Economics of Knowledge for the Knowledge Economy

THE KNOWLEDGE GROWTH REGIME A SCHUMPETERIAN APPROACH CRISTIANO ANTONELLI DIPARTIMENTO DI ECONOMIA E STATISTICA COGNETTI DE MARTIIS UNVERSITA’ DI TORINO AND COLLEGIO CARLO ALBERTO PALGRAVE MACMILLAN, LONDON, 2018 1 CONTENTS 1. INTRODUCTION: THE ECONOMICS OF KNOWLEDGE FOR THE KNOWLEDGE ECONOMY 2. THE ECONOMICS OF KNOWLEDGE 2.1 INTRODUCTION 2.2 THE EARLY ECONOMICS OF KNOWLEDGE 2.3 THE KNOWLEDGE GENERATION FUNCTION 2.4 THE EXHAUSTIBILITY OF KNOWLEDGE 2.5 THE KNOWLEDGE APPROPRIABILITY TRADE-OFF 2.6 INTERINDUSTRIAL VS INTRAINDUSTRIAL SPILLOVER 2.7 KNOWLEDGE AND FINANCE 2.8 KNOWLEDGE AND TOTAL FACTOR PRODUCTIVITY 2.9 THE CAPITALIZATION OF KNOWLEDGE 3. THE NEW DIRECTION OF TECHNOLOGICAL CHANGE 3.1 INTRODUCTION 3. 2. THE CREATIVE RESPONSE WITHIN THE INDUCED AND DEMAND PULLED TECHNOLOGICAL CHANGE FRAMEWORKS 3.3. LOCALIZED TECHNOLOGICAL CHANGE AS A CREATIVE RESPONSE 3.4 DIRECTED TECHNOLOGICAL CHANGE AS A SOURCE OF COMPETITIVE ADVANTAGE 3.5 THE KNOWLEDGE INTENSIVE DIRECTION OF TECHNOLOGICAL CHANGE 3.6 CONCLUSIONS 4. THE DYNAMICS OF KNOWLEDGE GOVERNANCE: SCHUMPETERIAN GROWTH REGIMES 4.1 INTRODUCTION 4.2 SCHUMPETERIAN GROWTH REGIMES AT WORK 4.3 THE ENTREPRENEURIAL GROWTH REGIME 4.4 THE CORPORATE GROWTH REGIME 2 4.5 THE KNOWLEDGE GROWTH REGIME 5. THE POLITICAL ECONOMY OF THE KNOWLEDGE GROWTH REGIME 5.1 INTRODUCTION 5.2 THE MIDDLE CLASS AND THE CORPORATE GROWTH REGIME 5.3 THE DEMISE OF THE CORPORATE GROWTH REGIME AND THE DECLINE OF THE MIDDLE CLASS 5.4 THE MIDDLE CLASS IN THE KNOWLEDGE GROWTH REGIME 5.5 CONCLUSIONS 6. TOWARDS A NEW KNOWLEDGE POLICY 6.1 INTRODUCTION 6.2 THE PUBLIC SUPPORT TO KNOWLEDGE GENERATION 6.3 THE PUBLIC SUPPORT TO KNOWLEDGE EXPLOITATION 7. CONCLUSIONS 8. REFERENCES 3 INDEX ACADEMIA ADDITIONALITY APPROPRIABILITY ASSET BARRIERS TO ENTRY CAPITAL CAPITAL GOODS CAPITAL INTENSIVE CAPITAL SAVING CAPITALIZATION CODIFIED KNOWLEDGE COMPETENCE COMPETITION COORDINATION CORPORATION CREATIVE DESTRUCTION CREATIVE RESPONSE CUMULABILITY CUSTOMER DEBT DEMAND PULL DIRECTION OF TECHNOLOGICAL CHANGE Ecole de la regulation EFFICIENCY WAGES EMPLOYMENT ENTREPRENEURSHIP EQUITY EXCLUSIVITY EXHAUSTIBILITY EXTENSIBILITY EXTRA-PROFIT FACTOR COST EQUALIZATION 4 FACTOR MARKET FINANCIAL MARKET GENERAL INTELLECT GLOBALIZATION GLOBALIZATION OF FINANCIAL MARKETS GLOBALIZATION OF PRODUCT MARKETS GROWTH REGIME ICT IMITATION EXTERNALITIES INCOME INDUCED TECHNOLOGICAL CHANGE INDUSTRY INFRASTRUCTURE INNOVATION INTANGIBLE INTELLECTUAL PROPERTY RIGHTS (IPR) INTERACTION INTERMEDIARY GOODS INVESTMENT IPR REGIME KIBS KNOWLEDGE EXPLOITATION KNOWLEDGE EXTERNALITIES KNOWLEDGE GENERATION KNOWLEDGE GENERATION FUNCTION KNOWLEDGE GOVERNANCE KNOWLEDGE INTENSIVE KNOWLEDGE INTENSIVE BUSINESS SERVICES (KIBS) KNOWLEDGE STOCK JOB LABOR LABOR INTENSIVE LABOR MARKET LABOR SAVING LEARNING LIABILITY RULE LOCALIZED LEARNING 5 LOCALIZED KNOWLEDGE LOCALIZED TECHNOLOGICAL CHANGE MANUFACTURING MARK-UP ORGANIZATIONAL INNOVATION OUTSOURCING PATENTS PROCESS INNOVATION PRODUCT INNOVATION PRODUCT MARKET PRODUCER PROFITS R&D RATE OF TECHNOLOGICAL CHANGE RECOMBINANT RENT INEQUALITY RENTS RESEARCH SCIENCE SCIENTIST SERVICE SKILLS SPILLOVER START-UP STOCK SUBSIDY TACIT KNOWLEDGE TANGIBLE TECHNOLOGICAL