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Plenary lecture
Niksa Alfirevic, PhD
Research financially supported by Unity
Through Knowledge Fund (
Research background
• Joint research project of Faculty of Economics,
University of Split (Croatia) and Dept. of
Sociology, University of Klagenfurt (Austria).
• Financially supported by Unity Through
Knowledge - a joint fund, set up by the Croatian
Ministry of science, education & sports and the
World bank.
Knowledge as a common theme
• End of 20th & beginning of the 21st century abound
with the development concepts (economic, social...)
based on the notion of knowledge.
• Themes in economics & business:
– Macro-level: issues of knowledge as a production factor,
knowledge-based growth, production of knowledge
through innovation, inter-sectoral partnerships, networking,
etc., efficient knowledge transfer & knowledge spillovers...
– Micro-level: issues of knowledge-based competitive
advantage (knowledge as a strategic resource),
knowledge management (as an attempt to codify &
manage the individual 'stock' of knowledge), definition,
measurement & management of intellectual capital...
Knowledge-based economy
(Part I)
• Is the 'Knowledge Economy' the 'New Economy'?
– The neo-liberal perspective points to the service sector,
especially to the knowledge-intensive services (high
finance, education, R&D, design, marketing, consulting...)
as primary drivers of value creation in advanced
economies. Actual production and other labour-intensive
processes are routinely outsourced to less developed
– Coupled with the globalisation processes and
advancement of Information & Communication
Technologies (ICTs), knowledge produces the 'new
economy', supposedly based on knowledge as a
fundamental factor of both firm and national
"The world is flat" (according to a popular book by T. A.
Friedman) and, in such a leveled playfield, knowledge
may be the only thing that sets an individual company,
region, nation... from its competitors.
Figure credit: Wikipedia, entry on 'flat world'
Knowledge-based economy
(Part II)
• Events in 2001 (the '' crash), as well as the unfolding
crisis, bring into question once undisputable ideal of the
globally connected marketplace, running smoothly according
to the (neo)liberal script.
• The more 'inward-looking' perspective to knowledge economy
might, once again, try to evaluate the extent to which
knowledge extends the production frontier of the national
economy. In this context, knowledge, produced through
innovation, can be considered a fundamental source of
economic growth.
• Even if knowledge is not considered as a factor of
competitiveness on global markets, it still represents one of
the fundamental drivers of (national) economic growth,
according to the contemporary growth theories.
Innovation, entrepreneurship &
• “Creative destruction is good for economic
development”. (Joseph A. Schumpeter, 1883-1950).
• Neoliberal equillibrium does not matter;
capitalism develops in the form of
the punctuated equillibrium: stable
conditions exist only between two
acts of creative destruction, radically
innovating technology, products...
and other elements of the competitive
• There is no innovation w/o knowledge.
Knowledge matters!
Knowledge and EU:
The Lisbon agenda (2000)
• EU striving to become ‘…the most
competitive and dynamic knowledgebased economy in the world, capable of
sustainable economic growth with more
and better jobs and greater social
Public or private good?
• Knowledge is an abundant resource: it can be rendered
obsolete, but does not depreciate, as a 'typical' material
resource. Although knowledge can be (re)used, without
depleting its inherent value, once it is embodied into, e.g. a
software, or a learning system, it starts generating actual
costs, related to its embedding into the actual product/service.
• Therefore, knowledge production is not free and its
creator(s) tend to protect their investment into its production.
The traditional system of patenting and intellectual property
rights (IPR) has once been 'good enough' for this purpose, but
the development of the Internet brings its practical viability
into question (due to piracy, exchange of copyrighted
materials, anauthorized access...). In other words, price of
knowledge tends toward 0 (zero) !
Knowledge as a (commercial)
• Knowledge may be abundant and nonrival, but some of it
should be excluded from the common (public) use, if it is
to produce economic benefits (profits). However, this will
limit the social effects of knowledge, as it becomes
impossible for other members of the society to use it
• While the price of 0 is guarantees socially efficient use of
knowledge (by ensuring rapid distribution), it demotivates
the knowledge producers and does not guarantee that
those will allocate resources required for its production.
• In addition, knowledge has significant positive
externalities, usually defined/interpreted in terms of
Private vs. public in
funding/implementing innovation
Knowledge spillovers: Creating
a knowledge region/city?
• For a spillover to occurr, the knowledge producer needs
to release it (voluntarily, or unvoluntarily), while the
recipient needs to utilize his/her cognitive capacity to
absorb the knowledge received, as well as adequate
motivation for the transaction (Benefit > Costs).
