The Knowledge Economy:
A Sketch of a Framework
This is a transformative moment
- More than just rapid technological change
in a single "leading sector"
- A moment when changing technology reshapes
the whole economy
- Who was the first network billionaire?
- What are the bounds of the high-tech economy?
- There are no businesses and organizations
that we can be confident will not be transformed...
- Lessons from past transformative moments
- Examples: enclosures, Gilded Age, late-Victorian
Britain
- It's possible to fumble the transformation
- New technologies blossom only with new economic
institutions and restructured "soft infrastructure"
- New institutions and infrastructure require
consensus political support
- The "inclusionary economy" becomes
a necessity
What are the characteristics of this transformative
moment?
- What this transformative moment isn't
- A change in the kinds of activities that
create wealth
- Technology-driven: transistors -- ICs --
microprocessors -- networks
- Revolution in information and control
- Not making more goods and services, but making
the right goods and services
- Is this a bigger transformative moment than
we have seen in the past?
- We don't know: measurement problems
- Measurement problems the flip side of extremely
widespread benefits
- But in the past we didn't have Moore's Law
and Metcalf's Law
- Speed of change
- Possbility that first uses are not the highest-value
uses
- Building out over existing physical infrastructure
The international stakes
- Initially American initiatives
- But it won't stay American for long
- Differences in governance and network structures
will drive innovation from abroad
- Japan in the 1980s taught us that we weren't
an island where electronics was concerned
- Benefits of interoperability will allow first-mover
governments to shape global patterns
- Communication means that organizations may
become "footloose"
- U.S. executives not eight times as effective
as Argentinian ones
- Headquarters location isn't everything
- Hence the penalties to getting national policies
wrong become much greater
- But negative-sum games over industrial location
not worth playing
- The U.S. government has limited state capacity
- And internationally-oriented policies have
enormous domestic distributional consequences
How to sustain and accelerate this transformation
I
- Thinking about infrastructure
- Physical infrastructure
- Human infrastructure
- Soft infrastructure
- Physical infrastructure
- Building out over Bell System infrastructure
- Elimination of budget deficit makes capital
scarcity less of a problem
- Network integrity issues
- Human infrastructure
- Fundamental research and development
- Today we are living off of past investments
- Today no Bell Labs or (old-style) IBM
- Lesson from Xerox PARC
- Fundamental R&D is unhelathy for your
bottom line
- Education and skills
- Improving public schools
- Technicians and researchers
- U.S. is making enormous investments in the
training of the foreign-born
How to sustain and accelerate this transformation
II
- Soft infrastructure
- Examples from the past
- Enclosures, FDA, Sherman Act, German technical
education
- Change in source of value means change in
the kinds of things that are deemed worthy of property-law protection
- Enclosure on the electronic frontier
- Balance rights of innovators against rights
of users
- Without powerful protection of their rights,
no innovations
- With too-powerful protection of their rights,
use of innovations is greatly and unduly restricted
- Recall that the users of one layer of technology
are the innovators of the next
- RAM -- microprocessors -- motherboards --
boxes -- operating systems -- networks -- applications
- Rivalry, excludibility, transparency
- The progressive-era solution--oligopolies
to provide some competition and reap most economies
of scale--may not be viable
- Carpal tunnel syndrome of the invisible hand?
- Government needs to fulfill these infrastructure
gaps
- At the moment the most pressing needs are
in human and soft infrastructure
- Government has this role not because it is
especially competent at doing them, but because it is the only
thing that can
- Industry self-regulation as a guide to government
action
- Government can't simply hide--much as some
might wish it
- But we do not know enough to propose policy
solutions
- All we have done is to identify needs
> 4. We do know that government must play a different role.
I think this must be phrased differently. We need to consider
what role the government must play. We need to show, not assume.
Not continuation of deregulation of the 1980s etc. Situation
in this transformative moment
> in this transformative moment
> a. Rules change (??)
> b. Character of property changes This point critical. Do
we want to try to lay claim to the enclosures type argument.
If it is right, we should position it here.
