In Understanding Knowledge as a Commons, Hess and Ostrom (Reference Hess and Ostrom2007: 4) note that commons is a general term referring to a resource shared by a group of people. Traditionally, the word commons has been associated with physical resources such as grazing land or fisheries but more recently it has been applied in the context of the knowledge economy. Both knowledge resources and environmental resources are products of evolutionary processes but knowledge resources differ from natural resources in a number of important respects. While natural resources exhibit a high degree of subtractability – use by one reduces the amount available for others – the use of knowledge by one party does not diminish its availability for consumption by others. This non-rivalrous aspect of knowledge may lead to problems of supply since each potential knowledge producer secures only a small proportion of the total benefits to which his or her innovation may give rise. The standard solutions proposed to address this issue involve either government subsidies or the creation of intellectual property rights which allow the innovator to monopolise the benefits deriving from his or her creation for a limited period of time. But, as has long been recognised, property rights do not necessarily solve the problem of undersupply. They may be costly to enforce effectively and may create opportunities for rent seeking. In general, the increased supply is obtained at the cost of delayed diffusion. Moreover, as Frischmann (Reference Frischmann2012), has noted, when account is taken of the fact that knowledge is built cumulatively over time, and that present knowledge is an input into future knowledge, it is by no means certain that the long-term impact of intellectual property rights is an increase in knowledge output.Footnote ¹ Hence, the need to identify new institutional/social frameworks to govern knowledge production.

The terms ‘knowledge economy’ and ‘knowledge commons’ are relatively new and are motivated by the perception that the role of knowledge in the economy is increasingly important and that technologies such as the Internet are of their nature shared resources. While the shared and distributed features of the Internet have made it natural to think of it as a commons or at least a potential commons, Madison et al. (Reference Madison, Frischmann and Strandburg2009) emphasise that ‘knowledge commons’ refers not to properties of knowledge itself but to an institutional approach to governing its management or production. What makes something a commons is not inherent in the resource but depends on the relationship between the resource and the relevant user/producer community. If being a commons is not something inherent in a resource but rather built from ‘intentional’ human activity, it becomes important to understand the histories and narratives that underpin commons management of the resource in question. As Madison et al. (Reference Madison, Frischmann and Strandburg2009: 375) note, we need to ask questions such as: why a commons might be good thing in a particular context, whether perceptions have changed over time and what conflicts were embedded in changes of narrative and perception.

This chapter aims to examine the historical emergence of the main narratives relating to the broad categories of knowledge relevant to economic progress. In doing so, we need to remember that the relevant community depends on the particular context – sometimes it is humankind in general, sometimes a subset in the form of a nation, a particular demographic or specialist group. The narratives that today inform our understanding of knowledge emerged historically. It is therefore important to comprehend the circumstances which governed that emergence and of the changing relationship between knowledge generation, production and economic growth.

Our story begins at the end of sixteenth century with Francis Bacon’s challenge to the belief in a classical golden age of knowledge inherited from the ancient world, and with his assertion that the progress of knowledge was continuing and cumulative and depended in large part on practical scientific experiment. It then examines the elaboration of this concept over the following two centuries and the beginnings of an understanding that knowledge evolution takes place within, and is dependent on, a wider social and institutional framework. The initiation of this approach is found particularly in the work of Mandeville and Ferguson in the eighteenth century. Both stressed that knowledge results from a wide collective process of learning derived to a large extent from everyday involvement in the ordinary business of life. This insight was soon lost as the classical political economists made capital the centrepiece of their theory of growth. The change in focus was originally due to Adam Smith who for methodological reasons singled out capital as the connecting principle binding together various factors contributing to growth (Thomson Reference Thomson1965; Smith Reference Smith and Wightman1980: II.12; IV.19). Although challenged, amongst others by Bentham, List and Rae, this catch-all concept of capital as the driving force of productive change dominated economics through most of the nineteenth and twentieth centuries. Meanwhile, the concept of communally acquired knowledge was either classed as an externality or transferred, with Edmund Burke and the German historical school, into the study of civil institutions where it became associated with preservation of tradition rather than progressive change. Only with the development of the knowledge economy in the later decades of the twentieth century has the focus on knowledge as the driver of progress returned to centre stage.

2.1 Knowledge: The Product of Communal Effort Over Time

Francis Bacon (1561–1626) is widely regarded as the initiator of the modern approach to knowledge with its focus on understanding and shaping natural processes and its vision of knowledge as the product of a communal effort rather than individual effort (Gaukroger Reference Gaukroger2001). For Bacon, the proper aim of science was the endowment of human life with new inventions and riches. This, however, did not mean that all scientific effort had to be immediately useful or profitable. As Bacon noted, the expectation of future progress required experiments that led to the discovery of causes and axioms that were enlightening as opposed to immediately profitable (Bacon Reference Bacon and Devey1902: 80). Bacon was of the view that excessive reverence for the thought of antiquity could hold back progress in the sciences and he challenged the then popular view of a golden age of Greece and Rome and a subsequent degeneration of mankind. Bacon argued that the use of the word antiquity with respect to the Greek and Roman world was misleading. Being earlier in time, the world was younger then and would therefore be expected to have a lower stock of knowledge. Bacon concluded, ‘we have reason to expect much greater things of our own age … than from antiquity, since the world has grown older, and its stock has been increased and accumulated with an infinite number of experiments and observations. Truth is rightly named the daughter of time, not authority’ (Bacon Reference Bacon and Devey1902: 61–62). While Bacon emphasised that people in his own age had the potential to know more, he did not envisage any simple accumulation of knowledge. Obstacles in the form of idols and false notions needed to be guarded against or removed. New additions to knowledge required the use of appropriate methods (Bacon Reference Bacon and Devey1902: 8).

