Rethinking the Knowledge Economy
A new practice of production has emerged in all the major economies of the world. The simplest and most telling of its many names is the knowledge economy. It holds the promise of changing, to our benefit, some of the most deep-seated and universal regularities of economic life and of dramatically enhancing productivity and growth.
Its effects, however, have so far proved modest. Instead of spreading widely, it has remained restricted to vanguards of production, employing few workers. Entrepreneurial and technological elites control it. A handful of large global firms have reaped the lion’s share of the profits that it has yielded. It appears in every part of the production system; the habit of equating it with high-technology industry is unwarranted. In every sector of the economy, however, it remains a narrow fringe, excluding the vast majority of the labor force. Even though its products are used ever more widely, its revolutionary practices continue to be quarantined.
The true character and potential of the new practice of production remain disguised: by virtue of being insular, the knowledge economy is also undeveloped. The technologies with which it is most recently associated, such as robots and artificial intelligence, have riveted worldwide attention. Nevertheless, we have barely begun to grasp its significance for economic and social life or gained insight into its possible futures.
The established body of economic ideas is useful and even indispensable but also insufficient to an understanding of these problems. Received economic theory leaves us short of the insights that we need to guide the institutional and policy changes required to take us from the insular knowledge economy that we have to the inclusive one that we need. The effort to think through the agenda of an inclusive vanguardism prompts us to reassess the alternative futures of economics as well as the alternative futures of the economy.
Secular Stagnation
Under Alvin Hansen’s old label of “secular stagnation,” many economists have proposed to explain in recent years the persistent slowdown of economic growth. The figures measuring the growth of productivity chart the dimension of this slowdown. Consider the well-studied example of the American economy. From 1947 to 1972 labor productivity, which roughly tracks total factor productivity, rose in the United States by an average of 2.8 percent a year; from 1972 to 1994 by 1.5 percent a year; from 1994 to 2005 by 2.8 percent a year; and from 2005 to the present by 1.4 percent a year. After a period of slow growth, productivity spiked in 1994–2005, and then fell back again.
The slowdown in the growth of productivity since 1972, interrupted only by the turn-of-the-century spike, has been attributed to many of the factors emphasized by Hansen in the 1930s: the decline of population growth, the inadequacy of aggregate demand, and a “savings glut”—an excess of savings over consumption. One factor, however, largely absent from the older discussion of secular stagnation, has now taken center stage: the supposedly more limited transformative effect of contemporary technologies, especially in communication and information, when compared to the technological innovations of a hundred years ago.
Consistent with this line of argument, we can explain the temporary rise in productivity growth in 1994–2005 as the result of a one-time phenomenon: the adoption of computers and other digital technologies by a wide range of mega, large, and medium-sized firms, such as Walmart, whose operations otherwise bear few traces of the now most advanced practice of production.
The effect of the discourse of secular stagnation has been to cast on the decline of economic growth in general and of productivity growth in particular an underserved halo of naturalness and necessity. There is no reason to believe that contemporary technologies are any less revolutionary in their potential than the mechanical innovations of a century ago; there is better reason to suppose that we have barely begun to tap their potential and, by tapping it, to encourage the innovations that they may inspire. The effects of technologies, however, are always mediated by the institutional and cultural setting in which they take place.
I conjecture that a major cause of economic stagnation in the period from the early 1970s to today has been the confinement of the knowledge economy to relatively insular vanguards rather than its economy-wide dissemination. There is nothing natural about this phenomenon: it presents a riddle requiring explanation.
The Confinement of the Knowledge Economy:
The Fact and the Riddle
Throughout the world the knowledge economy remains restricted to insular vanguards: advanced manufacturing, knowledge-intensive services (often associated with advanced manufacturing), and precision, scientific agriculture. Even as it has lost any exclusive association with industry, it has remained, in each sector, a fringe.
