Journal number 1 ∘ Madonna Gelashvili ∘
Human resources and its Development Tendencies in Georgia

Summary

One of the perquisites of economical sustainable development is generating novel knowledge and human capital. It is obvious that knowledge and capital are mutually dependent categories: only highly qualified specialists have capacity of creating novel knowledge and effectively apply it to reality. Hence, human capital has one of the most important roles in innovative economics of human capital among the other factors, which affect on economical growth, as high level of human capital development determines high level of creativity, which on the other hand is important for creation of novel knowledge (innovation).

Keywords: human capital, innovative economics, knowledge, education, production factor. 

Introduction

New aims and objectives were put forward as a result of human developments in XXI, which are based on fundamentally new kind of developments, characterized by changes of technological structures. The advantages of education and science fields have been identified. The role of an individual towards the society has been changed – he/she became a generator and initiator of innovational ideas and ensures transformation of knowledge into major economic factor. Professional knowledge and skills, human intelligence capabilities are not only his/her personal characteristics, it became national treasury and factor of its development.

The abilities of a country to hold a leading role in global competitive environment is largely determined by the level of human capital in its society. Permanent care of a human being, a consumer, is provided by the highest income to satisfy his/her needs. In order to achieve success, various methods were used in different eras, which were affected by the ideologies ruling the specific historical moments of the respective eras. In modern environment, the perquisite for success became competitive knowledge, which cannot be compared to any of economic areas in terms of the degree of competitiveness. It shall be taken into consideration that in the constantly changing environment, maintaining competitiveness at the global level requires innovative human capital, which represents the most active part of the society and it will make it possible to transform the knowledge into economic resource. Therefore, economic development of a country shall depend on the methodology of social development, which gives an opportunity to take the characteristics of innovative human capital of this society into account while drawing out innovative human capital management strategy. 

Knowledge economics and the characteristics of innovative human capital development

Knowledge (innovative) economics represents final stage of world economics transformation. Traditional economy or pre-industrial era preceded industrial production, which on the other hand was replaced by post-industrial period and today resource capacious technologies are replaced by scientific technologies at micro as well as macro levels.

Knowledge economics increasingly influences on the state economic succession. Though within the previous economic relationships, state prosperity was determined by extensive type of conduction, since late middle ages, the perquisite for economic succession became making labor work cheaper as a result of implementation of novel technologies. Therefore, human being, as a knowledge factory became a generator of novel technologies, innovative ideas. With the help of neoclassical theory, it can be said that economic growth represents the outcome of increasing labor workforce along with technological processes reducing the expenses. Taking into consideration knowledge economics, economic growth depend on human factors, which participates in production process in the form of constantly renewing knowledge capital. Conceptual basis of knowledge economics in post-industrial society represents knowledge and human capital, functional characteristics of which are based on two fundamental grounds: 1. Knowledge represents one of the major factor for production and possesses value; 2. Knowledge and human capital is a production capital. The more and novel knowledge is accumulated and more complies with the requirements existed on the market, the higher indicator of evaluated human knowledge exists [Julakidze, 2016:1].

The relation between economic growth and education has already been investigated among scientific circles abroad. Angus Madison (the author of “Dynamic Forces in Capitalist Development) found out that the increasing investments in education for 1% increases gross domestic product with 0.35%, and the organization of economic cooperation, on the basis of the facts analyzed by him, shows that increasing the statistical duration of teaching for one-year results in the increase of GDP with 3-6%.

On the basis of the information provided by the same organization, 32% of the population possess higher education. However, major part of this data is taken by the developing countries. Developed countries are leaders in terms of education percentage share in Gross Domestic Product (average 5.75%) and in terms of expenses directed to higher education (average 10 655 Dollars per student a year) [Report, 2016: 9]. 

