What is the “knowledge economy”? knowledge-intensive industries and distributed knowledge bases

1. What is the “knowledge economy”?knowledge-intensive industries anddistributed knowledge bases 28 Nov. 2003 Marco Bravo José Coutinho Paulo Rebelo

2. Objectives • Assess some of the issues involved in the concepts: • knowledge-intensive industry; • knowledge based / learning economy: • Criticize the idea that knowledge economy should be identified with high-tech industries  ‘knowledge economy’ is only meaningful in terms of widely-spread knowledge intensity across economic activities, including ‘low technology’ sectors; • Propose the concept of distributed knowledge base for industries: • A methodology for mapping the knowledge base of an economic activity • Analyze the breadth in innovation activity.

3. Contents • Background: • The Knowledge Economy; • Knowledge-intensive industries; • Expenditures on knowledge creation; • The role of knowledge and learning in innovation across industries; • Distributed knowledge bases; • Innovation objectives, knowledge sources, and the benefits of breadth; • Conclusions;

4. Background • Public policies for science, technology and innovation aim: Creating and diffusing knowledge • Knowledge-intensive industries Growth  • New type of knowledge-driven economy; • New form of knowledge society;

5. The knowledge economy • Knowledge-based economy: => Knowledge as an input to economic processes has fundamentally changed; • Advances in ICT => Paradigm shift: • Basic changes in economic functioning; • Changes in the economic rules of the game; => for both business and policymakers • High levels of financial Stock Prices;

6. The knowledge economy • Definition: • There is no coherent definition; • Widely-used metaphor; • OECD, 96: • Economies which are directly based on the production, distribution and use of knowledge and information; • covers everything and nothing • all economies are in some way based on knowledge; • directlyinformation products; • Four views about the changed significance of knowledge: =>

7. The knowledge economy • Knowledge is more important than before as an input: • ‘Knowledge is now becoming the one factor of production, sidelining both capital and labor’ (Peter Drucker, 98) • knowledge cannot be incorporated into production except via investment  function of investment is often to implement new knowledge in production technology; • In OECD: • physical investment  2,5x > than ‘knowledge’ investment as a percentage of GDP; • ‘knowledge’ investment is growing faster than physical investment (USA, Nordic countries & France). The opposite in Italy, Japan, Australia, Belgium, Germany, Austria, Netherlands and UK)

8. The knowledge economy • Knowledge is more significant than before as a product: • Knowledge-intensive business services sectors are growing • NOT as an independent source of growth; • As a connecting process within the innovation system; • This should direct our attention to economy-wide aspects of the use of knowledge;

9. The knowledge economy • The use ofCodified knowledge as a component of economically relevant knowledge bases is rising: • extension of formal education • employment for people with HE is growing in OECD • uses of codified results of science • growth of citations to basic science in patents • It is not clear either they are new, or that they represent some new role for knowledge

10. The knowledge economy • The role of ICT • 'Even if we should not take the ICT revolution as synonymous with the advent of the knowledge-based economy, both phenomena are strongly interrelated … the ICT system gives the knowledge-based economy a new and different technological base which radically changes the conditions for the production and distribution of knowledge as well as its coupling to the production system’ (Lundvall and Foray, 96) Knowledge refers to understanding and competence

11. The knowledge economy • The role of ICT (cont) • ICT is an information resource - makes major changes to our ability to handle data and information: • plays a new role in knowledge production and distribution; • does not necessarily create knowledge or even extend knowledge; • It is a reorganization of the technical and financial terms on which a resource (information) is available • NOT new mode of economy; • NOT new social functioning; • Not proved that ICT Investments leads > growth output and productivity;

12. The knowledge economy • All economic activity rests on knowledge • in our society • in all forms of human society • Paleolithic society, Bushmen, Australian aborigines • Animal behavior, Finding food and water, Pyrotechnology, Symbolic communication

13. The knowledge economy • Knowledge has been and continues to be a core foundation of the economic process • Important for policymakers to have an understanding of the relevance, structure and characteristics of knowledge across industries • Knowledge society => not well conceptualized • NOT that is unimportant or irrelevant • BUT more care should be taken in formulating and using the term

14. Example: • CONTINENTAL´s web of knowledge base

15. Knowledge-intensive industries • Knowledge-intensive industries? • Firms and industry expenditures on knowledge creation: the empirical evidence; • The role of knowledge and learning across industries; • SURVEY…

