The Learning economy and The economics of hope Bengt-Åke Lundvall i The Learning Economy and the Economics of Hope ii Anthem Studies in Innovation and Development The Anthem Studies in Innovation and Development aims to publish cutting-edge scholarship that pushes the boundaries of our understanding of how innovation impacts human and economic development. The aim is to promote a better understanding of innovation, evaluate ongoing approaches to analyse innovation capacity, and to generate a set of instructive readings that elaborate upon the role of innovation capabilities in enabling develop- ment, reducing inequality and eliminating poverty. The series is interested in exploring the role of technology and innovation in sustainable development (at the global or sectoral level), links between trade and innovation (includ- ing investment and intellectual property rights), the role of the state and new issues in the interface of innovation and industrial policy. The series is par- ticularly interested in analytical approaches to institutional and evolutionary economics, new frameworks and constructs on capabilities building and eco- nomic history reviews of innovation and technological change. Series Editors Padmashree Gehl Sampath – United Nations Conference on Trade and Development (UNCTAD), Switzerland; Aalborg University, Denmark Rajneesh Narula – University of Reading, UK Editorial Board Dan Breznitz – University of Toronto, Canada Carlos Correa – University of Buenos Aires, Argentina Dominique Foray – École Polytechnique Fédérale de Lausanne, Switzerland Elisa Guiliani – University of Pisa, Italy Raphie Kaplinsky – University of Sussex, UK Bengt-Åke Lundvall – Aalborg University, Denmark Keith Maskus – University of Colorado, USA Khalid Nadvi – University of Manchester, UK iii The Learning Economy and the Economics of Hope Bengt- Åke Lundvall iv Anthem Press An imprint of Wimbledon Publishing Company www.anthempress.com This edition first published in UK and USA 2016 by ANTHEM PRESS 75– 76 Blackfriars Road, London SE1 8HA, UK or PO Box 9779, London SW19 7ZG, UK and 244 Madison Ave #116, New York, NY 10016, USA Copyright © Bengt- Åke Lundvall 2016 The author asserts the moral right to be identified as the author of this work. All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book. British Library Cataloguing- in- Publication Data A catalogue record for this book is available from the British Library. Library of Congress Cataloging- in- Publication Data Names: Lundvall, Bengt-Åke, 1941– author. Title: The learning economy and the economics of hope / by Bengt-Åke Lundvall. Description: London; New York, NY: Anthem Press, [2016] | Includes bibliographical references and index. Identifiers: LCCN 2016038800 | ISBN 9781783085965 (hardback) Subjects: LCSH: Knowledge economy. | Information technology – Economic aspects. | Technological innovations – Economic aspects. Classification: LCC HC79.I55 L86 2016 | DDC 303.48/3 – dc23 LC record available at https://lccn.loc.gov/2016038800 ISBN- 13: 978- 1- 78308- 596- 5 (Hbk) ISBN- 10: 1- 78308- 596- 7 (Hbk) This title is also available as an e- book. v CONTENTS List of Tables xi List of Figures xiii Preface xv Part I. INTRODUCTION Chapter 1. Contributions to the Learning Economy: Overview and Context 3 Bengt-Åke Lundvall 1.1 The Structure of the Book 4 1.2 What Is Wrong with Economics? 13 References 15 Part II. INNOVATION AS INTERACTIVE PROCESS Chapter 2. Product Innovation and User–Producer Interaction 19 Bengt-Åke Lundvall 2.1 Introduction 19 2.2 The Framework 20 2.3 Product Innovation and the Organized Market 26 2.4 Unsatisfactory Innovations 36 2.5 User–Producer Perspective on Location of Production 44 2.6 The Science–Technology Nexus 47 2.7 Units of Analysis and Propositions 54 2.8 A Final Remark 57 Notes 57 References 58 Chapter 3. Innovation as an Interactive Process: From User– Producer Interaction to the National Systems of Innovation 61 Bengt-Åke Lundvall 3.1 Introduction 61 v i THE LEARNING ECONOMY AND THE ECONOMICS OF HOPE vi 3.2 The Micro-Foundation: Interaction between Users and Producers 61 3.3 National Systems of Innovation 73 3.4 National Systems of Production 75 3.5 Conclusion 80 Notes 81 References 81 Chapter 4. National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning 85 Bengt-Åke Lundvall 4.1 Introduction 85 4.2 National Systems of Innovation 86 4.3 Towards a Theory 92 4.4 The Elements of the System 98 4.5 Opening the System 100 4.6 Alternative Approaches and Methods 101 Notes 103 References 104 Chapter 5. The Learning Economy 107 Bengt-Åke Lundvall and Björn Johnson 5.1 Introduction 107 5.2 The Knowledge-Intensive Economy 108 5.3 Knowledge Intensity and Learning in the Post-Fordist Era 109 5.4 What Is Economic Knowledge? 