Transcript [Project Name] Post-Mortem

Provision of knowledge as a public
good
Olga Memedovic
UNIDO, Research and Statistics Branch
4th Annual GARNET Conference
11-13 November 2009, Rome
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From the Session on EU, development policies, and governance:
“Countries come together to solve various problems with various
characteristics”
Garnet Conference focus areas:
Food security
Fuel security
Knowledge accumulation and diffusion
Environmental sustainability
Financial crisis
Governance (national and supranational)
The undersupply of these ‘goods’ may affect global economic development,
piece and prosperity. Some form of collective action (planned action by two or
more agents) becomes necessary to correct this undersupply through
coordination, cooperation and coercion.
Can the traditional public economics help?
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Public economics
What are Public Goods?
They are instances of market failure (others are externalities,
asymmetric information, barriers to entry)
Arrow (1971: 137), “when the market can’t manage to establish an
optimum situation, society will, at least to some extent, become aware
of the shortages, and other social institutions, outside the market, will
emerge to try to fix them.”
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1. Public goods main characteristics
Goods that are non-excludable in their supply
⇒ not easy to prevent others, who did not bear the costs of supplying them, to have
access to their consumption
consequences are free riding: potential users may hide their preferences for the good
and wait till they are supplied and then consume the good for free
Goods that offer non-rival benefits:
⇒ consumption by one agent does not diminish the availability of the goods for others
⇒ zero marginal costs of use ⇒ exclusion is inefficient ⇒ should be provided for free
(Samuelson, 1954)
non-excludability and non-rivalry ⇨ the logic of individual interests in the free market
results in their undersupply ⇨ resources are not efficiently used and prospects for
economic development are affected
But not all public goods meet fully these two criteria, so there are classes of public
goods
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The characteristics and typology of public goods
Benefits
Rival
Partially rival
Non-rival
Excludable
Pure private goods
Food
Cars, fuel
Club goods
Intelsat
International Space
Station
Canals, waterways
Weather-monitoring
stations
Nonexcludable
Common goods
Free access pasture
Open pathways
Hunting grounds
Air corridors
Impure public goods
Pure public goods
Pollution-control
Ocean fisheries
Controlling pests
Disease-eradication
programs
Strategic weapons
Sound financial
practices
Basic research
Partially
excludable
Impure public goods
Information
dissemination
Extension services
Source: Adapted from Sandler 2002: 86; Kaul, Grunberg and Stern 1999: 5.
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Public Goods and Externalities
Public goods are closely related to other market failures: PGs can produce
externalities and can result from externalities (economic activities that
produce various spillover effects by the initial generator)
Public bads
Public bads result from negative externalities.
Examples are environmental degradation, monopolistic behavior,
knowledge asymmetries, persistent poverty, financial instability,
dissemination of undesirable materials (child pornography); lack of
institutions (intermediate public goods) to secure adequate provision of
public goods.
Public goods and externalities are instances that call for a coordinated
social response and collective action to provide these goods at socially
optimal level
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2. Provision of public goods:
2.a What aspects should be considered?
1. PG Characteristics
Non-excludability and non-rivalry
The need for intermediate PG: intermediate goods are sometimes needed to
provide final public goods.
2. PG Consequences
The spillover effect
-The benefits spread beyond the administratively defined borders and can become
international in scope: hence regional PGs, global public goods (GPGs)
-The benefits can be inter-generational: future generations can benefit from the
innovation and knowledge generated today.
Even if supplied for free they can not always be consumed without costs ⇨ core
and complementary activities are needed for the provision of international public
goods
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2.b What level of response?
At the country level, the response is through the institutional framework, with
the nation state at the center. The purpose of the response is to internalize
externalities, by rewarding positive and penalizing negative, through subsidies,
contributions and taxes
At the supranational level, the response is often through international
agreements (bilateral , regional and multilateral), or voluntary coordination and
cooperation. Some examples. . .
