Last week, I posted a comment on how innovation in low and medium tech companies relies on absorbing, rather than generating, new knowledge. Absorption is just as important for countries as for companies. The 2005 Industrial Development Report from the United Nations Industrial Development Organization (UNIDO) Capability Building for Catching-up highlights this problem with respect to the ability of low- and middle-income economies to catch-up with the more developed economies.
The report stresses the key feature of the I-Cubed Economy:
In modern societies development and economic welfare rest on the permanent creation and destruction of knowledge. Rapid acquisition of new knowledge is fundamental to successful economic performance.
The report goes on to explain:
Owing to the cumulative nature of learning, differences in the rate of accumulation of technological capabilities have an inherent tendency to translate into gaps in economic prosperity across countries. Narrowing these gaps has required sustained catch-up efforts of various kinds. Pivotal among these efforts has been the swift accumulation of technological capabilities. Contrary to views once popular among economists, domestic knowledge generation has been a requisite of catching-up. Tapping into the global pool of knowledge and building domestic knowledge systems go hand in hand.
Collective learning, both within single organisations and at more aggregated levels, is a vital feature of domestic competence building. Indeed, the effectiveness with which a firm is able to participate in and benefit from the generation of technologies is largely given by factors that lie outside the scope of the individual enterprise. The institutional environment within which a firm operates determines its incentives and opportunities and thus affects the scope of the capabilities it needs to master. The intervening factors include incentives to innovation, conditions of access to various kinds of inputs (including finance, skills and knowledge) and to relevant markets and regulatory requirements. Behind many of these factors lie the capabilities of a multiplicity of organisations, including input suppliers, educational and training institutions, research organisations, financial institutions, regulatory agencies and specialised service providers. Clearly then, both the quality of firms’ technological capabilities and the scope for acquiring new capabilities can only be properly understood by considering the context within which both are shaped. The process of competence building is hence not only cumulative at an individual level but also systemic in character.
The importance of these institutions is based on the nature of technical knowledge:
Questions arise as to why dissemination is difficult, why advances in scientific knowledge do not lead immediately to new technological applications, and why the effectiveness of both processes varies significantly across sectors. Two fundamental explanations have been put forth. The first one is that the output of scientific research is not information that can be used at trivially low costs in the production and implementation of new technology. Scientific activity relies on a complex enabling infrastructure. Second, the mastery of tacit knowledge affects the efficacy of technology dissemination processes across firms or countries. (e.g. standards and technical regulations, generic drugs and semiconductors).
The capabilities required for exploiting various forms of codified knowledge reside only partly within any given firm. A distinctive feature of an innovation system is the presence of multiple, interacting actors and institutions, whereby firms’ capabilities are enhanced by access to those of other actors in the system. The extent to which developing country firms can access and use available sources of codified knowledge depends on the diversity of the collective skills and capabilities they can rely upon in order to introduce locally innovative technologies.
This absorption ability is just as important in the so-called developed nations. [I say so-called because the use of the term “developed” is misleading as it implies an end state – rather than a relative position. Viewing a country such as the US as “developed” implies that the process of economic evolution and growth (a.k.a. development) is finished. That is a mind set that only begs for trouble.]
Even nations at the cutting edge of technology and innovation need to be able to gather and absorb knowledge and information from elsewhere. The not-invented-here syndrome is as deadly for a nation as it is for a firm.
Unfortunately, too much of America’s current policy falls victim to this way of thinking. From a security policy that makes it difficult for foreigners to enter the US (the most effective form of knowledge transfer) to a technology policy predicated on just outspending everyone else, we fail to recognize the contribution and importance of the information and knowledge from around the globe.
This is an attitude that companies decidedly don’t share with our policymakers. As the US seems to becoming more isolated, companies are rapidly becoming more global in their search for knowledge and information.
Part of our current competitiveness push is correct when it comes to increasing our absorption capacity. We need a workforce trained in at least the basics of math and science if we are to have the capability to utilize formal knowledge from what ever source (as the UNIDO report points out).
But there is so much more we need to do.
The starting point may be to recognize the fundamental nature of knowledge: it is more powerful if it is shared. As Thomas Jefferson said:
He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation.
That saying applies to nations and well as individuals. The more we learn to learn from others, the stronger we will become – as an economy and as a nation.