CONGRUENCE TECHNOLOGY PRODUCTION FUNCTION Tobin’s q TOTAL FACTOR PRODUCTIVITY (TFP) TRADABILITY TRADE-UNIONS TRANSACTION UNEMPLOYMENT UNIVERSITY 6 USER VENTURE CAPITALISM WAGE WAGE INEQUALITY WEALTH WEALTH INEQUALITY WORK WORKER 7 LIST OF TABLES AND FIGURES FIGURE 2.1. THE DERIVED DEMAND FOR KNOWLEDGE AND STANDARD ECONOMIC GOODS WITH DIFFERENT LEVELS OF EXHAUSTIBILITY AND APPROPRIABILITY FIGURE 2.2. POSITIVE AND NEGATIVE EFFECTS OF THE LIMITED APPROPRIABILITY OF KNOWLEDGE FIGURE 2.3 A WELFARE ANALYSIS OF THE POSITIVFE AND NEGATIVE EXTERNALITIES OF KNOWLEDGE APPROPRIABILITY FIGURE 3.1 THE INDUCEMENT OF LOCALIZED TECHNOLOGICAL CHANGE FIGURE 3.2 ALTERNATIVE SHAPES OF THE FRONTIER OF POSSIBLE ADJUSTMENTS FIGURE 3.3. THE EQUILIBRIUM MIX OF SWITCHING AND INNOVATION IN LOCALIZED TECHNOLOGICAL CHANGE FIGURE 3.4 THE LOCALIZED INTRODUCTION OF TECHNOLOGICAL CHANGES TABLE 4.1. KNOWLEDGE GENERATION, EXPLOITATION AND TECHNOLOGICAL CHANGE IN SCHUMPETERIAN GROWTH REGIMES TABLE 4.2 SYSTEM DYNAMICS IN SCHUMPETERIAN GROWTH REGIMES FIGURE 6.1 EFFECTS OF R&D SUBSIDIES ON R&D LEVELS 8 1. INTRODUCTION: THE ECONOMICS OF KNOWLEDGE FOR THE KNOWLEDGE ECONOMY ABSTRACT THIS INTRODUCTION PRESENTS THE ANALYTICAL FRAMEWORK IMPLEMENTED BY THE BOOK AS THE GRAFTING OF THE TOOLS ELABORATED BY THE ECONOMICS OF KNOWLEDGE AND THE LEGACY OF JOSEPH SCHUMPETER TO EXPLORE THE FOUNDATIONS OF THE NEW KNOWLEDGE ECONOMY AND THE SHIFT AWAY FROM THE CORPORATE GROWTH REGIME. IT FRAMES THE INNOVATION PROCESS AS A CREATIVE RESPONSE BASED UPON THE ACCUMULATION, GENERATION AND EXPLOITATION OF KNOWLEDGE AND HIGHLIGHTS THE NEW STRUCTURE OF ADVANCED ECONOMIES WHERE KNOWLEDGE IS AT THE SAME TIME THE PRIME INPUT AND OUTPUT. IT EMPHASISES THE LIMITS OF THE NEW KNOWLEDGE GROWTH REGIME, RAISED BY THE ROLE OF FINANCE, INCOME DISTRIBUTION AND INTELLECTUAL PROPERTY RIGHTS AND RECOMMENDS APPROPRIATE ECONOMIC POLICIES BASED UPON AN OPEN TECHNOLOGY APPROACH. KEY WORDS: ECONOMICS OF KNOWLEDGE; KNOWLEDGE ECONOMY; SCHUMPETERIAN GROWTH REGIMES; OPEN TECHNOLOGY The economic profession is reluctant to understand the aggregate and macroeconomic implications of the radical structural discontinuity brought about by the transition to the knowledge economy and the challenges raised by the central role of knowledge as an economic good. The decline of the industrial economy and the transition to the knowledge economy in advanced countries take place amid several difficulties. A major effort is necessary to understand this transition as a radical structural change that questions not only the working of the economy of advanced countries, but also the foundations of both economic analysis and economic policy (Kuznets, 1971). 9 Here the quote from the Obituary of John Maynard Keynes by Joseph Schumpeter seems most appropriate: “The social vision first revealed in the Economic Consequences of the Peace, the vision of an economic process in which investment opportunity flags and saving habits nevertheless persist, is theoretically implemented in the General Theory of Employment, Interest, and Money (Preface dated December 13, 1935) by means of three schedule concepts: the consumption function, the efficiency-of-capital function, and the liquidity-preference