> i. Excludibility, rivalry, transparency
> ii. Enclosure on the electronic frontier
> c. No way for the government to hide and do nothing
> i. Even though many people think that would be
Everyone senses that this is
an unusual moment, a transformative moment, a moment when
a lot of things are changing. We all sense this. We all see:
- The internet stock boom--the extraordinary
multiples of traditional fundamentals that people are eager to
pay.
- The troops of politicians touring the low-rise
offices and well-watered lawns of Silicon Valley.
- The hope that our machines and networks will
finally enable us to understand what is going on in our businesses--and
thus control costs and deliver products with previously-unimagined
efficiency.
- The fear that established business verities
need to be replaced with something unknown.
- The worry that our children will find unpleasant
things in their e-mail in-boxes.
But what is it, exactly, that we see? That
we are not sure what is happening is perhaps most evident in
the profusion of names for what is happening: the knowledge economy,
the network economy, the new economy, the next economy, the information
economy, the silicon economy, the innovation economy, the cybereconomy,
the virtual economy--and there are more.
This document is an attempt to sketch out
a framework for thinking about what it will call the "knowledge
economy." It tries to make six major points:
These six points are worth expanding:
Transformative moments:
- That this particular wave of technological
revolution is much more than just a standard "leading economic
sector"--this time what is being revolutionized is not just
one sector of consumption and production, but nearly everything.
Somewhat paradoxically, the wide extent of the effects of this
technological revolution
- That in such transformative moments in
which the very nature of wealth creation shifts, the stakes
at risk are very high--for it is possible to fumble the handoff
leading from one form of technological-social-economic-political
organization to another--and make no mistake: transformative
moments like this one require new social and political modes
and orders if the technological and economic potential is to
blossom.
- That successfully reaching the potential
of this transformative moment may well be harder than in the
past. This time the shift in the process of wealth creation hands
us dilemmas--how to balance the interests of
Technology Network "New Economy" Framework Paper:
Proposed Outline: Version 2.2
O. Setting and setup
A. This is an unusual moment, a dramatic moment, a transformative
moment
1. Speed of industrial churning
2. Increasing sense of puzzlement about what is going on--
how our economic structure is evolving
B. Such a transformative moment can go either well or badly.
Well means increased growth, competitive position, and national
ascent; Badly means slowed growth, weakened competitive position,
and national decline.
1. This one is very fast, still ongoing, hard to forecast,
in its early stages, with no end in sight
1. Tech Network's mission
2. Politicians' problem
I. Transformative moments
A. What they are
1. Moments of technological revolution
i. Not only revolutionize--change--technology
ii. But also alter the choices open to the rest of firms in the
market place, and m
economy and society
2. Thus moments of choice, opportunity, and danger
i. Inevitable: transformation in market, (choice of market here
is intentional) winners and losers and consequently social change
ii. But a positive-sum game
iii. Enabled by technological coalitions (what do we mean by
technological coalitions)
iv. But also require political coalitions to flourish Important
idea, but how we slip it indistinction from technological coalition
and neutrallyi.e. political support required for the policy decisions
and choices to make this trnasformation a good one, not a bad
one.
3. Example of (policy decisions, moment of transition? ): coal,
iron, steam--and Britain's loss of its technological edge
i. Failure to invest in education and social
infrastructure
ii. Loss of edge in industry after industry
iii. Incalculable consequences
4. Example: continuous-process technology and the Gilded
Age--craft to mass production (I don't see the precise line of
argument here)
i. Regulation and antitrust (what is being pointed to here?)
ii. Populists and progressives (same)
iii. Try to get (most of) the benefits of competition,
and (most of) the benefits of economies of
scale: stable, unionized, oligopolies
5. In this transformative moment as in its predecessors: (This
section is true, but slightly off for this purpose. I am not
certain what needs to be substituted.)