112 5.5 Is Knowledge a Scarce Resource? 116 5.6 Interactive Learning 117 5.7 Remembering and Forgetting 118 5.8 Learning in Pure and Mixed Economies 119 5.9 The Organized Market as Institutional Response 121 5.10 Benefits and Costs of Organized Markets 122 5.11 Government Intervention in the Learning Economy 124 5.12 The Means to Learn 126 5.13 The Incentives to Learn 126 5.14 The Capability to Learn 127 5.15 Access to Relevant Knowledge 127 5.16 Learning to Forget 128 5.17 Concluding Remarks 128 References 129 vii CONTENTS vii Part III. ECONOMICS OF KNOWLEDGE AND LEARNING Chapter 6. From the Economics of Knowledge to the Learning Economy 133 Bengt-Åke Lundvall 6.1 Introduction 133 6.2 A Terminology of Knowledge 134 6.3 An Economic Perspective on the Production, Mediation and Use of Knowledge 141 6.4 Towards the Learning Economy 148 6.5 Conclusion 149 Notes 150 References 151 Chapter 7. Forms of Knowledge and Modes of Innovation 155 Morten Berg Jensen, Björn Johnson, Edward Lorenz and Bengt-Åke Lundvall 7.1 Introduction 155 7.2 What Is Knowledge? 156 7.3 Forms of Knowledge and Modes of Learning 159 7.4 The Need for a New Empirical Approach 162 7.5 Empirical Analysis 163 7.6 Conclusion: Implications for Innovation Analysis and Policy 172 Appendix 1 The Questions Used and the Original Coding in the Questionnaire 175 Appendix 2 The Goodness of Fit of the Model 177 Notes 179 References 180 Chapter 8. How Europe’s Economies Learn: A Comparison of Work Organization and Innovation Mode for the EU-15 183 Anthony Arundel, Edward Lorenz, Bengt-Åke Lundvall and Antoine Valeyre 8.1 Introduction 183 8.2 Measuring Forms of Work Organization in the European Union 185 8.3 How Europe’s Economies Work and Learn 191 8.4 Measuring Differences in Innovation Mode 199 8.5 The Relation between Organizational Practice and Innovation Mode 201 v iii THE LEARNING ECONOMY AND THE ECONOMICS OF HOPE viii 8.6 Diff erences between Manufacturing and Services 206 8.7 Conclusion 210 Appendix 1 Organizational Variables Used in Factor Analysis 215 Appendix 2 Graphical Representation of Factor Analysis – 15 Organizational Variables 216 Notes 217 References 219 Chapter 9. Postscript: Innovation System Research; Where It Came From and Where It Might Go 223 Bengt-Åke Lundvall 9.1 Introduction 223 9.2 A Concept with Roots Far Back in History 225 9.3 National Innovation System as Analytical Focusing Device 234 9.4 Challenges for Innovation System Research 240 9.5 National Systems of Innovation and Economic Development 247 9.6 Conclusions 256 Notes 257 References 259 Part IV. CONTINENTAL TRANSFORMATIONS AND GLOBAL CHALLENGES Chapter 10. China’s Innovation System and the Move towards Harmonious Growth and Endogenous Innovation 269 Shulin Gu and Bengt-Åke Lundvall 10.1 Introduction 269 10.2 The Transition of China’s Economy 270 10.3 The Transformation of China’s Innovation System 282 10.4 Problems, Debates and Challenges 289 10.5 Conclusion 299 Notes 299 References 301 Chapter 11. The ‘New New Deal’ as a Response to the Euro-Crisis 305 Bengt-Åke Lundvall 11.1 Introduction 305 11.2 Innovation and the Division of Labour 306 11.3 The Learning Economy 306 11.4 Modes of Innovation and Innovation Performance 307 11.5 How Europe’s Economies Learn 309 ix CONTENTS ix 11.6 Education and Training for Learning Organizations 312 11.7 Skill Requirements in Firms Engaged in Organizational Change 314 11.8 The Role of Universities in the Learning Economy 316 11.9 Linking Modes of Learning to Measures of Employment and Unemployment Security 317 11.10 Degree of Inequality in Access to Organizational Learning in Europe 319 11.11 The Euro-Crisis and Europe’s Uneven Development 321 11.12 Policy Recommendations 322 11.13 The Roads Ahead for Europe 322 Notes 323 References 324 Chapter 12. Growth and Structural Change in Africa: Development Strategies for the Learning Economy 327 Bengt-Åke Lundvall and Rasmus Lema 12.1 Introduction 327 12.2 Recent Developments in Africa’s Economies 329 12.3 What Is Development? 331 12.4 Transformation Pressure, Learning Capacity and Redistribution 337 12.5 Public Policy and Institutional Design 343 Notes 348 References 348 Chapter 13. National Innovation Systems and Globalization 351 Bengt-Åke Lundvall 13.1 Introduction 351 13.2 Technological Infrastructure and International Competitiveness 353 13.3 Product Innovation and User–Producer Interaction 355 13.4 Each of the Origins Gives Rise to New Streams of Analysis 357 13.5 What Are the Prerequisites for Catching-Up? 358 13.6 Interactive Learning in Regional Systems of Innovation 359 13.7 The Global Value Chain Approach 362 x THE LEARNING ECONOMY AND THE ECONOMICS OF HOPE x 13.8 Relating the Global Value Chain Approach to the Original NSI Contributions 365 13.9 On