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

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1.3.1) A social dilemma … The economic properties of knowledge, as traditionally identified within economic scholarship, are easily stated. Knowledge is characterised as a good that is non-excludable and non-rival (Arrow, 1962a) and, therefore, following Samuelson (1954), as a public good (see, for example, Foray, 2006, and Stiglitz, 1999a, 2008) – pure or impure (and, therefore, quasi- or semi-public), depending on the extent of, and limits to, non-excludability.13 Indeed, with ‘[i]nformation and knowledge’ seen as ‘continuously’ escaping ‘from the entities producing them’ and, thus, appropriable and usable by rivals (Foray, 2006, p.92), the non-excludable character of knowledge implies the difficulty of subjecting knowledge to private control and appropriation, and confers to the creation of new knowledge the character of a positive externality. However, it is the non-rival character of knowledge which differentiates its production from that of other positive externalities (Romer, 1993a): unlike other situations which have become classic examples of positive externalities,14 where the latter are limited by the exhaustibility of the resource leading to congestion in use, in the case of knowledge the positive externalities are seen as unlimited, since, ‘[a]s a resource, knowledge can be characterized by its inexhaustibility’ (Foray, 2006, p.93).15 Further, knowledge is recognised as a good that is cumulative and progressive (Foray, 2006). Since new knowledge is the output of a process whose input is previously existing knowledge, any production of new knowledge relies on the possibility to “stand on the shoulders of giants” (Scotchmer, 1991; Foray, 2006; Stiglitz, 2008).

Thus, the externalities generated by the production of knowledge are seen as not only enhancing ‘consumers’ enjoyment but also, and above all, the accumulation of knowledge and While the expression “public goods” has become widely used in the literature, in his paper Samuelson referred to these as ‘collective consumption goods’ (Samuelson, 1954).

The two classical examples are that of the proximity of beekeeper and orchard (Meade, 1952), or that of the lighthouse providing light to several boats offshore (which has been discussed by John Stuart Mill, Sidgwick, Pigou and Samuelson, whose arguments – but especially Samuelson’s – are ridiculed in Coase, 1974a; but see below for more).

This has a twofold dimension: individual (since, once acquired by any individual, an element of knowledge can be used indefinitely to produce actions and effects) and collective (since the same element of knowledge can be used by an infinite number of individuals without anyone being deprived of it) (Foray, 2006).

collective progress’ (Foray, 2006, p.94).16 This allows Foray to posit the combination of these characteristics as a ‘threesome … at the origin of the huge size of potential externalities associated with the production of knowledge’, and endowing the latter with ‘the potential to create a combinatorial explosion’ (Foray, 2006, p.96).

However, these characteristics do not come without qualification.17 Indeed, and firstly, the uncontrollability of knowledge is seen as limited by the fact that, however codified, knowledge has also a tacit dimension which ‘affords those who have it a degree of control, since only voluntary demonstration and learning on site allow its acquisition’, and confers to knowledge a natural degree of excludability (Foray, 2006, p.97; similarly, Chang, 2001).18 Moreover, if the For Foray, though, not all elements of knowledge are equally cumulative: while data bases, research tools and generic knowledge (in short, “science”) are ‘strongly cumulative’, other elements of knowledge mostly used within consumption (such as songs or poems) are characterised by Foray as ‘noncumulative’. Furthermore, different types of knowledge have different temporal horizons for cumulativeness – think of mathematical theory as opposed to software programming (Foray, 2006, p.95). However, Landes and Posner (2003, p.422, footnote 4) highlight that, while cumulativeness of knowledge has ‘long been familiar to students of patents, since it was obvious that technological advance is a cumulative process’, works of art have been ‘less frequently understood in those terms, the tendency being to think (mistakenly) of the creators of works of the imagination as solitary geniuses rather than as improvers of previous work’. This view has changed (or is beginning to change), not least because of various forms of postmodern art and manifestations of postmodern culture, based on the recombination of previously existing works of art and cultural elements. See Landes, Posner, 2003 for a discussion of copyright in this context, and Benkler, 2006 and Lessig, 2004 for views (argued from within political liberalism) on the conditions for, and limits to, cumulativeness in the cultural domain.