Its appearance solely as an insular vanguardism has now gone on for so long that we may be tempted to think of this quarantine as natural, as if it called for no further elucidation. There is, however, nothing natural about it. Mechanized manufacturing and industrial mass production rapidly influenced the transformation of every part of the economy, with the notable exception of traditional small business, which was inhibited by its limited scale from assimilating the scale-dependent technologies and procedures of mass production.
Unlike earlier advanced practices of production, the knowledge economy has no intrinsic bond to any particular sector of production. Its ability, supported by its characteristic technologies, to produce goods and services at almost any scale would open to it the world of small business, if that world did not remain largely inaccessible to it for other reasons. Yet its confinement to insular vanguards has stubbornly persisted.
Not only has the knowledge economy escaped a restriction to industry without avoiding insularity, it has also overcome an exclusive connection with the richest economies in the world without as a result moving toward an economy-wide presence in any of them. In the heyday of mass production, the axis of the international division of labor, as well as the core topic of analysis in theories of international commerce, was trade between capital-intensive and labor-intensive economies. The most advanced practice—industrial mass production—was headquartered in the richest economies, more primitive, labor-intensive production in the rest, the vast periphery of the developing world.
The emergence of the new advanced practice of production has coincided with a striking change in the world division of labor. The new productive vanguard has gained a foothold in all the major economies of the world: in the major developing countries (such as China, India, and Brazil) as well as in the richest economies. The advanced parts of these economies are, to a greater or lesser extent, in direct communion with one another, exchanging people, procedures, and ideas, as well as technologies and resources. Indeed, the network of these vanguards has a better claim than any other set of economic agents and forces to be regarded as the commanding force in the global economy. By comparison, international finance is a sideshow.
The worldwide presence of the knowledge economy, manifest in the changed international division of labor, only deepens the puzzle presented by its arrest within the fringes to which it is now confined. It is present in every major economy as well as in every part of each of them. Yet it remains the prerogative of an elite. In this circumstance forces related to the confinement of the knowledge economy work in concert to favor economic stagnation and aggravate economic inequality. Slowdown in the growth of productivity and deepening of economic inequality are the price for the insularity of the knowledge economy.
We must be careful not to mistake the insular knowledge economy for what I shall call pseudo-vanguardism: the existence of a wide range of firms that make use of the technologies we most often associate with the emergent vanguard—especially its information and communication technologies—without otherwise mastering and deploying the new most advanced practice of production.
The most common occasion for pseudo-vanguardism has been the adoption of digital technologies to manage complex information—for example the information with which a mega-retailer like Walmart must deal. By managing information more effectively, such businesses have been able to develop efficiency-enhancing and capital-sparing practices such as the “just-in-time” replenishment of inventory. Their large scale has given them a decisive advantage in dealing with the fixed cost of the required technological apparatus. Their successful use of that apparatus has in turn helped them grow yet larger, consolidating their market position. Yet none of these initiatives has converted such mega-firms into exponents of the know-ledge economy. Pseudo-vanguardism makes the knowledge-intensive advanced practice of production seem more widespread than it is.
The real knowledge economy remains stuck in a narrow circle. The incentives to accumulate profit and market power reinforce the narrowness. The large global firms that dominate the knowledge economy find ways to factor out parts of their process of production that can be routinized or even commodified. They assign these routinized parts to businesses staffed largely by semiskilled labor, working by the methods of conventional mass production, in parts of the world remote from headquarters. Some advanced firms are even “fabless,” ridding themselves to the greatest extent possible of the ownership of large productive units (factories) and of any commitment to the stable workforce that such units traditionally require.
The counterpart to the illusory dissemination of the advanced practice by pseudo-vanguardism then becomes the hyper-insularity of the genuine vanguardism. The advanced firm retreats into an arm’s-length contractual relation with the companies that fabricate whatever material stuff it may have to sell. For example, a few thousand people in California arrange for hundreds of thousands of people in China to execute the routinized parts of their production plan.
