A discussion on the social implications of developing Hong Kong into a Knowledge-based Economy.

1. 1
Social implications of developing a
knowledge-based economy in Hong Kong
Dr. Gordon McConnachie
Founding Chairman, Scottish Intellectual Assets Centre &
Chief Technology Officer of Asia Pacific Intellectual Capital Centre
gmcconnachie@apicc.asia
Mr. Alan Ka-lun Lung
Director & General Manager
Asia Pacific Intellectual Capital Centre, Hong Kong SAR, China
alanlung@apicc.asia
18 September 2013

2. 2
Abstract
This paper examines whether the knowledge‐based economy can provide a further
opportunity for Hong Kong to upgrade its economic position and provide a means of
redistribution of upward mobile economic opportunities to its citizens, particularly
the younger and more educated younger generation. It examines the social and
economic development opportunities presented to Hong Kong in the context of the
development model of Silicon Valley of California, the economic development
strategy taken up by the European Union, and the options that ASEAN is likely to take.
Hong Kong already has the necessary conditions to build a Silicon Valley type of
economic development. The weaknesses, strengths and unrealized economic
potential have been pointed out by others. Hong Kong should continue to innovate
and transform itself from an export‐dependent manufacturing centre into one of the
world's leading financial centres. Clear policy statements are however needed;
nothing will happen if no resource is allocated in the next Budget Speech in February
2014.
Introduction
Our question is this: can the Knowledge‐based Economy (KBE) provide a further
opportunity for Hong Kong to upgrade its economic position? Put in terms more
meaningful to Hong Kong Citizens: how far can the KBE provide a means of
redistribution of opportunity? The economy of Hong Kong is well developed, but
there is a need to provide opportunities especially for younger and well educated
citizens while considering also the wellbeing of all citizens. Let us first take a step
back from the question at hand and look at how people and regions grow and seize
opportunities.
Personal motivation factors
The opportunities presented by the KBE bear fruit when people apply their
intelligence to solving problems and creating solutions for which there is a market
need. An article in The Economist1
argues that there is an inherent genetic
component to intelligence, as well as a nurturing effect, meaning that intelligence is
assisted to grow when a climate is present surrounds the individual encouraging
personal development. The application of intelligence will be higher when a person
is motivated. According to Wikipedia2
, “there is general consensus that motivation
involves three psychological processes: arousal, direction, and intensity. Arousal is
what initiates action. It is fueled by a person's desire for something that is missing
from their lives at a given moment. Direction refers to the path employees take in
accomplishing the goals they set for themselves. Finally, intensity is the vigor and
1
“Cleverer Still”, The Economist, 22 December 2012, available
http://www.economist.com/news/science-and-technology/21568704-geniuses-are-getting-brighter-and-
genius-levels-iq-girls-are-not-far (viewed 4 September 2013).
2
“Work Motivation”, Wikipedia, available http://en.wikipedia.org/wiki/Work_motivation (viewed 4
September 2013).

