‘The Learning Economy and the Economics of Hope’ brings together the most important contributions by an expert on policies, management and economics of innovation and knowledge. It offers original insights in processes of innovation and learning and it draws implications for economic theory and public policy. It introduces the reader to important concepts such as innovation systems and the learning economy. It throws a new light on economic development and opens up for a new kind of economics – the economics of hope. It offers a fresh perspective on many of the most important global challenges of today showing how full attention to the characteristics of the learning economy needs to be combined with innovation in global governance.
The analysis demonstrates that new technology is developed in an interaction between individuals and organizations and that innovation would not thrive in an economy similar to textbook models of pure markets and perfect competition. It also shows that innovation requires that scientific knowledge is combined with experience based learning and that the performance of innovation systems therefore reflects the combination of research efforts and organizational learning. Growing inequality in income and in access to knowledge and learning is presented as a threat to social cohesion and global well-being. In the concluding part of the book the conceptual framework is used to study how China’s innovation system and policy, Europe’s crisis and underdevelopment in Africa interact is shaping an imbalanced and crisis ridden world system. A new kind of economics, policy learning and new regimes of global governance are presented as elements of hope for the future.
About the Author
Bengt-Åke Lundvall is professor in economics at Aalborg University and world leading expert on innovation and development.
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The Learning Economy and the Economics of Hope
By Bengt-Ake Lundvall
Wimbledon Publishing CompanyCopyright © 2016 Bengt-Ake Lundvall
All rights reserved.
Contributions to the Learning Economy: Overview and Context
This book is about the economics of innovation and knowledge. One of the major conclusions drawn is that the perspectives standard economics imposes on society are biased, incomplete and inadequate. The focus on rational choice, allocation of scarce resources and equilibrium only captures some dimensions of the modern economy, notably short-term and static ones. Alternative perspectives, in which the focus is on learning as an interactive process and on processes of innovation, give visibility and direct attention to other, at least equally important and more dynamic, dimensions.
Social science is about human action and interaction, and it differs from natural science in several respects. It does not have access to laboratories where it is possible to organize controlled experiments. In spite of this, standard economics has gone far in adopting criteria and ideals from natural science, more precisely ideals that originate from Newtonian physics. This is reflected in standard economists' conception of equilibrium as an ideal reference state and their tendency to focus exclusively on quantitative relations, also paired with in its excessive use of mathematics.
In this book, I insist that economics should remain a social science while also taking into account the complexity of the strivings and hopes of human beings. People cannot be reduced to algorithms or automatons. The basic assumption about rational behaviour in economic models (in which individuals and firms act as if they know everything about the future) is absurd and leads to equally absurd conclusions and to dubious policy recommendations.
Taking a departure from more realistic assumptions about how and why people act as they do in society has implications for what constitutes a theory in social science. In social science, a theory should be regarded as a focusing device – no more and no less. This book presents two sets of theories or focusing devices – the innovation system and the learning economy – that differ from those used in standard economics. These alternative focusing devices help us to see the core institutions in the economy (such as the market, the competition regime, the firm, the law, etc.) in a different light than that cast by mainstream economic theory.
What is currently presented as the only and necessary pathway for the economy and for economic policy aiming at competitiveness and growth at the national level actually undermines both. The only certain outcome of current national strategies with focus on fiscal balance and cost competitiveness is that the rich get richer and the poor stay poor. Using an alternative analytical perspective, where the focus is on processes of innovation and learning, points in other possible directions for institutional design and economic policy, where the focus is on collective entrepreneurship, knowledge sharing and international collaboration.
1.1 The Structure of the Book
Twelve articles have been selected for this volume; some of these are co-authored. I have chosen the papers that I regard as my main contributions to the understanding of the learning economy. The work is presented here in the order that it was published, and it spans a period of 30 years (1985–2015).
