with the OECD-report just mentioned, where it says that not only the general level of investment in human capital needs firmer ground, but also its distribution and its institutional arrangements. Let me just raise three questions.

Every country has its own paradigm concerning the roles, responsibilities and cost-sharing in relation to knowledge investment. How do we know if these paradigms are an appropriate reflection of the benefits of the various actors that are involved?

Allocation of public expenditure over the various levels of initial education varies strongly among countries. This makes me wonder: who is right and who is wrong?

Further training tends to be the privilige of those who are well educated in the first place. Is that sad for the poorly qualified and good for the economy? Or is it bad for both and does it call for policy adjustment?

Ladies & Gentlemen,

the need to rethink decision making on intellectual capital is paramount. It requires reinforcement of our knowledge base about intellectual capital and its returns. And that – on its turn - requires sound information and valid, comparable indicators on intangibles.

At this symposium, we focus on the enterprise level. We look at the way firms can disclose information on their intellectual capital in order to better inform decisions made in the capital market, and to better attract financial resources for further investment in knowledge. We want to overcome the negative bias of present reporting practice against knowledge-based enterprises. I can simply refer to the highly interesting things my colleague just said about this.

We are also exploring if these enterprise indicators can be defined in such a way, that they can be aggregated to the national level: in order to better inform policy making regarding science, technology and education.

But individuals, too, are rethinking the way they make choices regarding the development of their competence. And I see a lot of potential synergy with the issues we address today. The measurement and accreditation of individual learning – inside and outside regular education - are of increasing importance:

both to the way individuals disclose information about their capacities to the labourmarket, to employers;

and to the way individuals identify gaps in their skills profiles, and make decision about further learning in order to fill those gaps.

I like to think of tomorrow’s learners as micro-enterprises, making well informed decisions about what, how, where and when to learn. Just like real enterprises, individuals might benefit from a certain amount of harmonisation of the indicators used in these assessments. That harmonisation on the micro-level might even support the further development of human capital indicators in enterprises.

Finally, other actors are increasingly involved in the business of measuring human competence.

Schools would assess learners in order to better insert and guide them in educational programmes.

The public employment system would do the same with regards to labour market programmes.

The international scientific community is making substantial progress in the development of tests of an ever larger variety of competences: reading, maths and science, ICT-skills, teamwork, problem solving and even the ability of individuals to manage their own learning processes. These tests are designed for use in the international surveys that I mentioned before. But I hope that one day the state of the art in this field has advanced in such a way that enterprises will benefit from them in assessing the quality of their personnel.

Ladies & Gentlemen, Mr. Moe,

Lifelong learning, the knowledge economy; these concepts have been on the table for years now. Decades even. And clearly, there is progress. For instance, social partners are making training a central issue in collective bargaining, and public private partnerships for knowledge investments are on the rise.

But these and other initiatives remain isolated from the institutional arrangements – such as accounting standards or reporting practices – that give these ideas operational meaning. As a result, we are still waiting for that final and decisive breakthrough in the realisation of these concepts. We are still waiting for the broad implementation of those new ways of decision making about knowledge investment.

It is clear that the key-issue here is not only to mobilise capital, but to improve the efficiency of capital investment. That depends on better information on the returns to investment in intellectual capital, information analagous to that which already exists for physical capital.

Forgive me for concluding with a prophecy:

if the beginning of the next century will see that decisive breakthrough of the knowledge economy, it will be to a large extent the result of increasingly sophisticated ways of measuring human competence and other intangibles, and of the harmonisation of these measures.

People and organisations will be familiar with the idea that to invest in whatever form of intellectual capital is not a matter of intuition, but a rational, well informed decision.