Bacon placed considerable emphasis on the importance of the mechanical arts and discoveries. The invention of printing, gunpowder and the compass had given rise to far-reaching changes in the state of the whole world: first in literature, then in warfare, and lastly in navigation. However, the importance of the mechanical arts for Bacon lay not just in their impact but in the model they offered for the organisation of scientific inquiry in which the key to progress was collaboration (Eamon Reference Eamon1996).

Bacon’s distinction between the potential for progress in the mechanical arts as opposed to philosophy was original to him. However, the view that progress in knowledge and invention was the product of communal effort over time was not entirely new. Hayek (Reference Hayek1967) cited Cicero to the effect that Roman law was founded on the genius not of one man but of many and not in one generation but in a long period of several centuries and many ages of men. In the early eighteenth century, the physicians Georgio Baglivi and Bernard Mandeville both cited Galen as the original authority for the communal point of view (Prendergast Reference Prendergast2014: 90–91). Probably the most influential medical researcher of antiquity, Galen sought a mid-way between pure rationalist and pure empiricist approaches to medicine and based his writings on experiments and dissection as well as theory. These became the mainstay of medical training for well over a thousand years, being superseded only in the mid-sixteenth century. Having defined history as ‘an account of what one has perceived oneself or an account compiled from books of those things on which all who have written about the matter agree’, Galen argued that the empiricist has to make use of history ‘because of the vastness of the art, since one man’s life will not suffice to find out everything’ (Galen Reference Richard and Michael1985: 33–34).

As Bury (Reference Bury1960: 78–97) notes, the challenge to the prevalent theory of degeneration which began in the early seventeenth century led, in France and England, to a century-long literary war over the comparative merits of the ancients and moderns.Footnote ² It is no accident that the controversy arose at a time when scientific effort was accelerating and a millennium and a half of virtual stagnation was coming to an end. Amongst those who argued that contemporary learning had surpassed that of the ancients were the French polymath Blaise Pascal (1623–1662) and the science populariser Bernard le Bovier de Fontenelle (1657–1757). Pascal’s position is set out in the Preface to his Treatise on Vacuum first published in 1651. In the said Preface, Pascal explained why knowledge was cumulative in the sciences that are subject to experiment and reasoning and, consequently, why the knowledge of the present generation in these subjects was greater than that of the ancients. Men differed from the animals in that they were capable of accumulating knowledge (Pascal Reference Pascal1910: 448).

The metaphor employed by Bacon and Pascal in referring to their own time as the old age of the world had the drawback that it appeared to exclude the idea of indefinite progress of knowledge (Bury Reference Bury1960: 109). Rejecting the metaphor, Fontenelle argued that mankind would have no old age because the sound views of scientific men in successive generations would continually add to what was already known.Footnote ³ Scientific progress would therefore go on indefinitely. Progress in the sciences was the result of chance but had its own order and rule. Each addition to knowledge happened only when earlier discoveries had laid the foundations for it (Devaille Reference Devaille1910: 215–217; Bury Reference Bury1960: 110–113). In other words, human knowledge develops in a structured manner with the later possibilities being determined by the earlier achievements. This broad position on the progress of knowledge appears to have become the new orthodoxy. As shown below, in one form or another, a series of writers including Mandeville, Ferguson, Turgot, Condorcet, Babbage and Marx saw knowledge as an ever-growing product of the joint labour of several ages.

Both Mandeville and Ferguson are discussed in later sections of this chapter, so reference to them here will be brief. Mandeville’s commitment to a cumulative and collective view of knowledge is evident in a number of his works but especially in the second volume of his Fable of the Bees. There, he refers to many useful arts and sciences being the result ‘human sagacity in general, and the joint labour of many ages, in which men have always employed themselves in studying and contriving ways and means to soothe their various appetites, and make the best of their infirmities’ (Mandeville Reference Mandeville and Kaye1924, II: 128). Likewise, in his Essay on the History of Civil Society, Adam Ferguson (1723–1816) wrote: ‘men continue their works in progression through many ages together: They build on foundations laid by their ancestors; and in a succession of years, tend to a perfection in the application of their faculties, to which the aid of long experience is required, and to which many generations must have combined their endeavours (Ferguson Reference Ferguson1782: 7).

The young Turgot (1727–1781), in his Philosophical Review of the Successive Advances of the Human Mind, wrote that ‘all ages are successively bound up with one another by a succession of causes and effects which link the present state of the world with all those that have preceded it. The arbitrary signs of speech and writing, by providing men with the means of securing the possession of their ideas and communicating them to others, have made of all the individual stores of knowledge a common treasure house which one generation transmits to another, an inheritance which is always being enlarged by the discoveries of each age’ (Turgot Reference Turgot1913, I: 215; Meek Reference Meek1973: 41). Likewise, in his Plan of the Discourses on Universal History, Turgot referred to man transmitting his acquired ideas to his successors ‘as a heritage which is always being augmented’. He continued: ‘A continual combination of this progress with the passions, and with the events they have caused, constitutes the history of the human race, in which each man is no more than one part of an immense whole which has, like him its infancy and its advancement’ (Turgot Reference Turgot1808: 212; Meek Reference Meek1973: 63).

