Recent Read: “The Rise of Knowledge Economics”

The “Knowledge Economy” is a term we hear constantly, but it’s interesting that so little actual economics work has been done to date in this field. One person who is focused on this topic is Cesar Hidalgo who leads MIT’s Collective Learning Group. He recently wrote a blog post for Scientific American (The Rise of Knowledge Economics), in which he discusses some of his team’s work in this field. The part of his post that struck me the most was this section:

Nearly 30 years ago, Paul Romer published a paper exploring the economic value of knowledge. In that paper, he argued that, unlike the classical factors of production (capital and labor), knowledge was a “non-rival good.” This meant that it could be shared infinitely, and thus, it was the only thing that could grow in per-capita terms.

Romer’s work was recently recognized with the Nobel Prize, even though it was just the beginning of a longer story. Knowledge could be infinitely shared, but did that mean it could go everywhere? Soon after Romer’s seminal paper, Adam Jaffe, Manuel Trajtenberg and Rebecca Henderson published a paper on the geographic diffusion of knowledge. Using a statistical technique called matching, they identified a “twin” for each patent (that is, a patent filed at the same time and making similar technological claims).

Then, they compared the citations received by each patent and its twin. Compared to their twins, patents received almost four more citations from other patents originating in the same city than those originating elsewhere. Romer was right in that knowledge could be infinitely shared, but also, knowledge had difficulties travelling far.

What made knowledge sticky? Following the steps of Romer and Jaffe, scholars mapped the co-authorship networks of inventors. This showed that it was an inventor’s professional network, not other aspects of geography (such as the institutional environment or shared culture) that explained the limited diffusion of knowledge. Despite patent fillings and publications, an inventors’ knowledge of their field was limited by the horizon of their own collaboration network.

The last sentence of this excerpt is pretty remarkable: “Despite patent fillings and publications, an inventors’ knowledge of their field was limited by the horizon of their own collaboration network.” In other words, the size of an innovators’s collaboration network was the principal determining factor in that innovator’s knowledge of her field. I find this interesting because many, if not most, innovators in the corporate sector work alone. The reasons for this state are both good (a need for privacy, lack of peers, etc.). or bad (isolated culture, lack of collaboration mechanisms, etc.)., but the effect is the same: the more isolated an innovator is, the less likely it is that she has a full grasp of the field in which she is trying to innovate.

I happen to me married to a scientist, so I know from her work how important  connecting to other medical researchers is in helping her understand the latest innovations in her field. I am struck, in retrospect, at how few real innovator networks there are in the corporate world and how few active connections corporate innovation and transformation leaders deploy to help them in their work. If Hidalgo’s conclusions are right, and I think they are, then anyone leading a corporate innovation project should expand her network to maximize the understanding of what is and is not working in that space. The lone innovator is a popular myth, but the results of the work Hidalgo cites in his post suggest that it is connectivity, and not isolation, that accelerate knowledge and innovation.

Carlos Alvarenga

Founder and CEO at KatalystNet and Adjunct Professor in the Logistics, Business and Public Policy Department at the University of Maryland’s Robert E. Smith School of Business.

One thought on “Recent Read: “The Rise of Knowledge Economics”

  1. The networking dimension is very critical. We identified this in our work on Intellectual Capital for Nations, Regions and Cities, alreafy a long time ago. We labelked it Relational Capital. In this there is 2 dimensions: Connectivity resp. Contactivity. This C&C is elaborated in n academical paper from around 2005.

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