• Spillover of explicit knowledge is rather simple, as it can
be formally communicated. However, social & cultural
similarities facilitate the knowledge transfer greatly. Tacit
knowledge can be transferred only among similar actors,
within the shared social setting, which makes the
informal learning a viable process.
• There may be a limited (physical) space, such as a
region, or a city, for the efficient knowledge transfer!
Spatially isolated knowledge
spillovers=knowledge regions?
• Marshall/Arrow/Romer-type spillovers: related to
learning in solving similar problems, within the same
industry. Such spillovers lead to the exchange of
technology, skills... between the locally concentrated
producers, which is one of fundamental drivers of
cluster development.
• Jacobs-type spillovers: related to non-competitive
learning (such as benchmarking) between different
industries, which may help the regions/cities with
heterogeneous industry structure.
Source: T. Döring, B. Aigner: The Importance of Knowledge for Regional Economic Growth – State of
Economic Research and its Application to the Alps-Adriatic Region, forthcoming in: Langer, Pavicic,
Alfirevic (Eds.): Knowledge Region: Alps-Adriatic Challenges (Vol. I), Peter Lang.
Geography matters...
• Knowledge may be perceived as borderless, but
geography does matter, when it comes to the knowledge
• Once costs of distributing/putting knowledge to use
become relatively significant, as well as in case of high
social embeddedness of knowledge, distance becomes
an issue. In the first case, limited geographical scope of
the spillover is justified by the cost issues, while the
second case refers to the limited capacity of knowledge
recipients to absorb the spillover.
• Innovation (and its acceptance) may be often
geographically limited.
Adapted from: Foray, D.: Economics of Knowledge (L’économie de la connaissance),
DeCouverte Paris/MIT Boston, 2000/2004.
Some cluster-related
• (Re)considering the idea of clusters/industrial districts, which
connect the enterprises (sources of regional innovation) with
other relevant sources of the region's resources & social
capital (local government, educational institutions,
community at large...), in order to create support
mechanisms and a wider social context for the pursuit of
• Connecting the cluster/district policy to the restrictions
designed to boost the national economy in the crisis?
• Considering the effects to the (national) distribution of
income: if there is an inherent advantage of (certain) regions
as a basis for knowledge-based industries, this may have a
significant effects related to income/wealth distribution.
Social aspects of
knowledge regions
• The idea of urban/regional clusters (districts) and study of their
competitiveness, popularized by M. E. Porter in 1990s, implies
the value of social ties and capital in fostering & using the
results of innovation.
• Coherent & efficient social structures work together with the
economic infrastructure, not only to create the knowledgebased economy, but also to develop the knowledge society.
• The study of postmodernism in sociology has affirmed such a
view. The post-modern society is supposed to become
fragmented by moving from traditional structures to networks
(M. Castells: Networked society). It had been the same with the
economy, which concentrated on core competences and
outsourced the rest, as well as networked on the global level,
in a move from production to knowledge-based services (Bell).
From knowledge economy to
knowledge/network society
• Contemporary (post-everything) society revolves around
the notion of knowledge: it serves as a source of
economic and political power and a (not so new) source
of stratification.
• Knowledge is increasingly codified and informatized:
new technologies make it easy to use such knowledge
for pursuing innovation and economic growth. Culture,
social structures & societies themselves become
fragmented, as individuals are empowered to pursue
their own (social) objectives and create virtual
• Does the global crisis change anything?
Global crisis vs. knowledge
• At the economic level: breakdown of the neoclassical,
market-focused model of capitalist economy. More state
intervention, more taxes, less uninhibited
entrepreneurship and (probably) more trade, capital and
other restrictions/controls.
• At the political level: uncertain future of globalization, as
well as multinational organizations, including the EU.
• At the social level: less trust in the concepts inspired by
the post-industrial/post-modern script of the global
knowledge society. If we all 'de-globalize', more
traditional values and structures could (re)emerge, along
with the increased attention to local communities.
What about innovation &
• They are, probably, as important as always, but the global
crisis might have just put some limitations to theorizing of the
global+urban+liberal+information-based+totally-unrestrictedby-tradition socio-economic order, leading, ultimately, to the
visions of the SF writers, depicted by popular culture (e.g.
Blade Runner, Neuromancer and other early 'cyberpunk'
literature, The Matrix...).
• At the other hand, innovation/entrepreneurship are not 'silver
bullets' for all economic & social problems. The global crisis
may be a reminder that we might have overemphasized the
global on the expense of our regions and local communities. It
may be time to, once again, concentrate on local resources
and the quality of life in our immediate social surroundings.
Thank you !
• Questions?
• Comments?
• Please direct correspondence to:,