Presented at the National Economic Development Forum, Partnerships for the 21st Century, by Kenan Patrick Jarboe
Partnerships for the 21st Century
National Economic Development Forum
May 29-31, 2001
The title of this session is “Taking Advantage of the Global Marketplace.” In order to discuss community responses to the global market place, we must first look, briefly, at what we mean by globalization. I suggest that there are two versions of economic globalization: the late-industrial age form, and the early-information era variant. Both of these two versions of globalization are true. It remains to be seen whether they are mutually exclusive competing models or whether they are complementary. At least in the near term, both versions will be found in the global economic system, resulting in a mixed mosaic. How a community responds to globalization depends on which version you seek to respond to. Economic development in the information age has its own very special set of characteristics and challenges.
Much of the economic history of the 20th Century has been the slow emergence of a global version of the modern industrial economy with its emphasis on machine-made interchangeable parts assembled in a factory system and volume production. As one commentator succinctly described it:
For the first time in human history, anything can be made anywhere and sold everywhere. In capitalistic economics that means making each component and performing each activity at the place on the globe where it can be most cheaply done and selling the resulting products or services wherever prices and profits are highest.
This vision is an apt representation of the late industrial-era model of production—even though it is not exactly true. A modern assembly-line type factory, highly capital intensive and often “dumbed down” by design to eliminate the need for worker skills, can be built in any location where there is cheap labor yet an adequate infrastructure. The resulting implied competition between production locations gave rise in the 1980s to the concern by governments, both nationally and locally, about their economic competitiveness—a concern that continues in a different form in light of rapid movements of investment capital.
This current late-industrial era of globalization differs only in detail from the earlier era’s, such as La Belle Epoch and post-World War II. The most important difference is the shift from trade to economic integration. The difference is best seen in the shift of trade policy from issues concerning at-the-border activities (tariffs and customs regulations) to questions arising from internal operations of a nation’s market. The major new topics of trade and international economic policy reflect this shift: currency controls and capital flows, intellectual policy, competition (anti-trust) policy, investment policy, and labor and environmental standards.
The Information Economy
There is, however, a very different view as to what globalization means. A new global information economy has emerged with the rise of electronic commerce and greater use of computer and telecommunications technology. Table one summarized the two contrasting economic models.
In the world of digitized economic activity, information can be delivered instantaneously anywhere in the world. Rather than relying on the knowledge of some small, specialized information elite to direct the organization, many companies are creating a new decentralized social organization of work where success depends on the ability to capture and use the skills and knowledge of the entire workforce. Even in what may be considered lower-level activities, information and knowledge play an increasingly important role as frontline workers assume ever-greater responsibility for their tasks. As Peter Drucker has recently observed:
Increasingly, the human being does not work in mass production, but in what might be called ‘team production.’ And that means that increasingly the producing human being is a knowledge worker. Workers as they did before the Industrial Revolution, own the means of production. The means is between their ears.
The result of this revolution is far more profound than simply the electronic delivery of goods and services, as important as that may be for both business and government. The shift to an information economy is changing how we work and do business in ways that were inconceivable a few decades ago.
Note that only part of the story is the rise of the information technology (IT) industries. That is not to say that these industries are unimportant. According to one estimate, the computer and telecommunications industries contributed between 21 and 31 percent of U.S. GDP growth in each of the years 1995 to 1998. But the information revolution goes well beyond the creation of computer and telecommunications equipment. The creation of knowledge and information is just as important as the creation of the hardware. In the information age, the output of workers is more likely to be an “intangible”—such as software, ideas, services, music, literature, etc.—rather than a physical good. As economic activity is digitized, advanced economies are becoming “weightless.”
The changes are not simply the result of the rise of a new sector—one which has grown much larger than older sectors. There is no separate New Economy sector. All parts of the economy and all sectors are affected by the shift to an Information Economy. The process of making and using of things is just as affected as the production and utilization of information.
For example, in the agricultural age, food production (agriculture) was carried out by human and animal power. In the industrial age, the process was mechanized with new energy sources and machinery substituted for human and animal labor. In the information age, increased information is added to the production process. Tractors now come equipped with GIS systems to better pinpoint the fertilizer and weed control needs of each small area of a larger field.
Use of information and knowledge is what really counts—not just its production or manipulation. The future belongs to the knowledge user as well as to the computer programmer and the knowledge creator. This use of knowledge includes the ability to use both formal knowledge (explicit and codified in books, manuals and databases) and tacit knowledge (experiential, intuitive). Both formal and tacit knowledge are necessary. Either is crippled without the other. It is extremely difficult to use the tacit knowledge of a person who is functionally illiterate. On the other hand, tacit knowledge allows an individual to recognize and use elements of formal knowledge in ways appropriate to a particular situation.
