Institutions for pro-growth conduct in the knowledge economy

8/14/2019 Institutions for pro-growth conduct in the knowledge economy

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2010 The author Page 1

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

http://www.citeulike.org/profile/jago







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.




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).




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.




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




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.




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).




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




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.




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.




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




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




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




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.




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).




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.




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.

http://www.undl.org/



http://www.aaqua.org/

http://www.aaqua.org/





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.




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




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




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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Institutions for pro-growth conduct in the knowledge economy