The twelve chapters are presented in five parts. Part I gives the introduction to this book and an overview of the content. Part II includes four chapters from the period 1985–95 about innovation as an interactive process and innovation systems. Part III includes four chapters from the period 2000–2010 about knowledge creation and the characteristics of the learning economy. Part IV includes three chapters that use the learning economy and the innovation system as focusing devices in an analysis of China's innovation system and policy, Europe's financial crisis and Africa's growth and structural problems and a chapter on how globalization changes the role of national innovation systems. Part V closes the book with a chapter on the learning economy and the economics of hope. In essayistic form, it regards major global challenges through the lens of the learning economy and spells out wider normative implications for public policy as well as for a research agenda.
The rest of this introduction briefly discusses the context for the original papers and presents the central ideas in each chapter. A summary of the main points of criticism of standard economics appears at the end of the chapter.
1.1.1 Part II: Innovation as an interactive process
The first chapter of this part (chapter 2) is about product innovation and user–producer interaction (Lundvall 1985). It is a think piece that was worked out as an analytical follow-up to a major empirical project on the impact of 'microelectronics' on the Danish economy, and it draws on the analysis of how technology was shaped in four distinct industrial complexes. It was presented in draft form at a seminar at the Science Policy Research Unit (SPRU) in the spring of 1984 and at the Stanford Seminar on Economics of Science and Technology in the fall of 1984. It was published as a booklet by Aalborg University Press in 1985. It is, to the best of my knowledge, the first publication that refers to the concept of 'innovation system' relating it to university–industry linkages and to the micro-phenomenon of user–producer interaction.
The chapter draws together the wider theoretical implications of what other innovation scholars have documented in empirical and historical studies. The Sappho study at SPRU (Rothwell 1972, 1977) and the historical work on the textile industry by Nathan Rosenberg at Stanford (1976) are just two examples of contributions that document that innovation is an interactive process and that users play an important role in the development of new products and processes.
As demonstrated in the very last chapter of this book, the uptake in the academic community of the ideas developed in chapter 2 has been selective. Experts in economic geography were among the first to link the analysis to the location of economic activities; marketing experts and software developers have used the ideas for developing management strategies and innovation policy experts were inspired to give more attention to the demand side. Other elements of the analysis never received much attention however. The criticism of the basic assumptions in economics has been largely neglected, and the same is true for the analysis of 'unsatisfactory innovations'.
The chapter looks different from the standard scientific journal article, and the somewhat pedestrian language reflects that it was one of my first attempts to write a paper in English. The terse style was inspired by Janos Kornai's book Anti-equilibrium (1971). I hope that the reader will be able to overcome these barriers. Some typos have been corrected, but for the rest, the original has been left unchanged.
Chapter 3 presents user–producer interaction and relationships as a micro-foundation for the national innovation system. The chapter was written in the context of a major collective project on technology and economic theory that brought together economists working on innovation. The fact that the resulting publication (Dosi et al. 1988) ended with a structure where there was a separate section on innovation systems with contributions from, respectively, Freeman, Nelson, Pelikan and Lundvall contributed to the wider introduction and spread of the concept in innovation studies.
Most of the ideas developed in chapter 2 are presented in a somewhat different form in the first part of chapter 3. One major difference is that in the new chapter, the interaction process is described as a process of learning rather than as a process of information exchange. A second is that there is more emphasis on the risks for lock-in in connection with establishing durable user–producer relationships. Nevertheless, the most important new contribution in the chapter is the discussion of 'national systems of innovation'.
In many respects, this first conceptualization of the national innovation system is tentative (chapters 4 and 5 introduce a more developed understanding of the concept). However, there are some nontrivial statements in this chapter that point ahead to issues that I have returned to later in my career. One of these issues is to see the innovation process as rooted in the production process. In the chapter, this is reflected in the sequence of analysis that starts from the concept of a national system of production as used by French Marxist economists.
Another issue relates to the potential role of 'final users' as including workers and consumers. In the third part of this book, those two ideas are developed in the context of the learning economy. Chapter 8 in Part III shows specifically that international differences in the participation of workers in processes of learning are as important for the explanation of differences in innovation performance as differences in national science systems.