Written in 1793 while he was imprisoned by the Robespierre faction of French revolutionaries, Condorcet’s (1743–1794) Sketch for a Historical Picture of the Progress of the Human Mind proposed that humankind progresses continuously towards perfection. Progress would continue in the future due to the destruction of inequality between different nations; the progress of equality in one and the same nation; and lastly, the real improvement of man (Condorcet Reference Condorcet1796: 251). Like his mentor, Turgot, Condorcet believed that freedom of commerce would lead to greater equality within countries whereas his expectation of greater equality between countries was due to his belief that once development began in poor countries, it would progress rapidly because they could quickly learn things that had taken Europeans a long time to discover (Condorcet Reference Condorcet1796: 254–259). As far as the amelioration of the human race is concerned, Condorcet thought that new discoveries in the sciences and the artsFootnote ⁴ would continue to be made, and, that as a consequence, there would be improvements in the means of individual and general prosperity. As new discoveries are made, they are gradually simplified and integrated with existing knowledge so that they can be grasped by those of ordinary capacity. Hence, the progress of the sciences allowed progress of the art of instruction, which, in turn, accelerated the progress of the sciences. As a result of better organisation of the knowledge that had been achieved, in every generation, ‘what may be acquired in a given space of time, by the same strength of intellect and the same degree of attention, will necessarily increase’ (Condorcet Reference Condorcet1796: 285). Condorcet was also of the view that there would be a real improvement in human beings themselves as a result of better nutrition, housing, sanitation, regular exercise and medical practice (Condorcet Reference Condorcet1796: 289–290).

2.2 The Subsumption of Knowledge within the Concept of Capital

It is evident that, by the late eighteenth century, authors such as Condorcet connected the accumulation of knowledge to wider processes of social change. This perspective was reinforced by the emergence in Scotland and in France of a stages view of history with each stage characterised by a different mode of subsistence and corresponding legal and social institutions (Pascal Reference Pascal1938; Meek Reference Meek1976; Skinner Reference Skinner, Bradley and Howard1982). Such a materialist and historical perspective implies recognition of the importance of institutions and there is no doubt that Smith, as a leading member of the Scottish branch of this school, was very much pre-occupied with establishing the institutional conditions under which the market mechanism would operate effectively (Rosenberg Reference Rosenberg1960). However, as Rosenberg has noted, later generations stripped the institutional aspect from Smith’s presentation of the role of the price mechanism in resource allocation. Likewise, the relationship which Smith had postulated between capital and growth underwent important changes. Whereas in his discussion of growth issues, Smith used the concept of capital as a connecting principle subsuming other factors contributing to development, in the hands of his successors, capital accumulation came to be seen as the sole driver of development. As a result, the role of knowledge disappeared from view (Prendergast Reference Prendergast2010). Although a number of authors criticized Smith and his followers for neglecting the accumulation of knowledge as an autonomous motor of economic growth, their critiques had limited influence and there was no systematic revival of knowledge-based approaches to economic growth until the twentieth century. Authors such as Hodgskin (Reference Hodgskin1825) suggested an ideological motive for the focus on capital. Hodgskin argued that knowledge rather than capital was the source of increased productivity and that consequently capital had no right to appropriate the entire surplus.Footnote ⁵ Arguments relating to the importance of the independent role of knowledge accumulation came from other quarters as well. Throughout his career, Charles Babbage consistently maintained that the arts and manufactures of a country were intimately connected with the progress of the ‘severer sciences’ (Babbage Reference Babbage1835: 379). In The Exhibition of 1851, Babbage noted that, in fulfilling their exiting wants and necessities, each generation availed of the knowledge bequeathed to them by their predecessors. They also purified the knowledge which it had inherited and added to it for the benefit of their children. Remember, Babbage argued

Like Smith, Marx is mainly focused on the role of capital but his conception of capital encompassed social relations of production as well as fixed capital in the form of machines, buildings and so forth. In the early draft of Capital commonly known as Grundrisse, he was explicit that the full development of capital took place only when the machine as the technological application of science dominated the production process. Whereas Hodgskin emphasised that the knowledge which appeared to belong to capital really resided in the engineers and workmen who contributed to the creation of machinery, Marx appears to accept that the general productive forces of the social mind are absorbed into capital. As he put it:

Later in the same work, he argued that:

Marx is here acknowledging not only that knowledge is a productive force but also that knowledge is bound up and cannot be separated from society’s structures and practices. As we shall see this view predated Marx and was to be found already in the work of authors such as Mandeville and Hume.

2.3 Different Views of Knowledge

2.4 The Owl of Minerva?

Earlier, it was noted that Mandeville’s references to Reneau’s work suggest that a full scientific understanding of what has been created comes at the end rather than the beginning of creative activity. Ferguson made a connected claim, namely that the forms of society ‘arise, long before the date of philosophy, from the instincts, not from the speculations of men’. As he put it in the passage made famous by F. A. Hayek:

In a later part of the work, Ferguson explained that the ‘establishments of men, like those of every animal, are suggested by nature, and are the result of instinct, directed by the variety of situations in which mankind are placed’. They arose from ‘successive improvements that were made, without any sense of their general effect’ and which cannot be fully comprehended even when the whole is carried into effect (Ferguson Reference Ferguson1782: 304). Ferguson continued:

It is clear that, as with Mandeville before him, Ferguson was of the view that people act without awareness of the full consequences of their actions with the result that they may produce effects that they did not anticipate. Consequences may be unforeseen due to bounded rationality which, in turn, may be linked to complexity, on the one hand, and specialization, on the other hand. This, however, is not the whole story because, as we have seen, both Mandeville and Ferguson envisage a situation where innovation is taking place and each generation progresses beyond what was achieved by its predecessor. Since novelty of its nature has to be actualised before it can be analysed, an understanding of what has been created comes after rather than before the event. This is not to say that knowledge is unimportant – existing knowledge in whatever form is an input into the creation of the new. But as Hegel wrote in the introduction to Philosophy of Right, ‘Philosophy, as the thought of the world, does not appear until reality has completed its formative process, and made itself ready’ (Hegel Reference Hegel2001: 20). Note, however, Ferguson’s qualification that the establishments of men ‘cannot be fully comprehended even when the whole is carried into effect’. In other words, human beings cannot even fully understand what they have already created.

