Institutions for pro-growth conduct in the knowledge economy

Jan Goossenaerts1
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 uses that 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.

1

For details on the author, see http://www.citeulike.org/profile/jago

 2010 The author

Page 1

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

2

Leach & 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 the resource 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.

 2010 The author

Page 2

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 factfinding 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 operations and 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 via benchmarking), problem identification (selection from a problem mess), diagnosis (of the problem situation – analysis), plan of action (design), and intervention (implementation).

 2010 The author

Page 3

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-intensive Socio-Technical Landscape
There 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.

10

In the sectors addressed here (software, content and learning), several essential facilities are also nonrivalrous.

 2010 The author

Page 4

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  2010 The author Page 5

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
11

IEEE 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.

 2010 The author

Page 6

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 demandside 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 subtle balance between aggressive diffusion and limited licensing of architectural standards (Borrus and Zysman, 1997).

 2010 The author

Page 7

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 freerided 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 Agenda
If non-articulated essential facilities figure prominently in the tactics of dominant principals in the knowledge economy, what kind of reform could discipline these

 2010 The author

Page 8

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 selfregulation 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 demandsupply 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 postCivil 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.

 2010 The author

Page 9

be ill-adapted to emerging forms of resource-exchanges and their supporting essential facilities.

software, content & services based demand-supply interactions without fit institutions & utilities
demand for content & services in the principal lifecycle
improvement misses due to silo-architecture non-interoperabilities as cross-cutting innovation decelerator; asset eroder; incentive destroyer

demand-supply interactions under right-conditioned institutions facilitated by utilities designed for efficient material/energy/financial flow & people mobility

institutions infrastructure (utilities)
strategy to lock in customers by vertical solutions institution gap utility gap

supply of software, content and services

Figure 1: Problematic institutional fitness in an expanding socio-technical landscape15.

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 needs dedicated institutions as it unfolds in a material economy), a similar need for differential institutions may distinguish the industrial era and the agricultural era.

 2010 The author

Page 10

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 picolevel 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 Cycle
Level Aspect Typical Principals Macro (Landscape) International, regional, national and local authorities Meso (Regime/sector) Standards organisations; Engineering and Science disciplines Micro (Niche/firm) Corporations that own, maintain, and/or operate plants, land or service facilities. Pico persons in the role of workers, engineers, managers, farmers, parents, public servants

 2010 The author

Page 11

Real site work system

the economic interactions in a territory

sectoral interactions in a territory, or among members in a community of practice methods of scientific research; engineering design; standards development; sectoral IAD (Hess & Ostrom, 2007) Photo Voltaic cells (Nagamatsu et al, 2006); GSM (Bekkers et al, 2002) comparison among sectors

Sample Design Methods

Regulatory Reform (Jacobs, 2007) Constitutive Institutional Analysis and Design (IAD) (Hess & Ostrom, 2007) Parliament in the UK (North, 1990) Limited liability by Law in New York State (Shiller, 2003) TRIPS16 historical comparison (North, 1990) comparative economics (Djankov et al, 2003) growth, inclusivity, sustainability, security

the farm, the factory, the delivery system and/or office environment that sustain the value creating processes business and organization development methods

the livelihood, the learning and/or work context of the person

Kolbe; learning paths; Sustainable Livelihoods Framework (SLF) (Scoones, 1998) many exist in the literature on psychology and pedagogy social comparison (Festinger)

Representative Cases

many exist in the business literature

Approaches feeding problematization Issues

benchmarking

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,
16

TRIPS, Agreement on Trade-Related Aspects of Intellectual Property Rights, http://www.wto.org/english/docs_e/legal_e/27-trips.pdf

 2010 The author

Page 12

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
Pico (person)

Factors

Exogenous Factors
competition) polarized economy high entry barriers, highly priced, low variety/low innovation market for software, content, learning and product/service development (winner-takes-it-all) weak national institutions vis-a-vis global dominant incumbents in the knowledge economy; Insecurity, non-sustainability, non-inclusivity, Biophysical environment (including geography, weather, biodiversity)

