From the Economics of Knowledge to the Learning Economy Globelics Academy May 2, 2007 Bengt-Åke Lundvall

Why focus on economics of knowledge? §In international organisations – OECD, UN, World Bank, European Commission - it is now recognised that competitiveness and economic progress is based upon knowledge. §In the management literature it is increasingly recognised that knowledge is the strategic ressource – knowledge needs to be managed! §But how to understand Knowledge and Learning in this context? What are the implications for economic theory, innovation policy and knowledge management?

Understanding knowledge is a key to intelligent management and policy!!! §Uneven development and inequality as reflecting the uneven distribution of knowledge. §What kind of knowledge matters for economic performance? §How easy/difficult is it to ’transfer’ or ’learn’ different kinds of knowledge. §To understand and master the process of knowledge creation and learning is a key to intelligent management and to intelligent economic development strategies!!

The complex task of knowledge policy Knowledge policy and institutions have to do two opposite things at the same time: l 1. Protect intellectual property – refers to knowledge as a public good – information is easy to transfer (Arrow 1959 and Nelson 1959) l 2. Promote knowledge diffusion and sharing – refers to knowledge as tacit and local – know how-knowledge is difficult to transfer (Marshall 1923). Today the balance has gone too far toward protection!! Protecting those who have knowledge already.

The complex task of knowledge management – two trade-offs §Externally: Protecting core competences while sharing knowledge in networks and technological alliances: Knowledge as an ’exchange marker’. §Internally: Formalising employee knowledge for sharing through ICT – while exploiting informal knowledge embodied in employees.

Is knowledge a public good? Public good is characterised by being Non-rival and Non-excludable. §Arrow and Nelson from around 1960 knowledge as public good calls for government intervention. IPR for specific knowledge. Government subsidy or production for generic knowledge. §Marshall (around 1920) on industrial district – cf Silicon Valley. Knowledge is local and not easy to move from one place to another. §To solve this contradiction we need to make distinction between different kinds of knowledge.

Economics: Information as commodity – the insights of Kenneth Arrow §Market failure l Buyer uncertainty about the value of information l Seller keeps it when selling it l Buyer can sell it to others after he has bought it l Easy to reproduce once it has been produced §Policy issues l Intellectual property rights to give incentives to knowledge producers l Public production or subsidies to knowledge producers

What matters for economic performance is competence rather than information! §OECD has shown that in most countries a major part of aggregate economic growth can be explained by changes inside firms in terms of innovation and growth. §The diffusion of new technology and especially of new organisational characteristics is very uneven among firms in the same sector and across sectors. §To enhance the competence and ’the absorptive capacity’ of firms is a major challenge not addressed by standard economics.

Economics: Skills and competence as commodity §Skills are partially tacit and embodied in people and organisations - cannot be sold or bought separately. §Access to skills through hiring, through mergers and take- overs and through networking. §Labour market dynamics affect skill formation. §Knowledge management and the codification issue §Underinvestment in skill formation within firms - people move on from one firm to the next. §Policy issue: Competition clause, employee share holding (c.f. IPRs) may slow down learning at the level of society.

Collective versus individual tacit and explicit knowledge

Taxonomy for knowledge (Lundvall and Johnson 1994) §Individual competence l Know what – facts about the world l Know why – scientific laws in relation to nature and society l Know how – how to use tools and concepts l Know who – know who knows what and what to do

Organisational competence l Know What=Shared information - data bases l Know Why=Shared models of interpretation (including company stories) l Know How=Shared routines l Know Who=Shared networks

Information technology and its impact on the different kinds of knowledge §Know-what in data bases - limits of search machines §Know-why in global science networks - on the need to have absorptive capacity §Know-how in expert systems - on the limits of skill codification §Know-who in registers of firms - on the importance of trust and the social dimension.

Codification of Tacit Knowledge §A transformation of tacit knowledge that makes it explicit. Sometimes difficult: l Write down how you solve a mathematical problem l Write down how you prepare the food. l Write down how you swim l Write down how you make diagnosis of a patient – Exp. Syst. l Write down how you manage the firm - MIS

Tacit versus codified knowledge §Tacit knowledge l Tacit by nature l Tacit for economic reasons - too costly to codify §Explicit and codified knowledge l How much of the knowledge package can be codified? l How wide is the access to the codified knowledge (specialised codes, communities of practise, epistemological communities).

Tacit versus codified knowledge §Know how (biking, swimming but also management and research) has always elements of tacit knowledge §Codification of know-how is always incomplete - lack of distinction between more or less complete codification. §Codification as an economically determined activity - a crucial element of knowledge management

The learning economy concept §First introduced in Lundvall nsi-book 1992 §Developed into hypothesis about speed-up in Lundvall Johnson 1994 §Inspired and supported by labour market analysis at OECD §The social dimension made explicit 1995 §Systematic research on learning economy - Testing the hypotheses §Relevance for China and other emerging economies 2005-

The learning economy – as analytical and historical perspective §We can work from the hypothesis that learning has become dominant feature l Learning economy as alternative to information economy or knowledge-based economy. §We can use the learning economy as analytical perspective l We study how the institutional set up of the economy/the firm affects learning and how learning affects economic performance

The mechanism: Selection, transformation and speed-up of change and learning §Globalisation and new technology and deregulation of markets together speed up the rate of change in many sectors. §In the learning economy a lot of new knowledge is created but a lot is also destroyed - creative destruction §Intensified competition selects firms that are rapid learners and firms select rapid learners as employees. §Rapid learners innovate and impose change on the rest of the economy. §As a result there is a speed-up of change with positive impact on competitiveness but with negative impact on social cohesion.

