institutions for pro-growth conduct in the knowledge economy
TRANSCRIPT
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Institutions for pro-growth conduct in the knowledgeeconomy
Jan Goossenaerts
1
Abstract
The private sector is an important engine of growth and innovation. Yet, a private
sector without an accordingly performant and developed public sector would it
develop? In a thought experiment, let us imagine a market place where all land and
water-surface is privately owned, and where the right of way for consumers and
producers of goods and services must be negotiated with landowners. With all private
individuals seeking maximal utility and minimal risk, decision problems and
transaction costs would prohibit the emergence of an economic system beyond barter
trade among neighbours producing goods within enclosed resource endowments.
Under the conditions in the thought-experiment, mankind's discovery journey(Boorstin, 1983) would have been precluded, and so would have the agricultural,
industrial and knowledge revolutions. History has taken a different course. Commons
regimes have been gradually complemented with private property regimes, and
subjects and those in power alike have been gradually disciplined by fit institutions.
And indeed, those institutions have had a considerable impact on economic
performance (North, 1990).
Ill-designed institutions may lock-in an economy, and public sector enacted barriers
are rightly feared by reformers. Yet, also private sector principals may derive rents
from positions that act as barriers to others, as recognized by the Essential Facilities
Doctrine. Looking at the knowledge economy and the technology and content usesthat differentiate it from the industrial economy, it is not evident what exactly are the
essential facilities that help or prevent principals exploiting the interdependencies
among the division of labour, competence and market size.
This essay questions the fitness of industrial-age institutions for the globalizing and
knowledge-intensifying economy. Particularly in the software and content sectors it
identifies abuses of essential facilities and proposes enabling environment reforms to
curb these abuses so as to spur learning and private sector development. For some
institutional choice options, a pro-growth cause-effect chain is projected.
1For details on the author, see http://www.citeulike.org/profile/jago
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1. Introduction
In interaction with the natural and artefactual resource endowments, mankind's
ingenuity and social capabilities give rise to an unfolding sequence of events in which
innovative institutions may become necessary to discipline those with dominant
positions in the socio-technical landscape. The knowledge economy, and the related
markets of software and content (media) have become contentious during the past
decades, as witnessed by attention given to intellectual property rights in general, and
to antitrust (or competition) law. Joseph Stiglitz, former chief economist at the World
Bank, is among the most prominent advocates of improved institutions for knowledge
as a global public good (Stiglitz, 1999). Beyond their role in capital markets, he sees
the provision of knowledge as one of the international public goods that will figure in
the mission of multilateral development banks during the coming decades (Stiglitz,
1998). Yet, in the information economy (Shapiro & Varian, 1999), fit institutions
develop slowly, and so does the competence of creating solutions that respond to local
needs2.
Observing on the one hand the pressing needs of many members of society
and the under-utilization of knowledge, and on the other hand the immense solution
delivery potential of science, technology and education, the Internet, and mobile
communication technologies, it is morally desirable to achieve the knowledge
infrastructure3
that can coach and enable principals4
in developing their livelihood by
2Leach & Scoones (2006) contrast the slow race to citizens’ solutions, a race to make investment in
science and technology work for the poor, with the two races that generate most excitement: the race
to global economic success and the race to find a universal fix for the problems of developing countries.3
An infrastructure is a particular set of resources that meets three demand-side criteria (Frischmann,2005, p 956): (i) the resource may be consumed non-rivalrously; (ii) social demand for the resource is
driven primarily by downstream productive activity (rather than by consumption) that requires theresource as an input; and (iii) the resource may be used as an input into a wide range of goods and
services, including private goods, public goods and non-market goods.
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drawing in content and educational resources, as they construct value and mitigate
risks during their livelihood processes. The knowledge infrastructure would enable
the complementary methods of knowledge transfer5. But whereas it has been
envisioned by many, why has it not been created yet? What knowledge do we lack
and why do we fail to deliver in the myriad of livelihoods?
