THE KNOWLEDGE ECONOMY Roberto Mangabeira Unger TABLE OF CONTENTS The most advanced practice of production .................................................................................................................... 3 The knowledge economy: its characteristics described at the level of management and production engineering .........................................................................................................................................................................11 The deep structure of the knowledge economy: relaxing or reversing the constraint of diminishing returns ..13 The deep structure of the knowledge economy: production, imagination, and co-operation ..............................15 The deep structure of the knowledge economy: trust, discretion, and the moral culture of production ...........20 The confinement of the knowledge economy: the fact and the riddle ......................................................................22 Pseudo-vanguardism and hyper-insularity ...................................................................................................................23 Precarious employment ....................................................................................................................................................25 The confinement of the knowledge economy: consequences for economic stagnation and inequality ............28 The confinement of the knowledge economy: the beginning of an explanation .....................................................34 Making the knowledge economy inclusive: the cognitive-educational requirements ............................................38 Making the knowledge economy inclusive: the social--moral requirements ...........................................................42 Making the knowledge economy inclusive: the legal--institutional requirements ..................................................49 Background incitements: generalized experimentalism and high-energy democracy ..........................................58 Inclusive vanguards and the dilemma of economic development.............................................................................67 Inclusive vanguards and the political economy of the rich countries ......................................................................74 Growth, crisis, and successive breakthroughs of the constraints on supply and demand: the larger economic meaning of inclusive vanguardism .................................................................................................................................81 The enigma of supply and demand ..................................................................................................................................... 81 Contrast to Keynes's teaching ............................................................................................................................................. 84 The spectrum of breakthroughs in the constraints on demand ....................................................................................... 87 The spectrum of breakthroughs of the constraints on supply .......................................................................................... 92 Economics and inclusive vanguardism .........................................................................................................................98 The imperative of structural vision ....................................................................................................................................... 98 The large-scale history of social and economic thought: truncating and evading structural vision .......................... 101 Reckoning with post-Marginalist economics: the disconnection between theory and empiricism............................ 103 Reckoning with post-Marginalist economics: the deficit of institutional imagination................................................... 105 Reckoning with post-Marginalist economics: the theory of production subordinated to the theory of exchange ... 109 Reckoning with post-Marginalist economics: a theory of competitive selection unaccompanied by an account of the diversification of the material from which competitive selection selects ........................................................... 110 Uses and limits of Keynes's heresy ................................................................................................................................... 111 Uses and limits of the example provided by pre-Marginalist economics ..................................................................... 114 Two ways to develop the needed ideas: from within the established economics and from outside it ..................... 118 The higher purpose of the inclusive knowledge economy .......................................................................................120 2 The Knowledge Economy Roberto Mangabeira Unger The most advanced practice of production A new practice of production has emerged in all the major economies of the world. The simplest and most telling of its many names is the knowledge economy. We might also call it the experimental economy to highlight its most characteristic attitude to its own work. It holds the promise of changing, to our benefit, some of the most deep- seated and universal regularities of economic life and of dramatically enhancing productivity and growth. Its effects, however, have so far proved modest. Instead of spreading widely, it has remained restricted to vanguards of production, employing few workers. Entrepreneurial and technological elites control it. A handful of large global firms have reaped the lion's share of the profits that it has yielded. It appears in every part of the production system; the habit of equating it with high-technology industry is unwarranted. In every sector of the economy, however, it remains a narrow fringe, excluding the vast majority of the labor force. Even though its products are used ever more widely, its revolutionary practices continue to be quarantined. If only we could find a path from these insular vanguards to socially inclusive ones we would have built a powerful motor of economic growth. We would also have supplied an antidote to inequality far more forceful than the after-the-fact correction, by progressive taxation and redistributive social spending, of inequalities generated in established market regimes. The true character and potential of the new practice of production remain disguised: by virtue of being insular, the knowledge economy is also undeveloped. The technologies with which it is most recently associated, such as robots and artificial intelligence, have riveted worldwide attention. Nevertheless, we have barely begun to grasp its significance for economic and social life or gained insight into its possible futures. This book presents a view of the knowledge economy, of the causes and consequences of its confinement, and of the passage from its present insularity to its possible inclusiveness. The established body of economic ideas is useful and even indispensable but also insufficient to an understanding of these problems. Received economic theory leaves us short of the insights that we need to guide the institutional and policy changes required to take us from the insular knowledge economy that we have to the inclusive one that we need. The effort to think through the agenda of an inclusive vanguardism prompts us to reassess the alternative futures of economics as well as the alternative futures of the economy. 3 This situation in economic reality and in economic thought confront all nations, especially developing countries, with a dilemma that has now come to the forefront of practical political economy. Conventional industrialization, as a guarantee of economic growth and of convergence to the level of the richest economies, has stopped working. However, the alternative -- the advancement of a broad-based, economy-wide form of the knowledge economy -- seems to be inaccessible. Not even the richest economies, with the most educated populations, have achieved it. Is it not a goal beyond reach for the rest of the world? In every moment of economic history there is a most advanced practice of production. It may not be, when it first appears and begins to spread, the most efficient practice: the one that achieves the greatest output relative to the inputs required to make it. It is, however, the most promising practice: the one with the greatest potential to stay at the frontier of productivity, having reached it, and to inspire change across the economy. It possesses, in higher measure than rival practices of production, the attributes of fecundity and versatility, assuming varied forms in different settings. In the past, the most advanced practice of production has been associated with a particular sector of the economy: manufacturing. for example, by contrast to agriculture or services. However, the most advanced practice may appear, instead, as a piece of many sectors rather than remaining identified with one. The two greatest thinkers in the history of economics -- Adam Smith and Karl Marx -- believed that the best way to discover the deepest truths of economics was to study the most advanced practice of production. For them, it was mechanized manufacturing as it had appeared in the early years of the Industrial Revolution of the late eighteenth century, to be followed by the industrial mass production of the late nineteenth century. Smith