Given facts prove the opinion that the ore educated people exist in a country, higher level of economic condition exist in these countries. The number of the examples, that prove direct relation between technological innovations, developed through scientific researches, and the efficiency of economic decisions, took on the basis of given researches, strongly proves the provision that the science integrates with the economics and scientific knowledge generates additional value to the bigger extent compared to other production factors.  Scientific knowledge, which is acquired through researches and analysis, is applied to the creation of material as well as non-material productions. Thus, education and scientific knowledge created additional value and increases productive assets. Specific advantage of any economical entity exists in its innovative activity, an opportunity to generate novel knowledge and employ it through novel methods.

Physical and spiritual firmness depends on various social factors – health, cultural and rest, feeding levels. Therefore, the scientists of various countries reached the conclusion that except the investments in education, it is important to draw adequate attention to funding human capital, which will definitely reflect on the productivity and the increased efficiency of production. A wide range of approaches for study of human capital.

All these approaches can be attributed to two directions: first – these are the works related to the increase of human conditions, the second – the works, which focus on human perfection, his/her intellectual and physical characteristics. A group of theories, which covers the analysis of improving human conditions, can be attributed to the coefficient of life quality (A. Campbell, S. Coul, I. Milze and others) and population quality (I. Pubin, A. Pechei and others).

And the groups of theories, which aims human characteristics perfection can be attributed to “Human Potential” and “Human Capital” concepts. All the theories, which exists in scientific literature and is based on “Human Capital” concept may be divided into two groups: 1) Economical Approach – which depends on human capital index and human development research concepts; and 2) sociological approach – which describes human capital as a characteristic of separate individual group, which characterizes the level of social development and the ones who support methodological individualism, which considers human capital in close relation to the individual         [Report, 2016: 8].

World human capital is a part of national wealth and represents its 2/3. Development paradigm of human capital of USA and leading European countries has been developed on the basis theory and practice which is currently being refined. In 2012, the value of USA human capital equaled to 97 Trillion USD, which is 78% of national wealth of the country. 26% of human capital of the world is attributed to USA (its share in world economics is 21%), Russia – 8%, China 7%, Brazil and India 2-2%, Europe 67%. This indicator for Georgia represents 30%, Russia – 50%. For most of the countries, human capital is above half of the country’s wealth (except OPEC ones).

Major basis of human capital development is education. Major criteria of human capital development are the expenses in education. In overall, investments in human capital affects on the prospects of country’s development.

The share of the expenses on education is determined as the overall amount spent on education by state and private sector[Gelashvili M… 2016:57].

Research and Development in Georgia

One of the most important resources of economic and social progress of Georgia is human capital. Therefore, education and science are special priorities, considered for long-term outcomes. Succession of European integration process is largely depended on the efficiency of educational field. This system shall provide cultivation of the citizens having responsibility and democratic values, on the other hand, prepare appropriate specialists having the qualifications corresponding to labor market demands for economic diversification and taking real steps for the provision of education provision.

Basic directions of education and science development are clearly stipulated in the document: “The strategy of social and economic development of Georgia – Georgia 2020”, where the priorities under association agreement are defined. The government aims increasing employment, creation of workplaces, and supporting formation of economic system, based on innovations. To this point, preparation of specialists that comply with the requirements of labor market and strengthening research potential is considered as one of the major issues.

At the end of 90s and at the beginning of 2000s, deep and prolonged economic fall negatively reflected on fields of education and science, which was intensified by the radical reforms implemented in 2003-2012. Overall, Georgian scientific field faced existential problem that was caused by the reduction of funding, and on the other hand by constant structural changes, which was supported with optimization arguments.

Planning of the reforms in education started from 2005 and their active implementation began since 2007. As for the budgetary distribution, unfortunately, education field in Georgia is still less priority direction. Generally, the expenses attributed to education is less than the indicators of priority directions (expenditures on public service, social insurance, social insurance, economics, internal safety and order, security). Especially unfortunate was research funding in 2005-2011, when its share in GDP was reduces with twice. Table #1 gives information on the dynamics of education and research funding in GDP, where it can be clearly seen that mentioned tendency from 2011 to 2013 is still remained and there is only slight increase[Gelashvili M… 2013:5]. 

