D. Murali

AGREED, you have knowledge of economics. What about knowledge of The Economics of Knowledge? This is a new sub-discipline of economics, says Dominique Foray in his book from the MIT Press (http://mitpress.mit.edu); it arises as a result of `collision' of "expansion in knowledge-based investments and activities, with a technological revolution that radically altered the production and transmission of knowledge and information."

The knowledge-based economy did not go bust when the dotcom bubble burst and the new economy went into hiding, Foray reveals. But, wait, what is a knowledge-based economy? It has a high proportion of knowledge-intensive jobs. Also, the "economic weight of information sectors is a determining factor, and the share of intangible capital is greater than that of tangible capital in the overall stock of real capital." As these developments spread beyond high technology and communication service sectors, society as a whole is "shifting to knowledge-intensive activities."

Don't confuse economics of knowledge with that of `research,' because the "main focus is not the formal production of technological knowledge." Again, this is not economics of `information,' because the object is "knowledge as an economic good." Knowledge is "a matter of cognitive capability," explains Foray. But information is "structured and formatted data that remain passive and inert until used by those with knowledge needed to interpret and process them." Economics of reproduction of info is "no more than the price of making copies," but replicating knowledge is "a far more expensive process because cognitive capabilities are not easy to articulate explicitly or to transfer to others." With information, the problem is not so much of reproduction as of "protection and disclosure." Not so with knowledge, because the means of knowledge reproduction lie at the heart of many professions and traditions.

How do you measure the knowledge stock of an entire society? It is akin to measuring a stock of flames because "each neighbour can take fire from the others without reducing the size of the fire of the person who had it first." On the flip side, however, knowledge is partially localised, weakly persistent, sticky and fragmented. You may appreciate that knowledge too depreciates when we forget.

Production of knowledge happens in two ways, explains Foray. Offline, as in formal R&D; and online, as when "individuals learn by doing," a form that is spreading beyond the traditional `craft-trades'. Though offline, R&D plays an important role in knowledge production, argues Foray, and so it is crucial not to subject it to "the same kind of cost-effective, just-in-time managerial approach as regular activity of goods and service production."

When economic constraints bring R&D closer to product development, short-term objectives would rule, cautions the author. As a consequence, "one loses the capacity, peculiar to research, to trigger radical changes by conceiving major innovations that will crate tomorrow's markets."

As an economic good, knowledge has three properties, according to the author. First, it is a non-excludable good, meaning "it is difficult to make it exclusive or to control it privately," because it is portable and fluid, unless you keep it a `secret'. Thus, "information and knowledge continuously escape from the entities producing them."

Second, knowledge is `non-rival,' so people do not have to compete for its use; "transmitting knowledge is a positive sum game that multiplies the number of owners of that knowledge indefinitely."

And, third, knowledge is `cumulative,' because it can spawn new ideas. Not so with non-cumulative knowledge such as "songs, poems, entertainment programme, or galleries of photographs available on the Internet." In contrast, blogs are cumulative.

A chapter titled `Knowledge as a Public Good' speaks of `the knowledge dilemma'. Since marginal cost of knowledge use is nil, there is justification to make it `free,' and ensure optimum use, rather than charge for access and make wants go unsatisfied while they could have been satisfied at no cost. But "producing knowledge is costly," and so there is equal justification to recover costs incurred.

For this dilemma - "between the social objective of ensuring efficient use of knowledge once it has been produced, and the objective of providing ideal motivation to the private producer" — there is no simple solution, concedes Foray.

He revisits the `public dimension' again in the last chapter, suggesting the `revival of public property' in the domain of basic knowledge, under 3 Es — externalities, equity, and expertise.

Information and knowledge are no longer scarce, but attention is. "While the probability of knowledge existing and being stored somewhere is great, that of it not being found is just as great." Insightful comment that merits attention.

The parting message from Foray to economists is that they are "still far from mastering basic indicators on stocks and flows of knowledge." Where available, "these indicators illuminate an almost empty stage," because the economics of knowledge "happens elsewhere" where it is still dark.

Essential read for economists who would like to see what lies beyond their comfortable worlds.

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