2.5 Continuity, Revolution and the Difficulty of Prediction

Ferguson’s contemporary, Edmund Burke (1723–1792) was also of the view that human beings were unlikely to fully understand the nature of the institutions they had constructed. He particularly emphasised that policy should be based on ‘actual circumstances’ rather than ‘mere abstract principles’ (Burke Reference Burke and Langford1981: 193–194). He put this most colourfully and controversially in Reflections on the Revolution in France where he wrote of being unable to give praise or blame to anything relating to human actions or concerns ‘on a simple view of the object, as it stands stripped of every relation, in all the nakedness and solitude of metaphysical abstraction’ (Burke Reference Burke, Mitchell and Todd1989: 58). He insisted that the science of constructing or reforming a commonwealth was an experimental science requiring long experience ‘because the real effects of moral causes were not always immediate’ (Burke Reference Burke, Mitchell and Todd1989: 111–112). A policy that produced unfavourable effects in the short term might have good long-term consequences and vice versa. Since even a lifetime of experience might not be sufficient to appreciate the remote consequences of actions ‘it is with infinite caution that any man ought to venture upon pulling down an edifice which has answered in any tolerable degree for ages the common purposes of society, or on building it up again, without having models and patterns of approved utility before his eyes’ (Burke Reference Burke, Mitchell and Todd1989).

Society was a contract but not an ordinary contract for goods which could be dissolved by the fancy of the parties. ‘It is a partnership in all science; … in all art; … in every virtue, and in all perfection. As the ends of such a partnership cannot be obtained in many generations, it becomes a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born’.Footnote ⁸ As such, the present generation were not at liberty ‘to dissolve it into an unsocial, uncivil, unconnected chaos of elementary principles’ based on speculations of contingent improvement. All of this implied that change should be approached with considerable circumspection because the results of change ‘cannot be certainly known beforehand’ (Burke Reference Burke, Mitchell and Todd1989: 121). Despite all these strictures about the dangers of change, Burke was very much aware that change was important. He, himself, was a tireless social reformer and he insisted that a state without the means of some change is without the means of its conservation.

Burke’s Reflections was translated into German and was influential amongst adherents of Romanticism and the German Historical School of Law. The school rejected reason-based law and recognised traditional law as the established law. Its most important member was Friedrich Carl von Savigny (1779–1861). Against the philosophical school of natural rights, Savigny argued that true cognition of the human condition could only be established by historical means (Klenner Reference Klenner1989). No era gives rise to a new world arbitrarily. Everything new was derived from the entire past of a nation, and consequently was historically determined. Law emerged and developed not by legislative arbitrariness, but first by usage and popular belief and later by jurisprudence (Klenner Reference Klenner1989).

The main challenge to the historical school of German law came from Georg Friedrich Wilhelm Hegel who regarded the school as an apologia for the existing state of law. Hegel argued that that the law could not be based on mere habit. Everything needed to justify its existence before the tribunal of reason (Klenner Reference Klenner1989). In a criticism of the German historical school of law published in 1842, Karl Marx accused the school of making history self-justifying and of legitimizing the baseness of today by the baseness of yesterday (Kelley Reference Kelley1978). He pointedly criticised its position on knowledge accusing its adherents of supposing ‘that because we cannot know what is true, we consequently allow the untrue, if it exists at all, to pass as fully valid’ (Kelley Reference Kelley1978). It is clear from this that Marx recognised that there were limitations on our understanding of society but that he did not accept that this licenced uncritical acceptance of laws and practices that had been inherited from the past. Marx was not, however, denying the importance of the connection between the past and present or indeed the present and the future. This was already clear in his outline of historical materialism in The German Ideology (1845–1846). It was set out more clearly in a letter written to Annenkov in 1846 in which Marx argued that men were not free to choose this or that form of society:

For Marx, however, recognition of the continuity between past, present and future was not a reason for inaction. On the contrary, development in one part of the system created the need for changes elsewhere:

Marx’s view on the nature of the choices open to mankind finds echoes in Joseph Schumpeter’s Capitalism, Socialism and Democracy. There Schumpeter argues that:

2.6 Knowledge, Governance and Policy

In Dialogues Concerning Natural Religion, Hume used an argument based on Mandeville’s example of a sailing ship to call into question the view that the apparent order of the world necessarily implied the existence of a god or grand designer.

Hume suggested that, rather than postulating one grand designer, one should consider the possibility that the world was the result of efforts by several ‘lesser’ gods. If a great many men could join together to build a house or ship, to found and develop a city or to create a commonwealth, there was no reason why several gods could not combine in designing and making a world. In other words, the world itself was the product of trial and error by many over a long period of time (Glacken Reference Glacken1967; Alter Reference Alter2008).

Hume’s challenge to arguments for the existence of a grand designer has been appropriated in modern times for a different purpose, namely to challenge arguments for forms of state intervention in the economy. Thus, for instance, Lorenzo Infantino argues that due to an extremism of reason which has lost ‘the awareness of its own limits’ we moderns have moved from the idea of an intentional order attributable to God to that of an intentional order attributable to the designs of man (Infantino Reference Infantino1998: 1). Infantino cites a passage from F. A. Hayek’s Constitution of Liberty in which having commented on the subtlety and complexity of the institutions of law, Hayek contended that such institutions are the products of evolutionary processes and have not been deliberately designed. As Hayek put it:

There is no issue with Hayek on this point of the single designing mind. However, as Jacob Viner pointed out in his review of Hayek’s book, correct statements about strong cases become a problem when they are applied more generally. Viner presciently challenged Hayek’s implicit characterization of government as a single, unified entity arguing that government itself may be ‘an institution which is in large degree a spontaneous growth, inherently decentralised, experimental, innovating, subject not only to tendencies for costly meddling but also to propensities for inertia and costly inaction’ (Viner Reference Viner1961: 235).