Hyper-insular vanguardism is the authentic but miniatured form of the knowledge economy. Pseudo-vanguardism is its illusory long shadow. The coexistence of hyper-insular vanguardism with pseudo-vanguardism is accompanied by two developments that are more than coincidentally connected. They bring increasing economic stagnation and inequality in their train. The first development is the decisive position acquired by global oligopolies. The second development is the abandonment of an increasing portion of the labor force in the richest as well as in developing economies to precarious employment. The result is to increase the advantage of capital over labor in the contest for a share in national income, except for labor performed in the shrinking recesses of hyper-insular vanguardism and of the entrepreneurial and technological elite controlling it.
Both pseudo-vanguardism (e.g. the Walmarts of the world) and hyper-insular vanguardism (e.g. the Alphabets and Qualcomms of the world) are marked by vast scale and imperfect competition. For both, the mega-firm enjoys an advantage over its smaller rivals in the ability to bear profitably the fixed costs of investment in the most advanced equipment. Moreover, the hyper-insular advanced firms—the genuine embodiment of the vanguard of the knowledge economy—enjoy additional boosts to the avoidance of effective competition. They are limited, tangible expressions of what makes the knowledge economy different: the primacy in its work of ideas, capabilities, and networks that are intangible, albeit supported by physical infrastructure and accessed by material devices, the production of things.
Precarious Employment
The other development accompanying the duo of pseudo-vanguardism and hyper-insular vanguardism is the degeneration, to the disadvantage of labor, of the relation between labor and capital. One of the most constant doctrines of economics has been that returns to labor—the real wage—cannot sustainably increase above the rise of productivity. This dogma contains a residue of truth: a mandated rise in the returns to labor is likely to be undone by inflation. Aside from this qualification, however, we know that the dogma must be false: for if we compare economies at comparable levels of development and control for different factor endowments (notably population density and wealth in natural resources), we find that there is wide disparity in the returns to labor. How could this disparity have arisen in the first place?
The differential cause of divergence lies in the legally defined institutional arrangements that either strengthen or weaken labor in its relation to capital and shape the terms on which labor can be recruited for production. Economic growth requires repeated breakthroughs of the constraints on both supply and demand. The most long-lasting and effective ways of breaking through the constraints on demand are those that influence the primary distribution of economic advantage rather than trying to correct that distribution after the fact through tax-and-transfer, progressive taxation, and redistributive social entitlements. Among the arrangements that shape the primary distribution of economic advantage are those that set the legal status of labor vis-à-vis capital (contract, corporate, and labor law) and those that define the terms of decentralized access to the resources and opportunities of production (the property regime).
A way of empowering or disempowering labor in its relation to capital is secure if it has a basis in the most advanced practice of production. The approaches to organizing and representing labor that prevailed in the course of the twentieth century enjoyed such a foundation. The predominant arrangement for organizing and representing labor in the rich North Atlantic world and its outposts was the contractualist or collective bargaining labor law regime: collective bargaining was designed to shore up the reality of contract in the unequal setting of the employment relation thanks to the “countervailing power” with which it endowed organized labor. In Latin America, an alternative, corporatist labor law emerged: workers (in the formal, legal economy that often accounted for half or less of the labor force) were automatically unionized according to their sector, and under the tutelage of the ministry of labor. Both the contractualist and the corporatist regimes had as their economic setting industrial mass production, with its characteristic gathering of a stable labor force in well-defined productive units (factories and others) under the aegis of business corporations.
The emergence of the insular knowledge economy has not replaced mass production with a similarly economy-wide advanced productive practice. The emergence of this new vanguard forms part of a reality in which traditional mass production declines and its commitment to a stable labor force is left without solid economic support. Corporations scour the world for cheaper labor, more dispensable labor commitments, and tax favors (labor and tax arbitrage). The insular knowledge economy and the non-vanguard firms around the world to which it assigns work through unstable contractual arrangements help undermine the economic base on which both the contractualist and the corporatist labor law regimes rested.