Reflecting earlier enlightened institution design, this essay aims to contribute a
systems architect's6
perspective in the debate, so as to spur more effective action. The
guiding vision is that in the global knowledge economy, control over certain essential
facilities7 will have to be transferred from current private control to a commons8
regime. Whereas the exhaustive pro-and-con argumentation on knowledge economy
reform is beyond the means of a single author, the presentation of the debate and fact-
finding along the phases of the regulative cycle9
provides a structure in which all
4 The term principal is here used to refer to a participant in economic and non-market interactions, who
is disciplined by institutions (accountability), but otherwise free (autonomy).5 Horizontal methods are fit for transferring tacit knowledge and include apprenticeship, secondments,
imitation, study tours, cross-training, twinning relations and guided learning-by-doing. Vertical
methods are fit for knowledge that can be codified, transmitted to a central repository or library, and
then accessed by interested parties (Stiglitz, 2000).6 Systems architecting is the discipline that strives for balance and compromise among the tensions of
multiple stakeholder needs and resources, interests and technology (Rechtin & Maier, 1997). Such fit is
achieved from a consideration of the full scope of the system of concern, from strategy to operations,
from product and service functions to technology and market trends. 7
An essential facility is one in which duplication of a given facility, for instance a railroad, local
telecoms network or oil pipeline, is precluded by the monopolist's inherent ownership advantages, but
without which competitors cannot access the market.8 Commons is a resource management principle by which a resource is made openly accessible to all
within a community regardless of their identity or intended use (Frischmann, 2005, p 1022). By
providing resources as commons, some degree of inclusivity in the socio-technical system is ensured.
In many cultures, common property regimes have been prevalent for the sustainable management of
natural resources such as forests, watershores, grazing and farm lands (Bromley and Cernea, 1989).These authors describe how market economists have often over-emphasized the enclosure of certain
commons, under-appreciating or neglecting the sustainable outcomes that many cultures had achieved
with common property regimes.9 Originating in psychological practice, the regulative cycle (van Strien, 1997) has been extensively
applied also as a methodology of practice, geared towards the "interested" regulation of the behaviour
of groups or organizations in the desired direction. Where principals are engaged with the operationsand improvement of a work system such as a plant, a farm, a hospital or a service system, the cycle
includes the following activities: evaluation (of system operations with respect to an instrument or viabenchmarking), problem identification (selection from a problem mess), diagnosis (of the problem
situation – analysis), plan of action (design), and intervention (implementation).
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stakeholders, irrespective of their socio-economic preferences, can constructively
contribute to a consensus finding process.
In what follows, we first describe the current status quo in the knowledge
economy, paying attention to the public sector and private sector attitudes and
perceived problems. Next, the essential facilities doctrine and insights on
sociotechnical transition pathways (Geels & Schot, 2007) serve as a basis for
diagnosing cause-effect chains and setting an initial agenda for broad reform in the
knowledge economy. Aligning our processual anticipation with reform experience
(Jacobs, 2007) we describe reform drivers and factor choices that should be channeled
into a reform strategy. We identify and develop a small number choices and project
the virtuous cause-effect chains and pro-growth conduct they may enable at multiple
levels in the socio-technical landscape. The essay concludes with a concise project
charter for knowledge economy reform.
2. Public-Private Balance in the Knowledge-intensiveSocio-Technical LandscapeThere is a general agreement that ill-guided institutional design is a major source of
barriers to development. This one-sided viewpoint must be balanced though, as
barriers to innovation may also result from an undisciplined appropriation, by private
sector principals, of assets that had better remained common. By recognizing the
patterns and agents of the latter barriers, the reformer can articulate those assets for
which private control must be avoided, so as to let a maximal number of principals
benefit from their non-exclusive10
use.
10In the sectors addressed here (software, content and learning), several essential facilities are also non-
rivalrous.
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2.1 Public-Private balance: Received View and Regulatory Trends in Network Markets
Markets need to be supported by non-market institutions to perform well. Market
economies are institutionally underpinned by a clearly delineated system of property
rights – enabling people and firms to keep the returns on their investments, make
contracts and resolve disputes – , a regulatory apparatus curbing the worst forms of
fraud, anti-competitive behaviour and moral hazard, a moderately cohesive society
exhibiting trust and social cooperation, ... (Rodrik, 1999). These are social
arrangements that economists and engineers usually take for granted. Yet, significant
regulatory reforms have been and are being implemented. Jacobs (1999) describes the
transition from state-led to market-led growth that is still ongoing in many OECD
member countries. (First generation) reforms have yielded major benefits such as
boosting consumer benefits and addressing the lack of flexibility and innovation in the
supply-side of the economy. Benefits have been pursued in network industries such
as telecommunications, electricity, gas, rail transportation and postal sectors. In these
sectors the past two or three decades have seen a paradigm shift concerning the
organization and regulation. The state has been withdrawing from the ownership and
from intervention in market entry, market exit and pricing. It has been recognized that
not all parts of the vertically integrated monopolies are "natural", and that sectors such
as telecommunications services and electricity generation exhibit no technological
features which would preclude workable competition. Developments have also given
rise to the notion that some natural monopolies may be transient as technical progress
makes room for the establishment of competing networks.
