Monday, January 9, 2012

The Gifts of Athena

I still need to catch up with talking about some books I've read over the holidays. One of them is The Gifts of Athena: Historical Origins of the Knowledge Economy by Joel Mokyr, a well-known economic historian. He talks about the role of technology in economic growth, the origins of the industrial revolution, and where the knowledge economy came from.  Clearly that is important for understanding where the economy may go next.

He starts by distinguishing two kinds of knowledge:

One is knowledge "what" or propositional knowledge (that is to say, beliefs) about natural phenomena and regularities. Such knowledge can then be applied to create knowledge "how," that is, instructional or prescriptive knowledge, which we may call techniques.'In what follows, I refer to propositional knowledge as omega-knowledge and to prescriptive knowledge as lambda-knowledge. If omega is episteme, lambda is techne.

The critical role of access to knowledge

He then spends several chapters arguing that it is not just a matter of what is known, i.e propositional knowledge.  Access to knowledge is crucial.

In other words, changes in the overall size of omega (what was known) may have been less important in the Industrial Revolution than the access to that knowledge. Moreover, the process was highly sensitive to outside stimuli and incentives. The social and institutional environment has always been credited with a central role in economic history. 

As we've seen so often on this blog, the progress of technology (and the economy) is evolutionary. 

In that respect the evolution of technology again resembles biological evolution: changes in the environment (including changes in the availability of complements and substitutes) may trigger the activation of "dormant" knowledge or select those techniques that happen to "express" information adapted to a new environment. 

And again, progress is often driven by recombination of elements. And that is why lower access costs to different kinds of knowledge can be very important, because it makes it easier to recombine elements from different areas. 

After all, a substantial portion of invention consists of recombination, the application of a sometimes remote and disjoint sections of omega together to form something novel. It is one of the chief reasons why lower access costs are so important in triggering the new mapping of techniques from omega to lambda. If taken to an extreme, recombination can lead to dazzling rates of invention, because the rate of invention will be combinatorial, which is faster than exponential 

And this is why information technology, a true "general purpose" or macro technology, is transformative. 

Thanks to the "information and communications technology revolution" of our own age, marginal access costs have been lowered enormously, and in many areas have been reduced practically to zero. The idea of a "knowledge economy" is of course something of an exaggeration if taken literally: people still need food and hardware, and nobody can live on knowledge alone, not even graduate students. But the accelerating decline in access costs has opened the floodgates to further technological progress in our age, not just thanks to a single advance such as the Internet but through a host of changes that reduced access to knowledge as it increased the size of omega. The differences between the two episodes are at least as instructive as the similarities, and not too much should be made of such historical analogies. 

But often the nature of the change is not easy to see or understand when we are in the middle of it. 

One more striking conclusion to be drawn is that it is enormously difficult for contemporaries to realize how dramatically their world is changing, what the important elements are, and how technological change will shape their future. 

It always seems rash and imprudent when historians analyze contemporary events as if they occurred sufficiently long ago to be analyzed with some perspective. But the arguments made above suggest that the cluster of innovations around semiconductors and their applications will be viewed by future historians as a macroinvention; they represent the kind of discontinuity that separates one era from another, much like the two previous Industrial Revolutions.

Where and How people work

One of the most interesting consequences is what this means for how and where work is carried out - which in turn carries many consequences for people's daily lives. Why in the course of the industrial revolution did production increasingly move away  from households and into large factories and organizations? What explains the optimum scale of the economic production unit, and its location? 

Part of it was higher fixed capital costs made it more effective to make sure the large machines were used in a disciplined way, and they made it more difficult to measure productivity just by piecework. 

But much of the rise of the large organization was because more knowledge was required than most households could offer.

As long as production was simple and could be summarized in a finite number of rules of thumb, a single household could know all there was to know and effectively serve as the unit of production with all the advantages thereof. But the Industrial Revolution and the subsequent technological developments after 1760 led to many production processes that required a level of competence that was beyond the capability of the individual household. 

