The Competitiveness of Nations
in a Global Knowledge-Based Economy
2nd Draft March 2005
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Epithet Those who have handled sciences have either been men of experiment or
men of dogmas. The men of experiment are like the ant; they only collect and
use; the reasoners resemble spiders, who make cobwebs out of their own substance. But the bee
takes the middle course; it gathers its material from the flowers of the
garden and of the field, but transforms and digests it by a power of its own.
Not unlike this is the true business of philosophy. Francis
Bacon (1561-1626) Novum Organum, 1620 |
1. My objective was to thicken public policy debate about the knowledge-based economy and, specifically, about the competitiveness of nations in a global knowledge-based economy. In this conclusion, I summarily do so. The thin is the existing state of modeling and vocabulary about the knowledge-based economy to which I now add the thickening using the MDTQ model.
1. Given the crucial role of language in the transmission of knowledge, vocabulary is critical. The vocabulary of the OECD will serve as the bench mark for current public policy debate about the knowledge-based economy. First, consider OECD usage of the term ‘codified knowledge’ meaning “potentially shared knowledge” (OECD 2000, 19). By contrast, the MDTQ definition is: knowledge coded in semiotic form and extra-somatically fixed in a communications medium permitting access by another human mind distant in time and space. This receiver decodes and internalizes the message into personal & tacit knowledge. This excludes machine-readable code which is a form of soft-tooled knowledge, i.e., knowledge fixed as physical function in an extra-somatic matrix.
2. Second, the OECD defines “human capital” as “knowledge as embodied in human beings” (OECD 1996, 9). By contrast, in MDTQ, human capital is a misnomer. All knowledge is ultimately personal & tacit and embodied as personal & tacit labour, not capital. While some personal knowledge can be codified that which cannot remains tacit including the trained reflexes of nerve and muscle that distinguishes a brain surgeon from a butcher, with no disrespect to the butcher.
3. Third, the OECD, among other definitions, defines a knowledge-based economy as one “directly based on the production, distribution, and use of knowledge and information” (OECD 1996, 7). Instead MDTQ would define it as ‘directly based on the production, distribution, consumption and preservation of knowledge as both the ultimate input to and final output of the economy’. This includes the public domain which constitutes the bulk of the national knowledge-base.
4. Fourth, ‘knowledge workers’, according to the OECD, are “those who do not engage in the output of physical products” (OECD 1996, 10). By contrast, in the MDTQ model, all workers are knowledge workers whether they rely upon the processing of memories fixed in neuronal bundles or the trained reflexes of nerve and muscle engaged in handling physical products. In this view, a manual labourer is a knowledge worker. Lack of knowledge, e.g., of how to lift heavy objects, has economic consequences such as workman’s compensation.
5. Fifth, for the OECD, a national innovation system constitutes “the flows and relationships among industry, government, and academia in the development of science and technology” (OECD 1996, 7). By contrast, the MDTQ would define it as ‘the flows and relationships among industry, government, academia and other nonprofit sectors to foster the commercial exploitation of new knowledge emerging from all knowledge domains and practices’. This includes knowledge from the natural & engineering sciences, humanities & social sciences and the Arts as well as from the self-regulating Practices, e.g., accounting, architecture, engineering, law and medicine. It includes knowledge produced endogenously or exogenously to the firm or nation-state.
6. Sixth, for the OECD a traditional production function involves “labor, capital, materials, and energy; knowledge and technology are external influences on production.” It goes on to note that: “Now analytical approaches are being developed so that knowledge can be included more directly in production functions … [and that because] knowledge investments are characterised by increasing (rather than decreasing) returns, they are the key to long-term economic growth.” (OECD 1996, 11). Alternatively in the MDTQ, the production function of a knowledge-based economy involves ‘the integration of knowledge as codified & tooled capital, personal & tacit labour and toolable natural resources (both material and energetic) in the production of final goods and services intended to satisfy the human need to know. Intermediate (producer’s goods) and final consumer outputs take the form of the Person, Code or Work.
7. Seventh, tacit knowledge, according to the OECD, is “knowledge that has not been documented and made explicit by the one who uses and controls it” (OECD 2000, 18). By contrast, tacit knowledge in the MDTQ model is personal knowledge embodied or fixed in a natural person as neuronal bundles of memories or the trained reflexes of nerve and muscle that cannot be codified but may be demonstrable or toolable into matter or energy.
8. These proposed extensions of the vocabulary of public policy debate are not intended to displace existing efforts, e.g., the American National Standards Institute & Global Knowledge Economics Council (ANSI/GKEC) Proposed Draft American National Standard Knowledge Management – Vocabulary. Rather these, and other definitions yet to be derived from the MDTQ model, are intended to thicken that debate.