Micro (firm)

demand

supply

Meso

(sector)

learning content software nation globe

Macro (econo my)

- poor products/ low value proposition in niche markets; - low participation to the economy - persistent poverty - operational and transitional inefficiencies; - lock-in and high switching costs; - little competition and variety; - rapid depreciation (pursued by supplier) 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 - lack of international sectoral standards - lack of shared and open architectures - obscurity regarding essential facilities - unclear mandate - negligence of essential facilities for the national knowledge economy (language, national sectors,...) - under-valueing of evidence base (monopolies) - 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  2010 The author Page 13

exploit the absence of fit institutions. In their high-end tactics, they ensure high entrybarriers 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 match development needs
We merge a strategy-pattern for broad-scale regulatory reform18 and 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 and services. Hence the value of the resource shows a high variability, making a commons-based approach to providing them immensely valuable (Benkler, 2001). 18 Jacobs (2007) has outlined such a pattern that maximizes the chances of genuine and durable success in environments resistant to reform.

 2010 The author

Page 14

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
Pico (person)

Choice Factors

Exogenous Factors
Inclusive economy Low hurdle, fairly priced, high variety market for authoring, learning and product/service development National know. economy institutions and utilities Global knowledge economy institutions and utilities Biophysical environment (including geography, weather, biodiversity)

Micro (firm)

demand

supply

Meso

(sector)

learning content

software

Macro (econo my)

nation

globe

- livelihood; - suppliers during (life long) learning; - mobility; - employment - fair prices; - choice of supplier; - rich and customized offer; - depreciation horizon of the investment - niches to develop products and services and establish distinctive offer; - (for choices in the supply chain, see demand) - adopt learning path and portfolio standards - separation of master-content and presentation; - platform publications; - marking open content in publications -open component reference architecture for technical integration19; -within the component reference architecture: define horizontal limits to product offers and/or interoperability duties - essential facilities for the national economy (knowledge, language, sector, territory and its biophysical characteristics); - commons regimes for these - knowledge economy institutions recognizing global essential facilities; - commons regimes for the essential facilities of the knowledge 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

19

See Reference Model for Technical Integration in INTEROP D9.1 (page 24) (Berre et al., 2004).

 2010 The author

Page 15

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 localoptimum seeking behaviour by market participants (shirking). At macro- and mesolevels 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 interoperate, 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.  2010 The author Page 16

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 and current language resources. See d Almost All Questions Answered, AAQUA. (www.aaqua.org) for a running application.

 2010 The author

Page 17

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.  2010 The author

Page 18

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 antimarket 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 tradeoff 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
globalization and competitiveness crisis

Meaning
regulatory competition to lower cost of doing business; fear of falling behind; rising cost of the status quo, reducing the cost of change an event that upsets the balance of power that has preserved the status quo; a high-risk approach to getting reform done the yeast that makes other drivers rise; at it best when proactive rather than reactive; public choice theory feeds pessimism as to effectiveness reforms in one area can increase pressures for reform in other areas; an aspect is the sequencing of reforms politicians and senior civil servants with technical training develop reforms that operate on the basis of promotion of the general good support by stakeholders such as firms and workers; Open dialogue and

Pertinence to the knowledge economy
the knowledge economy incumbents include many global players, some of whom achieved global status in a few years time widespread extreme poverty and global warming are being recognized as crises facing mankind the leaders that are accountable to the global society give limited attention to the knowledge economy; the limited attention for reform in the knowledge economy is contrasted with the broad-based innovations in the knowledge economy which show an unfolding pattern prominent law specialists have analysed and designed institutions for intellectual property, including the knowledge commons (Open Source, Creative Commons) incumbents with monopoly positions in landscape or niche markets seek to protect

political leadership unfolding reform (and innovation) technocratic drivers

changes in civil society

 2010 The author

Page 19

external pressure

communication on the cost and benefits to improve understanding on all sides of short- and long-term effects of action and non-action this can weaken the public choice driver; it includes international bodies and trade agreements

their vested interests (rents in a poorly regulated market) Instruments such as those enacted by WTO21 (TRIPS) and WIPO22. The latter instruments are debated among the specialists. Is there a need for enlightened initiatives?