Chapter 4 is the introduction to National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning (Lundvall 1992). It gives a more complete picture of the innovation system concept and is based on two major assumptions. The first is that learning is the most important process and knowledge the most important resource in the modern economy. The second is that learning is a social and interactive process, and therefore, it is necessary to take into account the role of institutions and organizations when analysing economic processes.
The chapter discusses at some length if it is meaningful to analyse national innovation systems in an era of globalization. It argues that the globalization process makes it even more important to understand both the historical and the current role of the nation state for innovation. It is crucial in order to cope with the contradictions and institutional mismatch that reflect the transformation toward a more globalized economy.
One central point in the chapter is the distinction between a narrow and a wide definition of the innovation system. The first refers mainly to the linkages between research institutions and business, while the second includes and gives special attention to learning that takes place in connection with the normal operation of the production and marketing. This discussion leads to a pragmatic and broad definition of the national innovation system opening up for different definitions depending on historical and local context.
These three chapters (2–4) were written during the period 1984–92. They were inspired by empirical work as well as by interaction with many scholars. The ideas behind them were influenced by interaction with colleagues in the Aalborg University research group on Innovation, Knowledge and Economic Dynamics (the IKE-group), including Esben Sloth Andersen, Asger BrÃ¦ndgaard, Bent Dalum, Birgitte Gregersen, Björn Johnson, Gert Villumsen, Jan Fagerberg and several others. Of special importance was the interaction and discussions with Christopher Freeman who joined our research group as guest professor in the first half of the 1980s.
One characteristic of these contributions on innovation systems is that they increasingly refer to the role of knowledge and learning in relation to the innovation process and innovation systems. Actually the final chapter in National Systems of Innovation (Lundvall 1992) was presented under the heading 'Innovation Policy in a Learning Society'. The last chapter in Part II goes further in defining the characteristics of 'the learning economy'. This chapter was co-authored with Björn Johnson and was actually my first scientific journal article published in English. It appeared in 1994 in the Journal of Industry Studies (later under the name Journal of Industry and Innovation). This chapter takes further steps toward analysing the economics of knowledge and learning. It introduces a taxonomy of knowledge distinguishing between know-what, know-why, know-how and know-who and discusses how learning takes place.
1.1.2 Part III: Economics of knowledge and learning
In Innovation as an Interactive Process – from User – Producer Interaction to National Systems of Innovation (Lundvall 1988), I proposed to bring dimensions of work organization and labour market institutions into the analytical framework of innovation systems. Part III of this book presents four contributions that expand on these ideas. The economics of knowledge and learning is analysed, empirical studies of different modes of learning are presented and it is shown that the performance of national innovation systems reflects the degree and form of workers' inclusion in organizational learning. Finally the concept of a national system of innovation is revisited on this basis. All four of these chapters build on papers published during the period 2000 – 2010.
Chapter 6 was published in its current form in Christensen and Lundvall (2004). The chapter is about the production, diffusion and use of knowledge seen from an economic perspective. Fundamental distinctions between tacit and explicit knowledge and between know-how, know-why, know-what and know-who are related to distinctions between public/private and local/global knowledge. It is argued that the idea of the economy as being knowledge based in its current stage is misleading and that it is more enlightening to assume that we have moved into a learning economy where interactive learning is a key to the economic performance of firms, regions and nations.
This is one reason why a narrow economics perspective is insufficient. The most serious weakness of standard economics is that it abstracts from the fact that agents are more or less competent and that learning processes enhancing competence are fundamental for the economic performance of organizations and regions. When it comes to understanding industrial dynamics in the learning economy, it is necessary to bring in disciplines other than economics in the analysis.
