KNOWLEDGEBASED ECONOMY: IMPLICATIONS FOR INDIA

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• KNOWLEDGE-BASED ECONOMY IMPLICATIONS FOR INDIA

Mukul G. Asher Professor of Public
Policy National University of Singapore Email
sppasher_at_nus.edu.sg and Amarendu Nandy PhD
Candidate, LKY School of Public Policy National
University of Singapore E-mail
amarendun_at_gmail.com
Presented at Fourth Annual Conference on Public
Policy and Management, Indian Institute of
Management, Bangalore, August 9-12, 2009.
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Main drivers of growth

• For an economy, main drivers of growth are
• Quantity and quality of labor
• Capital
• Land and natural resources
• Managerial and organizational capabilities
• Entrepreneurship
• Knowledge (its generation, adaptation, and
  diffusion)
• Knowledge explosion in many areas, most notably
  in IT, telecommunication, biological sciences,
  and energy has increased the knowledge-intensity
  of human activities in general.

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Main drivers of growth

• Factor accumulation alone, without new
  technologies or improved human capital leaves a
  significant proportion of economic growth
  unexplained.
• The endogenous growth theory emphasizes the above
  factors, which are an integral part of
  knowledge-economy (Romer, 2007).

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Main drivers of growth

• Recent decades have witnessed an explosion of
  knowledge and of technologies which have the
  potential to make them accessible to an
  overwhelming proportion of the worlds
  population.
• The role of managers in facilitating creation,
  application and diffusion of knowledge within
  their organizations has also correspondingly
  become more essential and complex.
• The term manager in the current context refers
  to anyone with position of trust, and
  responsibility.
• This presentation analyzes the implications of
  the principles and practices of knowledge-based
  economy for Indias government, business, and
  not-for-profit sectors.
• In the Indian context, knowledge as an input is
  also essential for better consumption and
  lifestyle choices. These can provide higher level
  of welfare from a given household budget.
• Complementarities in knowledge application in
  both the public and the private sectors is of
  considerable relevance.

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Key Economic Characteristics of Knowledge

• Knowledge is highly specific in nature, both when
  knowledge is an input, and when it is output.
• Some knowledge is embodied in individuals in a
  tacit and implicit form, usually called human
  capital.
• Other knowledge is available in codified form,
  such as books, patents and databases, which can
  be transmitted, received, and mined. In some
  cases, this involves intellectual property
  rights, which in selected cases, such as
  open-source systems can be explicitly waived.
  This may help in diffusion of such knowledge.
• Indian organizations should make much more
  strategic and extensive use of such open source
  systems.
• New knowledge is costly to produce, but once
  produced, can be used with very low marginal
  cost, particularly in this digital age.
• The value of knowledge to society increases, the
  more widely it is used (Network externality
  effect)

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Key Economic Characteristics of Knowledge

• In the Indian context, the knowledge economy
  would involve application of different
  sub-branches of knowledge to diverse set of
  production, consumption, and delivery or
  distribution of private and public goods and
  services.
• The Presidents address to the Parliament in June
  2009 highlighted the urgent need to improve
  delivery of public services, and get better
  outcomes from the budgetary outlays.
• The fact that the Indian economy is much below
  potential production possibilities (Figure 1),
  and as many public and private organizations have
  not integrated knowledge management in their
  structures and practices, provides India with
  considerable opportunities for rapid growth
  through the knowledge economy.
• This does not imply that India should not be
  active in creating new knowledge such as creation
  of new energy sources (India is a part of
  consortium to develop hydrogen as an energy
  source), actively patenting its accumulated
  ancient wisdom, and developing new scientific and
  technological products and processes. These are
  important, but much of the rapid gains can be
  obtained through convergence with the existing
  international knowledge base.
• The above explanation of the knowledge in the
  Indian context is consistent with the approach of
  Indias Knowledge Commission (Government of
  India, 2009).