Attentive readers will note how the qualifications presented in this paragraph, provided by Foray himself, are indebted to dialogue with the sociology of scientific knowledge (on which, see Hands, 2001), especially as summarised in Callon, 1994 (which, however, claims that science is not a public good as defined in economic theory, p.401). See also Callon, Foray, 1997 for a joint assessment of the economics of science and the sociology of scientific knowledge ending with two sections voicing the diverging opinions of the two co-authors, where each one defends the “insights” provided by his own field of provenance: for Callon, the way forward lies in developing a socio-economics of scientific activity and research, not aimed at understanding either science or “the market” per se, but their hybridisation (pp.26-27); for Foray, on the other hand, it lies in integrating the advances made within industrial organisation (as a sub-discipline of economics) into the economic analysis of science (p.28).

The distinction between codified and tacit knowledge is important to distinguish knowledge from information, and was originally put forward by the chemist and philosopher of science Michael Polanyi (1966), brother of economic historian Karl Polanyi (2002 [1944]). Polanyi’s original argument was part of a polemic against Bernal (1939) – a Marxist physicist and precursor of the sociology of scientific knowledge (Hands, 2001) – in the context of a public debate over the central planning of science (Mirowski, 2011; Nightingale, 2012; Hands, 2001): ‘[m]uch like Hayek’s emphasis on the tacit nature of norms and rules, tacit knowledge was developed as part of a political project against central planning that argued that, since part of science could not be articulated and entered into planning calculations, knowledge production could not, and therefore should not, be managed’ (Nightingale, 2012, p.384).

Polanyi’s argument lost traction within the science policy community in light of the (planning) success of the Manhattan Project (Nightingale, 2012) and the popularity of the linear model of innovation in policy circles (Godin, 2006b) (see also footnotes 29 and 31). However, discussions about tacit knowledge have come back into fashion, not least because of the rise of neoliberalism and current commercialisation of science (Mirowski, 2011). While the distinction between tacit and codified knowledge has resurfaced within contemporary debates, the latter have been marked by controversy over definitions, their

validity and applicability, and the politics of the definition itself. For a sample of contributions, see:

Ancori et al., 2000; Balconi et al., 2007; Cowan et al., 2000; Johnson et al., 2002; Metcalfe, 2010;

Mirowski, 2009a, 2011; Nightingale, 2003, 2012. Perceptively, and of direct relevance to the issue of exploitation of knowledge relies on complementary assets, be these intellectual or technological, the uncontrollability is limited further and the externality ‘artificial’ (Foray, 2006, p.98; similarly, Callon, 1994). Secondly, non-rivalry is mitigated by the magnitude of the acquisition costs, i.e. ‘the costs of intellectual investment needed for people to be capable of understanding and exploiting knowledge’ and gain ‘absorptive capacity’. Once these acquisition costs are considered, non-rivalry can be represented as a continuum ranging from ‘fairly specific or specialized nonrival’ goods to ‘more general or universal nonrival’ goods (Foray, 2006, p.98; similarly, Callon, 1994, who describes science as a “local” public good at best, Romer, 1993b, who classifies non-rival goods along a continuum between private and public according to the degree of controllability, and Metcalfe, 2001, p.569). Lastly, the cumulativeness of knowledge is highly dependent on the level of ‘trust in the validity of existing knowledge’, together with ‘the adoption of systematic codes and forms of expression’ and commonly shared ‘procedures of verification and evaluation’ (Foray, 2006, p.99; similarly, Callon, 1994, and Metcalfe, 2001, p.569). Thus, the cumulativeness of knowledge can be hindered by the obsolescence of knowledge itself, contingently on the dynamics of the specific field of knowledge and historical period under consideration (which leads to the ‘depreciation’ of knowledge), and its weak persistence (i.e. the fact that people forget) (Foray, 2006, p. 100).

