“Taking Advantage of the Global Marketplace Using Local Information Assets”

Presented at the National Economic Development Forum, Partnerships for the 21st Century, by Kenan Patrick Jarboe

presented at
Partnerships for the 21st Century
National Economic Development Forum
Washington, DC
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.
Industrial globalization

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.[1]

This vision is an apt representation of the late industrial-era model of production—even though it is not exactly true.[2] 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.[3]

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.[4] 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.[5]

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.[6]

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.[7] 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?
Conclusion

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.

Table One
Two Forms of Globalization

Industrial Age

Production characteristics
mechanical;
mass production – mass consumption;
standardization;
economies of scale and scope;

Asset base
capital and labor;
resources

Organizational structure
centralized command and control;
hierarchy and bureaucracy;
go-it-alone

Governance
national and international governance;
direct government management and service delivery

Information Age

Production characteristics
digital;
flexible production;
customization;
economies of flexibility and speed

Asset base
skills and knowledge;
innovation

Organizational structure
decentralized coordination;
network;
alliances and partnerships

Governance
local and regional control;
proliferation of non-governmental actor

[1] Lester C. Thurow, The Future of Capitalism, William Morrow and Company, New York, 1996, p. 115.

[2] 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.

[3] Quoted in Patricia Panchak, “The Future of Manufacturing: An exclusive interview with Peter Drucker”, Industry Week, September 21, 1998, pp. 102-104.

[4] Economic Report of the President. H. Doc. 106-161. Washington, DC: Government Printing Office, February 2000, p 104.
[5] Indigenous Knowledge For Development: A Framework For Action, Knowledge and Learning Center, Africa Region, World Bank, Washington, DC, November 4, 1998, p. 2.

[6] David Plotnikoff, “Maddock, N.D., stays alive by going against the grain,” San Jose Mercury News, 31 October 2000.

[7] 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.

New IT-New Equity-New Economy

A conference to broaden the debate about inclusion of all Americans in the digital economy and society.
February 1, 2000 Washington, D.C.

America is engaged in a national conversation on information technology (IT) and the future of the global information economy. Part of that discussion must concern the impact of these changes on people at the bottom end of the economy.

To a large extent, public policy discussion on this so-called ‘digital divide’ has focused on issues of access to new information technologies. While access is an important topic, it is only part of the problem. The deeper issues-such as the financial and psychological barriers to access to information technology, the changing nature of work and skills, the existing inequality of incomes and skills, the use of information technology and the relevance of content, the questions of control (who sets the standards and who are left out of this process) and the interconnect among the various issues-are rarely discussed outside of narrow groups of experts.

The decisions being made on these topics (or made by default) will determine whether communities-left-behind and communities-at-risk will be able to use the changing nature of economic reality to rejoin the economic mainstream-or whether they will slip further behind. As the conversation on the ‘digital divide’ goes forward, it is critical that it address a broad set of issues and involve a wide range of stake holders and experts. Otherwise, we run the risk of partial, incomplete solutions that do not meet the needs of communities-left-behind. We may also find ourselves with a parallel digital divide-one of differing understandings of the problems and the solutions, mirroring C.P. Snow’s famous Two Cultures.

To help broaden the debate, Athena Alliance sponsored a one-day conference and workshop on the inclusion of all Americans in the digital economy and society at the National Academy of Sciences building in Washington, DC on February 1, 2000.

The conference, “New IT-New Equity-New Economy,” brought together approximately 60 experts, advocates, and interested parties to share information, insights, perceptions, and solutions. Participants examined the broad issues concerning the inclusion of all persons in the information age, identify barriers to inclusion, and define a set of issues that need to be addressed.

The conference began with a moderated roundtable discussion, intended to air the various issues and perspectives. Discussions continue in two parallel workshops covering:

  • access to technology, information, and the governance process; and,
  • economic development.

A report based on the discussion and insights coming out of the conference is in process. While the report is in process, a number of points can be highlighted. First of all, access must be defined on many levels and in many different ways. Access means not just access to the technology, but access to the benefits of information technology: jobs, targeted information, or education. The goal is the creation of an infrastructure that enables capacity building for individuals and communities. This means that the question of “access to what” can only be answered by the individual and the community.

Governance is an important part of the issue of access. It is a fundamental principle that as many people as possible are involved in the process. Both the government and the for-profit sector need to hear multiple voices and understand the specific challenges facing low income communities. Technology can be a means for participation and voice, but only if the process is truly open to all.

Reaping the benefits of information technology is the goal of economic development. Yet, the relationship between advanced information technology and economic development is unclear. A few of the issues raised at the conference include: the quality and skill level of the workforce; the changing quality of work – are their working conditions better, or are they worse; how information technologies can be used by local businesses to compete effectively; the role of the conventional physical infrastructure (airports, highways, warehouses) as well as the new telecommunications infrastructure.

The changing roles of government and the marketplace is another concern. How should decisions be made? Should government define a minimal set of access requirements? Should we encourage content by communities being served? Or will the marketplace naturally address this issue?

These are but a few of the issues and questions raised during the discussions.