The change in views in network industries has induced a change of views
concerning the role of regulation: from a constraint on markets and on the exploitation
of monopoly power and markets, to a promoter of competition, in markets and among
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networks. Access regulation, the government-imposed requirement that the network
owner open his network for use by other firms, is a key tool for this purpose. This tool
is related to the so-called Essential Facilities Doctrine, a doctrine that has also been
linked to Intellectual Property Rights (Turney, 2005).
2.2 The Undisciplined Knowledge Economy
Since World War II the private sector has gone through a transition from an economy
based on materials to an economy based on the flow of information. Broadly, this
transition has challenged organizations to cope with interdependence, disembodiment,
velocity and power in their strategies (Child & McGrath, 2001), and it has produced
new-economy incumbents with dominant positions, globally and in niches. Van de
Ven (2005) argues that managing technological innovation in an increasingly
knowledge-intensive service economy requires taking a broader, institutional and
political view of information technology and knowledge management. Governments,
while withdrawing from ownership in the traditional network industries, are showing
reluctance to craft interventions in the knowledge economy. In a market where a
patchwork approach to intellectual property (Pendleton, 2005) coexists with a poor
understanding of the technical artefacts and the options they create, dominant
incumbents are free to abuse their control of essential facilities. In specific situations
during the industrialization, architecture11
had been recognized as a sectoral rather
than a private resource, because of its potential to block innovations12
in a broad
domain. Yet, such lessons have not been generalized nor have they been fully
11IEEE 1471-2000 defines architecture as ―the fundamental organization of a system embodied in its
components, their relationships to each other, and to the environment, and the principles guiding its
design and evolution.‖ 12
Stiglitz (2004) cites the example of airplane development: the conflicting airplane patents held by
the Wright Brothers and by Curtis impeded the development of the airplane, until in World War I, the
US government forced the pooling of patents. In the automobile sector, a patent granted to Ransom on"a four wheel self propelled vehicle" was used to try to coordinate a cartel among automobile
producers; the cartel failed only because Ford challenged the patent — and won.
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appreciated in the software and information markets13
. Varian and Shapiro (1999)
address supply-side tactics in these markets. Demand-side aspects have been largely
neglected in these tactics (Benkler, 2001; Frischmann, 2005), as well as sectoral
consolidation. The private control over architecture is of relevance here. Architecture
patenting (Ransom) has been rightly challenged in the past (Ford, see footnote 12). As
innovations diffuse from a niche to the level of the sociotechnical landscape, their
architecture may deserve classification as an infrastructure resource (Frishmann,
2005): it may be consumed non-rivalrously; demand is driven by downstream
productive activity that requires architecture as an input (rather than by consumption);
and it may be used as input to a wide range of goods and services. Though software
applications diffusion has risen to the landscape level, most applications remain silos
with proprietary architectures and content encodings that are barriers to
interoperability. Even most open-source software lacks an open architecture that
would enable users to compose or evolve their preferred desktop functionality, and
plug-in new services on their content resources. No reference architectures are
managed under a commons regime. On the contrary, successive architectural de-facto
standards have been determined by the agendas of dominant principals in the market.
In software and related patents, the architecture is often part of the claims of
originality. And on software markets, proprietary silo architectures and content
encoding are the backbone of the dominant positions, globally and in niches.
Resulting non-interoperabilities cause slow and expensive innovation: the demand-
side misses (a long tail of) improvements due to the prevailing silo-architecture of
software applications that work with proprietary content encodings. The supply-side
13 An example is the control by Microsoft and Intel of the architectural standards of Personal
Computers. Adopting an open but owned standards strategy Microsoft and Intel maintained a subtlebalance between aggressive diffusion and limited licensing of architectural standards (Borrus and
Zysman, 1997).
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selfishly pursues the lock-in of customers so as to derive rents from the high
switching-costs, low integration capability, and high customization costs.