The social dimension of the learning economy – the model §Social cohesion promotes learning but learning based growth undermines social cohesion. Calls for public policy to redistribute learning opportunities and learning capabilities = New New Deal (cf Roosevelt in US 1930s) Growth Learning Social cohesion Social cohesion is especially important for DUI-mode of learning. Less important for STI- mode.

The Learning Economy compared to other concepts! §Service economy §Information society §Intangible economy §Knowledge based economy The learning economy challenges these concepts: 1. Focus on dynamics rather than on the state of the system. 2. Bringing in explicitly the social dimension (learning as a social and interactive process).

Learning economy in historical perspective – testing hypotheses §’The learning economy’ reflects an acceleration of change l Shorter product life cycles and shorter life time for competences (halving time = 1 year for computer engineers) l Speed-up of learning confirmed by labour market surveys in the UK (Tomlinson 2005). §Polarisation in the labour market l Unskilled workers and regions with weak learning capacity becomes worse off. l Polarisation confirmed: Management and engineers learn the most – female unskilled workers the least – UK. l Income distribution between and within regions and countries becomes more skew – when there is no government intervention!

Policy implications of the learning economy-perspective §Education: Educate in order to establish learning capability. Give access to life long learning. §Labour markets: Need for labour market institutions and trade unions that support competence building (new workers’ contracts emphasising competence building). §Firms: Promote the diffusion of learning organisations. §Income distribution: Need for new new deal with focus on redistribution of learning capability. §Innovation policy: Promoting DUI and STI-modes §Responsibility of last resort for the public sector – otherwise only the already skilled get more training.

Learning organisations §Learning organisations: l Are more flat and allow horizontal communication inside and outside the organisational borders l Establish cross-departmental and cross-functional teams and promote job-circulation between functions. l Delegate responsibility to workers and invest in their skills l Establish closer co-operation with suppliers, customers and knowledge institutions.

An important source of competence building is the learning organisation §Learning organisations and networking organisations (in Denmark) l Create more and more stable jobs l Are more productive l Are more active in terms of product innovation Why are learning organisations more successful in the learning economy?

Learning economy as analytical perspective §Learning in formal education §Learning by searching – R&D – STI-learning §Learning in practise – DUI-learning l Learning to become a member of a community of practise or of an epistemological community. l Learning by doing, using and interacting l Learning as worker vs. Learning as consumer l Apprenticeship §Interactive learning

STI-mode and DUI-mode of learning S §STI=Science-Technology-Innovation mode is characterised by science-approach – formalisation, explicitation and codification – knowledge policy as ´science policy’ – knowledge management as ICT-based knowledge-sharing. §DUI=Learning by Doing, Using and Interacting mode refers to experience-based, implicit, embedded and embodied knowledge.

DUI-learning mode - indicators Indicators: The organic and integrative organization §Interdisciplinary workgroups §Quality circles §Systems for collecting proposals §Autonomous groups §Integration of functions §Softened demarcations §Cooperation with customers

STI-mode of learning - indicators §Expenditures on R&D as share of total revenue §Cooperation with knowledge institutions §Indicator for workforce composition

Probability to introduce product innovation ( corr. for sector, size and ownership ) DUI/STIDUISTILow learning %-share Odds ratios P-value <

Operational dimensions of the learning organization 1.Cross occupational working groups 2.Integration of functions 3.Softened demarcations 4.Delegation of responsibility 5.Self directed teams 6.Quality circles/groups 7.Systems for collection of employee proposals 8.Education activities tailored to the firm 9.Long term educational planning 10.Wages based on qualifications and functions 11.Wages based on results 12.Closer cooperation with customers 13.Closer cooperation with subcontractors 14.Closer cooperation with universities and technological institutes

A normal distribution of the 2000 firms over the scale from 0-14

Logistic regression – probability for prod. innov. compared to benchmark Variables:Effect Highly developed +5,18*** Medium developed +2,20*** Manufacturing +2,35*** Construction -0,69*** Business services +2,27*** 100 and more +1,61*** Danish group -0,76** Single firm -0,58***

Employment and product and innovations (index 1992=100) Nov. 92Nov. 94Nov. 97 P/S Innovative =100103,6105,5 No P/S Innovative =100102,597,1

The double change in context §ICT and access to elements from the science base becomes increasingly important for firms in all sectors – calls for a strengthening of STI-mode of learning §But these changes and globalisation contribute to speed up and to the formation of the learning economy – calls for a strengthening of DUI-mode of learning