the Importance of Building a Strong National Innovation System 366 13.10 Conclusion 367 Notes 370 References 370 Part V. ECONOMICS OF HOPE OR DESPAIR: WHAT NEXT? Chapter 14. The Learning Economy and the Economics of Hope 377 Bengt-Åke Lundvall 14.1 The Economics of Hope 377 14.2 The Learning Economy 378 14.3 Experience-Based Learning Is Not Always Progressive 378 14.4 Europe as a Learning Economy 379 14.5 Europe’s Austerity Response to the Financial Crisis 380 14.6 China’s Growth and Investment in Knowledge 381 14.7 Growth and Structural Change in Africa 382 14.8 Europe, China and Africa – Diff erent but Interconnected Challenges 383 14.9 Financialization, Innovation and Learning 385 14.10 Coordinated Efforts to Establish a Green Trajectory 386 14.11 Demographic Crises and Migration in the Context of the Globalizing Learning Economy 389 14.12 Learning in Geographical Space – towards a New Research Agenda 391 14.13 Conclusions 393 References 394 Notes on Contributors 395 Index 397 xi TABLES 7.1 Indicators of DUI- and STI-mode learning 166 7.2 Clustering of 692 Danish firms based on latent class analysis: probability that a firm will be characterized by a policy/practice according to cluster 168 7.3 The frequency of the three clusters by firm size, sector, group ownership and production type (per cent horizontal) 170 7.4 Logistic regression of learning clusters on product/ service innovation 171 A7.1 The questions used in the survey 175 A7.2 Summary statistics from the latent class analysis 177 A7.3 The five-cluster solution 178 8.1 Variables for work organization and tasks 188 8.2 Work organization clusters 190 8.3 Forms of work organization by sector of activity 192 8.4 Forms of work organization by occupational category 194 8.5 National diff erences in forms of work organization 197 8.6 Logit estimates of national effects on organizational practice 198 8.7 Distribution of innovation modes in 14 EU member nations, 1998–2000 201 9.1 The two-dimensional shift in perspective 238 9.2 National diff erences in organizational models (per cent of employees by organizational class) 242 9.3 The probability that firms develop a new product or a new service 245 9.4 Resources fundamental for economic growth – combining the tangible and reproducible dimensions 251 10.1 Growth of China’s economy 1890–1995 (at constant prices) 271 10.2 Openness of China to the global economy 275 10.3 Growth in representative products 277 10.4 China’s investment in R&D 284 xii THE LEARNING ECONOMY AND THE ECONOMICS OF HOPE xii 10.5 Selective indicators to changes in China’s NIS (all the measures at current prices) 287 10.6 Resources fundamental for economic growth – combining the tangible and reproducible dimensions 298 11.1 Logistic regression of learning clusters on product/ service innovation 308 11.2 National diff erences in organizational models (percentage of employees by organizational class) 311 11.3 Changes in task content for employees during the period 1993–95 for firms that have made organizational changes (outside the parentheses) compared with firms that have not made organizational changes (in parentheses) 315 11.4 National diff erences in organizational models (percentage of employees by organizational class) 320 xiii FIGURES 8.1 Correlations between innovation modes and discretionary learning, all sectors 203 8.2 Correlations between innovation modes and lean organization, all sectors 204 8.3 Correlations between innovation modes and Taylorist organization, all sectors 205 8.4 Correlations between discretionary learning and innovation modes for manufacturing and for services 207 8.5 Correlations between innovation modes and lean organization for manufacturing and services 209 8.6 Correlations between innovation modes and Taylorist organization for manufacturing and services 211 A8.1 Forms of work organization 216 10.1 Per capita GDP in comparison (USA=100) 271 10.2 GDP structure of China’s economy (at constant prices) 272 10.3 Ownership structure: Industry by 2003 274 10.4 Openness to global economy 275 10.5 Export structure 276 10.6 Growth in representative products 278 10.7 GDP structure in comparison 280 10.8 Employment structure in comparison 281 10.9 Transformation of China’s NIS 288 11.1 Percentage lead innovators by percentage discretionary learning 312 11.2 Discretionary learning and tertiary education 313 11.3 Discretionary learning and employee vocational training 314 11.4 Correlations between discretionary learning and systems of social protection 318 12.1 A model linking transformation pressure to the capacity to change and to the distribution of the costs and benefits of change 340 xiv xv PREFACE This book brings together 12 papers written over a period of 30 years (1985– 2015). I have