Knowledge and Industrial Organization

299 Pages·1989·11.39 MB·English

by  Åke E. Andersson

o •
Ake E. Andersson· DavId E Batten
Charlie Karlsson (Eds.)
Knowledge
and Industrial
Organization
With Contributions by
A. E. Andersson, C. Anderstig, R. ArtIe, R. U. Ayres, S. Bass Warner Jr.
D. F. Batten, L. Bodstrom, D. L. Bosworth, E. J. Davelaar
M. M. Fischer, H. Folmer, H. W Herzog Jr., B. Hotz-Hart, 1. Howells
T. Hutten, Y M. Ioannides, C. Karlsson, K Kobayashi
T. R. Lakshmanan, G. Larsson, E. Mansfield, A. Markusen, P. Nijkamp
A. M. Schlottmann, P. Varaiya, K Velupillai, R. A. Wilson
M. Wiseman, W Zegveld
Springer-Verlag Berlin Heidelberg New York
London Paris Tokyo Hong Kong
Professor Dr. Ake E. Andersson, Director, Institute for Futures
Studies, Hagagatan 23 A, 3tr, 113 47 Stockholm, Sweden
Professor Dr. David F. Batten, Department of Economics,
University ofUmea, 90187 Umea, Sweden
Dr. Charlie Karlsson, Department of Economics,
University of Karlstad, 650 09 Karlstad, Sweden
With 33 Figures
ISBN-13: 978-3-642-95599-0 e-ISBN-13: 978-3-642-95597-6
DOl: 10.1 007/978-3-642-95597-6
Library of Congress Cataloging-in-Publication Data
Transportation for the future 1 David F. Batten, Roland Thord (eds).; with contributions by
A. E. Andersson ... let al.l.
p.cm.
"This volume contains a colletion of papers presented at the First International Conference on
Transportation for the Future, held at the Hotel Skogsh6jd in S6dertiilje, Sweden from
24-25th May 1988"-Pref.
Sponsored by the Swedish Board for Technical Development, the Swedish National Road
Administration, and the Community of S6dertiilje.
1. Transportation-Forecasting-Congresses. I. Batten, David F. II. Thord, Roland, 1949.
III. International Conference on Transportation for the Future (1st: 1988: S6dertiilje, Sweden).
IV. Styrelsen fOr teknisk utveckling. V. Sweden. Vagverket.
HE 11, T73 1989
388'.01'12-dc20
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September 9, 1965, in its version of June 24, 1985, and a copyright fee must always be paid.
Violations fall under the prosecution act of the German Copyright Law.
© Springer-Verlag Berlin· Heidelberg 1989
Softcover reprint of the hardcover I st edition 1989
The use of registered names, trademarks, etc. in this publication does not imply, even in the absence
ofa specific statement, that such names are exempt from the relevant protective laws and regulations
and therefore free for general use.
2142/7130-543210
FOREWORD
This volume contains a selection of papers presented at an international symposium on
research and development, industrial change and economic policy organized and hosted
by the University of Karlstad, Viinnland, Sweden.
Situated about halfway between Stockholm and Oslo, Karlstad stands on the River
Klara, which reaches north into the mountains of Norway. Founded by King Charles IX
of Sweden, whose statue stands in the city centre beside the river, the city celebrated its
400th anniversary in 1984. For many decades the wealth of Karlstad has been based on
traditional industries such as iron, timber and paper, and throughout the province of
Viinnland there are a considerable number of industrial communities which grew up
around mines, ironworks, sawmills and papermills. Even the cultural structure of these
communities is heavily marked by the industrial environment in which they developed.
However, for over a decade now a major structural reorientation has been taking place
and the old industrial structures have been disappearing. For various reasons the
importance of large scale, manufacturing companies has declined and as a result of intense
development work with new ideas, new entrepreneurs and new technology, we have seen
the rapid rise of small companies.
In this context, recent research has shown that universities playing an increasingly
central role in regional development. Thus the continued development of the University of
Karlstad is of significant regional and national interest. Although fairly small in an
international perspective (approximately 4000 students) the university is expanding
rapidly.
It is natural that regional research should be an important field in an environment such
as the one sketched above, so a special regional science research unit has. been established
at the university, organized along the lines of what is termed the 'Karlstad approach'.