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Institutional innovation for PG provision
Supra national EU
level
Instruments
Formal coordination
EU/ ECB
System of Enforcement
by Sanction:
Stability & Growth Pact
Voluntary coordination
Guiding Rules:
Luxemburg and Cardiff
Process
Lisbon strategy
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Consequences from global interdependences and economic
integration:
Production of final goods do not depend only on national productive
factors
R&D is becoming also globalized
Increasing international division of labor becomes self reinforcing
process driving the structural changes and economic integration
forward , leading to compressed development
⇒ Managing PG provision calls for appropriate supra-national regional
and global institutions and policies.
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Increasing intermediate goods trade both in imports…
Imports (Constant price)
4,500,000,000,000
4,000,000,000,000
3,500,000,000,000
3,000,000,000,000
2,500,000,000,000
Capital goods
Consumption goods
Intermediate goods
2,000,000,000,000
1,500,000,000,000
1,000,000,000,000
500,000,000,000
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
19
68
19
66
19
64
19
62
0
Values in US$ constant prices.
The categories are those of the Broad Economic Categories (BEC), a UN standard classification. Data has
been extracted in SITC Rev1 from UN Comtrade and translated into BEC using a UNSD correspondence table.
Source: Memedovic, Changing characteristics of manufacturing, forthcoming 2009
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…and in exports
Exports (Constant price)
4,000,000,000,000
3,500,000,000,000
3,000,000,000,000
2,500,000,000,000
Capital goods
2,000,000,000,000
Consumption goods
Intermediate goods
1,500,000,000,000
1,000,000,000,000
500,000,000,000
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
19
68
19
66
19
64
19
62
0
Notes:
Values in US$ constant prices.
The categories are those of the Broad Economic Categories (BEC), a UN standard classification. Data has been
extracted in SITC Rev1 from UN Comtrade and translated into BEC using a UNSD correspondence table.
Source: Memedovic, Changing characteristics of manufacturing, forthcoming 2009
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2.c What principles to follow in the IPG provision?
1. The subsidiarity principle = the decision-making jurisdiction level and the spillover
range of the public good should be at the same level. Thus,
 A national PGs should be provided by a national government
 A supra-national regional PGs by a supra national regional organization
 Global PGs should be provided by an international organizations ( in the absence
of global government).
The subsidiarity principle may be counterproductive when there is:
 Economies of scale in PG production or distribution ⇨ unit costs decrease as
more public goods are provided
 Economies of scope, unit costs decrease as more diverse public goods are
provided
In these cases the institutional response should have a wider jurisdictional coverage
⇨ to explore the advantages from increasing returns from scale and scope
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Technologies of PG supply
How individual contribution may determine overall PG supply?
Aggregation classification scheme gives perspective on incentives for PG
provision:
Simple summation = simple addition of individual contribution sets the aggregate level of
supply ( CO2 levels)
Best shot = the aggregate level of supply is determined by the largest single contributor
(some problems solved largely by countries with highest technological capabilities )
Better shot = the largest contributor has the greatest impact on supply
Weakest link = the smallest contribution sets the aggregate level
Weaker link = the smallest contribution has the greatest impact on provision (the
stability of financial market : the more instability the more its destabilizing effect)
Weighted sum goods = the aggregate level of supply determined by the the weighted sum
of individual contribution
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3. Knowledge as a public good
Knowledge is often considered a public good
(Stiglitz 1999) ⇨ Economic and social development depends on the capacity to generate,
adopt and adapt knowledge and technology ⇨ provision of developmentally related
knowledge is the key to productivity convergence and for reducing poverty ⇨ mechanism of
the provision of public goods should therefore be central to any poverty reduction strategy
Knowledge has potential to provide non-excludable benefits to a large number of
users and benefits received by one user do not reduce the benefits received by
others ⇨ Market fails to provide socially desirable optimum and hence collective
action by public and private agents is needed
But some knowledge can be partially non-rival in consumption and excludability
can be established :
Those who invested in new knowledge expect rewards and prefer to isolate free
riders
Knowledge can be kept secret and investment will go to the fields that are
difficult to imitate. I
investment in new knowledge can also be risky because of the lack of
information on the usefulness of new knowledge
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3.a Knowledge accumulation in this age of
globalization
The knowledge accumulation increasingly result from various forms of
production and innovation networks (at regional, national and international) and
co-evolutionary exchanges in these business formations.These organizational
forms then become intermediate public goods as they facilitate provision of
knowledge public goods
Firms and the citizens of any state can benefit from knowledge that has been
generated elsewhere (often financed by other countries’ taxpayers contributions) .