The responses offered so far to the twin developments that accompany the emergence of hyper-insular vanguardism and of pseudo-vanguardism—the control of both by oligopolies and the relegation of a growing part of the labor force to precarious employment—are grossly inadequate. They would work only if they were swept up into a larger and broader transformation. To this day, such a change has not even been imagined, much less implemented.
Consider the appeal to antitrust law as an answer to the domination of the knowledge economy by oligopolies, surrounded by a periphery of unthreatening start-ups. The factual conditions that would allow for the application of antitrust law are often missing: for example, suppression of competition in a well-identified market, for certain products, and with measurable effect on product pricing. Suppose antitrust law were amended or developed to deal with the ways in which the mega-firms of the knowledge economy suppress competition. The revised law would be unlikely to reverse the combined and cumulative forces that have given a small number of global firms a decisive advantage in combining hyper-insularity with oligopoly. Such revisions of antitrust law would work only as part of more far-reaching changes in the institutional and legal architecture of the market economy.
Moreover, the breakup of platform companies risks destroying much of their economic and social value, which is tied to the number of people that they bring together in a single community of users. Instead of breaking them up into smaller firms, organizing less inclusive networks, we may reason to preserve them but to subject them to new forms of governance. For example, independent trusts, established by law, with representatives of civil society, might have powers to direct or restraint them, qualifying the rights of shareholders and the authority of managers.
The efficacy of either set of initiatives—those that adapt antitrust to the new circumstance to turn the oligopolies of the insular knowledge economy into smaller competitive firms or those that subject them to new forms of governance—is likely to depend on broader innovations in the arrangements of the market economy. Such innovations would begin by broadening access to the means of engagement in the knowledge economy: capital, advanced technology, and advanced practice. They would continue in the creation of new forms of partnership between governments and emergent firms as well as of practices of cooperative competition among them. And they would result in pluralistic experimentation with the basic property regime: the ways in which, and the terms on which, people can deploy the accumulated capital of society and make use of productive resources and opportunities. It is a sequence exemplifying the legal and institutional element in the advancement of an inclusive vanguardism, as the successor to the present confined form of the knowledge economy.
Economic Stagnation and Inequality
The confinement of the knowledge economy has momentous consequences for the economy and the society. Today it has become the single most important cause of both economic stagnation and economic inequality. To overcome this confinement by moving in the direction of an inclusive vanguardism would be to reignite accelerated growth and to begin redressing the sources of extreme inequality in the hierarchical segmentation of the economy.
One of the most significant and least obvious ways in which confinement contributes to stagnation is by its effect on the vanguard itself, even in those parts of the production system and the labor force in which this vanguardism thrives. If it is true that a practice of production develops and reveals its potential only as it adapts to a broad range of circumstances, then the insular form of the practice will also be likely to be misunderstood even by its own agents and beneficiaries. It will be easily mistaken for its most superficial or accidental characteristics, such as those that marked the high-technology industries and regions in which it first appeared. Unlike mass production before it, it will lack an accepted theory or doctrine endowing it with a canonical form and a widely accepted significance. It will be at once fashionable and obscure.
The consequences for inequality are no less significant. The insularity of the knowledge economy, and its relative poverty of jobs, deepen the hierarchical segmentation of the economy. An increasing proportion of wealth is produced by a diminishing part of the labor force. What I have labeled hyper-insularity aggravates this tendency. The job structure associated with mass-production industry and its counterpart in services gets broken up into two pieces.