In the area of scholarly content we see a rather different phenomenon. Large
parts of the outcome of scientific research, often funded by the public sector, is free-
rided by publishers and authors. For instance for textbooks, the copyright is managed
for the authored work as a whole. Usually the content builds upon a lot of knowledge,
cases and problems that have been developed by a large number of scholars in the
discipline. Authors of (good) textbooks become the champions of the discipline, and
the gatekeepers for innovation in its teaching. Mutually, the textbooks must be
sufficiently different, which encourages authors to re-word large chunks of
disciplinary knowledge without adding much substantially new. While (expensive)
textbooks with re-worded and re-copyrighted contents flood the bookstores,
consolidation and open access to consensus-knowledge that has long been in the
public domain are neglected. Dominant incumbents focus on the most profitable
segments of the market, which they serve with blockbuster-like author-branded books.
Textbooks loose their value even more quickly than would be justified by the progress
in their subject-matter. The essential facility of scientific knowledge is obscured as
there is no means in the work to distinguish the essential facility of science from the
original creativity of the author. Though the creativity of the author was in focus as
copyright law awarded a long period of copyright protection, the textbook-author
obtains a similar form of protection for what often is a derived work.
3. Diagnostics and AgendaIf non-articulated essential facilities figure prominently in the tactics of dominant
principals in the knowledge economy, what kind of reform could discipline these
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principals? And if some discipline can be achieved by institutional reform, would this
accelerate the construction of a knowledge infrastructure?
Ongoing innovation challenges the institution designer and justifies a self-
regulation approach, yet as the technology stabilizes and/or the polarization increases
between demand- and supply-side, there is ground for government to step in Grajzl &
Murrell, 2007). As was the case in post-Civil War United States14
scale-increase, now
caused by globalization, contributes to increased polarization between demand- and
supply-side principals. Therefore, the perspective that is explored here is one of
channeling landscape pressures into knowledge economy reform. In a global economy,
and because of its barrier-removing effects, such reform will also benefit private
sector development in emerging markets.
3.1 Institutional Fitness in an expanding socio-technical landscape
In any emerging economy, the socio-technical landscape is an important determinant
of private sector development where the public sector, informed by suitable growth
theories, can invest in specific assets. Drawing upon the multi-level conceptualization
of socio-technical change processes and faced with the global sustainability challenge,
Morioka et al (2006) have proposed a technology transition management framework
to manage technology transition through the interaction of technology push, demand
pull and institutional design. Figure 1 instantiates Morioka's framework for demand-
supply interactions and it visualizes the institutional gap: demand-supply interactions
in information markets are problematic as "material economy" institutions turn out to
14 Djankov et al (2003) and Glaeser and Shleifer (2003) attribute the rise of the regulatory state in post-
Civil War United States to a response to the increased disorder caused by railroads and large firms:industrialization and commercialization of the American economy undermined the pre-1900 courts as
the sole institution securing property rights.
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be ill-adapted to emerging forms of resource-exchanges and their supporting essential
facilities.
institutions
infrastructure
(utilities)
demand for content &
services in the
principal lifecycle
supply of software,
content and services
demand-supply interactions under
right-conditioned institutions
facilitated by utilities designed for
efficient material/energy/financial
flow & people mobility
software, content & services
based demand-supply
interactions without
fit institutions & utilities
institution gap
utility gap
non-interoperabilities
as cross-cuttinginnovation decelerator;
asset eroder;
incentive destroyer
improvement
misses due to
silo-architecture
strategy to lock
in customers by
vertical solutions
Figure 1: Problematic institutional fitness in an expanding socio-technical landscape
15.
Given its ubiquitous appearance, the expansion of the socio-technical landscape with
software, content and derived services seems to call for an institutional intervention
that Jacobs (1999) would classify as a second generation reform: a structural reform
that must secure a longer-term, comprehensive alignment of state, market, and civil
society, and should be based on a longer-term, holistic approach to problems, rather
than focussing on incremental changes to individual sectors and policy decisions.
Several institutional approaches could inform such a knowledge economy reform:
Hess & Ostrom (2007) explore institution analysis and design for the knowledge
commons; The Open Source Movement (Lerner & Tirole, 2001) challenges the rents
that dominant software providers obtain under the winner-takes-it-all competitive
15
While the focus in this paper is on the institutional gap for the knowledge economy (it needsdedicated institutions as it unfolds in a material economy), a similar need for differential institutions
may distinguish the industrial era and the agricultural era.
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outcomes in software markets; and the Creative Commons licensing contracts (Lessig,
2001) allows for innovative returns allocation in derivative works.