Production and place
The increased importance of both kinds of knowledge is dramatically altering the relationship between production and place, which is at the very core of economic development. While physical capital is easily transferable from one location to another, knowledge and human capital are not. A worker’s skills (including formal and tacit knowledge) are as mobile or immobile as the worker.
Here we stumble upon a paradox for the information age: Individuals and information appear to be more mobile than ever. This leads some to argue that new information technologies will cause services to follow manufacturing toward footloose production. This is not necessarily true. Given the importance of both tacit and formal knowledge, face-to-face human interaction remains the most information-intensive means of communication—a critical factor in an information-rich economy. Silicon Valley is just one obvious example of this tendency of information-intensive activities to cluster in geographical proximity.
Likewise, localized knowledge is needed for customization and for the ability to adapt to rapidly changing situations. For example, a local insurance agent can tap into the company’s knowledge base (formal and informal) to custom design coverage to meet the client’s specialized needs. In this case, tacit localized knowledge is combined with global resources. The result is a production system that is strongly rooted in its local market and knowledge base, and that also draws upon and contributes to the global networks.
So, we may not face a world of completely footloose production where economic activity can be transferred to wherever labor is cheapest or economic development incentives are highest. Instead, the competitive economic success hinges on geographically centered clusters of human capital, skills, knowledge, and local relationships. Importantly for economic development, tacit knowledge is only partially based in the individual; it also resides in the special circumstances and situation of the community.
Information age economic development
The rise of the information economy has direct implications for economic development—due in part on the change in what business needs as inputs to the production process. No longer are business location decisions based simply on the availability of cheap land, cheap energy, a low-cost labor force, availability of raw materials, or access to transportation. The ability of a locality to supply a company’s need for information and knowledge assets has become paramount in economic development. There are at least three elements involved in the process: an up-to-date IT infrastructure, availability of skilled workers, and a good quality of life.
The starting point for economic development in the information age is the existence of a suitable IT infrastructure. Many people see the Internet as a consumption tool—as a means of recreation, information gathering and shopping. Economic development practitioners know that the information technology infrastructure is also a production tool. Advanced information technologies can make businesses more productive and efficient as well as expand their markets. To take advantage of those opportunities, companies must have access to high-speed telecommunications connections, commonly known as broadband.
The second obvious change in business due to the emergence of the information age is a greater need for a skilled workforce. Companies will locate where a skilled workforce is available. In addition, new companies will be more likely to be started in such locations. Thus, training and workforce development issues are now at the top of every economic development agenda—national as well as local. But it is not just training of workers with information technology skills to lure in companies. Local economic success requires going beyond luring in companies with a technologically skilled workforce. Helping existing companies upgrade the skills of their existing workforce is just as important.
Nor is it just a matter of technical training. The ability to utilize knowledge, both tacit and formal, is increasingly important. Companies are changing their operations to take better advantage of their knowledge and information assets. Those changes—often labeled as a shift to “high performance work organizations”—place greater emphasis on organizational skills such as decision-making, communications and group processes. Training in these skills is increasingly important.
The third important element in business location decisions is an area’s quality of life. Highway congestion, pollution and/or a lack of housing can diminish an area’s potential attractiveness. Good schools are important not only to educate the next generation of workers, but also to lure their parents into the area.
The most important change in what businesses need is the rise of information assets. Tacit knowledge and social capital are increasingly important—those assets which are simultaneously local and globally based. As locally developed information assets become the keys to economic success, all communities have the opportunity to benefit from capturing and using their local knowledge.
One form of local knowledge is often referred to in the international development literature as “indigenous” knowledge (IK). However, the nature of IK is not limited to indigenous peoples, but rather a function of the type of information.
The World Bank describes IK as having the following characteristics:
local, in that it is rooted in a particular community and situated within broader cultural traditions; it is a set of experiences generated by people living in those communities . . .
tacit knowledge and, therefore, not easily codifiable.
transmitted orally, or through imitation and demonstration. Codifying it may lead to the loss of some of its properties.
experiential rather than theoretical knowledge. Experience and trial and error . . .
learned through repetition, which is a defining characteristic of tradition even when new knowledge is added . . .
constantly changing, being produced as well as reproduced, discovered as well as lost; though it is often perceived by external observers as being somewhat static.
Every region, every neighborhood of every city and in every rural area in the United States has its own reservoir of unique tacit knowledge.
Capturing tacit knowledge is one important economic development activity. Building social capital and means for sharing that knowledge is another. One economic development strategy that has arisen over the past few years concerns the development of economic clusters. Social capital and information sharing play a crucial role in creating successful economic clusters. What makes a successful cluster is the implicit sharing of knowledge and skills, especially tacit knowledge. There is no substitute for physically being there when it comes to the transfer of tacit knowledge. Clusters are an efficient means of developing and utilizing tacit knowledge.