This means that in its research work Karlstad partly draws on the academic competence of
the larger universities in the country. For instance, the regional science research unit,
includes among its scientific advisers Professor Ake E. Andersson, now head of the
Institute for Futures Studies in Stockholm, and Professor Borje Johansson of UmeA
University, both of whom played a key role in promoting the symposium.
The above background helps to explain why Karlstad was a suitable venue for the
meeting. However, the decisive factor for hosting a symposium on this theme was that
research and development, industrial change and economic policy have become major
research fields at the international level. I am very pleased, therefore, that the organizers
succeeded in creating a meeting place for prominent researchers from many parts of the
world. A stimulating international spirit was the keynote of the symposium. We were
honoured by the presence of participants and observers from universities, major
companies, trade unions, government departments, various national boards, research
institutes and regional organizations. It gave us particular pleasure that Mr. Lennart
Bodstrom, the Swedish Minister of Education, was able to accept the invitation to open
the proceedings.
That the symposium was successful was a tribute to the efficiency of the organizing
committee and secretariat. Further, we would like to express our appreciation to those
research councils, authorities, organizations and companies in Sweden who provided the
necessary funds. The main funding agencies were the National Swedish Board for
Technical Development and the Bank of Sweden Tercentenary Foundation.
Last but not least, I would like to thank the editors for their work in preparing this
volume. My sincere thanks also go to Michael Cooper and Ann-Britt Hoglund who made
invaluable contributions to the editorial process and to Ingrid Lindqvist for her extra-
vi Foreword
ordinarily conscientious secretarial work. I am finnly convinced that the volume they have
produced is a major contribution to research in the field.
Lennan Andersson
Vice Chancellor
University of Karlstad
CONTENTS
1. From the Industrial Age to the Knowledge Economy 1
by A.E. Andersson, D.F. Batten and C. Karlsson
PART I. INDUSTRIAL ORGANIZATION IN THE KNOWLEDGE
ECONOMY
a) Intelligent Factor Inputs
2. Productivity in Manufacturing and the Division of Mental Labor 17
by P. Varaiya
3. What Have We Learned in the Path from GOdel and Turing to Artificial 25
Intelligence?
by K. Velupillai
b) Knowledge Development and Diffusion
4. Knowledge, Nodes and Networks: An Analytical Perspective 31
by D.F. Batten, K. Kobayashi and A.E. Andersson
5. Innovation, Diffusion and Regions 47
by M.M. Fischer
6. Technological and Institutional Innovations in the Service Sector 63
by T .R. Lakshmanan
7. Research and Development, Corporate Organisation and Industrial
Location: Prospects for Regional Development 81
by J. Howells
8. Diffusion of Technological Change and Economic Growth 101
by Y.M. Ioannides
PART II. TECHNOLOGICAL AND ECONOMIC INTERACTIONS:
SOME EMPIRICAL STUDIES
a) Long Cycles of Technological Transition
9. The Barrier-Breakthrough Model of Innovation and the Life Cycle Model
of Industrial Evolution as Applied to the U.S. Electrical Industry 115
by R.U. Ayres
10. The Evolution of High Technology in the Boston Region 1920-1980 133
by S. Bass Warner Jr.
11. Innovation, Rand D, and Finn Growth in Robotics: Japan and the
United States 143
by E. Mansfield
viii
12. Spatial Diffusion of Infonnation Technology in Sweden 157
by C. Anderstig and C. Karlsson
13. Innovative Behaviour of Industrial Finns: Results from a Dutch
Empirical Study 177
by. EJ. Davelaar and P. Nijkamp
14. Innovating Behaviour of Swiss Industry -Findings and Policy
Conclusions 187
by B. Hotz-Hart
c) R&D and Property Rights
15. Infrastructure for Technological Change: Intellectual Property Rights 197
by D.L. Bosworth and R.A. Wilson
PART III. THE POLITICAL ECONOMY OF STRUCTURAL
CHANGE
a) Interdependencies between Industrial and Regional
Structural Change in the USA
16. High-Technology Location and Worker Mobility in the U.S. 219
by H.W. Herzog Jr. and A.M. Schlottmann
17. Economic Expansion and Establishment Growth on the Periphery 233
by M. Wiseman
18. The Economic, Industrial, and Regional Consequences of Defence-led
Innovation 251
by A. Markusen
b) The Micro-Macro Policy Problem
19. Some Reflections on Innovation Stimulating Policy 271
by H. Folmer and T. Hutten
20 New Issues in Science and Technology Policy: Discontinuities in the
Process of Knowledge Generation, Knowledge Transfer and Knowledge
Transfonnation 279
by W. Zegveld
21. Micro-Macro Interactions and US Industrial Change 291
by R. ArtIe
22. Swedish Science Policy: The Government's New Research Bill 297
by L. Bodstrom
23. A Ten-Year Review of Science Policy in Sweden 303
by G. Larsson .