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energy employees put into this goal‐directed work performance. These psychological
processes result in four outcomes. Motivation serves to direct attention, focusing on
particular issues, people, tasks, etc., and to stimulate an employee to put forth
effort, to persist, preventing one from deviating from the goal‐seeking behavior
and to have task strategies, which, as defined by Mitchell & Daniels3
, are "patterns
of behavior produced to reach a particular goal”.
While innovation springs from the actions of self‐empowered and self‐motivated
individuals, the creation of a supportive environment can help many would‐be
entrepreneurs enter the field. This comes into sharper focus when we take a look at
some regions in the world which have most successfully grabbed the opportunities
presented by the KBE.
Stimulating a region ‐‐ the Silicon Valley case
Silicon Valley in California, widely recognised as the most successful knowledge
region in the world, has released the potential in people and provided a stimulus for
innovation in many ways, both natural and man‐made. As Brad Templeton (2012)
noted in Forbes Magazine4
, a combination of factors came together to favor the San
Francisco Bay Area. It was the free and open culture, the free Government spending
in the early days, the large pool of knowledge in the people who moved there, their
go‐ahead spirit and easy access to capital? There is one further critical element: in
the late 1990s over 50% of the owners and CEOs in Silicon Valley were born outside
the USA.
We see a similar collection of factors in the more recent success stories Israel and
Singapore, including a focus on immigration to bring the best intelligence possible to
bear on the opportunities.
If these factors are missing it is so much harder to create a region dominant in
applying the knowledge approach. Tech guru Marc Andreessen5
stated “although
Beijing has great potential to be the next Silicon Valley, it probably never will be.
Despite great engineering talent and enormous market, its lack of openness is a
serious liability.”
Why is it so hard to create another Silicon Valley? How should a society encourage
innovation? Why are some places with great technical talent (like the former Soviet
Union) seemingly unable to produce innovative firms?
3
Mitchell, T.R.; Daniels, D. 2003. Motivation. Handbook of Psychology, Vol. 12. Industrial
Organizational Psychology, ed. W.C. Borman, D.R. Ilgen, R.J. Klimoski, pp. 225–54. New York: Wiley.
4
Brad Templeton, “ The Real Secrets Behind Silicon Valley’s Success”, Forbes Magazine, 11 July
2012 available http://www.forbes.com/sites/singularity/2012/07/11/the-real-secret-behind-silicon-
valleys-success/ (viewed 4 September 2013).
5
Greg Satell, “The True Secrets of Silicon Valley”, 7 August 2013 available
http://www.forbes.com/sites/gregsatell/2013/07/08/what-makes-silicon-valley-unique/ (viewed 4
September 2013).

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The European Union
In Europe we see the beginnings of a trend leading toward the creation of more and
more high‐performance regions. The Lisbon Agenda set the stage and the “Lisbon
Strategy for growth and jobs, launched in 2000 by the European Council, was the
EU's joint response to facing the challenges of globalisation, demographic change
and the knowledge society. It aimed at making Europe more dynamic and
competitive to secure a prosperous, fair and environmentally sustainable future for
all citizens.6
” In a further step, “The Europe 2020 Strategy" identifies three key
drivers for growth, to be implemented through concrete actions at EU and national
levels:
• Smart growth (fostering knowledge, innovation, education and digital
society),
• Sustainable growth (making our production more resource efficient while
boosting our competitiveness) and
• Inclusive growth (raising participation in the labour market, the
acquisition of skills and the fight against poverty).
These initiatives are of course political in nature and only provide a framework
backed up by central funding. The real work remained to be done at the regional
level and within individual companies. The European Commission provides one
further world class asset in Enterprise Europe Network7
, which “helps small business
make the most of the European marketplace. Working through local business
organisations, EEN helps:
• Develop your business in new markets,
• Source or license new technologies,
• Access EU finance and EU funding.”
Thus there is a support framework both at the European and local level which has
helped spur the growth of Europe’s technology regions. In a recent report8
the
Innovation Intensity across the European Union is reported in detail: the report will
be used to better target support measures on a regional level with a view to
stimulating the environment for promoting innovation. The programme is
demonstrating success as leading regions begin to appear in countries which
themselves are not regarded as the most technologically advanced, e.g. East of
England which is a Leader region in a country the UK which is at a Follower level.
6
European Commission, Education and Training, available
http://ec.europa.eu/education/focus/focus479_en.htm (viewed 4 September 2013).
7
Enterprise Europe Network, available http://een.ec.europa.eu/ , (viewed 4 September 2013).
8
European Commission, Enterprise and Industry, ”Regional Innovation Scoreboard 2012”, available
http://ec.europa.eu/enterprise/policies/innovation/files/ris-2012_en.pdf (viewed 4 September 2013).

