Education As a Determinant of Developing Knowledge Economy and National Competitiveness

EDUCATION AS A DETERMINANT OF DEVELOPING KNOWLEDGE ECONOMY AND NATIONAL COMPETITIVENESS – BENCHMARKING STUDY OF BALKAN COUNTRIES

Bojan Krstić, Ph.D1, Marija Džunić, Ph.D 2, Nebojša Backović, Ph.D 3 1 University of Niš, Faculty of Economics, Trg Kralja Aleksandra 11, 18000 Niš, Srbija, [email protected] 2 University of Niš, Faculty of Economics, Trg Kralja Aleksandra 11, 18000 Niš, Srbija, [email protected] 3 High Economic School Peć in Leposavić, 24. novembra b.b., 38218 Leposavić, Srbija, [email protected]

ABSTRACT: The paper emphasizes the importance of education for the development of knowledge society and knowledge economy, as well as for improving the competitiveness of national economies. The object of the study is the state of education in the Balkan countries, in comparison with EU countries. The analysis is based on World Bank data on the value of the Knowledge Economy Index (KEI). The paper first provides a contextual framework of the research - the determinants and conditions for developing national economies in the era of knowledge economy. Then, the main elements of the knowledge assessment methodology (KAM) and the knowledge economy index (KEI) are presented. The study focuses on two crucial moments: a) identification and analysis of the state of education in Balkan countries, as the first, vital pillar for development of knowledge society and knowledge economy, and b) the impact of education on a country's competitiveness. In the conclusion, the paper presents the implications for development policy in the field of education in the analyzed countries. Key words: education, knowledge economy, competitiveness.

1. INTRODUCTION The positive aspects of globalization in the 21st century provide new opportunities for businesses and individuals worldwide, but also new opportunities for the development of national economies. In the process of globalization, the business becomes increasingly complex. The employees are expected to meet the growing demands for efficiency and enable the production of products and services with new characteristics. In modern enterprises, performing tasks requires the improvement of the level of education, abilities and skills necessary to provide competitive value of products and services in the market. Highly competitive enterprises in developed “knowledge societies” and “knowledge economies” better prepare their workforce in terms of the necessary competences. The work becomes more sophisticated, and in order to take advantage, as much as possible, of opportunities to create and use personal (tacit) and structural (codified, organizational) knowledge, new, expanded, combined and multi-functional knowledge is necessary, acquired through formal system education, training and practice. Education is the key factor of competitiveness of modern enterprises and national economies. Enterprises and nations are increasingly searching for competitive strength in creative ideas, innovative expertise and competences, which, among other things, are the result of a country’s education system. 2. THE RESEARCH CONTEXT: KNOWLEDGE ECONOMY AND KNOWLEDGE-BASED COMPETITIVENESS The process of globalization changes the fundamentals of business and competitive advantage of enterprises and national economies in the modern economy. Globalization is the first economic trend of knowledge-based economy [1, p. 7]. The second economic trend is a broad deregulation in vital economic sectors such as: telecommunications, transport, energetics and financial services. In addition, tariff and non-tariff barriers are reduced. Final products, intermediate products, services and resources are largely obtained in the global market. The third trend involves the growth of technological change and the dynamic development of information and communication technologies, which, consequently, allows global access to information and knowledge. The main feature of economic prosperity in the global economy is knowledge-based competitiveness. After the end of the industrialization era, the paradigm of knowledge has inevitably come into focus, because of the changed view of business activities in new conditions, as well as understanding of the basis for the creation and improvement of competitiveness. In today's economy where the only certain thing is uncertainty, the main source of competitive advantage is knowledge. When the market changes significantly, technology is rapidly improving and the number of competitors is constantly growing, successful enterprises should constantly create new knowledge, spread it throughout the organization and quickly materialize it in the form of new products and services. The enterprises now, in "the market without borders", have much higher costs for realization and maintenance of intellectual property [2, p. 248]. All modern enterprises and even countries are competing in knowledge. In the past, the economies produced wealth and increased the citizens’ living standard based on a combination of natural resources, labour and financial capital. Since the primary emphasis in modern conditions is placed on knowledge, "the cold war of knowledge" is now increasingly mentioned. The most developed countries are determined to create the conditions for the knowledge inflow and prevention of its outflow. This clearly shows that the "industrialization