2010 December 22 Wednesday
Rapid Knowledge Spread Lowers Western Growth

Michael Mandel blames rapid knowledge dissemination to developing countries for slowing US and other Western economic growth. The value of our intellectual capital is depreciating more rapidly.

The value of knowledge capital depends, in part, on how rare it is. The more companies or countries that possess the same knowledge (say, about how to make a commercial airliner), the less valuable that knowledge is. This is just Economics 101, applied to intangibles. Over the past 10-15 years, the strengthening of information flows into developing countries meant that knowledge capital was being distributed much more quickly around the world. As a result, the normal process of knowledge capital depreciation greatly accelerated in the U.S. and Europe–beneath the radar screen, because no statistical agency constructs a set of knowledge capital accounts.

This makes sense to me. Certainly consistent with my work experience.

Tyler questions globalization as the cause. But I think Tyler's focus on cultural products as compared to technological products misses where the wealth comes from. Cultural products are what you can afford if you can sell your technological products for a lot of money.

I agree with the conclusion but I am not sure that globalization was the mechanism.  I sometimes think of an imaginary economy with two sectors: music and bathtubs.  I believe that my bathtub is over thirty years old, yet for me it works fine and I have no desire to buy a new one.  When it comes to music, most people want to listen to what is new and hot, not Bach's B Minor Mass.  Furthermore, even within the music sector, acts seem to have declining longevity, in part due to the decline of the iconic album, the rise of the iTunes single, the fall of entry barriers, and the proliferation of genres.  The Rolling Stones are still around, or U2, but more rapid turnover is the trend. 

We rise and fall on our technology-producing industries, not on our culture-producing industries. That has always been the case. In the bigger scheme of things Hollywood was always small. Rapid copying of data has further reduced its value. But we did not lose that much wealth from that copying as compared to copying of technology.

Share |      By Randall Parker at 2010 December 22 08:18 AM  Economics Globalization

Maciano said at December 22, 2010 10:35 AM:

Maybe, but you should check out both costs and benefits to data flow.

True, East Asian countries can now copy us much faster and thus cash cow industries where we can produce TVs until eternity are rarer. But because East Asian companies now make all these products for lower products Western consumers can buy these products for lower than we would have to pay if richer Western countries (with their extended labour laws and high salaries) would still make TVs. Because of the data flow product costs keep decreasing, thereby increasing what we can do with our salaries. If our salaries stagnate, but purchasing power rises there are still benefits. The danger mostly comes from Western governments who impose tariffs to artificially raise prices and inflate their debts away -- thereby making the currency less valuable.

That's my two cents.

Maciano said at December 22, 2010 10:37 AM:

"lower product prices Western consumers can buy these products for lower prices than we would have to pay..."


California kid said at December 22, 2010 12:13 PM:

Whenever the Western World invented some neato new thing or idea, we gave it to the whole world. We didn't say "for Whites only". Countries that were on the ball like Japan, sent their young people to our universities and learned everything that we know. Then they went back home and setup their own universities and taught their countrymen. Then they built up their own countries into modern societies with all the amenities.

What thanks do we get for this, the men of the West ? About nothing. Quite often, all we get is hate.

Guillaume said at December 22, 2010 4:12 PM:

Materialism and consumption isn't the be all and end all of existence.

For all the amenities there have also been cultural filth, degeneracy, liberalism, Hollywood, feminism, pornography, miscegenation, etc.

James Bowery said at December 22, 2010 4:12 PM:

Has anyone done a study of the reproductive rates of inventors?

Thank GOD there is no "inventor gene". HA the very idea! Imagine someone thinking that genes matter or even thinking that a father's rearing of his children might matter. If people started believing such nonsense they might slide down the slippery slope to something like this:

From Innate Social Aptitudes of Man by W.D. Hamilton:

"The incursions of barbaric pastoralists seem to do civilizations less harm in the long run than one might expect. Indeed, two dark ages and renaissances in Europe suggest a recurring pattern in which a renaissance follows an incursion by about 800 years. It may even be suggested that certain genes or traditions of pastoralists revitalize the conquered people with an ingredient of progress which tends to die out in a large panmictic population for the reasons already discussed. I have in mind altruism itself, or the part of the altruism which is perhaps better described as self-sacrificial daring. By the time of the renaissance it may be that the mixing of genes and cultures (or of cultures alone if these are the only vehicles, which I doubt) has continued long enough to bring the old mercantile thoughtfulness and the infused daring into conjunction in a few individuals who then find courage for all kinds of inventive innovation against the resistance of established thought and practice. Often, however, the cost in fitness of such altruism and sublimated pugnacity to the individuals concerned is by no means metaphorical, and the benefits to fitness, such as they are, go to a mass of individuals whose genetic correlation with the innovator must be slight indeed. Thus civilization probably slowly reduces its altruism of all kinds, including the kinds needed for cultural creativity (see also Eshel 1972)."

Until civilization comes to grips with this dysgenic character, it must be considered a public health hazard and “civilized man” a mere babe irresponsibly toying with the wheels of the gods.

That is the real reason the Goths, and then the Vikings, were so hostile to it.

Single combat to the death in the wilderness armed only with one’s cunning and weapons of one’s own making out of nature herself was the old law of the Norse for a very good reason:

Sexuality includes masculinity, the warrior, and sexuality is the precursor to individuality—individuals merely being the ultimate in “civilization” (multicellular creatures) consisting of vast throngs of genetically identical sub-individuals (cells) all sharing their ultimate genetic interests and ultimate altruism in harmony so far beyond that even contemplated by “civilized man” that it is virtually unrecognizable as comparable with “civilization”.

If “civilized man” wants to show himself even remotely worthy of the technology he toys with, he must first admit his profound ignorance and embark on a path of enlightened experimentation with voluntarily formed human ecologies to test ecological hypotheses. Until he does so, he is unworthy of civilization and even of his own being as a supremely civil triumph in evolutionary experimentation.

figgureditout said at December 24, 2010 11:26 PM:

In the Semiconductor industry, we are constantly teaching our Asian competitors how to do what we do. Then there is no comparative advantage, and the jobs go "Over there." So why do we transfer our knowledge. It is the economics. As the US is the reserve currency of the world, we have to keep our dollar relatively strong. That means that foreigners must export goods to the US to acquire dollars. This in order to buy oil and other commodities on the world market. The financial sector likes this arrangement because the can make money on the carry trade. In the meantime, industrialists play labor across the world off against each other. It is no accident that American mulitnationals have abandoned making product in the U.S. and are in China. The tariffs in the U.S. must remain low in order to feed reserve dollars to the world. Also, Asian countries practice Mercantilism, particularly China. China has four State Banks that are used to keep the Yuan low relative to the dollar.

They trade out debt free Yuans for dollars, and recycle the dollars back to US treasuries. In this way, real wealth, which is knowledge and know how is transferred in one generation. Even better if the Chinese can roll over the debt for generations making debt slaves of Americans. After all the Bank of England only recently repaid debts from the Napoleonic war. Chinese Yuans entering China's economy are non inflationary for the most part because the economy can grow as fast as the money supply.

So, an industry we invented has matured and moved overseas in about two generations. It is pretty pathetic. There is a lot of hard won knowledge that was given away for peanuts, or for free. Financial Capitalism with its pursuit of profits, does not account for opportunity cost, nor does it account intellectual property when whole industries are being shifted. We sell our souls for scraps in order to stay alive. The internet and easy transfer of files is a factor, but the money system is the biggest variable. Our Asian competitors are notoriously tight lipped about their secrets. They take from us easily and don't reciprocate. They are playing the game smart.

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