3.2 Reconfiguration by Concerted Regulative Cycles at Multiple Levels
The discretionary powers that governments have must be applied with care. The
mock-up of the multi-level concerted regulative cycle depicted in Table 1 helps to
organize the issues that come with the multiple stakeholders. The impact expectations
of broad-based reform can be decomposed as response (regulative) cycles for the
various stakeholders involved. Hence Table 1 addresses agency, scope and design
knowledge sources for each of the levels in the socio-technical landscape. Each
stakeholder is engaged in the value-risk constellation around his or her livelihood with
its resource endowment and factor choices. By institutional design and innovation in
the socio-technical landscape, the factor choices available can be enlarged or
constrained. For each principal, the regulative cycle allows to make changes traceable
to (evidence-supported) needs in the real site work system (livelihood), or its
environment within which more aggregate, yet disciplined, principals determine the
rules or control the resources. At all times and all levels, autonomous persons as pico-
level principals, in group or as individuals make the choices in roles defined in the
institutions and organizations. The use of the terms sub or super indicates that for
some choices in his or her interactions, the principal in the sub-position abides by the
prescriptions enacted by the principal in the super-position.
Table 1: Mock-up of a Multi-level Concerted Regulative CycleLevel
AspectMacro
(Landscape)Meso
(Regime/sector)Micro
(Niche/firm)Pico
Typical Principals International,regional, national andlocal authorities
Standardsorganisations;Engineering andScience disciplines
Corporations thatown, maintain,and/or operateplants, land or
service facilities.
persons in therole of workers,engineers,managers,
farmers, parents,public servants
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Real site work system
the economicinteractions in aterritory
sectoralinteractions in aterritory, or among members in acommunity of practice
the farm, thefactory, thedelivery systemand/or officeenvironment thatsustain the value
creating processes
the livelihood, thelearning and/or
work context of the person
Sample DesignMethods
Regulatory Reform(Jacobs, 2007)Constitutive Institutional Analysisand Design (IAD)(Hess & Ostrom,2007)
methods of scientific research;engineering design;standardsdevelopment;sectoral IAD(Hess & Ostrom,2007)
business andorganizationdevelopmentmethods
Kolbe;learning paths;SustainableLivelihoodsFramework (SLF)(Scoones, 1998)
RepresentativeCases
Parliament in the UK (North, 1990)Limited liability by Law in New York
State (Shiller, 2003) TRIPS16
Photo Voltaic cells(Nagamatsu et al,2006);GSM (Bekkers et
al, 2002)
many exist in thebusiness literature
many exist in theliterature onpsychology andpedagogy
Approachesfeeding problematization
historical comparison(North, 1990)comparativeeconomics (Djankov et al, 2003)
comparison among sectors
benchmarking social comparison(Festinger)
Issues growth, inclusivity,sustainability, security
innovation competition,productivity,market share
care of the self and the family
3.3 Factor Dependencies Prudentially assuming the reality of the institutional gap depicted in Figure 1, Table 2
depicts the factor built-up for the members of an economy as institutions fail to
discipline dominant incumbents in the knowledge economy. The nesting relationships
among resource endowments (right to left along the row of the real site work systems
in Table 1) determines how factor choices or gaps of the public sector (macro and
meso) drive exogeneous factors for the private sector (micro and pico), as described in
Table 3.
At this point, and adopting the multi-level perspective (Schot et al, 1994), it is
important to stress the regime or meso-level as a factor of innovation and
consolidation. Having been present throughout the crafts era, in the industrial society,
16TRIPS, Agreement on Trade-Related Aspects of Intellectual Property Rights,
http://www.wto.org/english/docs_e/legal_e/27-trips.pdf
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meso-level facilities are present via standards and the architectures of dominant
designs that (to a large extent) are shared in an industry. In the knowledge economy
the meso-level sectoral entities are usually weak or absent. This is considered part of
the institutional gap.
Table 2: Factor landscape: the pico-micro impacts of meso-macro (institutional) failure.