i. What is at stake is not just how things are made
ii. But what is at stake is how society is organized
B. Transformative technology and public policy
1. Transformative technology makes opportunities
i. New tasks require new capacities
ii. New capacities are created, at least in part, by policy
iii. Coalitions that underlie these new capacities..we need examplesMine
come from Japan and Franceand I think we may have to find some
more American wordssocial coalitions I use to teachbut can we
use it in DC that thinks in interest groupspolitical support
for,
2. Technologically-illiterate politicians do not
understand the opportunities until it is
too late to grasp them
3. Yet often there is a great deal at stake...
C. This is a transformative moment Should this fit here? not
quite sureimportant points though. 1. What the new economy isn't
a. Not the goldilocks economy
b. Not even-rising stock prices
c. (Although linked--somehow--to these two)
2/ What the New Economy ISA change in the types of activity that
generate
ÿ immense wealth
a. . Transistors--integrated circuits--microprocessors--
> the internet
> 1.The sequence of related events
> 2 The sequence may be amplifying the consequences,
> and sustaining its impact
> 3. Is this a bigger transformative moment than we
> have seen in the past? These are the important points. Let
us not lose them
> a. We don't know if this is a bigger transformative
> moment than we have seen in the past
> b. But in the past we didn't have Moore's
> law and Metcalf's law
> c. The speed of change--nature of who can employ these
> new technologies
> d. Dynamic process accelerated by ability to build out
> over existing Bell System structure
> e. The network productivity problem -- which follows from
d
> 4. We do know that government must play a different role.
I think this must be phrased differently. We need to consider
what role the government must play. We need to show, not assume.
Not continuation of deregulation of the 1980s etc. Situation
in this transformative moment
> in this transformative moment
> a. Rules change (??)
> b. Character of property changes This point critical. Do
we want to try to lay claim to the enclosures type argument.
If it is right, we should position it here.
> i. Excludibility, rivalry, transparency
> ii. Enclosure on the electronic frontier
> c. No way for the government to hide and do nothing
> i. Even though many people think that would be
> nice
> d. Examples of social infrastructure: FDA, securities
> regulation, mortgage financing.
>
>II. This transformative moment
> A. The character of this transformative wave (Should the
earlier material on the nature of the moment go here or are we
beginning to repeat. Note that some of the issues here come up
in the policy section above. Probably should do it once. Is the
idea just to hint at these things above?)
> 1. Economies of scale
> a. Small start-ups seeking to grow to economies of
>scale
> b. Opposite tensions
> 2. Rivalry/ excludibility -- what is policy to do?
> 3. Do these cause carpal tunnel syndrome of the Invisible
> Hand?
> 4.. Bottom-up decentralized initiative rather than
> top-down control True, but this won't be obvious to all
our various valley friends
> a. UNIX couldn't build a spreadsheet (theoretic or practical?)
> b. PCs waste enormous computing ability--yet
> somehow it doesn't matter enough to
> get people back to the server
> 5. Use and leading users yesI think this point leads and
the other follow.
> a. User driven and venture-based
> b. How is this different from bottom-up
> decentralization?
> c. Special importance of standards and standard-setting
> B. Examples of transformative impact
> 1. Revolution in control--WalMart
> 2. Revolution in communications--e-mail
> 3. Revolution in information archiving
> 4. Revolution in production
> a. From NC machine tools to catalog distribution
> b. From making change to making movies
> C. We ain't seen nothing yet
> 1. Analogies? Limits of analogies?
> 2. The combined features of (I would like to see us expand
this point. I think I am right about the sociology
> a. TV (broadcast)
> b. Telephones (narrowcast)
> c. Books (information cumulation storage and retrieval)
> d. New dynamics of learning
> e. New dynamics of innovation
> 3. Moore's law and Metcalf's law
> 4. Self-renewing technological revolution? Again I believe
this is an essential point
> a. Usually the most valuable uses are early uses
> b. But network + bandwidth mean that new--even more
> valuable--uses are continually being
> created and recreated
> c. Difference between *illumination* and *information*
> D. Indicators and measures (Can we think of whom might help
us get situated on this. Brad do you know lewis alexander?)
> 1. Price of computing
> 2. Other stuff
>
>III. The international context or Better, the International
Stakes. 1) We can lose control of the process of rule making
and 2) firms can locate where they want.