1. The Standard Model in economics is, with respect to the knowledge-based economy, a paradigm (Kuhn [1962] 1996), episteme (Foucault 1973) and/or temporal gestalten (Eric & Trist 1972) riddled with anomalies and crying out for revolution. I will briefly review two models currently applied to the knowledge-based economy – the accounting and new growth theories. I will thicken them with findings from the MDTQ Model. As with vocabulary, this contrast is intended as an addition to, not a replacement of existing efforts. Furthermore, paradigm shifts in the humanities & social sciences tend to have a very low Kuhnian loss relative to the natural & engineering sciences.
1. An excellent example of the
accounting theory of the knowledge-based economy is to be found in the work of Yogesh Malhotra.
His 2000 article “Knowledge Assets in
the Global Economy: Assessment of National Intellectual Capital” will, with no
disrespect, serve as my strawman. His concern is how to enter the value of
knowledge into the balance sheet and statements of revenue and expenditure of a
firm or nation-state. Malhotra observes that, in current practice, historical
cost accounting is the norm and this does not allow for increasing returns to
knowledge, e.g., current accounting
practice is to depreciate rather than appreciate the value of intellectual
properties such as brands, copyrights and patents. He also notes a failure to capture the value
to a firm or nation-state of what he calls “structural capital”, or its “island
of custom” (Schlicht 1998), consisting of the customary, institutionalized, routinized, traditionalized and otherwise tacit knowledge guiding
the behaviour of its citizen/worker/consumers.
2. Using a national
case study of
3. The point of the
accounting exercise, however, is about adding the value of knowledge assets to existing
corporate and national accounts.
Knowledge is just an additional input whose value must be accounted
for. Malhotra
shows sensitivity, however, to the increasingly intangible nature of the output
of a knowledge-based economy but does not explicate that knowledge, as such, is
a final consumer output, not just an input to the economic process. He stresses that the root of knowledge is the
citizen/worker/consumer but nonetheless wants to capitalize tacit knowledge into
the asset statement of the firm. He thus
continues the Standard Model practice of capitalizing rather than humanizing labour
as an economic factor of production.
4. Malhotra also fails to account for the two methodological ways of accumulating distinctly different forms of knowledge – Science (by reduction) and Design (by pattern construction & recognition). Furthermore, he does not explicitly recognize the distinct contributions of the different knowledge domains and practices including the natural & engineering sciences, humanities & social sciences and the Arts as well as the self-regulating Practices such as accounting, architecture, engineering, law and medicine. He also misses the distinction between the short- and long-run with respect to intellectual property rights, i.e., knowledge may reside in the private domain in the short-run but inevitably enters the public domain in the long-run. Failing to recognize this distinction he misses the quintessential role of government, i.e., no government, no knowledge-based economy.
1. The OECD defines new growth theory as “the attempt to understand the role of knowledge and technology in driving productivity and economic growth - investments in R&D, education, training, and new managerial work structures are key” (OECD 1996, 7). t As previously observed, like other ‘new’ forms of economics, new growth theory appears, at least to this observer, as an exercise in re-calibrating the Standard Model to include descriptive, empirical, institutional and historical evidence previously excluded because of its qualitative rather than quantitative nature.
2. In this regard Romer
will serve as my strawman. He does raise, among others, the question of
custom and tradition and why it was in the
3. Beyond admitting additional sources of evidence, new growth theory also introduces the concept that technological change involves non-rival ‘ideas’ that can “be stored in a bit string” (Romer 1996, 204), implicitly referring to computer programs, a form of soft-tooled knowledge. His concept, however, confuses information (quantifiable) and knowledge (immeasurable) and, like Malhotra, he fails to distinguish the short- and long-run with respect to intellectual property rights, i.e., knowledge may reside in the private domain in the short-run but inevitably enters the public domain in the long-run. Thereby he too misses the quintessential role of government, i.e., no government, no knowledge-based economy.
4. New
growth economics also continues the Standard Model practice of
capitalizing rather than humanizing labour as an economic factor of
production. Human capital remains
something alienated from the natural person whose is the ultimate carrier and
repository of knowledge as personal & tacit labour – productive, managerial
and entrepreneurial. Capital is frozen
knowledge, i.e., codified &
tooled knowledge fixed in an extra-somatic matrix. It has vintage. However, only the natural person can read the
manual (codified) and push the button (tooled) of the engine of industry.