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Centres of innovative excellence across the EU are created and exist at a regional
level but are supported by country infrastructure. There is also evidence of a positive
immigration effect in Europe: Ozgen, Nijkamp and Poot9
(2011) in a study covering
170 regions in Europe demonstrated that “innovation is clearly a function of regional
accessibility, industrial structure, human capital, and GDP growth. In addition, patent
applications are positively affected by the diversity of the immigrant community
beyond a critical minimum level.”
All of these indicators argue for positive involvement of Government in promoting
GDP and quality of life growth through targeted support for innovative activity.
The ASEAN Nations
The ASEAN Nations are very diverse in their development. Singapore, with intense
government support, is now on an equal footing with the most developed nations in
the world. Malaysia is following suit with MATRADE10
, The National Trade Promotion
Agency, playing a lead role in helping companies bring innovations out into the rest
of the world.
As ASEAN Integration continues and improved social welfare programmes and living
standards result, new sources of funding will be required and ASEAN will turn more
and more to innovation and the KBE as opportunities.
Social and economic development opportunity presented to Hong Kong
At present there is a window of opportunity for Hong Kong to be a leader, using its
special advantages, not only for leading economic development in China but also for
assisting Europe and the ASEAN Nations in building their economies. There is a battle
of wills currently between those, in business and government circles, who see these
opportunities and those who are determined to do nothing. In taking advantage of
these opportunities the Hong Kong community as a whole will require Government
support. Without clearly stated policies in the Policy Address11
(Chief Executive of
Hong Kong on 15 January 2014), nothing will happen as this speech drives policy
measures and resource coordination allocated in the 2014‐2015 Budget Speech
(Financial Secretary 26 February 2014).
Mainland China cannot provide answers for Hong Kong
Hong Kong ranks as the 7th most competitive "country" in the world according to
the 2013‐2014 Global Competitiveness Report12
, and as the 7th
most innovative
9
Ceren Ozgen, Peter Nijkamp and Jacques Poot, “Immigration and Innovation in European Regions”,
NORFACE MIGRATION Discussion Paper No. 2011-8, available http://www.norface-
migration.org/publ_uploads/NDP_08_11.pdf (viewed 5 September 2013).
10
MATRADE, The National Trade Promotion Agency of Malaysia, accessible
http://www.matrade.gov.my/en/foreign-buyers/industry-capabilities/malaysian-innovation (viewed 5
September 2013).
11
HKSAR Government Press Release dated 26 June 2013:
http://www.info.gov.hk/gia/general/201306/26/P201306260367.htm
12
Hong Kong's Profile on Page 210-211, The Global Competitiveness Report 2013-2014 published by
the World Economic Forum
http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2013-14.pdf

6. 6
economy globally and most innovative in Asia according to the Global Innovation
Index 201313
. Hong Kong is a high cost and developed economy, a "country" that
needs to be "innovation driven" and not "efficiency driven". The Central People's
Government of China cannot provide the answers to Hong Kong's social and
economic development as Mainland China's solution may not work in the free
environment of Hong Kong.
Hong Kong has a narrow industrial base and her only natural resource is her human
capital. This situation has not changed since the early 70s when Hong Kong started it
development into a modern economy. Hong Kong, however, has since become a
matured and developed economy. The introduction of competition law and Hong
Kong’s overall development means time for the rent‐seeking behavior of legal
oligopolies is running out. Hong Kong needs to recognize that innovation ‐‐ not
sticking to the status quo ‐‐ is the answer for the future. Social development that
focuses on "redistribution of wealth" between the rich and the poor cannot be the
answer. Social capital has the same foundation as economic capital – only more
intangible. Hong Kong must become aware that the opportunity offered by building
an innovative economy also means providing a more level playing field and a
"redistribution of opportunities" to all. A developed Knowledge‐based Economy is
knowledge‐driven. Wealth creation capacity is driven by "knowledge" and
"entrepreneurial skills" ‐‐ money and inherited wealth are secondary to knowledge.
Financial capital is abundant in Hong Kong: it can be provided by a realignment of
the innovation supply chain and by venture capitalists.
Political and policy leadership needed
There is a strong mismatch between Hong Kong's innovation capacity and its
economic ranking in the world. According to the World Economic Forum and Global
Innovation Index (GII), there is also a strong mismatch been Hong Kong innovation
output and economic efficiency. Low innovation output could be linked to a lack of
understanding of the wealth creation power of knowledge or intangible capital.
Hong Kong does not have much experience in building a "Silicon Valley" type of
economic structure but already has all the necessary conditions needed to make this
happen14
. The absence of a comprehensive innovation policy put forward by the
HKSAR government has also created supply chain issues that cause high knowledge
absorption but low knowledge output and commercialization. Hong Kong needs to
understand that innovation output is not just scientific R&D: it is also about
innovation ‐‐ including social innovation ‐‐ and creating wealth and upward mobile
opportunities for its citizens. Hong Kong is ideally placed to commercialize scientific
output from mainland China, from Europe and from around the world ‐‐ this is
innovation without a deep pocket and heavy investment in R&D.
13
Hong Kong's Profile on Page 184, The Global Innovation Index 2013 published by Cornell
University, INSEAD and WIPO
http://globalinnovationindex.org/content.aspx?page=gii-full-report-2013
14
An article by dated 20 March 2013 rated Hong Kong as the first amongst four cities after New York
(#1 Hong Kong, #2 Washington D.C., #3 Tel Aviv, #4 London) that is most likely to follow the
footstep of Silicon Valley to become an innovation and technology hub. Rebecca Fannin who
contributed to Forbes's finding said it was Hong Kong's unrealized potential that makes Hong Kong
worth watching.