The tendency to consider the state or policy maker as a single actor, which was commonplace in post-war welfare economics, is no longer the mainstream view (Flanagan et al. Reference Flanagan, Uyarra and Laranja2011). For example, Schmitter (Reference Schmitter and Grant1985: 33) refers to the state as ‘an amorphous complex of agencies with ill-defined boundaries, performing a variety of not very distinctive functions’ while Hay (Reference Hay1999) argues that the state ‘comprises a diverse array of specific, but none the less interdependent, agencies, apparatuses and institutions’. These institutions enjoy some degree of latitude which is reflected in their structures, practices, procedures and modes of conduct.

Arguments relating to the proper location of decision making about economic resources have a long history as is evidenced by the contrasting position taken by James Steuart and Adam Smith in the second half of the eighteenth century. Steuart argued that public spirit is as ‘superfluous in the governed as it ought to be all-powerful in the statesman’ (Steuart Reference Steuart1767: Vol. 1, 164). The reason for this was that everyone might consider the public interest in a different light and join in the ruin of it by endeavouring to promote its advantages. Steuart who was unashamedly interventionist was making the reasonable point that coherence is a requirement of good policy. Adam Smith agreed that there was need for coherence in policy: ‘Some general and even systematical idea of the perfection of policy and law, may no doubt be necessary for directing the ideas of the statesman’ (Smith Reference Smith, Raphael and Macfie.1976a: VI. ii.2–18). However, he castigated the ‘man of system’ who imagines that ‘he can arrange the different members of a great society with as much ease as the hand arranges the different pieces of a chess-board’ (Smith Reference Smith, Raphael and Macfie.1976a: VI. ii.2–17). Smith was categorical that, ‘in his local situation’, the businessman was likely to make much better decisions than the statesman and he warned of the danger of intervention by a statesman or even a council or senate who had the folly to presume that they would do better (Smith Reference Smith, Campbell, Skinner and Todd1976b: IV. ii).

Smith was living at a time when few important inventions could be either directly attributed to scientific discoveries or were dependent in some way on scientific insights (Smith Reference Smith, Campbell, Skinner and Todd1976b: I.1.9; Mokyr Reference Mokyr2018: 217). In such circumstances, the specialist knowledge of the manufacturer and his own local situation are the most relevant factors in any investment situation. However, as Mokyr notes, localised specialist knowledge could not continue to give rise to sustained technological revolutions. These required the confluence of scientific method and discovery and artisanal knowledge (Mokyr Reference Mokyr2018: 274). Smith acknowledged that philosophers and machine makers sometimes had a role in innovation and that there was a case for granting a temporary monopoly to the inventor of a new machine or to a merchant who opened up trade with a remote nation (Smith Reference Smith, Campbell, Skinner and Todd1976b: V.i.3 art1).Footnote ⁹ However, he did not address the problems associated with innovative activity in any great detail.

This task was performed by Jeremy Bentham. Like Smith, Bentham advocated reliance on ‘the spontaneous exertions of individuals’ (Bentham 1843) and already in 1787 he was critical of what he saw as Smith’s inconsistency for having proposed a ceiling on the rate of interest in order to discourage excessive risk-taking. Bentham countered that restraints on pecuniary bargains would act as restraints on the progress of inventive industry by making it impossible for those promoting new and inherently risky projects to obtain funds. Governments could rely on the intelligence and inclinations of individuals to promote economic growth. ‘[N]othing is necessary to be done on its part but to leave them in possession of the power, to insure to them the right of enjoyment, and to hasten the development of general knowledge’ (Bentham 1843: III. 2.iii§23). In identifying measures to hasten the development of general knowledge, Bentham recommended a substantial list of activities which governments might pursue. These included encouraging study of the sciences, instituting prizes for discoveries and experiments, publishing detail of technological processes employed domestically and in foreign countries, publishing price information and the granting of patents for a limited number of years (Bentham 1843) He also argued that, to ensure the right of enjoyment, exclusive privilege was ‘absolutely necessary, in order that what is sown may be reaped’. He explained:

Bentham also emphasised that entrepreneurial activity was ultimately valuable for the wider society because successful innovation would be emulated by others who would repeat and multiply the success (Bentham Reference Bentham1818: XIII. 35). Even where ventures turned out to be failures, others might ultimately benefit and could learn from the mistakes made.Footnote ¹⁰

Apart from Bentham’s contribution, the discussion of the special characteristics of scientific and technical knowledge in late-eighteenth-century Britain was limited with the main focus being on the question of how to prevent leakage abroad of the country’s technological knowledge. Restrictions were placed on the migration of skilled artisans and following this the export of machinery was prohibited. Laws restricting the emigration of skilled labour were eventually repealed in 1825 but restrictions on the export of machinery remained in place until the 1840s (Jeremy Reference Jeremy1977).