List of Contributors 309
CHAPTER 1
From the Industrial Age to the Knowledge
Economy
Ake E. Andersson, David F. Batten and Charlie Karlsson
1.1 INDUSTRIAL ORGANIZATION AND THE KNOWLEDGE
ECONOMY
1.1.1 Economic Life in the Industrial Age
Some aspects of economic life were taken for granted in the industrial age. Surprisingly
enough, one of the scarcest resources of all - knowledge - was treated as given and
inflexible in its supply, just like minerals and other natural resources.
During the 19th and 20th centuries, two opposing assumptions have emerged out of
this basic idea. The first assumption is associated with David Ricardo. In his world
different regions were assumed to be endowed with differing sets of technological and
commercial knowledge. Thus the availability of natural resources, agricultural traditions,
and technological knowledge were assumed to have given Portugal an absolute advantage
over England in the production of oats, wine and cloth. His riddle was then: would there
be any mutual advantage in engaging in trade between these two potential trading
partners, who were so unequal in productivity? Ricardo gave an astonishing answer. The
absolute productivity differential, however great, would never matter. As long as there
were comparative productivity advantages in any field of production, there would be
gains from trade for the sum of countries involved in international trade.
Almost a century later, Eli Heckscher and Bertil Ohlin made the second, much more
heroic assumption of identical technological knowledge ruling everywhere. In this world
where knowledge differences were completely ruled out, it was possible to show that
comparative advantages in terms of basic resource endowments were sufficient to
generate comparative advantages from trade. Then it would even be possible to
compensate for shortages in some immobile factors, such as sun or rain, by exchanging
goods intensive in water and sunrays in the process of cultivation and other production.
Heckscher and Ohlin disregarded knowledge as an important factor determining trade and
thus productive specialization of different countries.
This lack of interest in knowledge as a productive factor was not so surprising. The
division of labour between individuals, regions, and nations was the most obvious aspect
of 19th century development among the North Atlantic economies. The economic
potentials of linking resource-rich regions in North America with the labour-rich countries
of Western Europe were significant enough to generate an enormous increase of trade,
specialized production in new manufacturing cities, and massive increases in income per
capita.
2 The Knowledge Economy
The idea of specialization by division of labour, first formulated by Smith and Ricardo,
became a macro and micro theory of economic organization. In the practical form
advocated by Taylor, it provided guidelines for exploiting the comparative advantage
principle from the individual factory floor to the industrial corporation as a home. The
more limited the number of tasks performed by each worker the more comparative
advantages would be used and the higher would be productivity and profitability of
production. Marx had foreseen some of the political consequences of unrestricted division
of labour. In the long run nobody would be able to set up competitive industries due to
the complete fragmentation of the production process. Two classes would emerge - the
fragmented and specialized labour class and the capitalist class with a complete overview
of the whole production process. Limitless application of the principal of division of
labour and the use of indivisible capital equipment would create a complete hierarchy of
monopolistic production within each country. Only the size of the market would prevent
such a system from becoming completely monopolistic. This amounts to the structuring
of society by static principles alone.
Schumpeter was the first economist to radically question this view of economic
development. His is a much more dynamic approach to the problem. He willingly
admitted to all of the principles of division of labour at any conceivable level of economic
life. He also willingly admitted that a general equilibrium with a given structure can exist,
but only as a very limiting case where all the natural dynamics of real economies are
precluded. To him, knowledge was a dynamic factor of production potentially available in
abundance. The synergetic combination of entrepreneurs and such potential technological
knowledge was enough to make the general equilibrium unstable. When the economic
system is approaching a state of general equilibrium, there is by definition also a decline
of profitability that would sooner or later force the entrepreneur capitalist into a frantic
search for new ideas - "innovations". Thus, a new method of production would decrease
the long run marginal cost of production, or anew product would be introduced, shifting
demand in favour of the new product. The closer we come to the general equilibrium the
stronger would be the disequilibrating forces. In modern terminology, the general
equilibrium would be dynamically repulsive. Two principles were sufficient to generate
this conclusion - the existence of an entrepreneurial class, and the availability of non
innovated knowledge.
