Lynn Ilon Seoul National University

Question: Why does Google give you a service and charge you nothing? Question: Why do you give Google free information to improve its products and charge them nothing? Question: Why is Facebook worth millions of dollars but has never made a profit? Question: What is going on here? Answer: Knowledge economics.

Prevailing theories of economic growth are built around an economic model that maintains that growth comes from markets and, therefore, must derive from industry.

Much of Africa is still rural and quite poor. Traditional theories of development view these communities as “costs” which must be “fixed.”

But a relatively new theory, proposed by Romer in 1992 has begun to have prominence which emphasizes the role of ideas and knowledge.

New Growth Theory The theory is based on two major tenants: First, it posits that a nation’s ability to grow its economy is partly based on its ability to create and absorb new ideas (originally thought to be ideas about technological change).

Second, it posits that ideas have specific economic characteristics that make it perform unlike other goods or services.

Knowledge is costly to develop, but, thereafter, it is free to duplicate and benefit a lot of people at low or no cost unlike physical goods which continue to cost something to duplicate. For example, we all benefit from the idea of vaccines, maps and pasteurization. While each of these can take on a physical form, each idea benefitted a lot of people, was spread cheaply and added to our society’s well being.

The theory is important for African development. Rather than industry being the center of ideas, we now know that it is networks of people who build and shape ideas. Network theory tells us that networks are weakened when some people are marginalized or left out of the network.

The Value of Collective Learning Amartya Sen’s Nobel Prize winning work. Sen believed that societies that had the ability to talk freely about their issues and problems, exchange information, and raise awareness, effectively built new knowledge. If they could then take action, then they collectively raised the value of their lives – through knowledge creation rather than industrial production.

New growth theory combined with Amartya Sen’s theory of collective knowledge building and network theory shows that it is in the world’s interest to view communities as part of a global network. Their local knowledge is invaluable to help solve globally linked problems as a source of ingenuity, innovation and strength to drive economic development.

Many issues such as health, communications, governance, education, environment, housing, literacy, development, community organizing and social awareness; virtually any issue that involves collective awareness or responses can see substantial effectiveness benefits and cost reductions by using knowledge strategies.

Universal problems of disease, environmental degradation, terrorism, migration, refugees and hunger have two ways to be tackled. The old way is to bring in the experts once the problems have been created. Another way is to engage local communities in mitigating the underlying problems before the problems get out of hand. OR Before after

The key is to link such communities into a network and provide them with the learning tools and opportunities to make a contribution.

Thinking of community as a resource, lowers the cost of problem management for government, industry and the entire world. New growth theory not only helps us understand how development really works, it shows us how social progress can be achieved by lowering the burden now carried by industry, government and global institutions.

Policies First, all entities must be brought into the knowledge- generating network. Train “experts” to listen to communities; their expertise extends only as far as a particular field

Second, government needs to begin to recognize that knowledge-value is now being created both within and outside of industry.

Third, knowledge is synergized around networks. As networks are only as strong as their weakest link, it is poor national policy to build networks around top knowledge users and neglect the least educated.

Fourth, reducing national costs of development means heavily engaging all communities. Investments not just in formal education, but in learning infrastructure and knowledge linkages of poor communities will reduce long-term costs of social progress.

Question: How can government reduce the cost of its services? Question: How can the learning ability of communities, NGOs and civic society be captured? Question: How can society be improved without increasing monetary resources? Answer: Knowledge economics.

Lynn Ilon Seoul National University