2.7 Lagging Economies and the Transfer of Technology

Although the classical economists in the early nineteenth century were more aware of technical change than Smith had been in the late eighteenth, the framework of analysis remained one in which growth was conceived as a process of accumulation driven by ‘parsimony’ (Brewer Reference Brewer1991). As noted earlier, this framework was challenged by a number of authors amongst them, John Rae (1796–1872). Rae did not deny that there was some truth in the accumulation story but he argued that accumulation and innovation did not necessarily go hand-in-hand. An important source of innovation had been neglected, namely ‘the progress of arts in other communities and their subsequent transfer to it’ (Rae Reference Rae1834: 76–77). Rae argued that although such transfer was potentially beneficial, it would require costly adaptation. No individual had the incentive to make the necessary investment because, if he did, he would derive no more benefit from his effort than others who copied his innovation (Rae Reference Rae1834: 56). Rae identified differences in the supply of raw materials, and differences in relative factor prices as factors giving rise to the need for considerable adaptation in the course of technology transfer. An even more serious difficulty was the fact that the information relevant to technology transfer did not exist in a complete and codified form. This meant that the transfer of technology from one country to another necessarily required the migration of skilled personnel, which in turn posed both incentive and selection problems. Rae suggested that these difficulties and his own perception that the majority of men had a strong preference for the tried and tested paths meant that some favourable conjuncture of events was necessary before technology transfer could take place. Calamities were favourable to innovation because they disturbed the expected order of events and exposed ‘the necessity, or the possibility, of connecting them by some other means’ (Rae Reference Rae1834: 223). However, calamities also diminished the desire for accumulation since they exposed the property of members of society to danger.

Whereas both Bentham and Rae emphasised the public good aspects of technological knowledge, Rae can be thought of as recognising some of the limitations of this perspective, namely the tacitness of technological knowledge and the fact that technology has what Rosenberg described a long umbilical cord and so requires adaptation before it becomes usable in a new situation (Rosenberg Reference Rosenberg1976: 167). A further limitation was pointed out by Friedrich List in The National System of Political Economy [1841]. This was that knowledge was necessary to access existing knowledge.Footnote ¹¹ As he put it:

List attributed to Adam Smith and his followers a cosmopolitan view of political economy which advocated free trade but failed to take adequate account of differences between nations.Footnote ¹² List was not anti-free trade per se but against free trade in a context where some nations had fallen behind others so that their industrial development would be stifled by foreign competition. This, and the fact that new industries involved considerable risk meant that there was a case for providing them with a temporary monopoly in the domestic market. The interests of consumers would be protected by the gradual introduction of domestic competition and the eventual restoration of free trade (Shafaeddin Reference Shafaeddin2000).

In his introduction to the 1909 edition of The National System, J Shield Nicholson drew particular attention to the difference between List’s view of capital and that which had been attributed to Adam Smith. While Smith, himself, had taken an inclusive view of capital including within it the natural and acquired abilities of the inhabitants, his successors took a much narrower view focused entirely on material forms. As a result, the importance of immaterial productive forces and powers dropped out of view. List argued that mere accumulation of fixed capital was not enough. ‘All expenditure in the instruction of youth, the promotion of justice, defence of nations, &c. is a consumption of present values for the behoof of the productive powers’ (List Reference List1841: 112). This was not all, a long list of institutions, conventions, innovations and reforms were, List argued, rich sources of productive power. These included: the Christian religion; monogamy; abolition of slavery and of vassalage; hereditability of the throne; the introduction of the principle of freehold property, and of means of transport; and invention of printing, of the press, of the postal system, of money, weights and measures, of the calendar, of watches, and of police (List Reference List1841: 113). Elsewhere in Book II, List noted the contribution of financial sector, the importance of science and scientific education as well as the importance of infrastructure such as roads and waterways. List summarised:

The validity of List’s distinction between values of exchange and productive powers has been questioned on the ground that the only way to measure the strength of productive powers is to measure the values in exchange of what they actually produce (Winch Reference Winch1998: 308). However, both the theoretical and empirical literature on economic growth provide strong evidence to support Schumpeter’s contention that the gains from technical progress greatly outweigh those that may be achieved through allocational efficiency. As Schumpeter put it:

Intimations of several aspects of modern innovation theory can be traced to List. His recognition that knowledge is required to access and use ‘the mental capital of the human race’ is nowadays discussed under the heading of absorptive capacity (Cohen and Levinthal Reference Cohen and Levinthal1990). List is also acknowledged as a pioneer of the concept of national innovation systems, one of the main frameworks used for the analysis of modern science, technology and innovation policy (Freeman Reference Freeman1995; Lundvall Reference Lundvall2010; Schot and Steinmueller Reference Schot and Edward Steinmueller2018).

2.8 The Innovation Ecosystem

The policy issues which had been identified by the mid-nineteenth century have not been assuaged by the passage of time. By the mid-twentieth century, it was increasingly clear that scientific knowledge was important for innovation and growth and questions were posed as to how greater scientific effort might be elicited in market-based economies (Elder and Fagerberg Reference Elder and Fagerberg2017). In an influential paper published in Reference Arrow and Nelson1962, Kenneth Arrow argued that a free enterprise economy had a tendency to underinvest in invention and research because it is risky, because the product can be appropriated only to a limited extent and because of increasing returns in use. Furthermore, even if a firm did manage to engross the value of its inventive activity, there would be underutilisation of that knowledge compared with the ideal. This analysis, usually referred to as the market failure framework, provided support for three policy approaches: (i) state support for basic research, (ii) use of subsidies to encourage additional research and development (R&D) in the private sector, and (iii) strengthening of intellectual property regimes (IPR).

