Wed 13 Apr 2011
The Knowledge Economy
Posted by a-cubed under Life the Universe and Everything , Social Legal and Ethical Aspects of High Tech1 Comment
While revising my lectures for the coming academic year I had some thoughts about the shape of economics in the Knowledge Economy that I thought I’d put down. These are just some initial ideas, not fully worked out.Eric Reasons has an interesting perspective on his blog about how the new economy of free is undermining the old and destroying our current measures of wealth and economic growth. One of the common themes of my teaching is how what’s happening now can be understood better if we consider what has happened before (not quite the Mormon/Battlestar Galactica “this has all happened before. It will all happen again”). Looking at the development of the telegraph helps us understand the social and economic impact of the Internet. Looking at the industrial revolution helps us to understand the information revolution. Reasons is right in that current economic changes are radically undermining our current measures of wealth, which are principally based on atoms. Of course in the pre-industrial age wealth was based primarily on hectares. Not all hectares were equal and good management/work could improve (to a physical limit) the value of existing hectares. But Marx’s analysis that labour is the missing element of economic analysis in the mercantilist commodity economics of the day was a significant insight (I’m with Karl Popper in that Marx did brilliant work on observing and analysing the state of his time but a terrible one with his predictions of the future). Reasons makes some similar mistakes. He claims that the 20th century gave us free time we’d never had before. Actually, if one looks at agrarian economies, stable economies had significant free time, i.e. time which was not spent on subsistence labour for one’s family, for many though not all. This free time wasn’t spent watching soap operas because television didn’t exist. It was spent doing things beyond the immediate needs of the individual and family. Some of it was spent enriching the feudal lords. When a peasant had to spend two or more days a week working the lord’s land, that was their free time. Another way this free time was spent was the construction of the major cathedrals, many of which still stand today as features of the urban landscape. Wikipedia is, I contend, the modern equivalent of the medieval cathedral. These days, particularly in Japan, many employers act as feudal lords and expect such “free” time to be gifted to the company with long working hours and presenteeism. The late industrial economy and particularly the early knowledge economy have been characterised by a diminution of free time for a large part of the population. The 9-5 job has become the 8-7 job with email, mobile phone calls and international travel added on top. For others, as documented by Naomi Klein, flexible hours have become a millstone around the necks of the manual worker, with Starbucks or McDonalds requiring shifts of 7-10am and 4-7pm making up the working day and no recompenses for the double commute (many of their stores are in locations their employees can’t affford to live in and the early and late public transport they rely on also extends travel time).
Reasons talks about the deflationary pressures of innovation and claims that the new “free” economy that Anderson talks about in Free (and that Doctorow criticises as on half-analysed in his Guardian piece) will be one in which we will have less money, but goods will cost less, and we’ll have more free time. The kicker according to Reasons is whether, and possibly for whom, the balance betweeen reduced income and reduced outgoings will balance or improve. However, if we look again at the shift from the agrictulural to the industrial economy, we see that those things which were represented by money in the agricultural economy (land) were supplanted by movable goods (cars, televisions, washing machines). As Charlie Stross pointed out in the Introduction to Toast, a conversation with H. G. Wells in which one is limited to yes/no answers would quite probably give Mr Wells some very strange ideas, because he would be focussed on the things that mattered in an early industrial economy: coal, steel, warships. He couldn’t know about aircraft, nuclear weapons, computer software, and would not regard international finance, insurance, tourism as significant economic indicators. Similarly as we move from the industrial economy to the knowledge economy our measure will need to change. Money is currently still the main mechanism of exchange and will probably remain necessary for physical goods for a long while until and unless we can develop Star Trek-style replicators from today’s crude 3-D printers, and even then the raw materials going into them may keep monye important for a while. But already we see that issues such as reputation may be far more important to the new economy than physical structures. The banking collapse was driven at least in part by a bubble in reputation as over-inflated values poisoned a realistic lending market. All I think at this point that we can reasonably say about the economy of two or three decades down the line is that the commodities that will be important then are as opaque to us now as the microprocessor would have been to H. G. Wells.
April 17th, 2011 at 22:14
A^3:
Thanks for speaking well of my blog posts. I’m very glad that more and more people are giving thought to these issues.
I think the key point when talking about that which can be meaningfully measured by economics, is that the Supply/Demand curve is based on *scarcity*, and in a world where *scarcity* is mostly artificially induced (via copyright and patent), the system is fighting a losing battle to cram 21st century ideas of production into 20th century framework of capitalism and property. The problem with the 21st century is dealing with *abundance* not *scarcity*, and traditional capitalism is a tool to allocate *scarce* resources in teh most efficient way. It says next to nothing about allocation of resources that are abundant.
In short, what happens to the Supply and Demand curve when Supply becomes infinite? It’s not so much that economics falls down, as that it *divides by zero*, as it were.
For some goods, (notably, anything relying on materials in the real world) this will never happen (until we get the Star Trek replicators online, of course). However, we see what happens when the product is divorced from natural scarcity:
When music was distributed on vynyl records, there was next to no issue with copying or “piracy”. When it moved to magneteic casette and CD, there started to be grumbling about “bootleggers” or “pirates”, but the problem was still mostly well-contained because copies required a phsycial medium, and a decent investment of labor on the part of the copier to make the next copy. In short, marginal cast was still far from zero. Come to the early 21st cenntury, and the Internet changes everything: 1 copy could become thousands in the matter of a mouseclick: and recorded music was no longer scarce. It was abundant.
Thus my “bits vs. atoms” split helps me think about where traditional economics holds up, and where it doesn’t in the coming decades.
When asking about “what we can reasonably say about the economy of two or three decades down the line” we should be asking ourselves if that which is “important to us” is still going to be *scarce*. If it is, then traditional economics will probably be quite unchanged, and still quite valuable when talking about them (atoms).
On the other hand, if our explosion of non-rival goods has rendered supply infinite for certain sectors of “production”, we can reasonably expect the bottom to fall out of those sectors, at least economically.
Maybe these goods/sectors/services/endeavors get propped up by some other intrinsic motivation to create, or maybe they just go away in time. Perhaps the musician creates recorded music as a side-effect of getting paid to perform live, instead of the other way around. (For that matter, I know a lot of people who make music, and don’t get paid for it today).
I agree that we don’t fully understand what the next step in economics is over the next quarter-century, but I think we can safely assume that at least for some sectors of production, it’s not just “opaque”, as you say, but *wholly different* than what has come before. And I believe we can start identifying those sectors now, by identifying how reliant upon “Intellectual Property” and artifical scarcity they are.
Thank you again for given my writing such thoughtful consideration. Much like the examples above, I don’t get paid for, so *my* intrinsic motivation for doing it is when I see others enjoying it.
-Eric