era" has been replaced by "IT (internet) society," while the latter has been replaced by the "virtual knowledge era" or "knowledge economy era." Paradigm of knowledge is undoubtedly a paradigm of the present, and the future. Through the process of networking, knowledge, innovation and collaboration become the three basic elements of the new infrastructure necessary for the prosperity of the "new economy" - the knowledge economy. Knowledge, as the most important production factor, to a certain extent substitutes land, labour and natural resources. The power has "moved" from those who invest money in the business, to those who invest their knowledge and skills, thus creating value. Changes in the global economy since the second half of the previous century have dramatically transformed the nature of value creation. Under the new conditions, existing products and services are losing value in the sense that customers are buying less and looking for new products that contain more knowledge. Therefore, it is stated that, essentially, the intangible component of products – knowledge is becoming obsolete. The principles underlying the functioning of the knowledge economy are different than traditional economy. Peter Drucker has noted that the special contribution of the 20th century management is 50 times improved productivity of manual workers in manufacturing, while the most important contribution of management in this century will be the improvement of productivity of intellectual labour, i.e. “knowledge workers” [3, p. 248]. The most important property of a 21st century enterprises are professionals, creative and innovative employees, and the efficiency is largely determined by their productivity. Thomas Steward pointed out that the knowledge economy is actually based on three main postulates [4, p. 5]: a) Knowledge is what we buy, sell and work, b) knowledge-based assets - the so-called intellectual property becomes more important for enterprises than physical and financial; c) Progress in the new economy and the productive use of knowledge as a vital asset, means that the enterprise should implement new strategies. At the end of the 19th and in the early 20th century the dominant industrial revolution perceived profit as a result of increasing productivity in the production process. Now, increasingly, the wealth of the nations and regions depends on the level of knowledge and its effective and efficient implementation. Knowledge economy offers almost unlimited resources, since human ability to create knowledge is, in fact, unlimited. "Knowledge organizations" [3, p. 248] use their intellectual resources as the main source of competitive advantage. They often have little tangible assets. Intangible assets of these organizations, generally, by far exceed the value of their tangible assets. They compete on the basis of their "intellectual values", i.e. creating a strikingly different and unique combinations necessary to meet the significantly changing demands of consumers [5, p. 248]. These are organizations that learn, perceived as a group of employees that continuously increases its ability to create superior value in relation to competitors. Their main feature is the ability to quickly adapt and continuously innovate and restructure their businesses. These are, in fact, their main sources of competitive advantage. More recently, there has been a remarkable growth of "knowledge organizations". Achieving competitive advantage in the "new economy" era according to Tisen et al. means adopting a new perspective and a concept of value-based knowledge management [6, p. 248]. According to this concept, business success and competitiveness of enterprises in the knowledge economy is based on four principles. The primary one is the increase of enterprise value. The second principle is to increase value for consumers. The third is to increase value for society. Finally, the fourth principle is to increase the value for the employees.

3. MEASURING KNOWLEDGE IN THE WORLD ECONOMY – KNOWLEDGE ECONOMY INDEX Measuring the progress of individual countries in achieving the necessary conditions for building the knowledge economy is possible by using the methodology of the World Bank Institute - Knowledge Assessment Methodology (KAM) [7] [8]. The methodology of evaluation of progress towards a knowledge society involves the analysis of structural and qualitative indicators that are measured for each country in order to quantify the variables in the four fundamental pillars that are crucial for the development of knowledge society and knowledge economy: 1. Education (educated population, able to create, share and use knowledge); 2. Innovation system (effective innovation system, including firms, research centres, universities, consultants and other organizations, able to take advantage of the growing knowledge resources at the global level, adapt them to local needs and create new technologies), 3. Information and communication technologies (technologies that will facilitate the effective creation, dissemination and processing of information); 4. The institutional framework (economic and legal framework, which will facilitate efficient use of existing or new knowledge, and the flourishing of entrepreneurship). KAM emphasizes tracking the “basic scorecard” with 12-variables (three for each of the above- mentioned pillars of knowledge economy, with the addition of two variables