Table 1

The dynamic of education and research state funding

	2005	2006	2007	2008	2009	2010	2011	2012	2013
Gross Domestic Product (GDP)	11621000	13789900	16998600	19736700	17986000	20743400	24344000	26167300	27009200
higher education funding	21702,7	33510	39690,1	47154,7	62967,6	61731,9	60880,9	88332,9	81100
Research funding	20117,7	17361,2	22136,4	31495	27790,2	28428,9	20442,30	27793	35732
total	41820,4	50871,2	61826,5	78649,7	90757,8	90160,8	81323,2	116125,9	116832
% of higher education funding in GDP	0,19%	0,24%	0,23%	0,24%	0,35%	0,30%	0,25%	0,34%	0,30
% of research funding in GDP	0,17%	0,13%	0,13%	0,16%	0,15%	0,14%	0,08%	0,11%	0,13%
share of sum of funding in GDP	0,36%	0,37%	0,36%	0,40%	0,51%	0,44%	0,33%	0,44%	0,43%

Source: Ministry of Finances of Georgia 

According to the data of 2012, developed countries spend on average 1.4% of GDP and 3.1% of budget on funding higher education and research. Georgia spends 0.5% of GDP and 1.8% of the budget on these directions. Taking into consideration the fact that the infrastructure of education and research of Georgia is demolished, knowledge at scientific institutions is out of date and the institutions generating this knowledge need to be reconstructed, such small funding promises constant backwardness, which also puts the perspectives of country development in danger. On the basis of described background, the place of Georgia is in the state of alert according to the given table, which gives a picture of state support to higher education and researches at HEIs throughout different developed countries. 

Table 2

 State funding on higher education and researches at HEIs 

Source: OECD 2009; Ministry of Finance of Georgia, 2012.

At a state of 2014, funding of education sector has been increased in 2013 compared to 2007 (with 8.4%, 92.6% accordingly). In 2014, the expenses carried out from state budget towards 2.9% was 2.9%, and towards state budget of total expenses was 9.2%.

In 2007-2015, Georgian education sector as well as its contribution in the process of GDP formation was characterized by general tendency. At a state of 2014, education sector is increased 2.3 times, and its share in GDP is increased with 1.2% compared to 2007. In the mentioned period, share of conducted expenses from state budget towards GDP was 2.9%, which was 0.01% higher compared to 2013, and 0.31% higher compared to 2007.  In 2007-2015, the sector of education and science of Georgia, as well as its contribution in 2015 towards GDP was 2.7%. the indicator of expenditures on education sector was 8.4% higher than the one of 2013 and 92.6% higher than 2007. Funding of education system on the basis of 2015 budget was increased with 15% compared to 2014, which is 0.3% less than 2013 and is 1.7% higher than 2007. Thus, in 2007-2014, the expenses directed to education was characterized by increasing tendency and this tendency is maintained up today. However, it is obvious that Georgia spends less than any other developed countries on education in terms of percentage as well as monetarily [statistical collection… 2015: 17].

In our opinion, for today, Georgia has enough potential of scientific research, scientific school, wide university network, but despite this, we have quite low level of innovative activities. Investments, education and scientific researches and GDP growth are directly correlated with each other. So, one of the major problems are activization of development of innovative activities.

The state shall support and help increase of business innovative activities, specifically: it shall draw out scientific-technical development strategy, apply various mechanisms of stimulation, support grant procurement, implement taxation reliefs and etc.