function. These together with the given wage-unit and the equally given quantity of money “determine” income and ipso facto employment (if and so far as the latter is uniquely determined by the former), the great dependent variables to be “explained.” What a cordon bleu to make such a sauce out of such scanty material ……This permits many otherwise inadmissible simplifications: for instance, it permits treating employment as approximately proportional to income (output) so that the one is determined as soon as the other is. But it limits applicability of this analysis to a few years at most- perhaps the duration of the “40 months’ cycle” -and, in terms of phenomena, to the factors that would govern the greater or smaller utilization of an industrial apparatus if the latter remains unchanged. All the phenomena incident to the creation and change in this apparatus, that is to say, the phenomena that dominate the capitalist processes, are thus excluded from consideration.” (Schumpeter, 1946:510-512) Schumpeter discussing the merit of the Marxian Doctrine acknowledged that: “As a matter of fact, capitalist economy is not and cannot be stationary. Nor is it merely expanding in a steady manner. It is incessantly being revolutionized from within by new enterprise, i.e., by the intrusion of new commodities or new methods of production or new commercial opportunities into the industrial structure as it exists at any moment. Any existing structures and all the conditions of doing business are always in a process of change. Every situation is being upset before it has had time to work itself out. Economic progress, in capitalist society, means turmoil. And, as we shall see in the next part, in this turmoil competition works in a manner completely different from the way it would work in a stationary process, however perfectly competitive. Possibilities of gains to be reaped by producing new things or by producing old things more cheaply are 10 constantly materializing and calling for new investments. These new products and new methods compete with the old products and old methods not on equal terms but at a decisive advantage that may mean death to the latter. This is how “progress” comes about in capitalist society. In order to escape being undersold, every firm is in the end compelled to follow suit, to invest in its turn and, in order to be able to do so, to plow back part of its profits, i.e., to accumulate. Thus, everyone else accumulates.” Schumpeter (1942: 32) The Ecole de la regulation has contributed much to exploring the dynamics of transformation as a process punctuated by radical technological and structural changes. According to Michel Aglietta: “The study of a movement, moreover, is the study of a change of state. If a system is described as dynamic, then the constitutive relationships of the system must have a logic of internal transformation. To conceive of the regulation of a system transforming itself in this way is to see the changes that occur in its relationship as such that these relationships can always be organized in to a system….There is no a priori reason why a transformation must be more than a ‘plastic transformation’

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