Among the conclusions of the conference, three stand out:

  • we don’t really understand of the all of the facts and issues involved in the question of inclusion in the digital economy;
  • we need a means for sharing information and best practices; and,
  • we need to do a better job of reaching out to those who should be but are not yet participating in the discussions.

Based on these conclusions, Athena Alliance will undertake future activities in a number of directions. These include:

  • “digital opportunity” case studies and best practices;
  • follow up local/regional conferences;
  • conferences and meetings on specific issues;
  • discussions on the creation of a research network;
  • working with other groups to inject the issues of digital opportunities into their activities; and,
  • building public support for digital opportunity initiatives.

CO-SPONSORING ORGANIZATION

  • Corporation for Enterprise Development
  • Center for International Development and Conflict Management, University of Maryland
  • New America Foundation
  • The Internet Public Policy Network
  • Samson International
  • The Ellipsis Group

 

ADVISORY PANEL
(organization affiliations are given for identification purposes only)

  • Richard Cohon, Chairman, Athena Alliance
  • Kenan Jarboe, President, Athena Alliance
  • Steve Cilser, Tachyon.Net
  • Steven C. Clemons, V. P., New America Foundation
  • Brian Dabson, President, Corp. for Enterprise Development
  • Lawrence Hecht, President, The Internet Public Policy Network
  • Robert Muller, J. P. Morgan
  • Joan L. Wills, Director, Center for Workforce Development, The Institute for Educational Leadership
  • Dr. Ernest J. Wilson III, Director, Center for International Development and Conflict Management, (CIDCM) University of Maryland 

The Challenge of the Global Information Age

Where the Information Economy Meets Economic Development

Kenan Patrick Jarboe and Richard Cohon

(Ideas in Development: Growing Assets, Expanding Opportunities, Corporation for Enterprise Development, Washington, DC, 1999)

The global information age is upon us – and the practice of economic development must adapt to this new environment. At issue is the changing nature of production, which is no longer merely a process of combining capital, energy, materials and labor. The key inputs today are both formal knowledge/information and informal tacit knowledge that is imbedded in skills and worker experience. This shift changes the skills and community assets required for economic activity. It also changes geographically where production and work take place. Both changes seriously affect the practice of economic development.

The shift to an information economy raises fundamental questions for communities left behind. Will they continue to lose ground, or is this an opportunity to reinvent and reinvigorate themselves? It also raises concerns for lower-skilled production workers and low- to middle- management who are currently “middle-class.” Will those who are just getting by, fall behind, creating a new set of at-risk communities?

For governments and other institutions involved in economic development, old forms and roles are likely to be ineffective or irrelevant in the changed economy. We need to re-develop the basic repertoire of economic development practices, keeping what works and discarding what does not. We must learn how to identify and manage intellectual capital and to understand best practices within the economic development community. This will require an ongoing dialog among those who are trying to understand the global information age, those who are trying to shape it and those who are trying to cope with its effects – in both the public and private sectors.

The new global information economy has emerged with the rise of electronic commerce and greater use of computer and telecommunications technology. 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.

Use of information and knowledge is what really counts – not just its production or manipulation. For this reason we believe that 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.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. We disagree. 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 to cluster information-intensive activities.
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.This creates special dangers and opportunities for those communities already left out of the economic mainstream. The danger is that they will not be able to surmount their formal educational deficit and master the skills needed to survive. The opportunities stem from the fact that locally developed information assets are increasingly the keys to economic success. Seizing these opportunities and meeting these challenges requires creativity to discover and develop a community’s information assets, including its hidden pool of tacit knowledge.

The first part of this volume explores asset-based approaches to economic and community development. We suggest expanding that view by taking a lesson from leading companies who are seeking ways to identify and develop their own information assets under the rubric of “intellectual capital.” As Thomas Steward wrote in Intellectual Capital (1997), these companies are developing techniques for locating and then managing their “resources, tacit and explicit perspectives and capabilities, data, information, knowledge and maybe wisdom.” Companies find these assets in the skills and knowledge of their people, in their organizational structures and in their relationships with the outside world, especially their customers.

The corporate experience with identifying and managing intellectual capital is still in the early stages of development. There are no hard and fast techniques, nor are all of the concepts used in a corporate setting applicable to economic development. However, learning from the corporate experience could show the often-fragmented development community how to identify the formal and tacit knowledge both internally in their organizations and externally in the communities that they serve. Then the development community can begin to build a base of common knowledge and understanding about (1) internally what knowledge needs to be shared, what is duplicated, and what may be lacking, and (2) externally what are the local information assets, what assets need to be developed, and who are potential partners.

Armed with this common understanding, development practitioners can begin to develop specific local information assets. This will require re-examining old strategies and re-evaluating the institutions that we rely on to develop and transfer knowledge, as well as those that support the development process. A dialog among all parties – public and private – can begin to determine what works and what is needed. Creating such a dialog is a fitting task for CFED as it embarks upon its next 20 years.

Kenan Patrick Jarboe is President of Jarboe & Associates, a Washington, DC-based political economy consulting firm, and a Senior Fellow at the Progressive Policy Institute.

Richard Cohon is President of the C.N. Burman Company, a manufacturer and
importer of home furnishings located in Paterson, NJ. He is actively involved in
both community economic development and organizational development in the
Information Age.