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The HKSAR Government can inspire hope and support knowledge‐intensive SMEs
and SME start‐ups. A meeting of minds is possible between the younger generation
and the political leadership in building Hong Kong’s innovation eco‐system and social
innovation systems. Support from the business community, law makers and the
general public is essential to build a sustainable social and economic structure. The
best chance for change in Hong Kong is for the Steering Committee on Population
Policy headed by Carrie Lam, Chief Secretary to include human resources and
economic development in the forthcoming population policy public consultation. In
the economic arena, someone from within the Economic Development Commission
headed by the Chief Executive needs to put forward solid innovation and technology
policy measures, so that they can be included in the forthcoming 2014‐2015 Policy
Address and Budget Speech for implementation of a knowledge‐based economy in
Hong Kong in the next ten to twenty years.
In the battle of wills where one side believes that innovation is not needed and will
do nothing, someone or some groups within and outside the HKSAR Government
needs to break the “standing order” of doing nothing. There is no guarantee that
those who favor innovation will come out on top, but there is safety in ‐‐ something
is bound to happen if more people keep pushing the Chief Executive of Hong Kong
and the HKSAR Government for positive changes.
One benefit could be a radical change for certain neighbourhoods in Hong Kong.
Higher‐value jobs bring money into the community, profits into SMEs and
stimulating life challenges. More importantly they bring stimulation, opportunity and
involvement: this will be reflected in a feeling of value, engagement and self‐
motivation. All of these factors have a positive influence on community life.

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About the authors
Dr. Gordon McConnachie, B.Sc., Ph.D
Dr Gordon McConnachie is the founding Chairman of the Scottish Intellectual Assets
Centre (2003- 2007) and Chief Technology Officer of Asia Pacific Intellectual Capital
Centre. He is a chemical engineer by training and he spent most of his working career
with Dow Chemical where he grew up together with the innovation and technology
transfer systems of the world as we know them today. At Dow Chemical Europe
(1989 - 1999), he invented the IP and Intellectual Assets Management System for the
worldwide company together with Phil Barnett and Gordon Petrash. The system was
later modified and applied across the global company, where Gordon transferred
technologies from companies and universities into Dow Europe which brought him
into intimate contact with the EU Innovation Relay Centres (now Enterprise Europe
Network). From 1999 to 2002 Gordon directed the European Intellectual Asset
Management Services of PricewaterhouseCoopers. In 2009, 2010, 2011 and 2012
Gordon was placed on the Global IAM 250 list of leading IA Strategists, one of only a
handful of experts on the list from China and the ASEAN Nations. Dr Gordon
McConnachie can be contacted at: gmcconnachie@apicc.asia.
Mr. Alan Lung Ka-Lun
Alan Lung Ka-lun was born and educated in Hong Kong. He was also educated at the
University of Wisconsin in the USA and Wilfrid Laurier University in Canada. He
chairs the Hong Kong Democratic Foundation (www.hkdf.org), a political and public
policy think tank founded in 1989. Alan is skilled in converting his knowledge of
governments and public policies into practical steps to move forward “Knowledge
Economy” initiatives. He is a member of the Innovation and Technology Advisory
Committee of the Hong Kong Trade Development Council (HKTDC) and he has been
promoting innovation and technology practices in Hong Kong, Guangzhou and
Beijing through the Asia Pacific Intellectual Capital Centre (www.apicc.asia) (where
he is Director and General Manager), since 2006. Alan Lung Ka-Lun can be contacted
at: alanlung@apicc.asia.