{"id":4610,"date":"2024-10-07T22:01:49","date_gmt":"2024-10-07T20:01:49","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=4610"},"modified":"2024-10-07T22:01:49","modified_gmt":"2024-10-07T20:01:49","slug":"knowledge-must-keep-circulating","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2024\/10\/07\/knowledge-must-keep-circulating\/","title":{"rendered":"Knowledge Must Keep Circulating"},"content":{"rendered":"

Industrial policy has a less-than-stellar past in the West, where for years governments supported sectors with no prospects for growth. For various reasons, it is now making a comeback. And it could have a future if interpreted as a knowledge policy prioritising its dissemination rather than innovation at any cost.<\/span><\/i><\/p>\n

Industrial policy has come back into vogue. After decades of rejecting tools like tariffs and subsidies to shape the market, many Western governments have embraced them again, driven by the COVID-19 pandemic that exposed vulnerabilities in global supply chains. Also playing a role is the general fear of Chinese technological and commercial dominance, which could cost the West countless well-paid jobs. However, for these efforts to succeed, it is crucial to focus on knowledge.<\/span><\/p>\n

Failures of the Past<\/b><\/h3>\n

Industrial policy has left a poor legacy in the West. When post-war governments tried to implement it, they usually failed to achieve their goals because they supported industries with no future profitability. Therefore, they abandoned it entirely in the 1970s and 1980s. But if we interpret it as a knowledge policy, its return can succeed. An effective policy should focus not so much on creating knowledge but on its dissemination. Innovation is clearly valuable but also costly and challenging, requiring a particular combination of conditions that are often difficult to guarantee. Realistically, not all countries can aspire to be at the forefront of technology. However, it is unnecessary to produce cutting-edge innovation to reap the benefits of new processes, methods, and ideas developed elsewhere, including increased productivity, greater wealth, and if needed, more adequate military capacity. The dissemination of knowledge\u2014which depends on both access to it and the ability to absorb it\u2014is the key to a prosperous society. The German and Japanese economies quickly recovered after World War II, primarily because their stock of knowledge remained intact despite the destruction of physical infrastructure. Both countries had a cohort of engineers, doctors, scientists, and managers capable of absorbing, disseminating, applying, and building upon the advanced knowledge brought by the American occupying forces.<\/span><\/p>\n

Why State Intervention is Needed<\/b><\/h3>\n

If we recognise the value of knowledge transfers, one might wonder why the state must intervene to produce them. When an individual or company invests in knowledge, they usually obtain only a fraction of the returns: often acquiring knowledge yields much higher returns for society than private gains. This explains why the state has long supported and incentivised knowledge production, for example by creating the patent system and investing in education.<\/span><\/p>\n

Conditions for a Successful Policy<\/b><\/h3>\n

An effective knowledge policy relies on precise domestic and international conditions. Domestically, it requires a targeted education policy, subsidies that encourage local actors to import knowledge, and a flexible intellectual property framework that balances motivating innovation and encouraging dissemination. For countries far from the technological frontier, it is better to adhere to a tolerant intellectual property regime like the one that allowed India to build a flourishing pharmaceutical industry. Only later did adherence to WTO rules push New Delhi to comply with stricter regulations. In a geopolitically fragmented world, national measures must be integrated with free trade zones to facilitate knowledge sharing among partner countries. These zones would allow productive specialisation in some areas but not all. This is not necessarily bad because, after all, a country at the technological forefront\u2014or close enough to absorb new knowledge\u2014would likely be a more productive and prosperous economic partner. Countries should raise barriers to importing technology only in sectors where regaining innovation capacity is both achievable and desirable (these are the same sectors where direct subsidies might be justified). For example, the United States and the European Union have much more reason to invest in strengthening their semiconductor industries than India, which is so far behind in this field that any resources spent trying to catch up would likely be wasted. However, the same United States risks not achieving the desired results in this field if it does not develop an education policy that encourages engineering studies. Taiwan leads the world in semiconductor production thanks to its vast know-how and adequately educated workforce. But even assuming an economy has the right capabilities, if too many similar countries try to catch up in the same sector simultaneously, costs increase and the chances of success decrease. This leads to another reason why free trade zones are useful: they can facilitate coordination, at least among allies. India would be much more willing to abandon its semiconductor ambitions if it knew it could count on a steady supply from a trusted partner. It is true that the partner might also make some requests\u2014for example, that India strengthen intellectual property enforcement, which would entail high costs for the country. However, in today’s world, where tensions and divisions continue to grow, such compromises are practically inevitable: a sensible knowledge policy must recognise the constraints within which allies operate.<\/span><\/p>\n

The Challenge for the West<\/b><\/h3>\n

Western governments are reviving industrial policy at a particularly difficult time. Strategic reflections can no longer be avoided, unlike the decades when globalisation progressed rapidly under the solid umbrella of the Pax Americana. Today, political leaders must rise to the challenge and devise sophisticated industrial and military strategies\u2014including knowledge policies\u2014that consider the risks, goals, and tensions characterising the present.<\/span><\/p>\n

*This article was produced in collaboration with Project Syndicate.<\/span><\/em><\/p>\n

Bio<\/b><\/em><\/p>\n

Tano Santos is a professor of finance at Columbia Business School.<\/span><\/em><\/p>\n

Luigi Zingales is a professor of finance at the University of Chicago and co-host of the podcast Capitalisn\u2019t.<\/span><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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