that reflect the overall performance of the national economy (Table 1)). “Basic scorecard” is the basis for calculating the Knowledge Economy Index (KEI). Based on this index, countries may find it easier to identify all the challenges and opportunities on their way to knowledge economy and knowledge society. This way also provides an assessment of a country’s readiness for the competitive game in modern business environment, where knowledge, as well as the possibility of its application in the field of innovation, entrepreneurship, research and development, is recognized as a key factor of growth and development in the global economy. Table 1: The elements of KAM methodology – basic scorecard [composed from 7] Key pillars of knowledge Variables Variable description economy Adult Literacy Rate The percentage of people, age 15 and above who can, with understanding, read and write a short, simple statement on their everyday life. Education Gross Secondary Enrolment The ratio of total enrollment, regardless of age, to the rate population of the age group that officially corresponds to the level of education shown. Gross Tertiary Enrolment The ratio of total enrollment, regardless of age, to the rate population of the age group that officially corresponds to the level of education shown. Researches in R&D/mil. Used as an input into the innovation system of a country. population Scientific and technical Refers to the number of scientific and engineering articles Innovation journal articles/mil. published in the following fields (physics, biology, chemistry, system population mathematics, clinical medicine, biomedical research, engineering and technology, etc.). Patent application granted Includes utility patents and other types of U.S. documents by US Patent and Trade (design patents, plant patents, reissues, etc.) Mark Office Telephones per 1.000 It is the sum of telephone mainlines and mobile phones. population Information Computers per 1.000 It is a number of self-contained computes as an indicator of and population personal computer penetration and use of relatively new communicatio technology for information processing. n technologies Internet users per 10.000 It is used as an indication of how well a population has population advanced to the level of adapting and using advanced communication channels (Internet). Tariff & Nontariff Barriers It provides a measure of the degree of competition, and is a composite of the rating on the average tariff rate, non-tariff barriers, and corruption in the customs service. Regulatory Quality It is a measure of the incidence of market-unfriendly policies, Institutional such as price controls or inadequate bank supervision, framework perceptions of the burdens imposed by excessive regulation in foreign trade and business development. Rule of Law Measures the extent to which agents have confidence in and abide by the rules of society (perception of the incidence of both violent and non-violent crime, the effectiveness and predictability of the judicionary, the enforceability of contracts. Overall performance Variables Variable description of the economy GDP Growth Average Annual GDP A good indicator of a country's overall economic (%) Growth (%) development. Human Longevity Measured by life expectancy at birth Development Educational attainment Measured by a combination of adult literacy rate and the Index (HDI) combined gross primary, secondary and tertiary enrolment ratio Standard of living Measured by GDP per capita in Purchasing Power Parity (PPP) Based on the information on the index value, each country can identify its key strengths and weaknesses, as well as areas where it is necessary to take certain actions. KEI indicates to what extent is a country’s environment conducive to the effective application of knowledge for the purpose of a comprehensive social and economic development. It is an aggregate index that shows the overall level of development of a certain country or region towards a knowledge society, and the KEI index value ranges from 1 (worst) to 10 (best score). KEI is calculated as the average of normalized results in all four pillars of knowledge society, where each pillar is represented by three key indicators. 2. THE RESEARCH METHODOLOGY The subject of this research will be the pillar of education whose index is calculated based on three indicators listed above: 1. Adult literacy rate [9]; 2. Secondary enrolment (% gross) [9]; 3. Tertiary enrolment (% gross) [9]. The study focuses on two key moments: a) identification and analysis of the state education in Balkan countries, and b) the impact of a country's education system to the total (global) competitiveness. Research methods applied in this paper are: the method of analysis (segmentation), the method of comparison, benchmarking and a method of synthesizing (generalization). The analysis of the indicators relating to education, as one of the pillars of the knowledge economy, will be realized through the following steps. Firstly, the positions of the selected countries in the world rankings, formed on the basis of the KEI index value, will be displayed. Given the availability of data on the KEI index from earlier periods, changes in the positions of the countries and index values will be presented in chronological order and compared. The analysis of the state in the field of education will be realized through the presentation and analysis of the values of key and additional indicators related to education in five selected Balkan countries. On this basis it will be possible to rank countries according to indicators of education. Finally, a comparative review of data on the KEI index with an index of global competitiveness will be presented, in order to examine the impact of education on the competitiveness of the Balkan countries. 