The larger piece is composed of lower-wage jobs in services rendered in the domestic market and in conventional manufacturing work carried out in countries that offer the cheapest labor and the lowest taxes. They may offer work in the leftover areas of declining mass production, remaining viable only at the cost of low returns to labor and a low take. Or they may offer work in a variant of mass-production manufacture that has become the sidekick of the mega-firms of the knowledge economy, as they learn how to routinize parts of their production process and assign the commoditized parts of their business to the sidekick firms, often in faraway places. The second piece of the new labor market is the privileged one: the relatively small number of jobs established in the recesses of the genuine and exclusive knowledge economy. In the wake of the continuous decline of mass production and its reduction to leftover or sidekick, there results what has been described as the “hollowing out of the middle of the job structure.”
Progressive taxation and redistributive social entitlements can be effective in moderating inequality generated by the established arrangements of the market economy so long as inequality does not become too extreme. Beyond an ill-defined threshold, the structural realities overwhelm the corrective measures. Corrective redistribution on either the revenue-raising side of the budget (progressive taxation) or the spending side (redistributive social entitlements and transfers) would need to become massive to compensate for the vast disparities generated by the chasm between the vanguards and the rearguards of production.
Long before it reached that point, corrective redistribution would begin to clash with established economic institutions and incentives and to exact a price in forgone economic growth that would be widely regarded as intolerable. It is one thing for progressive taxation—one side of corrective distribution—to extend the logic of established arrangements; it is another thing for it to contradict that logic. In this latter, humanizing role, it can make a decisive difference only by going very far toward overturning the market-determined outcomes and disorganizing the economy. No wonder, it is almost never allowed to go that far. It is stopped long before.
The more promising route is to organize a different market economy, one that generates less inequality and more widely distributed stakes, instruments, capabilities, and opportunities in the first place.
If our aim is to connect the logic of economic growth with a movement toward inclusion and greater equality of opportunities, capabilities, and stakes, the chief way to reach it is not through after-the-fact correction—the effort to humanize an economic order that we despair of reimagining and reshaping. It is to reimagine and to reshape that order. Instead of the fantastical wholesale substitution of the established economic regime by an imaginary, readymade alternative, we need cumulative structural change, undertaken piece by piece and step by step. In such an endeavor, no task is more important than to confront the inequality-aggravating effects of the present confinement of the most advanced practice of production.
Making the Knowledge Economy Inclusive:
Legal and Institutional Requirements
Inclusive vanguardism requires cumulative revision of the institutional arrangements of the market economy. To overcome the legacy of insular vanguardism—stagnation, inequality, and belittlement, it is not enough to regulate the market more intensively or to go further than we have gone up to now in redressing economic inequalities through progressive taxation and redistributive social entitlements and transfers. We must reshape the institutional arrangements that define the market economy. We can and should refuse to take the market order on a take-it-or-leave-it basis, as if we could choose only between having more or less market, and more or less governmental intervention in that market. We can choose to build a different market economy.
This thesis contradicts a characteristic assumption of much of practical economics and of thinking about economic policy. According to this assumption, economic failures result from localized flaws in market competition (such as the rigidity of the price of labor, or asymmetrical information, or a disturbance in the relation of agents to their principals) or in the regulatory response to such market failures. The conception of an institutional and legal reshaping of the market order contradicts a history of modern ideological controversy that is built around the contrast, or the balance to be struck, between market and state.
The task of the first stage of legal and institutional innovation is twofold. It must seek to broaden access to the resources and opportunities of production, especially in favor of emerging firms, that are candidate carriers of the new, most advanced practice of production. And it must help organize the process by which we can discover experimentally the best path to an inclusive vanguardism.
Access to capital, to advanced technology as well as to the practices and capabilities with which it is associated, to a labor force equipped with the requisite skills, and to domestic and international markets (not just as sources of demand but also as sources of a benchmark to meet) are all necessary. It is not enough, however, to provide these forms of access separately. The most important and difficult task is to orchestrate them, designing them in such a way that they reach beyond the familiar protagonists of the insular knowledge economy (e.g., high-technology industry) to every part of the production system.