The market failure framework proved to be resilient and able to identify if not resolve new problems arising from changes in technology and industry structure. However, it has also attracted criticism from a variety of directions. Those concerned about the efficacy of government intervention in the innovation process argued that policy makers lack the information that would enable them to intervene optimally or even effectively. They also argued that policy interventions encourage rent seeking and various forms of unproductive activity (Kreuger Reference Kreuger1974). Others maintained that the view taken of innovation in the market failure framework is overly narrow and that a broader systems perspective was required to account of some features of the knowledge economy. These were : (i) that rather than being a pure public good, knowledge is sticky and hence linked to a variety of geographical, organisational and cultural factors (von Hippel Reference von Hippel1994); (ii) that the ability to absorb and develop new knowledge depends on prior acquisition of capabilities which are themselves linked to a variety of social capabilities including education, an entrepreneurial outlook and the nature of wider supportive institutions (Cohen and Levinthal Reference Cohen and Levinthal1990); and (iii) that rather than being a linear process in the form of flow from science to R&D to commercialization, knowledge is generated through interactions between users, including end users, and producers at various administrative and geographical levels (Schot and Steinmueller Reference Schot and Edward Steinmueller2018). This broader systems perspective on innovation has the merit of focusing policy attention on a wide range of relationships and emergent organisational forms operating at different geographical levels: international, national and local. Advocates of the national perspective emphasise that countries differ not only in their historical experience, language, culture and legal systems but also in their industrial structure, in the role of the public sector, in their education and training systems, and in the structure of their financial and R&D sectors. Others, emphasising the stickiness of knowledge and the importance of interfirm interaction focus their attention on regions and industry clusters. Advocates of the systems frameworks do not deny that imperfect information and even lack of information is a problem, but they argue that the right way of thinking of industrial/innovation policy is as a discovery process – one where economic actors including firms and the government learn about underlying costs and opportunities and engage in strategic co-ordination (Rodrik Reference Rodrik2004).Footnote ¹³

There is a large literature on the relevance of the national systems of innovation framework to developing countries (Nelson Reference Nelson1993: part III; Kim Reference Kim1999; Cimoli et al. Reference Cimoli, Dosi and Stiglitz2010; Yip and McKern Reference Yip and McKern2016). The perspective also found favour in more advanced industrial countries due to its relevance for the maintenance of the competitive advantages of domestic firms in an era of increasing globalisation (Lundvall Reference Lundvall1992, Reference Lundvall2016; Nelson Reference Nelson1993; Freeman Reference Freeman1995; Porter Reference Porter1998; Shot and Steinmueller Reference Schot and Edward Steinmueller2018). However, arguments about the nature and extent of policy interventions did not go away but re-surfaced as arguments about the merits of level playing fields as opposed to discretionary policy. As Lundvall (2016) notes, one drawback of the national systems framework is that the precise implications for policy are difficult to identify. This is partly because most studies are country-specific but, even where comparative analysis has been carried out it often lacks a common theoretical framework.

The Marshallian industrial district as updated by Beccatini and Michael Porter’s cluster–based approach shares many features of the systems-based approach (Becattini Reference Becattini, Pyke, Becattini and Sengenberger1990; Porter Reference Porter1998).Footnote ¹⁴ Porter sees the clusters as geographic concentrations of companies and institutions in a particular field. These may include suppliers of specialised inputs and infrastructure; channels to customers; manufacturers of complementary products; and companies in industries utilising similar skills, technologies or other inputs. Clusters involve both competition and co-operation – the former is necessary to prevent stagnation and drive innovation whereas the latter opens up opportunities for the provision of scale-sensitive or collective goods including research, training and testing facilities; the collection of information; the organisation of trade fairs; and managing purchasing consortia.

Overlapping with the notion of industry cluster is Pisano and Shih’s (Reference Pisano and Shih2012) concept of the industrial commons. Commons is seen as consisting of webs of technological know-how, operation capabilities and specialised skills that are embedded in the workforce, competitors, suppliers, customers, co-operative R&D ventures, and universities and often support multiple industrial sectors (Pisano and Shih Reference Pisano and Shih2012: 13). Pisano and Shih emphasise that industrial commons are a delicate ecosystem which can easily unravel if the private returns of some elements drop below a threshold (Pisano and Shih Reference Pisano and Shih2012: 60). Their position is best understood in the context of the arguments which suggest that economies such as that of the United States can benefit from concentrating on R&D and design while subcontracting more routine work to low-wage international providers. This may work in some industries but Pisano and Shih argue that in many, product innovation cannot be readily separated from manufacturing. In such industries, outsourcing firms may be undermining not only their own capacity to innovate but also that of the wider ecosystem. Interestingly, Pisano and Shih’s proposed remedies in the face of decline have echoes of List – not in terms of protectionist trade policies but in terms of a clear focus by firms on building capabilities and on appreciating the value of belonging to a strong industrial commons (Pisano and Shih Reference Pisano and Shih2012: 105). Likewise, they propose that government should commit to strengthening the scientific and technological foundations of the commons and the development of human capital at all levels (Pisano and Shih Reference Pisano and Shih2012: 125–133).