Today, strategic directions of education and science worked out in Georgia emphasizes the major problems, which exist to this point:

• absence of unified development policy in the country, which negatively affects the determination of scientific priorities and generally planning the scientific field;
• Problematic existed model, which cannot provide long term research clusters and sustainable institutional development. Major source of existed institutions are research grants, which is issued by the state through scientific foundations.
• Lack of young specialists in science, which disturbs dynamic development of science and knowledge transfer;
• Low degree of commercialization of scientific products and innovations;
• Low level of integration of national scientific potential in scientific circles;
• Low level of integration of educational institutions with each other;

On top of that, lack of honest and qualified specialists is also a big problem, there is lack of innovative managers, who are responsible for effective innovative production. Many foreign companies already have Chief Knowledge Officer positions [Gelashvili… 2017: 57]. They are responsible for maximization of company operation  efficiency with the use of “knowledge” factor. Major function of innovative management includes:

1. Formation of company’s innovative strategy;
2. Drawing out innovative policy;
3. Projects and their monitoring;
4. The ability to organize complex innovative processes in the field of production and flow.

Georgia in Global index of innovations 

In the direction of researches and developments in the country, world, in order to show world tendencies, Global Index of Innovations is published annually since 2012. With the help of given index, it is possible to demonstrate the mechanisms, with the help of which, long term growth, productivity and increase of workplaces are possible. This helps and advices the countries what necessary conditions are needed to develop the innovations. Each country is assessed on the basis of seven criteria: 

• Institutes;
• Human capital and research;
• Infrastructure (telecommunication infrastructure and ecological sustainability);
• Market sophistication (market conditions and necessary amount of market operations);
• Business sophistication (to what extent do the companies support innovations);
• knowledge and technology outputs (the role of knowledge and technology in the creation of inventions and innovations);
• creative outputs (the role of creativity in the innovations).

In the Global Index of Innovations, which was published with the cooperation of Cornel University and World Organization of Intellectual Property (UN Agency), in terms of innovation developments, Georgia has become better by 2016. To this point, major achievements of the country are institutional structure an regulating policy. However, major weaknesses are considered to be lack of support educational and research directions by government and private sector and limited use of innovations. On the bases of the data in 2016, Georgia got 33.9 points (out of 100), there was a slight increase (33.8). compared to 2015, Georgia has been promoted with 9 positions, it takes 64 place out of 128 countries. Despite these positive changes, the country has lowest results in terms of human capital, business development and creativity production components. Apart from mentioned, among post Soviet union cointries, Georgia has lower results that Russia, Moldova, Ukraine and Armenia. In institutional arrangement, Georgia has 69.2 points, which assesses political stability of the country, efficiency of management, business environment and regulations. The worst indicators have human capital and education. In this category, the country has only 23.2 points out of 100 and took 91 place in the rating. Similar situation exists in the component of support of innovations from private sector: Georgia took 26.5 and took 90^th place [statistical collection 2016: 21].

Compared to the results of 2015, it is clear that the condition has become worse mostly in the component where Georgia has low indicators. This is supported by reduced points in business development and human capital – research components. This does not apply to creative production, where the country increased its condition with 1.6 and the position went up with 23. However, despite this, the country still has modest results in this component, which is mainly determined by creation of online productions and lack of using informational-communication technologies by the private sector. Georgia has moderate indicators in terms of market development (44.3 points) and infrastructure (41.7) criteria.

Table 3

Global Index of Innovations 

years	Institutions	human capital and	infrastructure	market development	business development	knowledge and technologies	creativity production
2015	68,2	23,6	36,5	52,8	28	26,6	25
2016	69,2	23,2	41,7	44,3	26,5	26,8	26,6

Innovations index covers two sub-indexes: innovation input and innovational production, which identifies innovative efficiency coefficient. Sub-index of innovation input is an average point of first five categories (institutions, human capital/research, infrastructure, market and business development). Innovative production is average index of last two indicators (creative production and knowledge and technologyproduction). The efficiency coefficient of innovations are calculated with the relation of innovative products to the expenses. Its index varies between 0 – 1, where 1 is the best point. 

