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«      Boffo, Marco (2013) Interrogating the knowledge‐based economy: from  ...»

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controversy raged at RAND between its systems analysts, who argued in favour of a top-down procedure (controlled by the military) in the design and development of the intercontinental ballistic missile, and a ‘cadre of neoliberal economists at RAND, including Armen Alchian, Reuben Kessel, and Jack Hirshleifer’, who favoured the simultaneous contracting out to private corporations of several research and development programmes, ‘with the military entering in at a relatively late stage to procure the most likely candidate weapons system’ (Mirowski, 2011, p.60).29 Nelson and Arrow sided with the system analysts, and supported the latter’s line by providing it with ‘appealing economic theories as to why the nation would systematically underinvest in basic research’ (Hounshell, 1997, p.258) in the absence of government intervention.30 Thus, Arrow and Nelson’s characterisation of research activity as information, and of the latter as an anomalous good (if compared to tangible goods) whose provision required government subsidy and intervention, was instrumental in furthering the interests of RAND, both within (against the neoliberals) and without (at the time, RAND was facing a crisis of legitimacy and the potential withdrawal of government funding) (Van Horn, Klaes, 2011a).

Given the Cold War climate and the subsequent fear that the USSR could outdo the US technologically and militarily, Arrow and Nelson’s view found favourable reception within RAND, which ended up pursuing the top-down approach devised by its system analysts (Mirowski, 2011, p.60).

Yet, while the characterisation of knowledge as a public good rose to prominence in science policy discussions in the West in the 1960s – not least because it lent active support to the This controversy echoes closely the debate between Bernal and Polanyi over the planning of scientific activity, mentioned in footnote 18, and, more generally, the debate over the virtues and superiority of decentralised (market) vs. centralised (state) planning (see Hayek, 1945). A more recent, similar controversy over the efficiency of privately- vs. publicly-funded research has taken place around the Human Genome Project, launched in 1988 as a publicly-funded project tasked of mapping the human genome, but subsequently privatised in the process of its activities. It is worthwhile to notice that (unsurprisingly) Gary Becker (2000) has been a staunch supporter of the beneficial effects of privatisation of the project. More sobering and complex historical accounts of the entire affair are provided by Orsi, Moatti, 2001 and Mirowski, 2011.

Arrow intervened in this controversy through a RAND document and paper (respectively, Arrow, 1955 and 1959); these were reworked for publication as Arrow, 1962a, but purged of direct references to the dispute over weapons systems (Mirowski, 2011, p.60). While Arrow, 1959 was partly ground in the analysis provided in Arrow, 1955, the latter did not point to the danger of underinvestment in research and development, a theme that became present and prominent in Arrow, 1959 and Arrow, 1962a. The launch of the Sputnik satellite by the USSR in 1957 proved a key factor in making Arrow’s argument more persuasive (Van Horn, Klaes, 2011a). More broadly, accurate analysis of Arrow’s role within RAND, the Cold War, and the development of neoclassical economics in that period can be found in Amadae, 2003 and Mirowski, 2002. Nelson’s famous 1959 paper was also written in the heat of this controversy (Mirowski, 2011; Hounshell, 1997, 2000). Nelson (2006) himself has recognised the origins of Nelson, 1959 and Arrow, 1962a in his and Arrow’s work at, and involvement with, RAND, although without mentioning the controversy narrated above. See also Alchian, Kessel, 1954 for the point of view of neoliberal economists within RAND.