Chapter 7 was first published in Research Policy in 2007 and co-authored with three colleagues, Morten Berg Jensen, Björn Johnson and Edward Lorenz. It introduces empirical analysis of two modes of learning – an experience-based mode that involves learning by doing, using and interacting (the DUI-mode) and a science-based mode that makes use of scientific knowledge through research and development (R&D) and interaction with research institutions reflecting a mode of innovation linking Science and Technology to Innovation (STI-mode). The paper is a follow-up on an earlier paper on the role of tacit knowledge in relation to innovation (Johnson et al. 2002).
The empirical analysis is based on survey data from around 700 Danish firms. It shows that firms using mixed strategies, that is, firms that combine a strong version of the STI-mode with a strong version of the DUI-mode, are the most successful in introducing product innovations. The distinctions made and the results obtained have important implications for innovation policy and for the analysis of innovation systems. They help to avoid biased approaches exaggerating the role of science-based innovation, while also indicating limits for experience-based innovation strategies. The basic idea that innovation requires a combination of experience-based and science-based knowledge is widely shared among experts on innovation management and is a common observation in case studies. What is unique about this chapter is that it presents econometric evidence that support this idea.
Chapter 8 was co-authored with Anthony Arundel, Edward Lorenz and Antoine Valeyre and published in Industrial and Corporate Change in 2007. The chapter explores the link between the organization of work and innovation through an analysis of national aggregate indicators for the EU member states of respectively organizational forms and innovation modes (how firms innovate). The analysis shows that in nations where work is organized to support high levels of discretion in solving complex problems, firms tend to be more active in terms of innovations developed through their in-house creative efforts. In countries where learning and problem solving on the job are more constrained and little discretion is left to the employee, firms tend to engage in a supplier-dominated innovation strategy. Their technological renewal depends more on the absorption of innovations developed elsewhere.
The results suggest that in order to understand national systems of innovation, it is necessary to bring the predominant mode of work into the analysis. Early conceptions of national innovation systems were built on an analysis of interactive learning between producers and users. Now we show that the analysis needs to be founded also on an understanding of how people interact and learn at the workplace in different national economies. The results also suggest that European policy efforts to improve innovation performance as part of the revised Lisbon strategy would benefit from a stronger focus on the diffusion of innovative forms of work organization. A step in this direction would be to develop indicators of work organization that could be directly linked to innovation performance.
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Table of Contents
Preface; Part I : Introduction; 1. Contributions to the Learning Economy - Overview and Context; Part II : Innovation as Interactive Process; 2. Product Innovation and User-Producer Interaction; 3. Innovation as an Interactive Process - from User-Producer Interaction to National Systems of Innovation; 4. National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning; 5. The Learning Economy Part III: Economics of Knowledge and Learning; 6. From the Economics of Knowledge to the Learning Economy; 7. Forms of Knowledge and Modes of Innovation; 8. How Europe's Economies Learn: A Comparison of Work Organisation and Innovation Mode for the EU-15; 9. Post Script: Innovation System Research -Where it Came From and Where it Might Go; Part IV: Continental Transformations and Global Challenges; 10. China’s Innovation System and the Move toward Harmonious Growth and Endogenous Innovation; 11. The 'New Deal' as a Response to the Euro-Crisis; 12. Growth and Structural Change in Africa: Development Strategies for the Learning Economy; 13. National Innovation Systems and Globalisation; Part V: Economics of Hope or Despair: What Next?14. The Learning Economy and the Economics of Hope; Notes on Contributors; Index
What People are Saying About This
‘Presented as a journey in the process of understanding innovation systems and the learning economy, this book is a major shift in economic perspective and provides a roadmap for designing a better future. Indispensable for social scientists and politicians, teachers and students, policy makers and all interested citizens in these uncertain times.’
Carlota Perez, Professor, London School of Economics and University of Sussex, UK, and Nurkse School, Estoni
‘This is a compelling book and an exciting read for all those interested in innovation as an interactive process. It brings together more than thirty years of seminal and insightful research on learning, the learning economy and national innovation systems by the leading figure in innovation systems.’
Franco Malerba, Professor of Applied Economics, Bocconi University, Italy