Principal Factors Exogenous Factors
Pico(person)
- poor products/ low value
proposition in niche
markets;
- low participation to the
economy- persistent poverty
polarized
economy
highentrybarriers,highlypriced,lowvariety/low
innovatio
nmarketforsoftware,content,
learningand
product/servicedevelopment(winner-takes-it-all)
weaknati
onalinstitutionsvis-a-visglobaldominantincumbentsinthe
knowledg
eeconomy;
Insecurity
,non-sustainability,non-inclusivity,
Biophysicalenvironment(includinggeo
graphy,weather,biodiversity)
Micro(firm)
demand - operational and transitional
inefficiencies;
- lock-in and high switching costs;
- little competition and variety;
- rapid depreciation (pursued by
supplier)
supply Software: monopolies; lock-in
tactics; proprietary control of
architecture; silo architecture and
proprietary content encoding.
Content : focus on reputation
(author-branding); no separation
of master-content and
presentation; much re-wording;
coarse-grained copyright regimes;
focus on high-end segment
Meso(sector)
learning - lack of international sectoral standards
- lack of shared and open architectures
- obscurity regarding essential facilities
- unclear mandate
content
software
Macro(economy)
nation - negligence of essential facilities for the national
knowledge economy (language, national sectors,...)
- under-valueing of evidence base (monopolies)
globe - negligence of global essential facilities (science,
architecture,...);
- under-valueing of evidence base (monopolies)
The public sector neglects its evidence basedness and its scope: it fails to recognize
essential facilities in the knowledge economy and exhibits laissez-faire vis-à-vis the
monopoly positions, free-riding or rents derived from them. Dominant incumbents
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exploit the absence of fit institutions. In their high-end tactics, they ensure high entry-
barriers for competitors, high prices and high switching costs for their customers, and
low innovation pressures for themselves. As a result only a fraction of the potential
innovation and value construction takes place. Many innovators and potential
investors are discouraged by a winner-takes-it-all logic. Particularly in niche markets,
this causes inertia including the failure to produce content, services and products that
work for the poor. Whereas a knowledge infrastructure could at much lower cost
allow stakeholders with low resource-endowments to participate in the economy, such
participation is currently precluded17 by pricing targeting high-end markets and
obscurity regarding the essential facilities.
4. Designing reform to make knowledge matchdevelopment needsWe merge a strategy-pattern for broad-scale regulatory reform
18and concerted
regulative cycles that recognize the multi-level character of transition challenges. The
first section describes for the cause-effect dependencies identified in Table 2, factor
choices that could lead to a more inclusive economy. The second section evaluates the
reform design. The third section lists the main drivers of reform and their application
in the knowledge economy.
4.1 Choice factors driving Exogeneous Factors Table 3 is built up in the same way as Table 2, but this time the essential facilities in
the knowledge economy are recognized, commons regimes are defined for them, and
suitable sectoral entities take charge of open architectures, open content encoding and
17 Frischmann (2005) broadens the commons versus private control debate to infrastructures such as
those for transportation and communication. These resources are an input to a wide range of goods andservices. Hence the value of the resource shows a high variability, making a commons-based approach
to providing them immensely valuable (Benkler, 2001).18Jacobs (2007) has outlined such a pattern that maximizes the chances of genuine and durable success
in environments resistant to reform.
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interface standards, possible limits to offerings (within open architectures) in areas
that are prone to lock-in.
Table 3: Factor choices available to principals at the multiple levels
Principal Choice Factors Exogenous Factors Pico(person)
- livelihood;
- suppliers during (life
long) learning;
- mobility;
- employment
Inclusive
economy
Lowhurdle,fairlypriced,highvariety
marketforauthoring,learn
ingand
product/servicedevelopme
nt
Nationalknow.economyinstitutionsandutilities
Globalknowledgeeconom
yinstitutionsandutilities
Biophysicalenvironment(includinggeography,weather,
biodiversity)
Micro(firm)
demand - fair prices;
- choice of supplier;
- rich and customized offer;
- depreciation horizon of the
investment
supply - niches to develop products andservices and establish distinctive
offer;
- (for choices in the supply chain,
see demand)
Meso(sector)
learning - adopt learning path and portfolio standards
content - separation of master-content and
presentation;
- platform publications;
- marking open content in publications
software -open component reference architecture for
technical integration19;
-within the component reference
architecture: define horizontal limits to
product offers and/or interoperability duties
Macro(economy)
nation - essential facilities for the national economy
(knowledge, language, sector, territory and its
biophysical characteristics);
- commons regimes for these
globe - knowledge economy institutions recognizing global
essential facilities;
- commons regimes for the essential facilities of theknowledge economy
Concise descriptions of the exogeneous environment that builds upon fit
choices by super-principals are given in the vertical columns drawn from the right
hand side of the table. For the private sector, qualities of the exogeneous factors are
included as well. In all cases where private sector activity is constrained, encouraged
19See Reference Model for Technical Integration in INTEROP D9.1 (page 24) (Berre et al., 2004).