In terms of innovative product criteria, Georgia takes 60^th palce with 26.7 points; as for the innovations input, it takes 67^th place with 41 points. Efficiency coefficient reached 0.7 points, with which it takes 67 place among 128 countries. Last year, this coefficient equaled to 0.6. there are weak and strong sides identified for each country. In terms of Georgia, strong sides were:

• Simplicity of business embarkment (6^th place with 97.8 points)
• Rates (5^th place with 95.7 points );
• Simplicity of obtaining credits (7^th place with 85 points);
• Printing and publishing production(4^th place with 83.2 points);
• Protection of interests of small shareholders (20^th place with 68.3 points);
• The amount of direct investments from abroad with regard to GDP (10^th place with 66.8 points);

The research compares Georgia to the countries with the similar income (low, medium). The report empnasizes that Georgia is one of the countries, the results of which are higher that this group countries.

Weak sides of the country refer to market and business development, as well as research and human capital. Specifically, Georgia showed low results in the following categories:

• The degree of universities business cooperation (177 place with 27.3 points);
• The expenses conducted to education (place 103 with 10.4 points)
• The expenses conducted for research and development (place 103 with 1.3 points)
• Trainings offered by the private companies to the staff ( place 91 with 9.4 point).
• The place of first three universities of the country in the world ranking (0 points and last place with 56 countries).

According to the index, among post Soviet Union countries, Georgia takes 8^th place. Along with three countries of Baltic region, better results have Russia, Moldova, Ukraine and Armenia. However, with regard to innovation efficiency, Georgia has better results compared to Russia and Lithuenia. In this component, better results had Moldova and Estonia, which implies to reasonable and effective spending of the money attributed to the development of innovations. With regard to institutional framework and infrastructure, Georgia has less result than Baltic countries only. With regard to any other components, Georgia is below to the first seven post Soviet Union countries except human capital and research categories, where Armenia has lower index than Georgia.

If we consider the results, Georgia needs encouragement of researches and innovations, implementation of innovative technologies in Education, activation of private sector within the use, creation and implementation of innovations. 

Conclusion 

With regard to human capital development, existing condition cannot provide development of new and existing industrial fields and sectors. It is necessary to create new policy of education system development which will provide adequate budgetary resourses. The models of funding education and science shall be considerably changed. Grant system shall be maintained byt direct funding models shloul be developed and refined. In addition, the share of higher education funding within GDP and budget should be equal to the ones existed in developed countries. At the same time, it is necessary to create appropriate support strategy, which will give an opportunity to local producers and scientific institutions gain profit through collaboration and have access to additional resources for development. 

The country has some important challenges, which should be solved in order to achieve progress in innovation development. The analysis of results showed that the results were reduced in the directions that were weaknesses in previous years. Specifically, the results vary within 20-30 points among the criteria of human capital and education, business development condition, knowledge and technological production. It is true that the country had good index in terms of institutional organization and regulating policy, but, economic development of the country, level of private sector development and scientific basis is still below the global tendencies.

In order to achieve progress, it is necessary to take efficient steps for the development of education and research. In addition, active participation of private business in this process is important, which is possible through conducting encouraging events for supporting business competitiveness and imprementing innovations. 

References

1. Gelashvili M., 2017. „Innovative Human Capital and its development characteristics“, SSU IV international-practical conference, collections. Tbilisi „Homeland“.
2.  Gelashvili M., “State Regulation of  Investment Activities in Georgia.”  Nova Science  Publishers.  Georgian International Journal of Science and Technology.  ISSN: 1939-5825 https://www.novapublishers.com/catalog/index.php?cPath=125; USA 2013; v. 5-9.  
3. Gelashvili M., 2016. “Competition and problems of monopolistic markets.” “Global world”, scientific anthology, volume 2 (II), Ostroh  – Gomel – Slupsk 2016; v.69
4. Julakidze M., 2016. „Effect of Human Capital on Economic Development” internet journal “Resonance”.http://www.resonancedaily.com/index.php?id_rub=11&id_artc=27606
5. Global Index of Innovations of Georgia. IDFI –report - 2016.
6. The Human Capital Report 2016. Available from:www.weforum.org.
7. Research and Development Expenditure 2014.Available from: www.uis.unesco.org.

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