In the static theories of Adam Smith, David Ricardo, Eli Heckscher and Bertil Ohlin,
knowledge was not progress but corresponded to a given set of capacities to be exploited
through the division of labour. In Schumpeter's theory, knowledge was not the outcome
of an economic process but a good to be exploited by entrepreneurs in their innovative
economic processes.
1.1.2 Knowledge as a Productive Factor
Since Arrow's learning-by-doing process, knowledge has been introduced as a produc
tive factor endogenous to the production process. According to this theory, any pre
determined division of labour will influence the pattern of accumulation of knowledge.
Learning-by-doing implies that comparative advantages within an industrial organization,
as well as between industrial organizations, will shift over time as a reflection of the initial
choice of division of labour.
But knowledge can also be introduced into economic theory in a much deeper dynamic
fashion. The last three decades of development within "cognitive science" have credited
the process of interaction with the fundamentally important role of knowledge accumula
tion in industrial and other organizations. It has also become more important to clarify the
precise meaning of knowledge in contrast to information. Some of the conceptual issues
delimiting the capabilities of computers from those of human intelligence are discussed in
the contribution to this volume by Vellupilai.
A.E. Andersson. D.F. Batten and C. Karlsson 3
From a purely empirical point of view, economists must seriously engage themselves
in an analysis of the knowledge creation process. More than ten percent of the GNP of
most OECD-countries is currently allocated to formal education and research and
development expenditures. Countries are now engaged in a qualitative form of competi
tion, where knowledge investments are the key long-term policy instruments. The pattern
of employment is rapidly changing. The most rapid expansion is occurring in the
occupations involved in knowledge handling. Here we have teachers, scientists, research
and development personnel, journalists and other mass media occupations, consultants
and more.
Using identical statistical databases, it has been possible to estimate the structural
changes proceeding within labour markets in Sweden and Japan. This study sho~s that
the restructuring of labour markets in the Stockholm and Tokyo regions are qualitatively
similar. The cognitive, knowledge-oriented jobs are expanding rapidly (together with the
interactive, service jobs), while information-oriented jobs and physically demanding
occupations are stagnating or decreasing in absolute and relative importance. This recent
tendency may be contrasted with a declining commitment to education and R&D
occupations during the seventies in the USA (see Table 1.1).
In the analysis of the division of labour and other aspects of industrial organisation, it
was assumed that the productivity of one individual is independent of others involved in
the production process. Labour was assumed to interact with machinery and raw
materials, but the interaction patterns between individuals within the labour force were not
assumed to be significant for their respective productivities. This is an unreasonable
assumption in a truly dynamic economy with endogenously shifting production
technology and a changing spectrum of products. In his contribution to this volume,
Varaiya shows that the whole doctrine of the division of labour by comparative advantage
is misleading if applied to high technology and other knowledge-intensive industries.
When dynamic complementarities or synergistic conditions prevail -as they do in research
and development activities -it is fruitless to apply the static principles of the division of
labour. In the creation of knowledge, dynamic self-organization during the creative period
seems to be a much more viable procedure than a pre-organisation into tasks according to
measured comparative advantages.Varaiya's analysis points in the general direction of a
new theory of industrial organization.
As we noted earlier, the classical theory of interregional and international trade has dis
regarded the dynamic role of knowledge and communication possibilities for the
organization of production in space. In their chapter, Batten, Kobayashi and Andersson
have laid the foundations for a dynamic analysis of the location process in which
knowledge accumulation and communication are explicitly considered. Their analysis
shows that the synergistic potentials of knowledge can be analysed in a spatial equilibrium
context, manifesting themselves in the form of a dramatic structural change when slowly
changing variables are transgressing certain critical values. This implies that smooth
changes in policy variables should not necessarily be expected to always lead to
correspondingly smooth changes in economic structure. As soon as knowledge and
communication systems are introduced into economics, one should allow for the
possibility of dramatic industrial reorganization as an embodied dynamic characteristic. A
more general conclusion would be the following: that in the dynamic evolution of a
knowledge-intensive corporation or region, there will be a need for complete reorganiza
tion at certain stages in order to break out of an outmoded equilibrium structure and
establish a new equilibrium at a higher level of total system efficiency.