« Boffo, Marco (2013) Interrogating the knowledge‐based economy: from ...»
Fourthly, for Foray ‘[t]here is no stable model that can be used to convert inputs (into the creation of knowledge) and outputs (economic effects)’, because knowledge, ‘has no fixed capacity in terms of impact of an additional quantity on the economy’ (Foray, 2006, p.9).
Indeed, whether new ideas can be conducive to societal change or remain ineffective depends on a variety of social factors, including ‘the prevailing spirit of initiative, the situation of competition or the social organization’ (p.9) (similarly, Mokyr, 2002). Therefore, ‘there is no production function that can be used to forecast, even approximately, the effect that a unit of knowledge will have on economic performance’, and, ‘[c]onversely, it is very difficulty [sic] to impute an economic effect to particular knowledge’, as externalities and cumulativity stand in the way of incontrovertible attribution of ‘a particular improvement in the economy’ to any particular element of knowledge (Foray, 2006, p.9). Last but certainly not least, for Foray ‘market institutions face daunting problems when a price has to be set for knowledge’: indeed, in transactions whose object is knowledge, ‘the seller – by selling knowledge – does not lose anything’, as ‘knowledge is acquired definitively, even if it is shared or sold afterward’, and ‘the In this sense, the dynamics and processes affecting labour markets in advanced capitalist societies since the 1970s run against the accumulation of knowledge and skills within and without firms and, therefore, contradict an important element of the rhetoric of the KBE. The recognition, within the managerial and business literature, of the negative effects – in terms of loss of organisational and firmlevel (tacit) knowledge – of business process re-engineering and downsizing have led to the birth of ‘a new set of practices called “knowledge management” … to help firms perform the tasks that’ have ‘been disrupted by downsizing’. However, it is obvious that managers manage people (and the business and labour processes) and not knowledge itself (Nightingale, 2012, p.384) – although management control of workers’ knowledge can be one of the aims and/or results of managerial practices (Marx, 1976;
Braverman, 1998 ). Further, for its neglect to investigate the causes of business process reengineering, the development of the knowledge management literature is one more example of the failure to confront finance as the heartbeat of the KBE, as well as what this implies for work, labour market trends and the workplace more broadly (see Thompson, 2013).
buyer does not need to buy the same knowledge several times, even if it is to be used several times’; moreover, ‘the buyer cannot really assess the value of knowledge without actually acquiring it’ (p.9). While the first two of these points relate to the non-rival character of knowledge, and can be easily relegated to the realm of market failure, the third point is revealing of a fundamental logical contradiction: in order to know whether to enter a transaction whose object is knowledge, buyers have to know the piece of knowledge itself to assess whether it is useful to them or not; but, if they possess the piece of knowledge in the first place, they have no reason to enter the transaction at all.60 Thus, if the conditions for perfect competition are to be realised, information is perfect and there simply cannot be markets for knowledge; or, for knowledge to be considered a commodity and be traded, then the conditions of perfect competition, assumed by mainstream neoclassical economics, cannot
apply. For Boyle (1996, p.115), the reasons for this aporia can be summarised as follows:
‘perfect information is a defining conceptual element of the analytical structure used to analyze markets driven by the absence of information, in which imperfect information is actually a commodity’. Pointing out this contradiction is certainly not going to convince mainstream economists of the flaws of their analyses, nor is it meant to deny that, despite what economists think, information and knowledge are going through processes of commercialisation, not least through the expansion and extension of IPRs. However, it can help explain the economists’ ambivalent assessment of the patent system, epitomised by Penrose’s and Machlup’s expressions of doubt provided at the end of sub-section 1.3.2, or that the public good problem, once perceived as requiring public intervention as its solution (Arrow, 1962a; Nelson, 1959), can today be seen as requiring patents as obvious solution (Foray, 2006). Indeed, ‘[i]n practice, economists tend to treat some information issues in their “efficiency–perfect information” mode’, and other issues ‘in their “incentives for future producers–solve public goods problems” mode’, with ‘commodification or restriction of information’ judged negatively in the former case, and positively in the latter. However, there is ‘no master principle or algorithm to explain when to be in the first mode and when to be in Precisely because of this paradox, it is interesting to speculate as to why the approach pioneered by Oliver Hart and John Moore (1988, 1990, 1999) has not been taken up as an explanation for the role of patents as solution to the problem of underinvestment in knowledge production. After all, following their logic, property rights are a solution to situations of incomplete contracting, i.e. situations in which, since all future states of the world cannot be known in advance, conditions attached to them cannot be stipulated and, therefore, contracts are often incomplete. ‘As time passes and uncertainty is resolved, the parties can and do renegotiate their contract, in a Coasian fashion, to generate an ex post efficient outcome. However, as a consequence of this renegotiation, each party shares some of the benefits of prior (noncontractible) relationship-specific investments with the other party. Recognizing this, each party underinvests ex ante’. Thus, this ‘literature studies how the allocation of asset ownership and formal control rights can reduce this underinvestment’ (Hart, Moore, 2008, p.2). A first, tentative answer may lie in the limited success garnered by Hart and Moore’s approach within the mainstream of the discipline (for example, see Maskin, Tirole, 1999 for a rebuttal from illustrious orthodox economists).
the second’, and it is always possible, ‘with eminent formal correctness, to reverse the polarity and switch the categories’. Thus, for example, ‘[c]opyright could be portrayed as an intolerable monopoly over information production’, and ‘legalized insider trading as a necessary incentive to bring information to market’, or vice versa (Boyle, 1996, p.36).61 This theoretical ambivalence sustains and reinforces the influence of external political circumstances on the discipline, as can be seen with the ‘shift of attitude among pro-market thinkers, from a default position of relative hostility to patents to one where patents’ are ‘praised as a most wonderful inducement to the growth of knowledge and encouragement of innovation’, which has coincided ‘with the elaboration and stabilization of neoliberalism’ (Mirowski, 2011, p.144;
similarly Van Horn, Klaes, 2011a, 2011b).