Transmission of knowledge was also a criticial reason for the rise of large organizations:

Putting all workers under one roof ensured repeated interaction and personal contact provides maximal bandwidth to maximize the chances that the information would be transmitted fully and reliably. Inside a plant agents knew and could trust each other, and this familiarity turned out to be an efficient way of sharing knowledge. 

Factories thus served as repositories for technical knowledge and vastly reduced access costs to this knowledge for individual workers. 

As tacit knowledge becomes less important, the scale advantages of large firms diminish too.  The transmission of information in trusted, reliable ways can have a major impact. 

The model further predicts that when knowledge can be shared and trusted among people by means other than personal contact (say, through repeated electronic communication), firms may survive, but large plants may become less necessary.

That has major implications for how people organize their time.  

The "factory" as a system is in retreat not only as a physical central location of activity, but also as a time-organizing institution in which work begins and ends at given times and the lines between leisure and labor are firmly drawn. Instead, work is dispersed over space as well as time, allowing workers to calibrate their trade-offs to reflect their preferences. The welfare implications of home work are the mirror image of the costs of the factory system: less commuting, more flexibility in the leisure-work trade-off, and the ability to combine work with household-services production.

The commute, for instance, is not a contributor to welfare. 

As things are, the purchases of transportation services needed for getting to work are treated as consumption. Commuting time does not enter into GNP calculations but is treated as leisure. 

A considerable amount of time spent on "leisure" is nothing of the sort but is an intermediary cost of production or consumption. The new-economy pessimists who fail to see much evidence of a gain in productivity should keep in mind that the numerator of all productivity measures fails to capture some of the most important effects of the new technology. In short, commuting-much like shopping-is a "friction" that drives a wedge between total output as a measure of effort and as a measure of welfare. Hence, a sharp increase in telecommuting and teleworking would have clear-cut welfare effects but would appear nowhere directly in our national accounts. 

Reorganizing the location of work and the leisure-work trade-off that comes with it could have significant social effects, too. 

 Community life has not done well in America in the second half of the twentieth century, but perhaps the reason is in part that community life and the workplace are substitutes, competing for the same time and serving similar needs. If the workplace and the commute were to claim less time and effort, people might re-invent the social institutions associated with life before the Industrial Revolution as well as create entirely new forms of social interaction, as witnessed by the growth of e-mail pals and Internet chatrooms. 

Technology will make it easier to get and keep a reputation, but households will also have to keep up with knowledge - and some may struggle with that challenge. 

The return to household-plants and even household-firms will not mean a return to a world of peasants and artisans with loose selection standards. Modern ICT will make it easy to establish or lose a reputation for expertise and reliability. Establishing standards for veracity will be one of the challenges of the world of cheap access to knowledge. Such a world, however, will contain few pre-1750-type household-producers muddling on without continuously keeping up with best-practice techniques. As access costs continue to decline, codifiable knowledge will flow to where it can be used. All the same, it is not clear how society will handle individuals who cannot or will not stay up to date. 

Knowledge also affects how people choose to allocate their time. He also has a fasincating discussion of the rise and fall of "housework" locating in partially in a 19th century panic about germs and disease which hugely raised the perceived importance of household chores. 

Women had primary responsibility in society's eyes for the health of their family, so new medical knowledge which seemed to indicate household work was literally a matter of life or death had a major impact on how women spent their time. 

What really had been "discovered" was neither "the child" nor "the mother" but that mothers could, by their actions, affect the life and well-being of their offspring. This was the message science had taught, and as mothers became convinced that the physical well-being of children was a function of their actions, they had to rethink their most basic time-allocation decisions. 

As people came to realize the health benefits of keeping the front step scrubbed to perfection had been exaggerated, time allocation preferences shifted again.  And that is one additional reason for the increased movement of women into the formal labor force in the postwar years.  

I'll conclude a look at the book in the next post. 


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