Another contrarian (well, contrarian to popular opinion) on so-called “knowledge economies”. There is a lot of areas within economic literature that relate to isses that might be considered to fall into this area. I just want to make a point on one that is getting lots of column inches in the media and also around the Pin. Vis. the apparently commonly held belief that the existance of leading edge production or R&D in an economy is a “good thing” - economically speaking.
Well the literature typically comes down with a slightly different perspective. If you consider that what people are typically claiming is that a high proportion of production oriented in these areas is what provdes for increased incomes. However, it is more commonly accepted in economic thinking that it is the consumption of such leading edge technology that provides for increased incomes.
What the hell does that mean? It means that you should not really care that they invent the interwebbie in California or design and make silicon processors in China or Taiwan. What drives higher income is the extent to which you use that technology (in conjunction with capital and labour) in your economy to produce goods and service with higher value added and hence incomes.
I can understand how the misconception occurs. When you consume technology in such a way you naturally produce goods and services of higher value (as I said) that are high technology inputs themselves. And that is the policy trap. Governments often believe they need to encourage the production and hence offer subsidies and incentives to shareholders (did anyone say Goolga, Intel, Dell etc. etc.). Same applies to encouraging the set up or trying to prop up small companies deemed to be “high tech” or “knowledge economy” or whatever. This is bad policy - it costs and is really a subsidy for the end user of the stuff being produced.
Instead there should be focus on removing any impediments to the consumption of technology. No I don’t mean more subsidies.