(then popular) idea of the linear model of innovation (Mirowski, 2011; Hands, 2001, p.364)31 – the notion of public good itself was to come under heavy attack within economics subsequent to, and as consequence of, the rise of neoliberalism both within and without the discipline (Mirowski, 2011; Van Horn, Klaes, 2011a). Arrow (1962a) and Nelson’s (1959) papers had proved instrumental in initiating the ‘now-pervasive habit of treating the genesis of scientific knowledge as if it were production of a “thing”, on a par with any other commodity, except for the fact that basic science was said to exhibit the characteristics of a public good’, thus paving the way for the reification of ‘science as a conflation of object and process as a prelude’ to its being encompassed ‘as a subject of economic analysis’ (Mirowski, 2011, p.58). However, this argument would face its come-uppance, at the hands of Ronald Coase, through a redefinition of what constitutes a commodity. Drawing on, and generalising from, his analysis of broadcasting frequencies (Coase, 1959), Coase’s (1960) ‘The problem of social cost’ aimed to challenge the conventional wisdom of the day, which implied that solving problems of market failure and externalities required government intervention through taxation or subsidy.32 For Coase, market failure and externalities did not result from a failure of competitive processes but, rather, they were to be understood as the manifestation of the failure of the legal framework to provide clear, well-defined property rights. Thus, ‘[u]nderlying Coase’s analysis was the question of how to interpret the most basic unit of exchange’. If ‘[e]conomists at that time explained the workings of a competitive market with reference to tangible goods’,33 ‘Coase insisted … that the basic unit of exchange should not be understood as goods themselves, but rather bundles of property rights for goods’ (Van Horn, Klaes, 2011a, p.315;

similarly, Mirowski, 2011, p.61). With the commodity thus redefined in “intangible” terms, Coase held that, once property rights were “unbundled” and given clear definition, the untrammeled market mechanism would ensure the most efficient allocation of resources in The linear model of innovation can be represented as follows: PUBLIC FUNDING  BASIC RESEARCH


BENEFITS. See Mirowski, 2011 (especially pp.47-56) and Godin, 2006b for accounts of its rise, (mis)fortunes, and decline.

Samuelson was acutely aware of the attack that the controversy over broadcasting frequencies constituted for the edifice of his own public good theory. Indeed, he noted that the debate over unscrambling the frequencies was really centred on how ‘to convert a public good into a private good’ and, therefore, ‘sidestep the vexing problem of collective expenditure, instead relying on the free pricing mechanism’. However, he disagreed, since ‘[b]eing able to limit a public good’s consumption does not make it a true-blood private good. For what, after all, are the true marginal costs of having one extra family tune in on the program? They are literally zero’ (Samuelson, 1958, p.335). But see also Medema, 2009, especially ch.5, for discussion of the significance of the controversy over broadcasting frequencies (and Coase’s intervention in it) for the redefinition of the traditional views within (welfare) economics with respect to externalities, market failure and government intervention.

Arrow, 1962a and Nelson, 1959 are extreme cases of this tendency, since they analyse innovation and information as if they were goods defined, in negative terms, by … what distinguishes them from tangible goods!

the absence of transaction costs (though these were considered negligible in practice).34 However, the full implication of this argument was that, since the non-excludable nature of public goods resulted from ill-specified property rights (rather than some intrinsic characteristic of the good in question), in reality, there was ‘no such thing as a “public good” but only a series of problems handled by different governance structures, themselves determined by relative transaction costs’ (Mirowski, 2011, p.30). Thus, Coase’s argument and reconceptualisation of the commodity resulted in a full-on attack to the non-excludability component of the definition of public goods (Mirowski, 2011, p.62), which not only implied that public goods do not exist,35 but also that there are no fundamental differences between markets for goods and markets for ideas (Coase, 1974b).36 With the concept of public good thus hollowed out from within the economics profession, it cannot constitute but a blunt weapon in defence of the free character of knowledge in an age of commercialised science (Mirowski, 2011, pp.56-57) and redefined and expanded IPRs.37 This is implicitly admitted (although not deplored) by Foray, for example, for whom ‘[s]aying that knowledge is a public good, when we are living in a historical period of accelerated privatization of knowledge bases … can be a source of misunderstanding’ (Foray, 2006, p.118).

This argument constitutes, in a nutshell, what was to be dubbed by Stigler (1966) as the “Coase Theorem”. See Medema, 2002 on Stigler as promoter of the Coase Theorem, and Fine, Milonakis, 2009 and Medema, 2009 for discussion of the history, significance and nature of the Coase Theorem itself. It must be stressed that, in this case, “theorem” is a misnomer, since the Coase Theorem does not result from the derivation of ‘formal consequences from deductive reasoning’ (Fine, Milonakis, 2009, p.100).