The key questions are then :
⇨ Is there still a connection between what taxpayers pay for knowledge public
good and what they receive in return?
-⇨ In what type of knowledge to invest and what instrument to use? (the question
for national science technology policy)
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4. Knowledge as a public good: normative aspects
Public provision :
Publicly-funded and performed basic research
Government procurement (contracts with the business sector to develop the
specific knowledge it needs)
Government rewards individuals and organizations that have produced socially
relevant knowledge
Government establish lows and regulations (intellectual property rights-IPR) and
system of their enforcement
Government promotes cooperation among national academic communities
through: funding joint research programmers, international conferences,
international academic associations, student exchanges, information exchange
Private provision: firm level funded R&D
Ideas, inventions and innovation have become powerful drivers of
competitiveness ⇨ a fierce competition to enhance technical knowledge that can
be applied and commercialized ⇨ high desire to use legal institutional framework
(IPRs) to protect this knowledge, to market it and to trade (technology market is
growing)
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Private provision: the role and characteristics of IPRs
To exclude free riding, to make knowledge property and to create a market
incentives for investing in it (dynamic advantage of IPRs) with a trade off of not
having a free access to knowledge temporarily (static disadvantage)
Focus mainly on knowledge developed by profit-seeking agents and to knowledge
directly related to technological applications and commercialisation
They are temporary measure (at least, for patents and copyrights)
Public policies try to balance the private and the public interest:
If a strong public interest , compulsory licensing or expropriation can be used and
enforcement of IPRs is with a certain relaxation, with the assumption that less than
perfect protection would increase welfare and reduce monopoly power
Industry sensitivity to IPRs ⇨ The more economic rents are associated with non-
material production and R&D intensity the more pressure for introducing
international harmonization of IPRs
(Countries with high share of knowledge-intensive industrial activities have stricter
rules for IPRs).
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5. Developing country concerns and IPR regime
Developing countries tend to rely on international diffusion and transfer of
knowledge so introducing strong IPR regime may imply high costs not necessarily
associated with advantages:
Even if knowledge and technology are for free not all developing countries will be
able to benefit from them: those who wish to benefit have to invest time, effort and
resources in their absorptive capacity (to acquire, adopt, adapt and further innovate)
The amount of knowledge that can be used without costs is very limited (e.g.
knowledge embedded in products)
Provision of knowledge and its diffusion are uncertain and risky activities with
successes and failures: there are entry barriers for imitators and for innovators
Asian tigers (Japan, ROK, Taiwan Province) neglected IPR s but encouraged
knowledge diffusion and incremental and adaptive innovation and become major
innovators
Government dilemma in developing countries in this global economic setting is then:
-In what type of knowledge to invest in?
-What system of incentives to follow?
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Why have then so many developing countries voluntarily
signed TRIPS?
The hope that OECD economies would open up their markets in return
To attract FDI
To increase the effectiveness of technology transfer ( e.g. by increasing the
number of patents and licenses in developing countries )
But, developing countries underestimated the difficulty of enforcing TRIPS in
their own countries
No conclusive evidence that TRIPS Agreement has favored developing
countries. The literature points out that TRIPS will need to be toned down to
allow developing countries to acquire the knowledge they lack (Falvey and
Foster 2005).