added an introduction ( Chapter 1 ) where I indicate the context of the papers and their relationship to each other and an essayistic Postscript ( Chapter 14 ) where I refl ect upon normative implications. Anyone who reads the book as a whole will experience some repetition. This reflects ‘self-citation’ and that the papers appear in their original form. This means, however, that each chapter can be read separately. I am most grateful to Shagufta Haneef who helped me with preparing the manuscript and the editing. Several of the papers have been co- authored, and I am grateful to Anthony Arundel, Antoine Valeyre, Björn Johnson, Edward Lorenz, Morten Berg Jensen, Rasmus Lema and Shulin Gu for their collaboration and for permis- sions to republish those papers in this volume. I am in intellectual debt to many other scholars who have given inspiration to my work. Thanks first to colleagues in the research group on Innovation, Knowledge and Economic Dynamics (IKE group) at Aalborg University, par- ticularly Asger Brændgaard, Bent Dalum, Birgitte Gregersen, Björn Johnson, Esben Sloth Andersen, Gert Villumsen, Jan Fagerberg, Jesper Lindgaard Christensen and many others. Since 1984, I have become increasingly involved in collaboration with schol- ars from outside Denmark. I have benefited from cooperation in European projects with Alice Lam, Daniele Archibugi, Edward Lorenz, Giovanni Dosi, Luc Soete, Maria Jao Rodrigues, Mark Tomlinson, Susana Borras and many others. In the new millennium, I learnt a lot on how to link innovation to devel- opment from Globelics colleagues Jose Cassiolato, Judith Sutz, Gabriela Dutrrenit, K. J. Joseph, Keun Lee, Rajah Rasiah, Shulin Gu, Anna Kingiri, Bitrina Diaymett, Mammo Muchie and many others. One of the messages in this book is that apprenticeship learning is impor- tant in all domains of knowledge, including research. I have had three ‘masters’ xvi THE LEARNING ECONOMY AND THE ECONOMICS OF HOPE xvi who have inspired my work: Lars Herlitz, Richard R. Nelson and Christopher Freeman. For the title of this book, I have borrowed the concept ‘the economics of hope’ from Freeman’s 1993 book. Christopher Freeman was an intellectual giant who not only called for a better world but also, as a scholar and a world citizen, made contributions to make it a reality. Thanks are due also to my life companion, Birte Siim, who gave ideas for how to wrap up the work so that it could reach the publisher on time. Our numerous and often heated discussions on nation states, global citizenship and politics have served as antidotes against technology determinism and econo- mistic perspectives. 1 Part I INTRODUCTION 2 3 Chapter 1 CONTRIBUTIONS TO THE LEARNING ECONOMY: OVERVIEW AND CONTEXT Bengt- Åke Lundvall This book is about the economics of innovation and knowledge. One of the major conclusions drawn is that the perspectives standard economics imposes on society are biased, incomplete and inadequate. The focus on rational choice, allocation of scarce resources and equilibrium only captures some dimensions of the modern economy, notably short- term and static ones. Alternative per- spectives, in which the focus is on learning as an interactive process and on processes of innovation, give visibility and direct attention to other, at least equally important and more dynamic, dimensions. Social science is about human action and interaction, and it differs from natural science in several respects. It does not have access to laboratories where it is possible to organize controlled experiments. In spite of this, standard economics has gone far in adopting criteria and ideals from natural science, more precisely ideals that originate from Newtonian physics. This is reflected in standard economists’ conception of equilibrium as an ideal reference state and their tendency to focus exclusively on quantitative relations, also paired with in its excessive use of mathematics. In this book, I insist that economics should remain a social science while also taking into account the complexity of the strivings and hopes of human beings. People cannot be reduced to algorithms or automatons. The basic assumption about rational behaviour in economic models (in which individu- als and firms act as if they know everything about the future) is absurd and leads to equally absurd conclusions and to dubious policy recommendations. Taking a departure from more realistic assumptions about how and why people act as they do in society has implications for what constitutes a theory in social science. In social science, a theory should be regarded as a focusing device – no more and no less. This book presents two sets of theories or focus- ing devices – the innovation system and the learning economy – that differ