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or controlled by public sector design choices, the designer must understand the private
sectors drivers so as not to damage the market's performance because of local-
optimum seeking behaviour by market participants (shirking). At macro- and meso-
levels the consistency among the institutions is a critical design criterion. Linking the
macro- and meso-level on the one hand, and the micro- and pico-level on the other
hand are the means for enforcement and compliance and the related information needs.
4.2 A Tentative Evaluation of the Reform Design
The factor choices proposed in Table 3 have not been proven. They seek to form the
basis for the eventual replacement of the institutional patchwork and private essential
facilities holdings that currently prevail. Below, the impact of the choices is assessed
by contrasting their effects with those of the prevailing choices, as enforced by
dominant incumbents in the knowledge economy. The small differences indicate that
in the current status quo only (minor) niche innovations are required, and that the
proposed knowledge economy reform can indeed channel the landscape pressures into
a coherent reform.
4.2.1 Software: Component Based Reference Architecture
This choice must be contrasted with the stack wars that currently prevail in the
software world. Incumbents that have acquired dominant positions in (large) niche
markets seek to expand dominance to neighbouring markets. As applications – built
upon the platforms (technology stacks) controlled by different suppliers – must inter-
operate, customers face significant application integration investments. By adopting
at the sectoral level an open multi-tier component based reference architecture such as
the one proposed by Berre et al. (2004), component markets can emerge and the silos
favoured by dominant incumbents can be wrapped first and then gradually be replaced
by more fair solutions.
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4.2.2 Platform and Language Neutral Publishing
This choice is concerned with reducing the granularity of the item that is authored and
for which copyright is managed. By doing this, text-book publishers and authors will
be less enticed to confuse the (science) essential facilities in monolithic authored
works. Where the granularity of the book and the (archival) journal was suitable for
the age of the printing press, the web allows rights management, authoring, peer
review, royalty disbursement, and service composition on the basis of much smaller
content-chunks. Enabling this will allow the educators in niche markets to author their
own cases within peer-reviewed platforms so as to establish for their audience the
optimal learning content. These authors will also obtain (micro) royalties as their
cases or theory chapters are used by others in the market. In the near future, learning
services can sequence cases and problems for self-propelled (life-long) learners. As
(software) technologies are developed to store language neutral content, and to
present it in the language of the viewer, it will become feasible to produce learning
content in one language and present it or include in the learning curriculum in any
other language for which decoder exists20
.
4.2.3 Pro-growth learning paths; portfolios
Finally learning. Current content production has a strong focus on support for the
vertical methods that are fit for knowledge that can be codified, transmitted to a
central repository or library, and then accessed by interested parties. Pro-growth
learning that enables learners to address the problems in their livelihoods or
businesses require improved support for horizontal methods that are fit for
transferring tacit knowledge and include apprenticeship, secondments, imitation,
20
See Universal Networking Digital Language Foundation. (www.undl.org) for the technology andcurrent language resources. See d Almost All Questions Answered, AAQUA. (www.aaqua.org) for a
running application.
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study tours, cross-training, twinning relations and guided learning-by-doing. The
concept of learning paths is borrowed from the educational theory; it encompasses the
consistent design and logical construction of a learning process. The education is
thought of as a continuous process. Learners must be able to learn from past
experience and that their learning process must be supervised or coached. A
prerequisite for learning from past experience is that learner and coach both have
insight into past performance of the former. Clear criteria for assessment of
competencies (end level and interim levels) must be used. So, an educational program
based on learning paths calls for a monitoring system that both facilitates learning and
supervision. Portfolios can be part of such a monitoring system. In their portfolios,
learners have to collect 'evidence', so they can prove they have achieved competencies
to a certain level. The aim of the portfolio is that learners actively engage in their own
education and development of knowledge and skills. However, the success of
portfolios depends largely on the extent and availability of coaching. Regular
consultations with a coach are a prerequisite for the success of portfolio learning.