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Benefiting from the distributed knowledge base in this age of
globalization
 The business sector is becoming a more important player in the generation and
provision of knowledge public goods
 Share of business-funded R&D has increased, while publicly funded R&D has
remained stagnant or even declined over the last 20 years
 The TNC innovations generated in other countries through global innovation
networks (GINs) in some industries have been rising over the last 30 years
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Drivers for dispersions of R&D across the network of global
and regional inter-firm and intra-firm innovation networks:
Higher complexity and multidisciplinary nature of scientific research requires new sources
of knowledge and sharing the risks of failure through mobilizing global talent pool and
innovative capabilities; this can generate more value added and can reduce risk of failure
 Open innovation model is better suited to the knowledge-based economy, where many
technologies are used to create a product and to satisfy consumer needs, and where coevolution, cooperation and co-adjustments through networking are required
 To benefit from the favorable business environment conditions (policy incentives,
intellectual property rights and the provision of a knowledge infrastructure) in other
countries

Need to shift from “technology-push” to “consumer-pull” innovation model
 To avoid over-research, over-prototyping as more focus is on customer needs
 To respond better and faster to specific market needs (the product life cycle is shortened,
products should have local appeal, or should be based on local raw materials
The question is then how IPR can be managed in the emerging framework of vertical
fragmentation in the supply of knowledge public goods?
(Knowledge can be patented by various companies sometimes with conflicting interest? )
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With the functional and geographical fragmentation of R&D and their reintegration
through GINs, national and sub-national systems of innovation will gradually
integrate.
Key challenges:
For acquiring technological competences interaction between local and global
knowledge networks are also needed, and this is best achieved at the
regional/cluster level.
How to deal with asymmetric knowledge capabilities and with imbalances between
knowledge exploration (accumulation) and exploitation (commercialization) at
various levels?
EU challenge:
Is Europe becoming an exploration platform for the USA?
Developing country challenge:
Developing countries can rely on leveraging knowledge through GINs, but this need
to be the result of purposive activity of society (need for capacity building in
government)
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Global concerns:
Currently, most research activities are planned and implemented at
the national level without international coordination
but . . .
the rising interdependences, the difficulty of acquiring and retaining
the results of knowledge within national borders and the emergence
of global challenges such as health, security, financial stability and
environment . . .
call for global collective actions that promotes coordination among
national efforts through bilateral or multilateral socio-economic
agreements or voluntary coordination and cooperation initiatives
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6. Lessons from past experiences can guide
collective actions
Centralization of R&D and innovation in a few world centers is not
recommendable in the present global setting
A system of incentives that rewards intermediate and final PG provision might
help to increase knowledge flows
Concentrating on the supply side (knowledge accumulation without taking the
absorptive capacity of recipient agents (individuals, firms and even nations) into
account could lead to a waste of resources)
Regional innovation system can be a powerful instrument for commercialization of
new knowledge
International cooperation between research centers in developed and developing
countries is needed
International organizations can serve as hubs of research excellence in
specialized areas and can be considered as public goods
International organizations can play the role of network facilitators; they can help
to set priorities, taking into account broad human needs
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7. Role of intergovernmental institutions and organizations
in the provision of knowledge PGs
They can set common standards allowing all countries to benefit from best-
practice knowledge and from lower transaction costs e.g. transport and information
and communication technologies can operate internationally only if there are
agreed standards
They are also devoted to establishing, disseminating and upgrading standards
therefore they play an important role in knowledge diffusion (standards have many
of the attributes of pure public goods)
They can be honest broker for the exchange of knowledge from developed to
developing countries and among the two groupings (e.g. south-south cooperation)
through their research and global forum activities
They can promote, fund and implement joint research programmes and
associated infrastructure: the EU has established several international centers in
areas where the costs and risks of scientific investigation are high and where the
benefits are likely to be collective ; the European Organization for Nuclear
Research – CERN; UNIDO International Centre for Technology
They also have an institutional mandate to facilitate the diffusion of knowledge
through capacity building ( technical cooperation activities)
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Role of
multilateralism
& regionalism
International
public goods
Global
Domain
National
GVC
RIS: Local industries
Domain
SMEs and clusters
National
public
goods
Role of public
and private
sector
Business Environment
Industrial strategies, policies and programmes
Framework conditions
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From traditional economics (markets) to open access
communities of knowledge: Can we learn from the nature?
Source: Digital Business Ecosystem Conference, Brussels, 7 November 2007
Thank you for your attention
[email protected]