Private venture capital has historically performed this role but only on a small scale (small in proportion of total financial activity) and with a focus on a relatively exclusive cast of start-ups steeped in the culture of the present, confined form of the knowledge economy. Government may need to help create multiple, independent, and competitive entities, supported at the outset by public funding, that undertake this work in behalf of a broader cast of economic agents—the next wave of firms that are candidates to share in the work of the knowledge economy—and with a longer time horizon. It may do so under market rules (although as part of an effort to develop new kinds of markets) and by taking equity stakes, as venture capitalists do, in the entrepreneurial activity. The aim should be to make this quasi-venture capital self-financing as soon as possible.
As the instances and agents of the knowledge economy widen, the range of pertinent experience of the firms themselves becomes richer. There is no reliable, established body of knowledge about how in detail to adapt the technologies and practices of the existing, contained form of the knowledge economy to people and firms who have thus far remained untouched by its practices and culture even when they buy and use some of its products. An important aim in this initial stage of institutional reconstruction of the market economy is therefore to find out, through the experience of the beneficiaries of broadened access, what practices work best and then to disseminate them.
That too is a task of the state. But like the orchestration of access to each of the resources that successful production requires, it is not a task suitable for implementation by a conventional administrative apparatus, acting under central direction to formulate a unified set of rules and policies. It is work best discharged by a level of support centers intermediate between the government and the client firms, by analogy to the system of agricultural extension that was first developed in the United States and other countries in the course of the nineteenth century.
At a second stage, there would begin to emerge an alternative institutional and legal architecture of the market economy. Unlike the changes in the first stage, these initiatives would have explicit implications for the overall organization of the market economy; they would do more than introduce into the established market regime new agents and practices.
There have long been two models of relations between government and business on offer in the world: the American model of arm’s-length regulation of business by government and the Northeast Asian model of formulation of unitary trade and industrial policy, imposed top down by a governmental bureaucracy. Neither of these models is adequate to the development of institutions that can provide a basis for deepening and spreading the knowledge economy.
The first model—arm’s-length regulation—takes the arrangements of the established market regime for granted. That an inclusive vanguardism does not develop naturally under those arrangements is shown by its failure to develop in any contemporary economy. We can attribute that failure to the absence of other conditions, such as the requisite form of education or the moral culture favorable to higher trust and discretion. Then, however, we must ask what economic institutions will either inhibit or encourage these other changes. By remaining short of the point at which regulation turns into reorganization, the first model fails to create any mechanism for reinvention of the market order in the service of wider participation in the development of knowledge-intensive, experimental production.
The second model—unitary trade and industrial policy—restricts the institutional reshaping of the market economy to the empowerment of a supposedly all-seeing state. Such a state prefers some businesses or sectors to others as the anointed carriers of economic progress. It is activist with regard to sectors, presuming to discern which sectors are “carriers of the future.” But it is passive with respect to institutions, except that it requires a state powerful enough to make choices among sectors, playing favorites on the pretense of possessing higher insight.
The epistemological assumptions of my argument for inclusive vanguardism suggest that both these models are misguided. To promote the most advanced practice, we need to innovate in our economic institutions, not just to regulate them more or less aggressively. We should, however, be agnostic about sectors and lines of production even as we are bold in the development of methods and procedures. After all, we know that even in its present insular form the knowledge economy is already multi-sectoral; it has no exclusive association with any part of the production. The imposition of unitary trade and industrial policy combines dogmatism about sectors with passive acceptance of the established market order. If the champions of this approach reshape the state they do so only to allow a political and bureaucratic cadre to help some while denying help to others.
The alternative to these two models is a practice of strategic coordination between governments and firms that is decentralized, pluralistic, participatory, and experimental. Its proximate goal is the same as that of what I described as the first stage of institutional innovation: broadening and orchestrating access to capital and advanced technologies and capabilities. Its ulterior aim is convergence of the rear guards of the national economy to its vanguards in the age of the knowledge economy. Its primary agent is an array of entities established by government and independent from it that pursue different approaches in the same or different parts of the economy, the better to diversify the material available for competitive selection by the market.