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Figure 1 Production Possibility Frontier
Private Goods
.
.
C
B
.
A
Public Goods
Application of knowledge economy is essential to
shift from point A to point B. This will not only
enhance growth rate, but will also increase
availability of both public and private goods,
with given resources and technology. This is the
sustainable way of improving living standards.
To move to point C, increased resources
, Particularly capital (both human and physical),
plus technological progress will be required.
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Key elements of a knowledge economy

• Figure 2 provides the key elements of a knowledge
  economy.
• Note
• A Learning Organization may be defined as an
  organization that facilitates the learning of all
  its members and consciously transforms itself and
  its context (Pedler et al., 1997)
• A Truthful Organization is one where information
  flows in both directions represent an accurate
  and timely state of affairs.
• Developing Learning and Truthful Organizations
  requires considerable effort and leadership.
• Knowledge management involves the process of
  identifying, collating, and leveraging the
  accumulated knowledge in an organization to
  improve organizational performance, including
  turning intellectual capital into patents, and
  other forms of competitiveness.
• The knowledge management differs significantly
  between the public and the private sectors (Pee
  and Kankanhalli, 2008). Nevertheless, it is
  important for improving performance of both types
  of organizations.

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Figure 2 Elements of Knowledge Economy
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Select Applications in india

• In this presentation, two applications involving
  knowledge economy are highlighted. The discussion
  in each case emphasizes the adaptation and
  diffusion of existing knowledge to wider set of
  stakeholders, and to organizations delivering
  goods and services.
• Agriculture
• The food consumption in India is rising due to
  factors such as higher incomes, increasing
  population, diversion of grains into bio-fuel,
  and increasing meat consumption which is less
  efficient in converting grains into food energy
  (Asher and Nandy, 2008).
• The food production is however growing at a
  relatively lower rate. Indias share in arable
  land in the world is 11.5 percent, second only to
  the United States, but it lacks considerably
  behind in yield per hectare, as compared to other
  countries.

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Select Applications in india

• Application of knowledge economy tools such as
• Provision of information to the farmer about farm
  prices (reducing the middlemen so that farmers
  can take home a greater chunk of their income).
• Giving information to the farmer as to the
  requirements of the market (example of straight
  chillis, reddish tomatoes being more preferred
  than their ordinary counterparts so that farmers
  can gain more from the high prices).
• Introducing cost effective and efficient
  irrigation systems and practicing sound water
  resources management plans at the centre and
  state level can assure continuous water supply to
  the community so that the farmer does not have to
  look up at the skies whenever he needs water for
  his crops.
• Provision of highly disease resistant seeds and
  good quality fertilizers at appropriate costs so
  that we have the maximum return from the crops.

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Select Applications in india

• The recommendations of the Knowledge Commission
  regarding Agriculture are the following
  (Government of India, 2009)
• Modernizing and stimulating agricultural research
  institutions, co-ordinating research and making
  research support more flexible
• Improve the organization of agricultural research
• Direct more research to neglected areas
• Provide more effective incentives for researchers
• Change the curricula in agricultural universities
  to ensure greater relevance
• Exploit the opportunities and meet the challenges
  of Intellectual Property Rights
• Encourage and regulate private agricultural
  research
• Make knowledge applications in agriculture
  community-driven and farmer-led

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Select Applications in india

• Redesign the existing support systems
• Document and disseminate successful experiences
  and good practices
• Improve the capacities and expertise of extension
  workers
• Restructure Agricultural Technology Management
  Agency (ATMA) to make it more decentralized,
  participatory and locally responsive
• Enhance and regulate the role of private players
  in agricultural extension delivery
• Create a web-enabled knowledge bank on all
  aspects of agriculture

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Select Applications in india

• With regard to Traditional Health Systems (THS),
  the Knowledge Commission has advocated the
  following measures
• Transformation of traditional medicine system
• Strengthen research on traditional health systems
• Strengthen pharmacopoeial standards
• Increase quality and quantity of clinical trials
  and certification
• Digitize traditional knowledge
• Create suitable framework for intellectual
  property rights
• Establish goals for conservation of natural
  resources
• Support non-government and corporate initiatives
  for promotion of THS
• Promote international cooperation
• Create a major re-branding exercise of Indian
  traditional medicine
• There is also an additional challenge of
  integrating THS with the other systems of
  medicine and finding appropriate risk-sharing
  arrangements to finance and deliver health
  services.

