The Cost of Knowledge and Economic Growth

This is the idea explored in a newish dissertation by James Dowey, formerly of the LSE.  

Here’s the abstract:

This thesis argues that the British Industrial Revolution, which marked the beginning of sustained modern economic growth, was facilitated by the blossoming in eighteenth and early nineteenth century Britain of the world’s first infrastructure for commercial R&D, composed of a network of ‘Knowledge Access Institutions’ (KAIs): scientific societies, ‘mechanics institutes’, public libraries, masonic lodges and other organisations. This infrastructure lowered the cost of access to knowledge for scientists, inventors and entrepreneurs, raising the productivity of R&D and encouraging a sustained increase in R&D effort. This contributed to the acceleration in technological innovation that lay behind the transition to modern economic growth. First, I define the concept of KAIs and explain how they affected the rate of economic growth. Second, I present detailed data on the KAI infrastructure and estimate its effect on the rate of technological innovation during the British Industrial Revolution, using newly constructed spatial datasets on British patents between 1700 and 1852 and exhibits at the Great Exhibition of 1851. Third, I argue that KAIs were largely exogenous to industrialisation, rooted instead in the intellectual developments of the Scientific Revolution and European Enlightenment. Fourth, I show that the prevalence of Knowledge Access Institutions was correlated with the emergence of modern economic growth across countries in the late nineteenth century and that the cost of access to knowledge was a binding constraint to economic progress shared by many countries during this period. Finally, based on the case of late nineteenth century US manufacturing, I investigate the extent to which the emergence of modern economic growth depended on the incentives to innovate rather than the capabilities lent by access to knowledge and other factors. The thesis suggests that the sharp fall in the cost of access to knowledge that we are currently experiencing may give rise to an acceleration in the rate of technological innovation in the coming decades and that policymakers should direct some effort towards mitigating the potentially harmful effects of rapid technological change. 

Dowey is quite the optimist. From his conclusion:


As such, the main policy prescription arising from this thesis is that rather than focus our concern too narrowly on Gordon’s prediction of stagnation we must also dedicate our efforts to guarding against a competing dystopia. This is the risk that technological change in the twenty-first century will occur so rapidly that we will find it quite painful to adapt to it. 

One might also ask whether the modern KAIs such as Google, Facebook, Twitter, Instagram, etc., are not only driving innovation internally but generating innovation outside their space. This is surely the case. But perhaps its much more important than previously realized.