Role of Knowledge Management
In this information economy, success comes from harnessing the information and knowledge assets of a community and from helping local businesses succeed in the new environment. Knowledge Management (KM) can provide the tools to help economic development practitioners accomplish that task.
KM is a set of techniques and tools to uncover and utilize information and knowledge assets—especially tacit knowledge. These tools and techniques are both IT-based and organizationally-based. In the IT track, the emphasis is on using software and the Internet. One goal is to capture information in databases. The other goal is to improve communication internally (to share knowledge within the organization) and externally (to determine customer preferences and to better manage to the flow of goods and services to and from suppliers). In the people track, emphasis is on creating an environment that fosters innovation and the highest possible level of skill-utilization—the so-called management of human capital.
Economic development organizations can use KM tools:
· to enhance external communications of local companies including marketing via the Internet and,
· to promote internal communications within local businesses and help companies capture tacit knowledge.
More importantly, they can use those tools to uncover and develop local intellectual assets, including helping develop information products, and helping identify entrepreneurial and business opportunities. KM tools are also useful in developing local economic clusters.
For example, entrepreneurs can use advanced IT to better leverage their own personal knowledge gained from their own experiences based in a certain location. AgriImaGIS is an agricultural imaging business run by a former farmer. His knowledge of how to translate the information from satellite images into information for farmers on vegetation density, crop quality and the specific needs for fertilizer and pesticides was gained through 20 years of farming.
These types of opportunities for those with a specific set of information skills are becoming common. As the information revolution continues, there will be a greater and greater need for those with the skills and understanding of a situation to play the role of information broker. Some older form of market brokers—“the middle man”—will disappear in the process economists call dis-intermediation. But new opportunities will be created as forms of information filtering and brokering arise to meet the changing market needs.
The identification of marketable content is not the only form of local information assets. Just as important is the utilization of local knowledge/information to identify non-information market opportunities and skills. Knowledge management tools can be used to identify local skills and capacities that can generate market opportunities.
These new entrepreneurial opportunities need not be confined to the local economy. A powerful strategy is to create new opportunities to develop local skills and market the results globally using advanced information technologies. For example, the Appalachian Center for Economic Networks (ACEnet) has created a local economic cluster centered on the specialty food products industry. ACEnet operates as a combination food business incubator, e-commerce and technology training program, venture capital fund and local economic development think-tank.
Finally, these tools can be used to enhance external knowledge sharing among the economic development community and to capture and share tacit knowledge within an economic development organization. Creative use and combinations of these and other KM tools can help an economic development organization better market and utilize its major asset: information and expertise. After all, economic development entities are pure examples of knowledge-based organizations. And who better could benefit from knowledge management?
Economic development in the information age requires better use of information and knowledge. It requires unlocking the information and knowledge assets of a community as the driver of local economic development. It also requires unlocking the hidden information and knowledge about a community and about the process of economic development.
The information economy is not about the information technology industries. It is about the use of information and knowledge—formal and tacit—in economic activities. Building a strong local economy means developing and cultivating the local knowledge and information base. KM tools and techniques can provide the foundation upon which to build successful local information-age economy.
Two Forms of Globalization
mass production – mass consumption;
economies of scale and scope;
capital and labor;
centralized command and control;
hierarchy and bureaucracy;
national and international governance;
direct government management and service delivery
economies of flexibility and speed
skills and knowledge;
alliances and partnerships
local and regional control;
proliferation of non-governmental actor
 Lester C. Thurow, The Future of Capitalism, William Morrow and Company, New York, 1996, p. 115.
 In industrial era globalization, costs, especially labor costs, are not the only factor in determining the location of a production facility. Other factors, such as resources, transportation, closeness to market, and preferences of the owners/managers all play an important part.
 Quoted in Patricia Panchak, “The Future of Manufacturing: An exclusive interview with Peter Drucker”, Industry Week, September 21, 1998, pp. 102-104.
 Economic Report of the President. H. Doc. 106-161. Washington, DC: Government Printing Office, February 2000, p 104.
 Indigenous Knowledge For Development: A Framework For Action, Knowledge and Learning Center, Africa Region, World Bank, Washington, DC, November 4, 1998, p. 2.
 David Plotnikoff, “Maddock, N.D., stays alive by going against the grain,” San Jose Mercury News, 31 October 2000.
 Gordon Kingsley, “Case Study: Appalachian Center for Economic Networks (ACEnet).” Innovative Local Economic Development Programs. Washington, DC: Economic Development Administration, November 1999. pp. 156-163.