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Concluding remarks

• For India, the two main lessons in using
  knowledge as a driver of economic growth,
  emphasized by Arrow (2000) are relevant
• Education and training in science and technology
  is crucial, even if research is not on par with
  that being conducted elsewhere. Knowledge cannot
  be absorbed unless some knowledge is already
  possessed.
• It is also important to be open to new ideas,
  have multiple sources of new ideas, and see that
  ideas are diffused. This point strongly argues
  for freedom of entry, even when it seems to forgo
  economies of scale.

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Concluding remarks

• The following points merit urgent consideration
  by all the policymakers in India in preparing for
  the knowledge economy.
• As the quality of institutions, a reasonable
  degree of contestability in the economy and in
  polity, and an outward-orientation are essential
  for creating, diffusing and adapting knowledge in
  India, efforts should be made to deepen and
  institutionalize economic and governance reforms.
  
• The Reports of the Second Administrative Reforms
  Commission (http//arc.gov.in/) merit much more
  serious consideration and wider public debate
  than has been the case so far.
• Strong education and training in technology and
  science are essential as knowledge cannot be
  absorbed unless some basic knowledge is already
  possessed.
• Health and education policies thus must be reform
  priorities. In many developing counties,
  traditional knowledge must be preserved and
  subjected to scientific inquiry.
• Capabilities to take advantage of international
  conventions for e.g., converting knowledge into
  patents and intellectual property rights, must be
  developed. Commoditization of traditional
  knowledge by more resourceful countries needs to
  be addressed through cooperation among developing
  countries, which have similar interests.

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Concluding remarks

• Private, public sector and non-profit firms and
  organizations in India must be open to new ideas.
  There is no more insidious colonization than
  colonization of the mind. In many organizations,
  the desire to reform traditional methods of doing
  business or administration and delivery of
  government services, is essential to apply
  knowledge to bring efficiencies in real resource
  use.
• Multiple sources of new ideas and experiments,
  including rural technology innovations, need to
  be cultivated. If such sources of ideas are
  combined with encouragement of social
  entrepreneurship, (i.e. meeting social needs with
  capitalist means), and with effective public
  private partnerships (PPP), application of
  knowledge-economy to diverse areas can be
  facilitated.
• The Indian Railways for example would need to
  become much more skilful in effectively
  implementing PPPs if they are to fulfill their
  economic and social functions relevant for rising
  India.

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references

• Arrow, K. J. (2000), Knowledge as a Factor of
  Production, Keynote Address at the Annual World
  Bank Conference on Development Economics 1999,
  Washington D.C. World Bank.
• Asher, Mukul G. and A Nandy. (2008). Fruits of
  Knowledge Apply knowledge-economy processes for
  food security. Pragati - The Indian National
  Interest Review, 16, 17-19, http//pragati.nationa
  linterest.in/
• Government of India (2009), National Knowledge
  Commission Report to the Nation 2006-2009, New
  Delhi. Available at www.knowledgecommission.gov.i
  n
• Pedler, M., Burgoyne, J. and Boydell, T. (1997),
  The Learning Company A strategy for sustainable
  development, 2nd Ed. London McGraw-Hill.
• Pee, L.G. and Kankanhalli, A. (2008),
  Understanding the Drivers, Enablers, and
  Performance of Knowledge Management in Public
  Organizations,
• Romer, P.A. (2007), Economic Growth, in David
  R. Henderson (ed.), The Concise Encyclopedia of
  Economics, Liberty Fund. Available at
  .http//www.stanford.edu/promer/EconomicGrowth.pd
  f