5. As with the accounting model, knowledge in new growth theory is an
extra factor added to the existing production function of the firm or
nation-state. Furthermore, measurement
in the Standard Model is done in ‘marginal’ terms. In general usage ‘marginal’ conveys the sense
of minor or unimportant. In economics,
however, it has a much sharper definition: “that [which] is on or close to a
limit below or beyond which something ceases to be possible or desirable;
borderline. In Econ.: showing, representing, or achieving a
small margin of profit; close to the limit of profitability or sustainability”
(OED, marginal, n & a, 4a). The margin is the point of decision. It is the second order derivative of change,
the rate of the rate of change. Romer accepts the effects of knowledge as such. It is the ‘new guy in town’, the new factor
of production which, at the margin, currently adds the greatest amount to
profit, to competitiveness. It gives the
biggest bang for the buck. He also,
however, acknowledges increasing returns to knowledge which runs counter to
eventually diminishing marginal returns assumed for traditional factors of
production. This constitutes another
anomaly in the Standard Model.
6. What neither the accounting nor new growth theory models sufficiently
allow for is that the new guy may have been living in town all along, incognito, and is in fact intimately related
to all the other residents. The problem
is that he has no number; calculatory rationalism cannot find him; reductionism
simply loses sight of him on examination.
Custom and tradition (Schlicht 1998), working
routines and practices (Loasby 1998) and X-efficiency (Liebenstein
1966) as well as works of aesthetic and technological intelligence are the
products of Design, not Science. Or, as Michael Polanyi wrote:
“… a machine can
be smashed and the laws of physics and chemistry will go on operating
unfailingly in the parts remaining after the machine ceases to exist.
Engineering principles create the structure of the machine which harnesses the
laws of physics and chemistry for the purposes the machine is designed to
serve. Physics and chemistry cannot reveal the practical principles of
design or co-ordination which are the structure of the machine…Consequently,
and the consequences reach far beyond the example at hand, the meaning of the
higher level cannot be accounted for by reductive analysis of the elements
forming the lower levels. No one can derive a machine from the laws of
physics and chemistry… At each consecutive level there is a state which
can be said to be less tangible than the one below it.” (Polanyi 1970)
1. Having surveyed the event horizons of sixteen sub-disciplines of thought it became clear that simply adding knowledge to the existing recipe or production function of the firm or nation-state was not an option. Knowledge is the food that satisfies the elemental biological human hunger to know. Quite simply, knowledge is the distinguishing characteristic of our species, homo sapien. It takes many biologically diverse and complimentary forms that may be summarily expressed as the need to know Reason, Revelation, Sentiment and Sensation, or what I call the Qubit PSI. The itch for knowledge may be satisfied in many ways, e.g., Reason, Revelation and/or Sentiment can, in some cases, satisfy or sublimate the urge to know in a carnal sense, i.e., defer gratification, and vice-versa. These alternative ways of knowing are immeasurable and incommensurable and, when expressed in any human language including mathematics, they are subject to inherent limitation and bias. In the case of the English language this is particularly evident in the etymological economy of ‘to know’ which means, alternatively, to know by the senses, mind, doing or experience. This means that a knowledge-based economy is more than a ‘can-do’ economy which engages but one sense of the word ‘knowledge’ in English. By contrast, the closely related language of German has separate verbs for each meaning and roughly corresponding institutional structures to match.
2. It also became evident in the survey that since the beginning of Western civilization there have been two distinct methodological ways of knowing – Science (by reduction) and Design (by pattern construction & recognition). These have been in conflict throughout the course of history. The conflict has served as the basis of important hierarchical distinctions such as: social distinctions based on the practice of the Liberal or the Mechanical Arts, between management and labour, between capital and labour; and, epistemological distinctions such as those between Science and Art or Science and Technology. The emergence of the instrumental experimental natural & engineering sciences shifted the balance in favour of Science with dramatic geo-political economic effects, e.g., the rise of the West. The irony is that instrumental experimental science, in fact, marries the two. Thus it is the new instrument (or work of technological intelligence) that permits the ever increasing descent into experimentally controlled reductionism practiced by the contemporary physical sciences. Put another way:
The reason we are on a higher imaginative level is not
because we have a finer imagination, but because we have better
instruments. In science, the most
important thing that has happened in the last forty years is the advance in
instrumental design... a fresh instrument serves the same purpose as foreign
travel; it shows things in unusual combinations. The gain is more than a mere addition; it is
a transformation. (Whitehead 1963, 107)
3. The finding of this complimentary relationship between Science and Design lead me, among other things, to expand the distinction between tacit and codified knowledge used in the current public policy debate. I add ‘tooled knowledge’ which finds expression in the philosophy of technology as ‘thing knowledge’ (Baird 2004) or ‘instrumental realism’ (Idhe 1991). In turn, the existential phenomenological nature of tooled knowledge expressed by the hammer in Michael Polanyi’s philosophy of science and in Martin Heidegger’s philosophy of technology reinforces my finding that ultimately all knowledge is personal. I therefore abandon use of the disembodied term ‘tacit knowledge’ and adopt instead ‘personal & tacit knowledge’ which, as I read it, is more faithful to Michael Polanyi’s meaning when he originally coined the term (M. Polanyi [1958] 1962).