> A. The international dynamic
> 1. Initially American initiatives, rooted in early network
innovation coming from the US>
> a. But it won't stay American for long
> b. Differences in governance and network structures
> will drive innovation from abroad
> c. The wireless story
> 2. Each national e-conomy will be a little bit different
> a. Construction of rules
> i. Intellectual property
> ii. Privacy
> iii. Security
> iv. Competition
> v. Monopoly
> b. Spillover of rules
> i. Compatible standards
> ii. Harmonization
> iii. Market driven economies
> B. Footloose
> 1. Key resources become much more footloose
> 2. Hence the penalties to getting national policies wrong
> become much greater
> 3. U.S. used to be an island as far as microelectronics
and
> the internet were concerned
> a. Japan in the 1980s taught us that we weren't an
> island as far as microelectronics were
> concerned
> b. What will it take to teach the U.S. government
> that we aren't an island as far as the
> internet is concerned?
> C. What are the international stakes? We need to structure
this. No suggestions yet.
> 1. U.S. lawyers and PR professionals earn eight times
> Argentinian (and thirty times Chinese) salaries
> 2. It's not because they produce eight (or thirty) times
as
> many legal arguments or impressed minds
> 3. It's because they (and others) share rents derived from
> the low (domestic) prices of high-tech and manufactured
> goods
> 4. Yet importance of recognizing that negative-sum games
over
> industrial location aren't worth playing (Mercedes-Benz
> in Alabama?)
> 5. And importance of recognizing that U.S. state capacity
is
> highly limited (tariffs on imports of active-matrix
> LCD screens, but not on imports of laptops with LCD
> screens already attached...)
> 6. And importance of recognizing the domestic redistributions
> involved in policies with international aims (RAM chip
> manufacturers gain but software writers lose when VER's
> are imposed...)
>
>IV. Stoking this technological revolution
> A. Concern ourselves with ends, not means
> 1. We don't know the best means (yet)
> 2. Arguments over means tend to be... divisive
> 3. Means are not important per se
> B. Desired ends
> 1. Fundamental R&D
> a. Xerox PARC and Bell Labs
> b. DOD, DARPA, ONR
> c. Where will future fundamental R&D come from?
> i. Living off the past in basic research
> ii. Xerox PARC and the lesson in the Valley
> that it is better to "liberate" than
> to research fundamental technologies
> 2. Venture capital
> a. Certainly not a problem now
> b. But what if the stock market turns?
> c. Society will still need venture capital even
> if Wall Street becomes allergic to IPOs
> 3. Human capital
> a. Domestic education
> b. Immigration
> c. The role of the university
> 4. Appropriability
> a. Producers and inventors need to be rewarded
> b. Users need access to the tools they want to use
> c. Bad patents create feasts only for lawyers
> d. Electronic enclosure movements
> 5. Decentralization
> a. Key to the explosion of innovation
> b. Yet afterwards you need standards
> c. A U.S. strength: "more like us," in James
> Fallows' words
>
>V. Policies A stance. What needs to be accomplished; can
we make that attitude fly. Debates to be held.
> A. Principal federal-level policies
> 1. The R and D discussion
> 2. The U.S. government as leading user
> a. Clipper (as attempt at leading user)
> b. Other examples
> 3. "Leverage"--using laws intended for one purpose
to try
> to direct private activity in another arena (i.e.,
> export restraints on crypto...)
> 4. Finance for high-tech
> 5. Establish enabling infrastructure?
> 6. Competition policy
> 7. Immigration policy
> 8. Education policy
> 9. Actions by other governments
> B. Intellectual property and the new economy
> 1. Compensating originators and producers
> 2. Enabling users
> 3. Legal reform
> 4. Government standard-setting
> C. Alternatives to government policy
> 1. Industry standard-setting
> 2. Industry self-regulation
> 3. Enforcement power issues
> 4. Silicon Valley
> 1. Silicon Valley as a national resource
> 2. Other potential worldwide growth poles
New Economy Master Page
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Professor
of Economics J. Bradford DeLong, 601 Evans Hall, #3880