The Governance of Technological Knowledge: Strategies, Processes and Public Policies

Di Cristiano Antonelli - 30 luglio 2007

Cristiano Antonelli, The Governance of Technological Knowledge: Strategies, Processes and Public Policies, Fondazione Rosselli, senza data, http://www.fondazionerosselli.it/

Cristiano Antonelli (Laboratorio di Economia dell’Innovazione Franco Momigliano, Università di Torino e Fondazione Rosselli)

In the last fifty years the economic role of knowledge has emerged and progressively gained the central place in the arena of the economic debate. Knowledge is indeed the primary resource into all human activity. Its identification as an economic good however has requested a long time and enduring efforts. Yet it takes different forms, is the result of different processes, it exhibits its powerful effects in a wide variety of contexts and it is highly sensitive to a number of key conditions. […]

Major changes have occurred in the economic understanding of knowledge in the second part of the XX century. Knowledge has been first regarded as a typical public good that markets and profit-seeking agents could not produce in the appropriate quantities and with the appropriate characteristics. These theoretical ingredients paved the way to the build-up of the infrastructure for the public provision of knowledge. Consensus on the analysis of the public good characters of knowledge has been first contrasted and eventually substituted by the new argument about the quasi-private nature of technological knowledge. The identification of the central role of external knowledge in the production of new knowledge marks the second step. The ‘discovery’ of the knowledge trade-off stressed the key role of its dissemination and the limitations of the intellectual property rights. Eventually a more balanced view based upon a deeper analysis of the generation and distribution of knowledge as a localized process has been elaborated. The appreciation of the different forms and characteristics of knowledge makes it possible a closer analysis of the role of knowledge interactions and transactions as aspects of a broader governance problem. This evolution can have important consequences on the analysis, the implementation and the institutional design of the production and distribution of knowledge.

KNOWLEDGE AS A PUBLIC GOOD

The seminal contributions of Kenneth Arrow marked for a long time the economics of knowledge. The arrovian frame shaped the debate about the economic organization for the supply of knowledge and provided the theoretical foundations for the build up of the public knowledge commons.

In the arrovian approach technological knowledge was seen as a public good for the high levels of indivisibility, non-excludability, non-tradability and hence non-appropriability. In this context markets fail to provide the necessary coordination and the case for undersupply takes place. Markets are not able to provide the appropriate levels of knowledge because of the lack of incentives, and the opportunities for implementing the division of labor and hence achieving adequate levels of specialization.

The public provision of technological knowledge, and especially scientific knowledge has been long regarded as the basic remedy to under-provision. This led to the actual build-up and the systematic implementation of public knowledge commons. The legacy of patronage, such as Universities and Academy of Sciences received new endorsement and support (Arrow, 1962; Nelson, 1959).

The key role of the public knowledge commons, based upon the public funding of universities and other public research centers was also consistent with the top-down view about the generation of technological knowledge. In the linear approach in fact technological knowledge was the eventual result of the application of new scientific discoveries. In the linear model a clear division of labor could be articulated between the role of universities and corporations. Universities and public research center were better equipped to perform scientific research. The eventual application of scientific discoveries for the actual generation of technological knowledge and the introduction of technological innovations was instead assigned to corporations.

The provision of public subsidies to firms undertaking research and development activities was regarded as a necessary condition to remedy the low appropriability conditions and hence the lack of incentives. Public procurement is the third basic tool to increase the production of knowledge. The demand for weapons especially becomes a major instrument to focus resources and identify research direction and objectives with a broader and general scope for derivative technological applications at the system level and relevant from the viewpoint of the general production of new scientific and technological knowledge. The natural leakage of technological knowledge from the military sector - often within the same corporations - feeds the levels of technological opportunity for the rest of the system. The spillover from the high-tech military activities provides unique opportunities for the introduction of product and process innovations in all the other sectors of the economy. […]

The division of labor between universities and firm had strong implications for the architecture, articulation and implementation of the intellectual property right regimes. In this division of labor in fact Universities would specialize in the production of scientific knowledge, i.e. knowledge mainly generated by means of deductive reasoning and able to apply to a great variety of specific circumstances, and firms would specialize in technological knowledge that is bits of knowledge directly applied to solve specific and narrow problems. The scope and breadth of patents were limited. Patents were thought to increase the appropriability of highly specific bits of technological knowledge with a limited scope of applicability. Scientific knowledge could not be patented and in general patents were not granted for large bodies of knowledge (Kingston, 2001).

At this time in fact intellectual property rights are not considered as the major tool to improve the static and dynamic efficiency of the economic system in the production of knowledge. Patents are mainly viewed as an instrument designed to increase the incentives of firms to introduce minor technological innovations. Public subsidies, public direct participation in the production and demand for knowledge are regarded as the basic instruments to push the introduction of radical technological innovations (Machlup and Penrose, 1950; Alchian and Demsetz, 1973).

KNOWLEDGE AS A PROPRIETARY GOOD

The first major shift in the economics of knowledge takes place when the notion of knowledge as a public good is challenged and knowledge is regarded as a quasi-private good with higher levels of natural appropriability and exclusivity and hence tradability (Nelson and Winter, 1982).

Technological knowledge is now viewed as the result of a bottom-up process of learning, which takes place mainly within the borders of firms. Technological knowledge is based upon tacit knowledge accumulated by means of learning process. Here the work of Polanyi becomes a basic reference. The distinction between tacit and codified knowledge provides in fact the foundation to the new approach to technological knowledge (Nelson and Winter, 1982).

