The knowledge economy, the crash and the depression

The knowledge economy is generally invoked as the key to progress, development and prosperity. Since the work of Schumpeter (1934; 1942), knowledge production and innovation have been identified as distinctive features of market economies, crucial to overcome societal inertia and, as later recognized by Abramovits’ (1959) and Solow’s (1960) seminal contributions, more relevant than capital accumulation to explain growth. A recent strand of research has, however, emphasized that the present institutions of the knowledge economy, far from being infallible engines of economic growth, embody features that may lead to their own demise, resulting in stagnant growth. In this paper, we survey this strand of research, starting from an analysis of the reasons put forward to explain why the endgame of the knowledge economy may be crash and depression. The paper illustrates the dynamics leading to a reduction of investment opportunities as a consequence of the escalation of knowledge enclosures associated to the strengthening of the intellectual property system and the weakening of the traditional institutions of ‘Open Science’. It also considers the implications of the progressive monopolization of intellectual resources in terms of long-term effects on inequality. The ongoing reduction of the share of publicly available knowledge resources may be explained in political economy terms from both the national and the international perspective. At the national level, large firms’ rent-seeking activities may explain many aspects of the evolution of national IP systems and innovation policies. At the international level, the global commons nature of knowledge resources creates scope for free-riding phenomena whereby each country has an incentive to use the public knowledge of other countries and to over-privatize the knowledge that it is producing. Both at the national and at the international level, the problem is compounded by ubiquitous feedback effects: once IP institutions are in place, firms (countries) find themselves in a prisoner’s dilemma situation whereby patenting (strenghtening patent protection and reducing the scope of publicly available knowledge) is a dominant strategy for all even if choosing a strategy of greater openness would be consistent with joint welfare maximization. Many recent contributions also suggest, however, that the crash of the knowledge economy is not inevitable. Appropriate policy solutions may be devised to remedy the shortcomings of knowledge privatization. Neoliberal prejudices against direct public investments should be abandoned, also in consideration of the fact that public investments have been more important to build the knowledge economy than is usually recognized (Mazzucato, 2013). Efforts could be made to achieve better coordination at the international level, so as to build international institutions redressing the balance between public and private knowledge (Pagano and Rossi, 2009). Trade and industrial policies aimed at promoting positive externalities, as well as creative ways of charging for the utilization of the global knowledge commons may be part of the toolbox (Stiglitz and Greenwald, 2014). Finally, the paper concludes by summarizing the main questions for future research.