A Taxonomy Of Enterprise For Growth Theory?
The knowledge economy is a huge area, with impact at every level from the micro to the massively macro. Yet there is still much debate, influenced by celebrated economists such as Robert Solow and Paul Romer, about whether technological progress produces economic growth, or vice versa. One commentator, David Warsh, has recently suggested that this debate currently throws only limited light on economists’ understanding of how economies make progress. Perhaps nonetheless there are interesting questions which arise here in terms, particularly, of the impact of ‘invention’ and ideas in, say, social enterprise environments?
If technological progress dictates economic growth, asks The Economist, (‘Economic focus: the growth of growth theory‘, 20 May 2006, p.96), what kind of economics governs technological advance?
The Economist article and blog praises David Warsh‘s new book, Knowledge and the Wealth of Nations, and his analysis of the shifting understanding of the genesis and impact of technological advance.
‘Ideas as goods’
In his book Warsh examines Nobel prize winner Robert Solow‘s supposed notion that ideas are bound to end up in diminishing returns (they are ‘exogenous’ to economic growth theory), and contrasts it with the proposition of Stanford University’s Professor Paul Romer, that ideas are endogenous to growth theory – that they can be part of it.
In this analysis there are as I understand it three main principles:
1. ideas are ‘non-rival’ – i.e. they can be used by as many people as care to, at the same time;
2. ideas are expensive to produce, but almost without cost to reproduce;
3. nonetheless, the business of reproducing ideas does not usually give much in respect of financial returns, because ideas, being ‘free’ to reproduce, end up having very little economic value.
But goods in what market?
From these three premises it is easy to see that ideas have to be ‘protected’ if they are to have ‘value’ in normal business markets. In other words, they have to be copyrighted; and at the same time obviously other people have to be educated to a level where they can usefully employ these ideas, once they have ‘bought’ them.
But does this apply to all types of ‘market’? I’ve been musing for a while on the idea that enterprise can be taxonomised in ways which make differentiation of impact (on ideas, people, systems) quite interesting. The normal ‘for profit’ economy behaves in one way, the ‘ideas generator’ ‘academic’ economy sometimes behaves rather differently, and the ‘social’ or ‘not-for-profit’ economy probably behaves in a different way again.
All these responses make sense to the ‘actors’ involved. Commercial business people aim very clearly at protecting their ideas in the knowledge economy; but academics and social entrepreneurs currently often promote their ideas without much reference to the ‘business’ value of the ‘invention’ because they are more concerned, respectively, with their status or with general social outcomes, than they are with how fast the actual money flows in their particular direction.
Shifting bases of ideas production?
Over time, things may change of course. The same edition of The Economist which carries the Growth Theory article also has a piece on shifts in the understanding of American academics concerning intellectual and real estate property values. Likewise, the economics of social enterprise is still in its infancy.
Maybe economics at the ‘small’ level – the level of academic and social-enterprise activity – is like the physics of particles… ‘nano’ behaviour is different from larger-scale activity in its impact.
Whatever (and here I’m trying to articulate something which others will understand much better than I), it’s likely that over time the behaviour of those who produce academic and / or ‘social-technical’ ideas in the new knowledge economies will change. The question is, how and when?
The impact of benefit from ideas
Who will ‘profit’ from these changes? And, in the end, could the impact of freely shared ideas be felt even on the global scale, if the sharing extended to developing economies as well as those where the knowledge economy already has huge impact?
Will the growing realisation that all ideas have economic value in some sense lead to attempts to ‘protect’ social-technical invention as well as as the ‘normal business’ sort? Or will there be a continued wish to leave the way open for sharing and mutual development – just as, for instance, Tim Berners-Lee chose to do, when he created the world-wide web?