16. Expenditures on knowledge creation CIS 92

17. Expenditures on knowledge creation CIS 92

18. What is the “knowledge economy”?knowledge-intensive industries anddistributed knowledge bases 28 Nov. 2003 Marco Bravo José Coutinho Paulo Rebelo

19. Objectives • Assess some of the issues involved in the concepts • knowledge-intensive industry • knowledge based / learning economy • Criticise the identification of • knowledge economy with • high-technology industries (as conventionally defined) • Propose the concept of distributed knowledge base for industries • A methodology for mapping the knowledge base of an economic activity

20. Contents • Background • The Knowledge Economy • Knowledge-intensive industries • Expenditures on knowledge creation • The role of knowledge and learning in innovation across industries • Distributed knowledge bases • Conclusions

21. Background • Public policies for science, technology and innovation aim => Creating and diffusing knowledge • Knowledge-intensive industries => Growth • New type of knowledge-driven economy • New form of knowledge society

22. The knowledge economy • Knowledge-based economy => Knowledge as an input to economic processes has fundamentally changed • Advances in ICT => Paradigm shift • Basic changes in economic functioning • Changes in the economic rules of the game => for both business and policymakers • High levels of Stock Prices

23. The knowledge economy • Definition • There is no coherent definition • Widely-used metaphor • OECD, 96 • Economies which are directly based on the production, distribution and use of knowledge and information • covers everything and nothing • all economies are in some way based on knowledge • directly => information products • Four views about the changed significance of knowledge =>

24. The knowledge economy • Knowledge is more important than before as an input • ‘Knowledge is now becoming the one factor of production, sidelining both capital and labor’ (Peter Drucker, 98) • knowledge cannot be incorporated into production except via investment • the function of investment is often to implement new knowledge in production technology • There is no real separability • Investment as a percentage of GDP in OECD: ‘physical’ > 2.5x ‘knowledge’

25. The knowledge economy • Knowledge is more significant than before as a product • Knowledge-intensive business services sectors are growing • NOT as an independent source of growth • As a connecting process within the innovation system • This should direct our attention to economy-wide aspects of the use of knowledge

26. The knowledge economy • The use ofCodified knowledge as a component of economically relevant knowledge bases is rising • extension of formal education • employment for people with HE is growing in OECD • uses of codified results of science • growth of citations to basic science in patents • It is not clear either they are new, or that they represent some new role for knowledge

27. The knowledge economy • The role of ICT • 'Even if we should not take the ICT revolution as synonymous with the advent of the knowledge-based economy, both phenomena are strongly interrelated … the ICT system gives the knowledge-based economy a new and different technological base which radically changes the conditions for the production and distribution of knowledge as well as its coupling to the production system’ (Lundvall and Foray, 96) => Knowledge refers to understanding and competence

28. The knowledge economy • The role of ICT (cont) • ICT is an information resource - makes major changes to our ability to handle data and information • plays a new role in knowledge production and distribution • does not necessarily create knowledge or even extend knowledge • It is a reorganization of the technical and financial terms on which a resource (information) is available and Foray) • NOT new mode of economy • NOT new social functioning • ICT Investments ≠> growth output and productivity

29. The knowledge economy • All economic activity rests on knowledge • in our society • in all forms of human society • Paleolithic society, Bushmen, Australian aborigines • Animal behavior, Finding food and water, Pyrotechnology, Symbolic communication

30. The knowledge economy • Knowledge has been and continues to be a core foundation of the economic process • Important for policymakers to have an understanding of the relevance, structure and characteristics of knowledge across industries • Knowledge society => not well conceptualized • NOT that is unimportant or irrelevant • BUT more care should be taken in formulating and using the term

31. Knowledge-intensive industries • Classification developed by the OECD (mid-1980s) !!! Technology intensity is not mapped solely by intramural R&D

32. Knowledge-intensive industries • Serious Problem • Knowledge-intensive as opposed to traditional or non-knowledge-intensive industries • It ignores the fact that the knowledge which is relevant to an industry may be distributed across many sectors or agents • A low-R&D industry may well be an major user of knowledge generated elsewhere

33. Knowledge-intensive industries • The high-tech sector thus defined is small ? Driving the growth process ? Significant effect on overall economic growth • US has the largest share of high-tech in manufacturing • High-tech sector in US < 3% of GDP • US Share analysis (1980 => 1995) • Share of high-tech manufacturing in total GNP rose one percentage point

