Stages of knowledge evolution

The quintessence of this absorbing book may succinctly be conveyed thus: globalisation has triggered a virtual spatial revolution in terms of the geography of production.

It has also rendered the comparative advantage in traditional moderate technology industries incompatible with high wage levels.

At the same time, the emerging comparative advantage that is compatible with high wage levels is based on innovative activity. The global demand for innovative products in knowledge-based industries is high and growing rapidly.

Established by both Schumpeter and Marx, innovation has been hailed as the driving force of economic growth. Cities, as Wilbur Thomson used to say, are the "incubators" of innovation.

And as the long sweep of economic history has shown, creative places"" from Athens and Florence, to Manchester and Detroit, and more recently the Silicon Valley"" are the cauldrons of innovation and economic growth.

Innovative centres like the Silicon Valley, Seattle, and Austin overtook older industrial cities like Cleveland, Buffalo, and Pittsburg as new centres for technology, entrepreneurship, and economic growth.

As explained in the Epilogue, three separate and distinct literatures that have a long and distinguished history were surveyed by the authors; all three have recently been re-examined: the new economic geography (Krugman, 1991), the new growth theory (Romer, 1990), and the new economics of innovation (Nelson, 1993).

The new economic geography answers the question why economic activity concentrates in certain regions but not others. The new growth theory explains the causes of economic growth, but leaves out regional considerations and ignores the key processes and institutions involved in innovation.

Krugman has suggested that as economies become less constrained by national frontiers, they become more geographically specialised.

An important aspect of studies of technological innovation at the regional scale is the role of spatial interaction and spatial structure, as expressed in the form of organisational networks of innovators, regional innovation complexes, and regional knowledge infrastructure.

The most significant implication of the theoretical model is that firm size and monopoly profits matter for new product innovation only if the endurance of current products is sufficiently large relative to the level of technological opportunity.

At the heart of this conventional wisdom was the belief that monolithic enterprises exploiting market power were the driving engine of innovative activity.

Schumpeter declared the debate closed, with his proclamation in 1950, "What we have got to accept is that the large-scale establishment has come to be the most powerful engine of progress."

The empirical results suggest an interaction between the degree of obsolescence and the validity of the Schumpeterian Hypotheses of the effect of firm size and monopoly profits on new product innovation.

The positive effect of firm size on new product innovation is reduced by current product improvement, implying that for firms, which conduct product improvement, and thus face low obsolescence, innovation may be decreasing in firm size, while for firms facing high obsolescence, innovation increases with firm size.

The results suggest that innovation is an important determinant of capital structure choice, and that the exact relationship may depend on firm size.

For small firms, innovation coincides with greater levels of debt financing, whereas, for large firms, asset specifically is associated with a more flexible governance structure.

In the introductory chapter of Nelson's National Innovation Systems, a central hypothesis is formulated about a new spirit of what might be called "tech-nationalism""" combining a strong belief that the technological capabilities of a nation's firms are a key source of their competitive prowess, with a belief that these capabilities are in a sense national, and can be built by national action.

In the recent past, the wealth-creation process has changed dramatically. It has become increasingly dematerialised as its mainsprings ceased to be natural resources and material production and, instead, became knowledge and information activities.

Transportation costs, transaction costs, and tariff walls tumbled. Economic activity has, thus, become less constrained by geography and, in many instances, truly deterritorialised.

Economic activity of all types now moves in the direction of globalisation, web of linkages, and interconnections between states, societies and organsations that make up the present world economic system.

The pressures of global competition force producers continually to innovate, and to upgrade the quality of existing products. This new techno-economic world has required important changes in the managerial, strategic and political rules of the game.

"Firms", "governments", and "third-sector organisations" have become rather fuzzy concepts, private and public organisations have become more footloose, they have become more compatible with a variety of locations, technologies, and organisational structures.

There are many reasons for balkanisation to proceed as globalisation sets in: global competitiveness has led advanced industrial nations to specialise in the export of products in which they have "technological" or "absolute" advantages; the pressures of globalisation have put so much strain on the nation-state that sub-national regions and communities have felt strongly a need for roots and anchors in local/regional bonds of ethnicity, language and culture.

There are two fundamental characteristics of knowledge that differ from the traditional factors of production in the traditional economy.

First, knowledge has increased the importance of geographic proximity; second , the greater degree of uncertainty, asymmetries and transactions cost lead to an increase in entrepreneurial activity.

As illustrated by the title page of The Economist proclaiming The Death of Distance, the claim that geographic location is important to the process linking knowledge spillovers to innovate activity in a world of email, fax machines, and cyberspace may seem surprising and even paradoxical.

Information such as the price of gold on the New York Stock Exchange, or the value of the yen in London, can be easily codified and has a singular meaning and interpretation.

By contrast, knowledge is vague, difficult to codify, and only serendipitously recognised.

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Innovation and the Growth of Cities

Doris E, Robert V McCurdy et al.
Edward Elgar
Pages: 247