Thus, if ‘[k]nowledge externalities are’ posited as ‘a constant in history’ because of the ‘intrinsic’ properties of knowledge, their magnitude and extent are seen as structured and shaped by the ‘costs of accessing, formatting, and transmitting knowledge’ (Foray, 2006, p.103; similarly, Benkler, 2006) and, therefore, historically-given. The ‘marginal cost structures’ (Foray, 2006, pp.104-107) of acquisition, transmission and reproduction of knowledge are highly influenced by the dynamics of ICTs. Therefore, the recent ‘move to a communications environment built on cheap processors with high computation capabilities, interconnected in a pervasive network’ (Benkler, 2006, p.3), is seen as leading to a world in which positive externalities are very strong, if not ‘massive’ (Foray, 2006, p.103), and which is even posited as a world where ‘social production and exchange’ tend ‘to play a much larger role, alongside property- and market-based production’ (Benkler, 2006, p.3), in the guise of “commons-based peer production” (Benkler, 2006).19 planning (both economic and of scientific activity), Nightingale (2003), by drawing upon Searle and exploring the links between ‘neurological causal processes, subjective mental states and speech acts’ (Nightingale, 2003, p.149), provides an account of the flawed nature of the distinction between tacit and codified knowledge, pointing out that ‘the antonym of “tacit” is “conscious”, not “codified”’ (Mirowski, 2009a, p.214).

For Benkler (2006), this kind of social production can sometimes substitute for, and sometimes complement, public and private (market) provision. For more on the commons, see below.

Thus, for Foray (2006), while all of the above sets up the stage for a KBE in which externalities are extremely powerful, it also highlights the extreme fragility of the dynamics at its heart. On the one hand, the recent innovations in ICTs and the move towards attitudes and behaviours favouring knowledge openness allow harnessing in the most effective way the potentially explosive externalities corresponding to the economic characteristics of knowledge.

Nonetheless, while these factors provide the KBE with ‘a coherent physical and social base’, they ‘also compound’ the ‘problems of protection and compensation for the producers of new knowledge’ (Foray, 2006, p.112). Thus, for Foray, the ‘main dilemma’ of the EK comes to the fore: reconciling ‘the social goal of efficient use of knowledge once it has been produced and the goal of providing ideal motivation’ to private producers (Foray, 2006, p.113). By contrast, for Benkler (2006) there is no dilemma, but different regulatory structures which, by interacting with technological arrangements, can favour or impede social cooperation. In this scenario, commons-based peer production is made possible by a reduction of costs brought about by changes in ICTs such that, in modular projects which are sufficiently “granular” (e.g.

Wikipedia), the cost of individual “investment” in the production of new knowledge (e.g. the writing of an entry in Wikipedia) is sufficiently low not to require extrinsic (monetary) incentives. Thus, for Benkler (2006, p.104), ‘[c]ooperation in peer-production processes is usually maintained by some combination of technical architecture, social norms, legal rules, and a technically backed hierarchy that is validated by social norms’. The difference between Benkler and Foray’s assessments (with the former giving prevalence to technology and the latter to the intrinsic economic properties of knowledge) may depend, amongst other things, on that Foray is an economist and, therefore, beholden to the characterisation of knowledge highlighted within economic scholarship, whereas Benkler is a legal scholar and, therefore, oriented towards positive analysis and, potentially, more directly influenced by Coase (through the latter’s influence on law and economics) as opposed to Arrow. However, Foray’s dilemma is exemplary of how a (and what kind of) vision of the KBE can be elaborated from mainstream economic principles, a vision which explicates (and exemplifies the limits) of the “spontaneous philosophy” of economists when discussing the KBE. For the essence of the dilemma is that, because of the non-excludable character of knowledge and the positive externalities this entails, producers of new knowledge cannot expect to appropriate the full social returns of their output; but, since this entails the lack of appropriate incentives, private investment in the production of new knowledge will be insufficient from the standpoint of society (Foray, 2006;

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