3. RESEARCH RESULTS AND DISCUSSION The first step in the analysis of the state of education as a basic pillar of the knowledge economy is a consideration of the rankings of individual countries according to their success in all areas the knowledge economy is based on. Ranking of countries according to the aggregate KEI index is shown in table 2, which includes the countries with highest KEI index values, the EU and the Balkan countries (Albania, Bosnia and Herzegovina, Croatia, Macedonia and Serbia). The Balkan countries occupy the following positions on the rankings of 146 countries: Croatia achieved the best ranking, on the 40th position, with an index value of 7.28; Serbia with an index value of 5.74 takes 53rd place, followed by Macedonia on 58th position (KEI index value of 5.58), Bosnia and Herzegovina at the 79th (KEI index value of 4.58) and at the rear Albania, at 93rd place, with the lowest KEI index of 3.96. Based on the situation on the list, Croatia, Serbia and Macedonia have achieved positions that may be satisfactory if the comparison is done in relation to all the countries ranked. However, if their positions are compared with the world's leading countries, the gap is visible and worrisome. Even less developed countries of the European Union, like Bulgaria and Romania, show better results in building knowledge economy. If EU membership is a strategic goal of the Balkan countries, its achievement depends largely on how these countries are capable of meeting the EU standards by the criteria of the knowledge economy. The ranks of Bosnia and Herzegovina and Albania show that these countries face serious obstacles on the path towards the knowledge society. Table 2: Country rankings according to KEI index (2009) [10] Rank Country KEI Rank Country KEI Rank Country KEI 1 Denmark 9.52 15 Austria 8.91 32 Latvia 7.65 2 Sweden 9.51 16 Belgium 8.80 33 Portugal 7.61 3 Finland 9.37 17 Luxembourg 8.64 34 Malta 7.58 4 Netherlands 9.35 18 Taiwan, China 8.45 35 Cyprus 7.50 Slovak 5 Norway 9.31 19 Singapore 8.44 36 Republic 7.47 6 Canada 9.17 20 Japan 8.42 37 Poland 7.41 United 7 Kingdom 9.10 21 Estonia 8.42 38 Greece 7.39 8 Ireland 9.05 22 France 8.40 40 Croatia 7.28 9 United States 9.02 24 Spain 8.28 43 Bulgaria 6.99 10 Switzerland 9.01 25 Slovenia 8.15 47 Romania 6.43 11 Australia 8.97 27 Hungary 8.00 53 Serbia 5.74 Czech Macedonia, 12 Germany 8.96 28 Republic 7.97 58 FYR 5.58 Bosnia and Herzegovin 13 Iceland 8.95 30 Italy 7.79 79 a 4.58 14 New Zealand 8.92 31 Lithuania 7.77 93 Albania 3.96 Observing the chronology of KEI index for the period 1995-2009 (Table 3), it is encouraging that all the observed countries have made progress and increased their rank compared to the measurements in 2000. For the previous decade, the biggest jump on the list was achieved by Serbia, as high as 20 seats. The value of the aggregate index increased by 0.94, which has offset a decline of 6 places in the ranking achieved between 1995 and 2000. Significant progress is measured in Macedonia, while Albania has managed to rank in top 100. Table 3: Chronological overview of KEI index values for the Balkan countries (1995-2009) [10] Country 1995 2000 2009 KEI Rang KEI Rang KEI Rang Croatia 6.72 41 6.73 44 (-3) 7.28 40 (+4) Serbia 5.26 67 4.80 73 (-6) 5.74 53 (+20) Macedonia 5.17 71 4.82 72 (-1) 5.58 58 (+14) Bosnia and 4.37 91 4.37 86 (+5) 4.58 79 (+7) Herzegovina Albania 3.97 99 3.39 103 (-4) 3.96 93 (+10) In order to identify the key weaknesses of the analysed countries in terms of achieving the conditions for creating a knowledge society, and to reveal areas where it is necessary to make progress and improve the position in the rankings, it is necessary to analyze the results achieved in individual pillars of a knowledge society, based on which the aggregate KEI index is calculated. Based on this analysis it is possible to determine which factors have led to improvements in the positions of the Balkan countries in the rankings, and where are hidden the key weaknesses that continue to impede their progress towards a knowledge society. Analysis of the state of the Balkan countries in the first pillar of the knowledge economy - education The subject of our further analysis will be the area of education and the results achieved in the first pillar of the knowledge society in selected countries. Table 4 shows key indicators for the first pillar of the knowledge society, but also the achieved results of selected countries measured by additional indicators, relevant for the assessment of education and the ability to create, exchange and apply knowledge by individuals. Table 4: Achieved results in the first pillar of the knowledge economy - education (2009) [11] [12] Indicator Croatia Serbia Macedonia B and H Albania EU-27 Balkan Education index1 6.56 5.83 5.42 5.70 4.97 8.15 5.70 Adult Literacy Rate (% age 15 and above), 98.72 96.40 96.10 96.7 99.04 98.90 97.39 2007 Gross Secondary 91.12 87.92 83.99 85.5 76.7 102.6 85.05 Enrolment rate, 2007 Internet Access in 4.1 3.2 3 2.8 2.5 4.99 3.12 Schools (1-7), 2008.2 Public Spending on Education as % of 5 4 / / / 5.11 4.50 GDP, 2007 8th Grade Achievement / 486 / 456 / 488.8 471 in Math, 2007 8th Grade Achievement / 470 / 466 / 500.1 468 in Science, 2007 15-year-olds' math 467 435 / / / 491.2 451 literacy (PISA), 2006 15-year-olds' science 493 436 / / / 496.8 464.5 literacy (PISA), 2006 Prof. and Tech. Workers as % of 23.85 25.5 20.69 / / 28.67 23.35 Labour Force, 2007 Extent of Staff Training 3.9 2.9 3.7 2.8 3.8 4.49 3.42 (1-7), 2008 Brain Drain (1-7), 2008 3.1 1.9 2.2 2.3 2.56 3.91 2.41 Comparison of the values shown in the last two columns (average values for the 27 EU member states and 5 analyzed Balkan countries) indicates that in the first pillar of the knowledge economy, the Balkan countries significantly lag behind the EU countries, according to all these indicators. The percentage of GDP that is used for investment in education, amounting to only 4 - 5% (unfortunately, data are only available for two countries) is a possible cause of the inadequate state of education in these countries. When compared with the amounts set aside by the world's leading countries (Denmark 8%, Sweden and Norway 7%, Finland, Great Britain, Switzerland, Belgium, France at 6%, etc..), it is clear that in the Balkans education is not considered a national priority nor is knowledge considered a key development resource. Internet access to individuals who are being educated is very limited (with the exception of Croatia), which places Balkan countries ranked in the bottom rankings by this criterion.

1 Value calculated as the average of normalized values of three key indicators of the education pillar. 2 Based on a statistical score on a 1 – 7 scale of a large sample group in a particular country responding to the question of whether internet access in schools in their country is (1 = very limited, 7 = pervasive, most children have frequent access). The consequences of neglecting education as an elementary pillar for the development of knowledge economy are evident in the results of elementary and high school students on standardized tests in math and science, as well as literacy in the PISA tests. Compared with their counterparts from 27 EU countries, students from Balkan countries show lower levels of literacy, functional knowledge and skills to apply it in solving practical problems. When these facts are viewed from the aspect of education of the workforce, it is noticed that in the Balkan countries, the percentage of professional workers in the labour force is over 5% lower compared to the EU. Very limited opportunities for education and training in the workplace contribute to the largest percentage of the workforce being under-qualified while highly educated executives are missing. A particular problem, which is manifested most in Serbia, is the tendency of educated and talented individuals to leave the country in search of better living and working opportunities. Of all the surveyed countries, Serbia has by far the lowest score - on a scale of 1 to 7, where 1 means that it is common for talented individuals to leave the country, and 7 that they almost always remain in the country, the score is 1.9. By comparison, in Finland this indicator is 5.2, Denmark and Sweden 4.9, Croatia 3.1. The fact is that an extremely low value of this indicator largely influences the possibilities for building knowledge society. The situation is alarming in all observed countries, which are also facing serious problem of a constant outflow of highly educated labour force. Rank of Balkan countries according to the Education index (chronological overview) Education Index values, according to key indicators that measure achievement in the field of education for the Balkan countries are shown in Table 5. It is noticeable that there are significant fluctuations in the index value, which causes serious shifts in the rankings. By observing the changes in relation to 2000, the biggest drop in the index is recorded for Serbia (1.33 points), which led to the situation that in the first pillar of the knowledge society, Serbian ranking lowers for the total of 19 positions and comes close to a situation this country was in 1995. Table 5: Chronological overview of Education index values for the Balkan countries and rankings 1995-2009. [10] Country 1995 2000 2009 Education Rank Education Rank Education Rank Index Index Index Croatia 7.05 41 6.47 51 (-10) 6.56 46 (+5) Serbia 5.33 67 7.16 40 (+27) 5.83 59 (-19) Macedonia 5.23 69 5.59 62 (+7) 5.42 66 (-4) B and H 4.95 73 5.24 72 (+1) 5.70 61 (+11) Albania 102 3.33 5.09 74 (+28) 4.97 75 (-1) In an attempt to identify the cause of this decline of Education index values, by examining the World Bank data based on which this index is calculated, it can be concluded that the index values for 2000 and 2009 were calculated on the basis of different criteria, as in the first case the adult literacy rate was not considered (due to unavailability of data), whereas in the second case the value of the index does not include data on gross secondary enrolment rate. As the UNESCO Institute for Statistics [9] provides information on national estimate of gross secondary enrolment ratio of 48% for 2007., if this estimated amount would be used to calculate the Education index, the index value would be about 6.10, which would raise the rank of Serbia from 59th to 55th position, which would certainly have affected the value