1.4.5) Endogenous growth theory, or knowledge as aporia continued While all of the above should suffice to dispense with the KBE and EK or altogether with the idea that mainstream economics can possibly have anything purposeful to say about knowledge and its relation to the economy, it is important to examine how many of the conceptual flaws, contradictions and paradoxes highlighted thus far reach paroxysm in endogenous (or new) growth theory (henceforth EGT). Indeed, the latter is exemplary of how issues relating to the relationship between knowledge and the economy have been incorporated within economic theory consistently with economic imperialism (rather than purposefully) and without leading to questioning of the mainstream (despite their conflict with the latter’s foundations). The literature regarding EGT is immense and ever-expanding, reaching high levels of mathematical sophistication in the process, and the present sub-section has no ambition of providing a full account of it (but see Snowdon, Vane, 2005, ch.11 for a standard account, and Fine, 2000, 2003b, 2006a and Herrera, 2006 for detailed critical accounts). The thrust of this sub-section is to provide a streamlined account contesting the main claim to fame of EGT, i.e. that it constitutes a sound, if not the most important, contribution of economics to the understanding of the links between knowledge and the economy, as both conventional academic (Snowdon, Vane, 2005) and popular journalistic (Warsh, 2006) narratives have it. Interestingly, as for the aporetic character of knowledge for economics discussed above, a first assessment of the inadequacies of EGT is offered by Foray himself. Indeed, he concedes that ‘[i]t is toward growth models that endogenize technological change that we naturally turn to evaluate the capacity of neoclassical theory to solve problems of the economics of knowledge’ (Foray, 2006, p.12), since these have brought ‘formal A parallel can be drawn here with the treatments of social capital and corruption in civil society within economics, whereby each can be presented as the other in reverse, and whether an occurrence is classified and understood as one or the other depends upon inner substantive content and external context (see Fine, 2001, 2010b for discussion along these lines).
theoretical work on economic growth closer to... the immediate determinants of growth’ (notwithstanding that the econometric studies on economic growth in the form of Barro-type regressions have been shown as unable to identify the causes of economic growth, see Fine, 2003b, 2006a and Kenny, Williams, 2001). However, Foray also believes that EGT leaves ‘many other aspects of the economics of knowledge, of the utmost importance in explaining the determinants of growth... still overlooked or considered only superficially’. Indeed, Foray laments that ‘[k]nowledge itself, the vehicle of externalities, is always represented in models of endogenous growth in the form of... a set of codified instructions which provide access to immediate and free exploitation of the technology’, which is ‘a huge simplification, with disastrous consequences on our understanding of knowledge-based economies’ for its neglect of the ‘tacit and naturally excludable’ dimension of much knowledge (Foray, 2006, p.13;
similarly, Cowan et al., 2000) (but see below for more on EGT and the non-excludability component of the public good). Secondly, the firm, locus primum of innovation, ‘remains a black box’, with issues of organisation, managerial form and strategy left unexplored (both in general and with specific relation to their role in harnessing innovation). Thirdly, scant recognition is given to ‘the corporate environment, apart from the market’, with ‘many aspects of that environment’, which are ‘determining factors in economic growth’, left unduly neglected (for example the relations between firms and universities, the specifics of IPR regimes, the functioning of financial markets, and labour market regulation). However, contradictorily (if not opportunistically), what Foray draws from his short assessment of EGT is ‘the importance, for economic research, of constant dialogue and mutual attentiveness between the formal theory of growth and what is [sic] called appreciative theories’ (Foray, 2006, p.13).62 Unfortunately, though, the problems with EGT run much deeper than this. As is well known, EGT takes old (or exogenous) neoclassical growth theory (in the version provided by Solow, 1956, 1957) as point of departure (Mirowski, 2011; Fine, 2000, 2003b, 2006a; Herrera, 2006).
The latter is a special case of the Harrod-Domar model for growth, for which the conditions The last two points of Foray’s short summary are also stated, in greater length and depth, in Nelson, 1997, 1998. Foray does not explain in his book what he means by appreciative theory, but a definition can be found in Nelson, 1997 and Nelson, 1998 (p.500): ‘What we called appreciative theorising tends to be close to empirical work and provides both interpretation and guidance for further exploration.
Mostly it is expressed verbally and is the analyst's articulation of what he or she thinks really is going on.
However, appreciative theory is very much an abstract body of reasoning. Certain variables and relationships are treated as important, and others are ignored. There generally is explicit causal argument. On the other hand, appreciative theorising tends to stay quite close to the empirical substance’. Nelson understands appreciative theorising as a critique of, as well as a complement and an alternative to the insufficiencies of, formal modelling in economics. However, for Nelson (1998), if the interaction between appreciative theory and formal modelling is fruitful, it has been very limited in practice in EGT.