Eastern lynxes in need of better schooling

Date: 27/04/06

Asia has tigers, I mused, so eastern Europe has...lynxes! That was a handy way of illustrating an interesting bit of research by some Austrian economists (at the Vienna Institute for Comparative Economics and BA Creditanstalt) which shows how well the post-Communist economies of the EU are doing.

The key to understanding the region's economy is to look at the composition of exports and the Austrian study shows how the lynxes, (the eight former captive nations now in the EU) are doing rather well in shifting their exports from low-value to more hi-tech categories.

It turns out that on almost every count the lynxes are pulling ahead of the second-rank Asian tigers - places such as the Philippines and Malaysia.

It's always a pleasure to confound the doomsayers. I still remember the cantankerous Finnish diplomat who told me in 1992 that Estonian independence would be a "catastrophe" for his country and the many Germans who sneered about the polnische Wirtschaft next door. For the next few years, "new Europe" is going to give the old rich bit of the continent a healthy competitive boost.

But in the long run there are two big problems. One is demography. That's a pan-European problem, but it's most pressing in places where national savings have been stolen and squandered by Communist gangsters. The result is rich-country population structure with poor-country economies. The further east you go, the worse it gets: Georgia, for example, will almost certainly be old long before it is rich. And there's little chance of such poor countries plugging the gap with migration. So the lynxes, both the sleek tribe of central Europe and the Baltics, and their mangier cousins further afield, need to breed a lot faster.

The other problem is brainpower. There's startlingly little research and development in post-Communist countries - just 0.8% of gross domestic product, compared to more than 2% in rich Europe (which is still too little). There are three reasons. First, world-class research and development is mostly too expensive for either the public or private sectors in post-Communist Europe to afford. Even a big company like the Czech Republic's CEZ can't match a global giant like Siemens.

Second, rich-country subsidies distort the market. Estonia would be a natural place to do research on internet banking - but the big banks there are all foreign-owned and likely to heed their home governments when spending research money.

Third, the universities are not good enough. There are honourable exceptions - usually in capital cities, in disciplines unspoiled by Communism either because they are so rigorous (physics) or so new (computing). But most post-Communist universities are introverted, mediocre, bureaucratic and hierarchical. In some respects they are the last bastions of the planned economy, capturing state resources through favouritism and then fulfilling the bogus targets set by the state.

It is hard to solve the first two problems. Foreign ownership has brought so many benefits, it would be absurd to restrict it. But lynx-country governments could free their universities to compete internationally (they already have two advantages: cheap living costs and beautiful buildings). Most advanced courses should be taught in English, by star academics hired on highly competitive salaries. Great teachers and researchers attract not just world-class students, but lucrative ones, too (Americans! Study creative writing in Prague! Guest lecturers Milan Kundera, Ivan Klima and Vaclav Havel!). Most importantly, it would kick-start R&D (especially as old-Europe's universities are mostly too sleepy to compete). Globalising fast might dent national pride, but the lynxes don't need fading academic trophies any more than they need national airlines. They need more brainpower, and fast.

• Edward Lucas is central and eastern Europe correspondent for The Economist.

Analysis feature in which the author identifies key long-term challenges for the EU's new members from Central and Eastern Europe, including demographic change, low investment in research and development, aspects of foreign ownership and the state of universities.