of the aggregate KEI index and Serbia's ranking. We conclude that for the sake of a more realistic perception of a country’s position in the world rankings, it is necessary that there are competent services that would be responsible for monitoring and control of the authenticity of the country data, and for providing missing information that would contribute to accuracy in calculating of index value. Also, in the last reporting period, Bosnia and Herzegovina has made visible progress of 11 positions in the rankings, owing to the increase of the Education index from 5.24 to 5.70. After examining the methodology of calculation of these values, we find that the increase in the index was caused by the increase of gross tertiary enrolment rate from 15.75% to 36.85%. By comparison, it is still very low percentage when compared with the values of this rate in most developed countries (Denmark 80.3%, 75.18% Sweden, Finland 93.81%), but it is still significant progress. In the group of Balkan countries, Croatia is a country with the highest tertiary enrolment rate, 45.78%. The positive shift on the list of 5 positions for the last decade, Croatia has achieved owing to the increased secondary and tertiary enrolment rates. Albania has not made significant shifts in education, while Macedonia has improved literacy rates and gross tertiary enrolment rate, but it was not enough to move up in the rankings. Education and national competitiveness The latest report of the World Economic Forum [12] provides values of Global Competitiveness Index (GCI), as an indicator of micro- and macro-economic foundations of national competitiveness for 142 countries. GCI index value is calculated based on the state of 12 different areas (so-called pillars of competitiveness): institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication and innovation. GCI is thus calculated based on the analysis of various aspects of national competitiveness. Table 6 shows how the Balkan countries are positioned on the latest list of global competitiveness and how this relates to the situation in education. Table 6: The positions of Balkan countries on the rankings of KEI Index, GCI Index and Higher education pillar of national competitiveness [12] Country KEI GCI Higher education pillar Index value Rank Index value Rank Index value Rank Croatia 7.28 40 4.1 76 4.41 56 Serbia 5.74 53 3.9 95 3.98 81 Macedonia 5.58 58 4.1 79 3.98 80 B and H 4.58 79 3.8 100 3.91 86 Albania 3.96 93 4.1 78 3.97 82 Comparing the positions on these two important lists of world countries, it can be concluded that Croatia takes the best, 76th position of 142 countries according to the state of national competitiveness, with Albania and Macedonia in its immediate vicinity. Competitiveness of Serbia and Bosnia and Herzegovina is lagging behind its neighbours, so the order of the Balkan countries is not the same as in the KEI rankings. For proper comparison, the third column of Table 6 shows the indicators that measure the development of higher education and training as one of the pillars of competitiveness. Except for Croatia at the 56th place, the positions of other countries are uniform, from the 80th to the 86th position. This pillar of competitiveness indicates the crucial importance of higher education and training for those economies who do not want to remain at the level of simple production processes and products, but they need highly educated employees, who are able to adapt to the changing environment and new requirements of production. Indicators describing the situation in this area refer to secondary and tertiary enrolment rates, quality of the education system as seen by business community, as well as the availability of continuous training in the workplace that enables improvement of employees skills. Table 7 shows the countries’ positions according to the indicators of higher education. Table 7: The positions of Balkan countries on the Higher education and training rankings (out of 142 countries) [12] Indicator Croatia Serbia Macedonia B and H Albania Gross secondary enrolment rate 49 57 78 60 100 Gross tertiary enrolment rate 52 50 58 63 89 Quality of the educational system 89 111 75 73 45 Quality of math and science 29 58 75 41 42 education Quality of management schools 83 114 100 71 69 Internet access in schools 43 83 46 81 57 Availability of research and training 60 113 108 122 100 services Extent of staff training 125 132 124 137 32 Higher education indicators, on the basis of which (in addition to 11 other areas) GCI index is calculated, indicate areas in which the observed countries show the key weaknesses in the development of competitiveness. For the Balkan countries it is obvious that the most outstanding shortcomings are related to the quality of education systems, quality of management schools and the availability of high quality, specialized training services. The worst ranking Balkan countries occupy in the field of employee training, i.e. the amounts that enterprises invest in employee training and development. CONCLUSION AND IMPLICATIONS FOR INNOVATING AND EFFECTIVELY IMPLEMENTING EDUCATION IMPROVEMENT STRATEGIES Improving the effectiveness and the efficiency of a country’s education system is of strategic importance for its economic development and competitiveness. This importance is reflected in the contribution of education system to the increase in productivity and innovation based on