5.

Conclusion and Outlook

Guy (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

21 22

WTO, World Trade Organization, see http://www.wto.org/index.htm WIPO, World Intellectual Property Organization, see http://www.wipo.int/portal/index.html.en

 2010 The author

Page 20

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.

6.

References

1. Bekkers, R., B. Verspagen, & Smits, J. (2002) Intellectual Property Rights and Standardization: the case of GSM. Telecommunications Policy, 26 (3/4) 2. Benkler, Y. (2001) Property, Commons and the First Amendment: Towards a Core Common Infrastructure, White Paper for the First Amendment Program, Brennan Center for Justice at NYU Law School, available at http://www.benkler.org/WhitePaper.pdf 3. Berre, A.-J., A. Hahn, D. Akehurst, J. Bezivin, A. Tsalgatidou, F. Vermaut, L. Kutvonen, P. F. Linington (2004) INTEROP Deliverable D9.1 “State-of-the art for Interoperability architecture approaches - Model driven and dynamic, federated enterprise interoperability architectures and interoperability for non-functional aspects. http://interop-vlab.eu/deliv/dap-domain-architecture-andplatforms/D91/ 4. Boorstin, Daniel J. (1983) The Discoverers – A history of man's search to know his world and himself, Vintage Books, New York. 5. Borrus, M. and John Zysman (1997) Globalization with borders: The Rise of Wintelism as the future of Global Competition. Industry and Innovation 4(2). 6. Bromley, D.W. and Cernea, M.M. (1989) The management of common property natural resources: some conceptual and operational fallacies. World Bank Discussion Paper, Vol. 57, Washington D.C., The International Bank for Reconstruction and Development / The World Bank. 7. Child, J. & R. G. McGrath (2001) Organizations unfettered: Organizational form in an informationintensive economy. Academy of Management Journal; 44(6), pp. 1135-1148 8. Djankov, S., Glaeser, E., La Porta, R., Lopez-de-Silanes, F., Shleifer, A. (2003) The New Comparative Economics. Journal of Comparative Economics 31, pp. 595-619. 9. Frischmann, B.M. (2005) An economic theory of infrastructure and commons management, Minnesota Law Review, 89, pp. 917-1030. 10.Geels, F.W. & J. Schot (2007) Typology of sociotechnical transition pathways. Research Policy 36, pp 399-417 11.Grajzl, P. and P. Murrell (2007) Allocating lawmaking powers: Self-regulation vs government regulation, Journal of Comparative Economics, 35, pp 520-545 12.Guy, F. (2007) Strategic bundling: Information products, market power, and the future of globalization. Review of International Political Economy 14(1) 26-48 13.Hess, C. & E. Ostrom (eds) (2007) Understanding Knowledge as a Commons – From Theory to Practice, The MIT Press, Cambridge, Massachusetts. 14.IEEE 1471-2000. IEEE Recommended Practice for Architectural Description of Software-Intensive Systems, IEEE Std 1471-2000. 15.Jacobs, S. H. (1999) The Second Generation of Regulatory Reforms, Proc. IMF Conference on Second Generation Regulatory Reforms, November 8-9, 1999. Washington D.C. url: www.imf.org/external/pubs/ft/seminar/1999/reforms/jacobs.htm 16.Jacobs, Scott (2007) How Broad-based Reforms Succeed in Changing the Business Environment: The Strategic Use of Drivers of Change, Jacobs & Associates, Washington DC.
23

