Download The Knowledge Economy

The Knowledge Economy:
the policy challenges
Luc Soete
University of Maastricht
MERIT
http://www.merit.unimaas.nl
Knowledge Economy Forum III, The World Bank and the
Government of Hungary, Improving Competitiveness Through
a Knowledge-Based Economy, Budapest, March 23-26, 2004.
Outline
• First: a brief overview of some of the concepts
relevant to the Knowledge-Based Economy,
growth and international competitiveness
• Second, some learning from the past: knowledge
enlightenment and development catching-up
• Third, main policy implications for the position of
the ECA-countries within the framework of the
emergence of a global knowledge-based economy
1. Trade, specialisation and
growth
• Once there was economic paradise
• Physical distance and welfare loss
• Free trade as optimal solution: nothing else but the
application to the international world of free
market principles
• International specialisation, international
competitiveness and growth
• Technology/knowledge an external factor:
accessible to all at no costs
(Neo-)Classical view on
technology/ knowledge
• Technological change drives economic growth (as
in both classical and neo-classical theory) in
agriculture in industry, but is diverse.
•
•
•
•
continuous as in case of Boston learning curve,
incremental improvements
radical, sometimes “clusters” of interrelated technologies
general purpose technologies
• Hence sometimes a smooth incremental process,
sometimes accompanied by a lot of creative
destruction (large turnover of firms, employees,
managers)
Supply dominated view
• Black box vision “not to be opened except by
scientists and engineers” (Freeman)
• Supply features of technologies imply that public
support could be justified for basic research where
social rate of return is higher than private one so
that private firms underinvest in such research
• It are various supply bottlenecks associated with
the distribution of the gains from technology
which are likely to create mismatches (Ricardo’s
famous reference to technological unemployment)
Knowledge-based economy and
development
• Demand based view: knowledge/technology
investments (of whatever form) are the result of
endogenous decisions by firms, entrepreneurs,
employees: support for uptake, diffusion, etc.
• Technology internationally accessible but crucial
importance of tacit knowledge (human capital,
learning, organisational knowledge)
• Particular role of ICT on codification of
knowledge and tradability of services: new
windows of opportunity for catching-up
2. Learning from the past:
knowledge and catching-up
• Neo-classical dominance in trade theory after
Heckscher and Ohlin till the 70’s and the
emergence of new trade theory
• Technology accounts of trade flows provided the
essential challenge and ingredient for new trade
(and later on new growth) theory
• From trade to foreign investment and entry: what
we know from the trade and development
literature
U.S. position
The geographic outspreading of technologies as they mature
A schematic presentation of the U.S. trade
position in the product life-cycle
Source: Wells L (1972)
CHANGING REQUIREMENTS FOR ENTRY
AS TECHNOLOGIES EVOLVE TO MATURITY
Scientific knowledge
Capacity to use
unskilled labor
Experience & know-how
Relative importance of
locational advantages
High
Dynamic
advantages
Comparative
(static)
advantages
Low
1
2
3
4
1
2
Source: Based on Perez and Soete (1988) Hirsch S (1967)
3
4
1
2
3
4
1
2
3
4
The limits of mature technologies for development:
DECREASING POTENTIAL OF TECHNOLOGIES
AS THEY EVOLVE TO MATURITY
Space for productivity
improvement
Profit making
capacity
Potential for market
growth
Investment cost
(production facilities)
High
Low
1
2
3
Source: Based on Perez (2003)
4
1
2
3
4
1
2
3
4
1
2
3
4
Degree of technological maturity and market saturation
UNDERSTANDING BEHAVIOR AT THE CORE (Perez, 2003):
Phases of evolution of a product and its industry
Changing focus, structure and basis for competition
PRODUCT
PROCESS
MARKET POWER
STRETCHING
RATIONALIZATION
RELOCATION
SHAKE-OUT and CONCENTRATION
Stable structure of industry