Tacit knowledge is the result of learning processes, it is not easy to articulate it and made explicit. Much empirical analysis has explored the role of learning in the accumulation of competence and the eventual generation of new knowledge. Interesting distinctions have emerged between learning by doing and learning by using. Imitation is hampered by major information and adaptation costs, appropriability is de-facto secured by high levels of stickiness in routines and procedures: the not-invented-here syndrome is much more effective than assumed in the public good tradition (Mansfield, Schwartz, Wagner, 1981; Harabi, 1995).

The theory of the firm is deeply affected by the new approach. […] The accumulation of competence, technological and organizational knowledge and the eventual introduction of technological and organizational innovations is now considered the essential role of the firm. The firm does not coincide with the production function and cannot be reduced to a production function. From this viewpoint the firm precedes the production function: the technology is in fact the result of the accumulation of knowledge and its application to a specific economic activity (Penrose, 1959; Foss, 1997). […]

The resource-based theory of the firm focuses the attention on the characteristics of the process of accumulation of competence, the generation of technological knowledge and the introduction of technological and organizational innovations, not only as key factors to understanding the firm, but also as the relevant characteristics in the general production of technological knowledge. In this context the firm is the primary , if not the single, actor in the production of knowledge for the whole economic system. The firm is viewed as the privileged locus where technological and organizational knowledge is generated by means of the integration of learning processes and formal research and development activities. The firm is considered in this approach primarily as a depository and a generator of competence and eventually knowledge (Foss, 1997; Nooteboom, 2000).

Large firms are regarded as the key actors in the generation of knowledge. The size of firms is considered to be a key condition to generate successfully new knowledge. Increasing returns are considered to play an important role with major threshold effects. Below a given size the effective performance of research activities and the implementation of learning processes would not be considered possible. […]

Because technological knowledge is now viewed as the sticky joint product of internal learning, it cannot spill freely in the air. Relevant absorption costs for potential users should be taken into account and qualified interactions between producers and users of new knowledge are necessary for technological knowledge to be actually transferred from one organization to another. The explicit and intentional assistance of original knowledge holders to perspective users is relevant, if not necessary.

More recently much empirical evidence and theoretical research have shown that appropriability is de-facto much higher than assumed. Knowledge is contextual and specific to the original conditions of accumulation and generation: as such natural appropriability conditions are far better than assumed. Imitation costs seem high as well as the costs of receptivity and re-engineering necessary to make use of non-proprietary knowledge. The costs of the non-invented-here-syndrome are appreciated. The assistance of original knowledge holders to perspective users is relevant, if not necessary. The notion of non-appropriability has been the object of systematic redefinition and new understanding (Levin, Klevorick, Nelson, Winter, 1987).

The new growth theory built upon the new appreciation of de-facto appropriability arguing that the economic effects of knowledge can be substantially appropriated, at least to such an extent that firms can fund correct levels of research and development expenditures. According to much new theorizing, the characteristics of knowledge are no longer regarded as conducive to market failure (Romer, 1990 and 1994; Aghion and Tirole, 1994). […]

This new approach paved the way to significant steps towards the privatization of public knowledge commons. The public provision of subsidies to firms undertaking research and development activities and the direct role of the State in the production of knowledge comes under a closer scrutiny. The role of University as the single provider of externalities to the economic system is questioned (Henderson, Jaffe and Trajtenberg, 1998).

A closer look to the working of the public commons and the actual need to put under scrutiny the productivity of the resources invested in the public knowledge commons, both at the system and the single units level, is advocated (Jaffe and Lerner, 2001). The new enclosures substitute the knowledge commons. Public research centers and Universities were solicited to patent their discoveries and often forced to enter the markets for the technological outsourcing of large corporations. […]

The new theory provided theoretical support to a new understanding upon the role of public research. As a consequence, a wave of privatizations has been taking place: Universities have been pushed to enter the markets for knowledge and knowledge outsourcing. Academic patenting and scientific entrepreneurship have been praised as new effective tools to stimulate the distribution of knowledge and to increase the incentives to its production. […]

At the same time, the role of intellectual property rights is reconsidered. Intellectual property rights can complement and integrate the appropriability of technological knowledge, so that actual markets for knowledge, now much closer to traditional economic goods, can be developed. Intellectual property rights are now regarded as a complementary condition to increase the tradability and consequently to achieve the standard conditions for equilibrium supply of knowledge in the economic system. The extension of patent protection to new forms of knowledge such as software, algorithms and genetic entities finds here its foundations (Merges and Nelson, 1994; Sakahibara and Bransletter, 2001).

In this context the role of financial markets as an important component of the mechanism design for the governance of technological knowledge is appreciated. Special attention is paid to the opportunities provided by financial market as an insititution for the exchange of property rights of new innovative companies. […]

Scientific entrepreneurship grows into a fully fledged scientific capitalism as the new viable mechanism to incentivate, generate and disseminate technological knowledge in economic systems. Scientific capitalism is based upon scientific entrepreneurship, effective intellectual property rights systems, academic patenting, venture capitalism, initial public offering and financial institutions, including dedicated stock exchange systems (Nasdaq) where the new ventures can be assessed and possibly recombined with existing companies, by means of mergers and acquisitions. Technological knowledge can flow within the economic system embedded in new companies. […]