Because portfolio learning is new, and as procedures have not been optimized, it risks
to become a labor-intensive coaching process. Another potential problem is that
learning paths presuppose the cooperation of coaches; they have to align their
activities, adjust assessment criteria etc. Mobility of both learner's and coaches
become possible as standardized processes are enacted, and coaches use standardized
criteria and forms for the assessment of competencies and capabilities. These must be
built upon software and content platforms that facilitate fair mechanisms both
regarding the recognition of essential facilities and commons and regarding the
incentives that will encourage coaches and learners to apply knowledge and create
solutions to local needs that are problematized in the learning path.
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4.3 Drivers of Reform
Knowledge economy reform will have to overcome vested interests in public and
private sectors, fears of the consequences of change, low skill levels, lingering anti-
market sentiments, and the complexity and uncertainty of reform in a complex and
dynamic socio-technical landscape.
Jacobs (2007) lists, reviews and illustrates the seven key drivers of reform that
have been identified in the academic debate and the development literature. Table 4
lists these drivers and their meaning. For each driver its pertinence to the knowledge
economy is added in the third column. One key driver must be broadened to reflect
the ferment in the knowledge economy: unfolding innovation drives the need for
unfolding reform. Ongoing innovation challenges the institution designer. The trade-
off between a self-regulation approach and a government regulation approach has
been analysed (Grajzl & Murrell, 2007).
Table 4: Drivers of reform in the Knowledge Economy
Key Driver Meaning Pertinence to the knowledgeeconomy
globalizationandcompetitiveness
regulatory competition to lower cost of doing business; fear of falling behind;rising cost of the status quo, reducing thecost of change
the knowledge economy incumbentsinclude many global players, some of
whom achieved global status in a few yearstime
crisis an event that upsets the balance of power that has preserved the status quo;a high-risk approach to getting reformdone
widespread extreme poverty and global warming are being recognized as crisesfacing mankind
politicalleadership
the yeast that makes other drivers rise; atit best when proactive rather thanreactive; public choice theory feedspessimism as to effectiveness
the leaders that are accountable to theglobal society give limited attention to theknowledge economy;
unfolding reform (and innovation)
reforms in one area can increasepressures for reform in other areas; anaspect is the sequencing of reforms
the limited attention for reform in theknowledge economy is contrasted with thebroad-based innovations in the knowledge economy which show an unfolding pattern
technocraticdrivers
politicians and senior civil servants withtechnical training develop reforms thatoperate on the basis of promotion of thegeneral good
prominent law specialists have analysedand designed institutions for intellectualproperty, including the knowledgecommons (Open Source, CreativeCommons)
changes in civilsociety
support by stakeholders such as firmsand workers; Open dialogue and
incumbents with monopoly positions inlandscape or niche markets seek to protect
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communication on the cost and benefitsto improve understanding on all sides of short- and long-term effects of actionand non-action
their vested interests (rents in a poorly regulated market)
external pressure this can weaken the public choice driver;it includes international bodies and trade
agreements
Instruments such as those enacted by WTO21 (TRIPS) and WIPO22. The latter
instruments are debated among thespecialists. Is there a need for enlightenedinitiatives?
5. Conclusion and OutlookGuy (2007) points out "that the scale economies of information products are
institutional as much as technological phenomena, and ... the contest between business
models for information products is as much political as commercial... In the contest
over the control of information products there is an extreme range of plausible
outcomes: small changes in competition policy and public procurement could easily
tip the world toward a free software model, or could shore up the proprietary software
monopolies."
In a global knowledge-intensive economy, emerging economies have limited
resource-endowments which make them vulnerable as the institutional neglicence of
essential facilities coincides with extreme tactics by dominant knowledge economy
incumbents. History has proven mankind's ability in redrawing institutions as
dominant myopic principals have abused their positions in the socio-technical
landscape. In the past, scale-enlarging shifts have been triggers both for extreme
tactics by myopic principals, and for enlightened institution design. Whereas
dominant principals have had the time to show how to shirk in the knowledge
economy, time has come to respond. With new institutional designs in place,
organizational redesigns will come to reflect them (Meyer and Rowan, 1978), leading
21WTO, World Trade Organization, see http://www.wto.org/index.htm
22WIPO, World Intellectual Property Organization, see http://www.wipo.int/portal/index.html.en
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to structural change in construction of value and the mitigation of risks from
information and knowledge.
Making better use of ICT23
and knowledge (as a global public good), mankind
will be armed to achieve bold targets, including beyond those of the Millenium
Development Goals and the Kyoto Protocol. To these ends, society must engage all
its principals at the pico to macro scales where the carrying capacity of natural,
physical and social assets is concerned and interventions are anticipated.
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