competence development of the labour force and rapid transfer of knowledge from educational and research institutions to different sectors of the economy in the era of knowledge economy. The higher level of education has a positive impact on economic growth. Also, the effectiveness and the efficiency of the education system is a key factor in the development of knowledge society, but also a determinant of social values affirmation, developing democracy and strengthening social cohesion. The provided analysis framework enabled the identification of the achieved level of the Balkan countries in the development of knowledge society and knowledge economy, as well as the gap between them and EU countries. Benchmarking study has identified the variations in policies and strategies for the development of knowledge (education) as a key resource of economic growth and competitiveness. The analysis showed a significant delay of Balkan countries concerning all the vital indicators within the education pillar in the KEI, and highlighted as a priority the need for Balkan countries to innovate their education development strategies and develop mechanisms and instruments for their effective implementation. Intensified efforts of these countries are required in order to eliminate the lag behind EU countries as soon as possible. Progress is needed concerning all indicators of the education pillar. In the analyzed countries, improving education should be declared a development priority, and education should not be treated as a cost, but an investment for the future. Up-to-date reforms in the education system of the Balkan countries have not produced satisfactory results, because they did not reach the requirements that an education system should meet: to be efficient, effective, accessible to all citizens, relevant, flexible and sustainable. The realization of these goals requires implementation of programs, activities and initiatives in the following areas. First, to increase the amount of investment in education, and improve the value of indicator public investment in education (% GDP), because the society whose residents are not educated and skilled, in the future will certainly be poorer. Given the significant budget deficit, the realization of this goal seems to be very difficult and challenging. Second, the Balkan countries should intensify efforts to improve all levels of education (preschool, primary, secondary, tertiary), by modernization of study programs, as well as by the continuous improvement of competence of all the actors involved in educational function. For this purpose it is necessary to form teams that will, within the relevant ministries, implement the benchmarking analysis of primary, secondary and higher education programs with the best European systems and practices, and then encourage educational institutions to modernize and functionally improve curricula, by financial and other policies. Third, the Balkan countries must necessarily reduce the rate of illiteracy. Therefore it is necessary to define mandatory literacy programs that will be implemented in primary schools or special education centres. Fourth, all schools and universities need to provide access to the Internet as a key resource for acquiring and exchange of information (knowledge). Fifth, improvement of higher education system should be achieved by increasing the efficiency of studying and shortening the average duration of study in high schools and universities. Sixth, the Balkan countries should identify the needs for higher education profiles necessary for economic development, and accordingly implement a consistent university enrolment policy. Also, it is especially important to put emphasis on increasing the number of students enrolled at universities in the field of natural sciences and engineering. In addition, it is necessary to achieve the balance between the requirements of labour market and economic development on one side, and "output" of education system, on the other. Seventh, the Balkan countries should create opportunities for education and professional development of people throughout their lifetime. Eighth, these countries need to formulate career development programs and programs of employment of highly educated population in order to prevent the so-called "brain drain". Ninth, these countries should develop and continuously implement systems for quality education system evaluation at all levels, which will be a source of adequate directions to guide its development in the future. Tenth, the education development strategies in the Balkan countries should be revised and made more operational by defining specific objectives, action plans and programs for their productive implementation. Success in implementing long-term, medium-term and short-term goals of education system development in any country requires the design of the system of indicators to monitor all activities and improvement programs, as well as a defined accountability system for various institutions involved in the demanding, time consuming and sensitive process of education system reforms. This process should not be limited by political changes, but declared a national strategic program that includes a variety of structures, systems and institutions of the state whose legal obligation is to continuously develop the education system. REFERENCES

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