ICT is the abbreviation for Information and Communications Technology

 2010 The author

Page 21

17.Leach, M. & Scoones, I. (2006) The Slow Race, Making Technology work for the poor. Demos, London, UK. www.demos.co.uk 18.Lerner, J. & Tirole J. (2001) The Open Source Movement: Key Research Questions. European Economic Review, 45, 819-826. 19.Lessig, L. (2001) The Future of Ideas; The fate of commons in a connected world. New York, Random House. 20.Meyer, J.W. & Rowan, B. (1978) Institutionalized Organizations: Formal Structure as Myth and Ceremony. American Journal of Sociology 83(2) pp. 340-363 21.Nagamatsu, A., C. Watanabe, K.L. Shum, Diffusion trajectory of self-propagating innovations interacting with institutions – incorporation of multi-factors learning function to model PV diffusion in Japan. Energy Policy, 34, 2006, pp. 411-421 22.North, D.C. (1990) Institutions, Institutional Change and Economic Performance. Cambridge. Cambridge University Press. 23.Pendleton, Michael D. (2005) Balancing Competing Interests in Information Products: A Conceptual Rethink. Information & Communications Technology Law, Vol. 14, nr. 3, October 2005 24.Rechtin, E, and M.W. Maier, The Art of Systems Architecting, CRC Press, New York, 1997. 25.Rodrik, D. (1999) Institutions For High-Quality Growth: What They Are and How to Acquire Them, Proc. IMF Conference on Second Generation Regulatory Reforms, November 8-9, 1999. Washington D.C. url: www.imf.org/external/pubs/ft/seminar/1999/reforms/rodrik.htm 26.Schot, J., Hoogma, R., Elzen, B., 1994. Strategies for shifting technological systems: the case of the automobile system. Futures 26, 1060–1076. 27.Scoones, I. (1998) Sustainable Rural Livelihoods: A Framework for Analysis. IDS Working Paper No.72. Brighton: Institute of Development Studies. 28.Shapiro, C., & H.R. Varian (1999) Information Rules – A strategic guide to the network economy, Harvard Business School Press, Boston, Massachusetts, US. 29.Shiller, Robert J. (2003) The New Financial Order – Risk in the 21st Century. Princeton University Press, Princeton and Oxford. 30.Stiglitz, J. (1998) International Financial Institutions in the 21st century. EIB Papers 3(2) pp 116132, European Investment Bank. 31.Stiglitz, J. (2000) “Scan Globally, Reinvent Locally: Knowledge Infrastructure and the Localization of Knowledge,” in Banking on Knowledge: the Genesis of the Global Development Network, Diane Stone (ed.), Routledge, 2000, pp. 24-43. Also Chapter 6 in The Rebel Within, Ha-Joon Chang (ed.), London: Wimbledon Publishing Company, 2001, pp. 194-219. (Originally Keynote Address to the First Global Development Network Conference, Bonn, December 1999.) 32.Stiglitz, J.E. (2004) Towards a Pro-development and Balanced Intellectual Property Regime. Keynote address presented at the Ministerial Conference on Intellectual Property for Least Developed Countries, World Intellectual Property Organization (WIPO), Seoul, October 25, 2004. 33.Turney, J. (2005) Defining the Limits of the EU Essential Facilities Doctrine on Intellectual Property Rights: The Primacy of Securing Optimal Innovation. Northwestern Journal of Technology and Intellectual Property, Vol. 3 no. 2, pp 179-202 34.van de Ven, A.H. (2005) Running in Packs to Develop Knowledge-Intensive Technologies, MIS Quarterly Vol. 29 (2) pp 365-378 35.van Strien, P.J. (1997) Towards a Methodology of Psychological Practice, the Regulative Cycle. Theory and Psychology, 7(5) pp. 683-700

 2010 The author

Page 22

Sign up to vote on this title
UsefulNot useful