While Pisano and Shih and Porter emphasise the importance of tacit knowledge and localisation in the innovation process, others explore situations in which a firm’s ability to innovate depends more directly on assets that it does not own (Iansiti and Levien Reference Iansiti and Levien2004; Adner Reference Adner2006; Moore Reference Moore2006). These authors emphasise not just spillovers from other firms in the ecosystem but situations where any given firm’s innovations rely on complementary innovations by some other firms with no one firm possessing all the specialised knowledge and resources required for innovation (Moore Reference Moore2006). These ecosystems may arise as a result of disaggregation of departments in existing firms or be developed by entrepreneurial leaders who as Moore (Reference Moore2006) puts it ‘declare a “space” for invention and investment’. Either way, mechanisms for co-ordination are required. In some cases, these are provided by a lead enterprise or platform where the latter is described as any combination of hardware or software that provides standards, interfaces and rules and support that enable providers of complements to interact with each other and or users (Cusumano and Gawer Reference Cusumano and Gawer2002; Kay et al. Reference Kay, Leih and Teece2018; Teece Reference Teece2018). Apple is regarded as an example of a lead firm. Wikipedia may be taken as an example of an ecosystem/knowledge commons/community of practice without a key player. Wikipedia operates without a centralised review of contributor actions but it is also an evolving sociotechnical system that employs managerial hierarchies, protocols and automated editing systems to orchestrate human and non-human contributors (Niederer and van Dijck Reference Niederer and van Dijck2010). The important point here is that co-ordination mechanisms are always required, though they may take many different forms and evolve in various ways. In their study of innovation by open source software communities, Mateos-Garcia and Steinmeuller (Reference Mateos-Garcia, Steinmeuller, Amin and Roberts2008) note the tendency to see knowledge-related communities with voluntary organisation of effort and traditional, hierarchically managed organisations as the only alternatives available for organising the production of knowledge in an online context. They suggest, instead, a continuum of possible structures whose shape is determined by the way in which rules of entrance and participation are defined and put into practice.

As has long been recognised, standardisation reduces transaction costs and facilitates the division of labour. The digital economy is no exception; technological standards provide the platform on which rival firms build their product and service offerings (Cusumano and Gawer Reference Cusumano and Gawer2002; Teece Reference Teece2018: 1380). These standards may emerge as a result of market competition especially in downstream applications. They may also be developed by means of formal processes undertaken by national and international standard setting organisations most of which operate on a not-for-profit basis. Once provided, standards facilitate entry and competition and allow for autonomous innovation without the need for active co-ordination as long as the relevant standards for their module are met (Teece Reference Teece2018: 1380–1382). Teece distinguishes between standard setting, which is concerned primarily with achieving uniformity and compatibility, and standard development, which takes account of the potential for further innovation not just at the level of the individual actors in the ecosystem but also at the architectural level. This issue of standard development has recently arisen with respect to the Internet itself. It is suggested that the existing protocols are not adequate to underpin new developments such as self-driving cars and the Internet of Things and that a more efficient address system is required to support emerging technologies (Gross and Murgia Reference Gross and Murgia2020).

Whereas Teece (Reference Teece2018: 1381) discusses standard development as a technical selection process which begins with firms investing large sums of money in R&D, Potts (Reference Potts2018) and Allen and Potts (Reference Allen and Potts2016) focus on information pooling and emerging standards at earlier stages in the innovation process. They postulate a stage zero innovation commons involving peer production of the information required to discover opportunities from which to develop markets, firms and industries. According to Potts (Reference Potts2018: 1026), ‘innovation originates in a prior state of non-market coordination among proto entrepreneurs and technology enthusiasts who develop governance rules to facilitate co-operation’. Likewise, emphasising the entrepreneurial function, Malerba and McKelvey (Reference Malerba and McKelvey2020) note that knowledge and business opportunities do not exist a priori but instead emerge and come together through the actions of entrepreneurs. In the process, there may be a demand for new knowledge as well as the creation of conditions in which it may emerge. Some of the knowledge relevant to innovation is codified or embodied in artefacts and conventions and institutions but much of it exists as what we nowadays call human capital (Foray Reference Foray2004). In a situation where there is no innovation (Schumpeter’s circular flow), the specialised knowledge is co-ordinated by means of hierarchies and normal market arrangements. These, however, are insufficient when what requires co-ordination is not yet fully known because the new thing is still in the process of creation. It is the need for co-ordination of this type that gives rise to Schumpeter’s entrepreneurial function (Schumpeter Reference Schumpeter and Opie1961). It involves bringing together fragmented knowledge and creating the conditions for this knowledge to be actualized in things, in services or in social constructs. The process is likely to be ongoing in time and experimental. Different participants and governing structures may be required at different stages (Dedehayir and Seppänen Reference Dedehayir and Seppänen2015).Footnote ¹⁵ It may, therefore, involve a complex and ever-changing array of institutions, standards, conventions and resources to facilitate information exchanges and co-operation by different actors including firms, governmental and non-governmental organisations, education and research establishments, professional bodies, voluntary associations and individuals.

While innovation adds to our stock of knowledge, ultimately our interest must be not just in adding to knowledge but also in its efficient use. The peculiar properties of knowledge mean that these two objectives may be both contradictory and indissociable as Foray (Reference Foray2004) notes. Knowledge is non-subtractable in consumption but at the same time universal access may be an obstacle to its private production. Knowledge is also cumulative so that collective progress may be inhibited by intellectual property rights provided to encourage private production. There are no simple governance solutions to these dilemmas, but the solutions generated in any conjuncture have the potential to be beneficial for society and to enhance the possibilities for further progress.

In the concluding pages of his The Origin of Species, Darwin wrote that the study of natural history would become far more interesting when we no longer look at organic things as a savage looks at a ship but instead see every production of nature as one which has a history in the same way as we look at any great mechanical invention as the summing up of the labour, the experience, the reason and even the blunders of numerous workmen (Darwin Reference Darwin1859: 485–486). In this chapter, it is suggested that this perspective might fruitfully be recaptured for knowledge itself. Doing so enables us to see that knowledge is cumulative, tacit, and embedded. It allows us to understand that it is a social product, that it is developed and transmitted socially in the context of a division of labour which makes transmission possible while also shaping access to existing social knowledge. It enables us to appreciate that while the future path of knowledge cannot be predicted with any certainty, it is tethered to the present and not arbitrary and is therefore shaped by present choices. Not least, it forces us to recognise the limitations of our own rationality while appreciating the coherence of what has been communally achieved.