This argument was carried further in Coase, 1974a, which ridiculed the lighthouse as example of positive externality as classically discussed within economics by contending that, in historical reality, the English lighthouse system was financed privately. However, see Bertrand, 2006 for critical discussion and a more complex historical account showing mixed public and private sources of funding.

‘I do not believe that this distinction between the market for goods and the market for ideas is valid.

There is no fundamental difference between these two markets and, in deciding on public policy with regard to them, we need to take into account the same considerations’ (Coase, 1974b, p.389).

Incidentally, it must be noted that Coase’s reflection played an important role in shifting the conception of Chicago neoliberalism from one of hostility towards patents, rooted in the anti-monopolistic tradition of Chicago classical Liberal economists, towards one of appreciation of patents’ role in the construction of a competitive order (Van Horn, Klaes, 2011a, 2011b). Further, that Coase’s attack on the concept of public good has been a key moment, sanctioning the ascent of neoliberal attitudes within the economics discipline, can be gauged from Samuelson’s own lament in light of the controversy over broadcasting frequencies: ‘The final question is, Why all this? Is it because, despite all denials, Chicago is not so much a place as a state of mind? Is it because of the fear that finding an element of the public-good problem in an area is prone to deliver it over to the totalitarian state and take it away from the free market? The line between conviction and paranoia is a fine line’ (Samuelson, 1964, p.83). As will be argued later, the demise of the characterisation of knowledge as a public good ultimately finds completion and celebration with the rise of endogenous growth theory.

By the same token, as shown in footnote 23, the “anti-commons” literature which, spawning from Heller, 1998 and Heller, Eisenberg, 1998, has attempted to defend open science and knowledge production from commercialisation and the extension and expansion of IPRs (for a sample, see many of the contributions in Hess, Ostrom, 2007a) is rendered futile by its own recourse to concepts (the commons, public goods) from, and the logic of, orthodox economics (similarly, Mirowski, 2011, p.372, footnote 29).

Ultimately, as noted by Mirowski (2011), the death knell of this justification for the defence of publicly funded science has been sounded from within the sociology of scientific knowledge by Michel Callon (1994), one of its most notable exponents. Indeed, as much as the latter deplores the economists’ reification of science as a good, their collapsing of knowledge into information, and the commercialisation of science itself, he draws, nonetheless, form his Actor-Network Theory the lesson that ‘[s]cientific knowledge does not constitute a public good as defined in economic theory’ (p.407), since ‘[r]ecent results in the sociology of scientific knowledge make it easy to show that there is nothing in science to prevent it from being transformed into merchandise’ (pp.401-402).38 Thus, different international institutions have given more weight in their rhetoric to the social (Stiglitz, 1999a, UNESCO, 2003, 2005, European Commission, 2002, CEU, 2000)39 or the economic (OECD, 1996, 2000) according to their own ethos, purposes and functions – with, on the one hand, those emphasising the social character of the KBE, joined by radical critics, enthused by the conceptualisation of knowledge as a public good, and, on the other hand, those emphasising the role of knowledge within economic growth more attentive to the subsequent redefinitions of the characteristics of knowledge within economic theory and the sociology of scientific knowledge. Of course, in the rhetoric of the KBE, existence and extension of IPRs have found justification in the classic rationale for patents (i.e. provision of appropriate incentives for innovation and information dissemination and the need to find a compromise between static and dynamic efficiency) (Foray, 2006; Stiglitz, 1999a), the distinction between basic and applied science/technology (OECD, 1996, following science and technology studies scholars Gibbons et al., 1994), and the progressive re-conceptualisation of knowledge, through revision of its economic attributes and characteristics, as a semi-public or entirely private good (OECD, 2000; Callon, 1994). However, the most ‘remarkable’ aspect of the recent changes and extension of IPRs is that they have ‘occurred without the slightest sign of any corresponding change in the domain of... theory and analysis’ (Orsi, Coriat, 2005, p.1210; similarly, Foray, 2006, p.146, for whom ‘[e]conomists’ uncertainty’ on the issue of patents remains ‘greater than ever’), while also side-tracking by far the musings of mainstream economists about the intrinsic characteristics of knowledge (i.e.

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