34. Expenditures on knowledge creation • Modern innovation theory • knowledge creation in a much more diffuse way => Chain-link model of innovation

35. Expenditures on knowledge creation • Modern innovation theory 1. Discovery => Learning • Recombine and adapt existing forms of knowledge • Design and trial production (Engineering) can be knowledge-generating activities 2. External environment of the firm • Purchase of intermediate or capital goods embodying knowledge • Installation and operation • Purchase of licenses to use protected knowledge 3. Explore their markets • Innovations  economic implementations of new ideas • Market information => creation of new products • Properties of markets => Framework for the recombination and knowledge creation • R&D => Problem solving activities (≠ initiating act of discovery)

36. Expenditures on knowledge creation CIS 92

37. Expenditures on knowledge creation CIS 92

38. Conclusions The Knowledge Economy • The knowledge-based economy is an umbrella concept: it allows one to gather existing ideas and concepts on science and technology, and any indicators, into a conceptual framework, i.e.: all under one roof (Godin)

39. The role of knowledge and learning in Innovation across industries • Innovation capability (-) less in terms of the ability to discover new technological principles (+) diverse competences in learning • involving complex interactions between R&D, technology acquisition, finance, design, production engineering, market exploration, human resource development (including the acquisition of tacit knowledge), and so on • Learning (Innovation theorists) (-) Learning processes (+) Institutional structure of knowledge creation across economies (+) Components of knowledge and firm-level competence (Lundvall and Johnson)

40. The role of knowledge and learning in Innovation across industries • Technological Knowledge Base of a firm or industry Areas of production-relevant knowledge 1. Firm-specific knowledge 2. Generally applicable knowledge 3. Sector or product-field specific knowledge 1. KBs of particular firms are highly localised, and specific to very specialised product characteristics 2. Generally applicable knowledge • General scientific KB • Molecular biology, solid-state physics, genetics or inorganic chemistry => close connections with major industrial sector

41. The role of knowledge and learning in Innovation across industries 3. Industry or product-field level • Industries often share particular scientific and technological parameters • technical functions, performance characteristics, use of materials, ...of products • Public KB (accessible knowledge which in principle available to all firms) • Shapes the performance of all firms in an industry • It is developed, maintained and disseminated by institutions of various kinds • it requires resources (often on a large scale)

42. Distributed knowledge bases Chain-link model of innovation • K – R - lines through knowledge to research and return paths. If problem solved at node k link 3 to R not activated. • D – direct link to and from research from problems in invention and design. • I – support of scientific research by instruments, machine tools and procedures of technology. • S – financial support by firms of underlying science, applied anywhere along the chain

43. Distributed knowledge bases • Knowledge base for (many) industries • Not internal • Distributed (technologies, actors, industries, ..) • Empirical analysis of the content • Forms of knowledge (involved in an industry) • The articulation of these knowledges • Their flow across industries (two basic forms) • Embodied flows involve knowledge incorporated in to machinery and equipment • Disembodied flows (and spillovers) involve the use of knowledge, transmitted through scientific and technical literature, consultancy, educations systems, movement of personnel and so on

44. Distributed knowledge bases Other (receiving) industries Research-intensive industries

45. Distributed knowledge bases Examples of some major Norway (apparently low-tech) industries

46. Distributed knowledge bases Examples of some major Norway (apparently low-tech) industries

47. Distributed knowledge bases • Empirical research (Norway) • Map KBs by identifying and describing the following basic aspects of industrial production: 1. Key activities / technical phases of production 2. Key techniques (capital inputs, equipment, instruments and production routines) 3. Knowledge bases / Technologies / Knowledge area 4. Institutional framework / Research suppliers

48. Distributed knowledge bases • KBs (i): the oil and gas sector • Phases, key activity, technique and knowledge base • The acronyms refer to institutions within the Norwegian science and technology infrastructure - for details see Appendix 1 • Key points • The wide array of knowledge inputs across many activities, and • The very substantial number of science and technology infrastructure institutions which are involved in generating, supplying or maintaining them. • In this figure we include only specifically Norwegian infrastructural institutions - we are not including specialised suppliers, or international institutions.

49. Distributed knowledge bases Key activities, techniques, knowledge bases and research institutions in different phases of the Norwegian offshore sector

50. Distributed knowledge bases