4. With knowledge taking these three distinct forms (personal & tacit, codified and tooled knowledge) it became possible to treat knowledge not as an addition to the production function at the margin but rather as the foundation or base of all its component inputs and outputs. Whereas the Standard Model in consumer theory assumes that goods and services are carriers of utility (units of pleasure and pain), in the production function of a knowledge-based economy it is assumed that all inputs and outputs are carriers of knowledge. As inputs, capital becomes codified & tooled capital; labour becomes personal & tacit labour; and, natural resources become toolable natural resources. Similarly, both intermediate (producer’s goods) and final consumer outputs of a knowledge-based economy become the Person, Code and Work.
5. For clarity, I restrict Person to the natural person in possession of personal & tacit knowledge. I restrict Code to matter coded to carry knowledge as meaning and I restrict Work to matter tooled to carry knowledge as function, i.e., to measure and/or manipulate the physical world as sensor, tool or toy. This includes works of soft-tooled knowledge such as computer and genomic programs intended to be read by an instrument – a sensor, tool or toy. A Code or Work, however, takes on meaning or function only through the agency of a Person.
6. Knowledge as an input and output, however, has no content or context. The trans-disciplinary survey revealed many facets of knowledge that were either unknown or significantly under-developed in the current public policy debate. The six facets I identified share a common structure: four internal and interactive parts constituting what I call a Qubit. Thus any piece of knowledge can be tagged as to content and context. Each consists of a unique blend and interaction of its linguistic/cultural or etymological WIT, its domain/practice or epistemological EPI, its discipline/specialty or pedagogic PED, its constitutional matrix or legal IPR, and, its production/market effect or economic FLX. Ultimately, however, content and context take on meaning only through the agency of the Person.
6. This derivation of progressively more detailed definition of knowledge could be interpreted as reductive. It is not. Rather it flows, at least to my mind, from a very ancient Design. It is the Pythagorean tetraktys or the perfect triangle or sacred decad. For my purposes, its medieval expression, still used in analytic psychology, is best, the Axiom of Maria Prophetesta or “Maria the Copt”: One becomes two, two becomes three, and out of the Third comes the One as the Fourth (Jung 1963, 249). This is arguably the oldest Western formula for the derivation of knowledge. To those troubled by classical terms describing its derivation (Monad, Dyad, Triad & Qubit - an updating of the ancient Tertrad), I can only offer the more linear Type A Knowledge, Type B …
7. To my mind, the most important thickening by the MDTQ model is its post-Market/Marx labour theory of knowledge and its corollary, the knowledge theory of capital. These are economic theories about the satisfaction of the human want, need and desire to know subject to limited means but no longer subject to epistemological limitation. In the philosophy of science (Idhe 1991) and aesthetics (Berleant 1963) knowledge is traditionally restricted to distant senses of sight, in the case of science, and sight and sound in the case of aesthetics. In economics, knowledge acquired through any and all senses, distant or contact, are admitted, i.e., sight, sound, taste, touch and smell. The question becomes: Can a producer make a profit satisfying a particular want, need and desire to know?
8. These theories are rooted in the individualism of the Republican Revolutions of the 19th century, not the collectivism of the Communist Revolutions of the 20th. While the human need to know finds economic expression as the ultimate input to and output of a knowledge-based economy as the Person; it finds political expression as ‘We, the People’ and the public domain of debate and discussion. The policy paradigm of the labour theory of knowledge and the knowledge theory of capital, however, even pre-dates Adam Smith’s 1776 The Wealth of Nations. In this sense, it is a work of intellectual archaeology. It was pre-revolutionary French Physiocrats who foresaw that manipulation of legal property rights is the foundation of the competitiveness of nations governed by a laissez faire, laissez passer or, self-regulating, market economy – global or otherwise (Samuels 1961, 1962). The State, by defining the terms of self-interested market exchange, can direct, as by an invisible hand, private greed towards the public good.
9. Today, it is the changing property
rights definition of knowledge or IPRs (copyrights
& trademarks, designs & patents, know-how & trade secrets) that is
the fulcrum of change including its corollary, the eventual entry of all
knowledge into the public domain. This
constitutes the bulk of the national knowledge-base. It is freely available to one and all at no
price. And, it is the historical bedrock
of what in the
THE TETRAKTYS
The Cosmic Paradigm of the Ancient Pythagoreans
By Robert Apatow
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The
Monad is the Father Embracing all that will be.
The
Dyad, the form of Difference, and
Mother of Multiplicity.
The
Triad, the first actual number,
With
Beginning, End, and Mean,
The
Tetrad completes the arrangement
Of
the Soul and what is seen.
(Apatow 1999)