(possibly oligopoly)
DEVELOPMENT
OF INDUSTRY
in fierce competition
Main focus
Stage
of industry
Stretching technology
Pushing the market ceiling
Finding cost advantages
Scale of firm
Financial power
Market capture
Non-price factors
Basis for
competition
Process efficiency and quality
Cost reduction (prices)
Market expansion (segments)
Brand differentiation
Distribution chanels
ESTABLISH PRODUCT
and market segments
Fight for
dominant design
Product design
Market access
1. Introduction
2. Early growth
3. Late growth
PHASES
4. Maturity
Time
Degree of technological maturity and market saturation
CHANGING WINDOWS OF OPPORTUNITY FOR ENTRY (Perez 2003)
PROBABLY
NONE
AS A
COMPLEMENT
AS PART OF
STRUCTURE
AS STRETCHING
SOLUTION
Cost advantages, finance
Learning and/or
copying capabilities
Profit enhancing attractions
through markets, externalities
and/or cost advantages
Knowledge
Local know-how
for “niche”
Basis for entry
PRODUCTION AGREEMENTS
JOINT VENTURES, LICENSES
AUTONOMOUS COPY
REJUVENATING INNOVATIONS
ADVANTAGEOUS OR PROTECTED
ROLE IN THE STRUCTURE
OF A WORLD FIRM
Competence as supplier
Access to resources
and/or markets
Interest in
developing
country firms
Character
of entry
COMMERCIAL REPRESENTATIVE, PARTS
PRODUCER
OTHER (depending on paradigm)
AUTONOMOUS ENTRY IN
“FREE” COMPETITION
MODERNIZE TRADITIONAL INDUSTRY
1. Introduction
2. Early growth
3. Late growth
PHASES
4. Maturity
Time
Learning from the past
• Industrial enlightenment: why island of
knowledge development became an industrial
revolution in 19th Century (Mokyr, 2003)
• Importance of interaction between “les savants et
les fabriquants”: need for scientific proof on the
part of manufacturers, need/hunger for application
and understanding of scientific principles
(Diderot’s encyclopedia, Lunar Society).
• Importance of knowledge diffusion for economic
development and catching-up
3. Policy challenges for the ECA
countries
• Further liberalisation of trade in goods and
services, including financial deregulation
• Information and global “codified” knowledge
diffusion (e.g. the entire genetic constitution of the
human species, its genome, is available to all on
the Web): “ICT” the first form of “global”
technological change (David and Foray, 2002)
• Knowledge divide is more than ever linked to
human capital or tacit knowledge
Old Globalisation trends:
what’s new?
• In terms of trade or investment flows: not much
but nevertheless major differences
– Trade expansion driven by regional integration
• Sometimes government induced (EU)
• Sometimes business induced (ASEAN)
– Trade in services
– Direction of trade flows
• Triad dominant but with large imbalances
• Emerging outside BRICS
• Large parts more or less excluded
“New” Globalisation trends
Central increased tradability of “intangibles”:
– Finance
• No longer complement of trade or FDI flows
• Agglomeration effects traditional financial centres
– International alliances between firms:
• Production, after sales/marketing
• R&D, Mergers and acquisitions
– Diffusion of information and knowledge
• Through public organisations and transfer institutions
• Through formal contractual arrangements (licences,
technological payments)
– Migration/mobility of human “tacit” knowledge
Policy challenges
• Positioning of ECA countries within these new
global trends, in particular with respect to
knowledge-based activities
• Progress in absolute terms impressive, but in
relative terms position has deteriorated
• New knowledge challenges:
• FDI are moving out to China, India… FDI bypassing ECA
countries, in spite of tax-free zones
• Human capital is moving out
• Need for national knowledge anchorage policies
Role of Nation State
– Quality of institutions is ultimately what matters
– Importance of comparative learning: best practice
cases; why not use open method of coordination to
improve performance
– “Activating” knowledge:
• at labour, education, university level
• at financial, entrepreneurial and human capital level
– Investing in knowledge infrastructure crucial for global
access to knowledge and keeping scientists and
engineers (see EU evidence)