Think of such entities as analogous to the agricultural extension that evolved in an earlier historical period. They may need to be publicly funded only at the outset: they may subsequently be financed by fees for their services or by equity stakes in the businesses that they lift up or by some combination of equity and debt, and the managers and staffs may share in the gains and risks of this activity. The method of their work is one of decentralized, comparative experimentation about the steps by which rear guards turn into vanguards in each part of the economy.
Another stage of innovations in the legal and institutional structure of the market order would begin with changes in the property regime, which defines the terms for the decentralization of economic initiative and the claims of economic agents on the means of production. The point would not be to replace the unified property right, established and theorized only in the nineteenth century, by another, equally exclusive form of property. The aim instead would be radically to diversify the forms of decentralized access to capital and the other means of production.
The traditional unified property right joins all the powers that we associate with property (and which the civil law tradition distinguished as use, usufruct—command of the income stream, and the right to alienate or sell) and vests them in a single right holder, the owner. In a more inclusive property regime, unified property would become only one of several property regimes, coexisting experimentally alongside other regimes in the same market order. As a result, the market economy would cease to be fastened to a single version of itself. The freedom to recombine factors of production within an unchanged framework of production and exchange would develop into a larger power to tinker with the legal and institutional constitution of the market. The result would be to strengthen, rather than to suppress or replace, the logic of economic decentralization: its preference for experiment by many hands over the claim of omniscience by central power.
An advantage of the unified property right is to allow a risk-taking entrepreneur to do something that no one else believes in without having to avoid potential vetoes imposed by multiple stakeholders. Its disadvantage is the reverse side of this benefit. It fails to provide a legal setting for the superimposition of stakes of different kinds, held by multiple stakeholders, in the same productive resources. For that use, we need fragmentary, conditional, or temporary property rights, resulting from the disaggregation of unified property.
The method of such disaggregation is well established. It was the normal condition of property, even in the West, before the nineteenth century. Moreover, it exists as well in the economies and law of the present day. For example, financial derivatives, including the basic list of options, puts, and calls, are exactly what their name suggests: products designed to create markets in fragmentary elements of the otherwise unified property right. The understanding and application of the principle of disaggregation remain dramatically narrowed, as the unified property right continues to be taken as the standard form of property, albeit surrounded by a thickening penumbra of deviations from the model that it embodies.
Because it facilitates contrarian entrepreneurial initiative, the unified property right will continue to be useful and even indispensable to the development of the knowledge economy. But rather than remaining the default way to decentralize economic initiative, it would turn over time into a limiting case. The more common form of the property right would become its disaggregation into fragmentary, temporary, or conditional claims on the means of production.
The development of the law and theory of disaggregated property reveals a hidden contradiction in the traditional, unified conception of the property right. That conception supposes that the two most abstract dimensions of the right organizing decentralization of economic initiative—the amount of economic decentralization (the multiplication of economic agents entitled to bargain on their own initiative and for their own account) and the unconditional and almost unlimited control that each of these agents enjoys over the resources at his command—go naturally and necessarily together. In fact, these two sides of property are not only distinct, they are also in tension with each other. We may hope to increase the range and variety of economic agents by cutting back on the uniform, absolute, and perpetual character of the control that each agent exercises. Failure to recognize this tension in the abstract idea of property has been one of the most important reasons for the perpetuation of the idea that unified property is somehow the central and exemplary feature of a market economy.
An area of reform in the property regime that is vital to the future of the knowledge economy is intellectual property. The established law of patent and copyright—largely a creation of the nineteenth century—inhibits the development of an inclusive vanguardism. It does so chiefly by imposing a highly restrictive grid on the ways in which economic agents can participate in the development of the knowledge economy and share in its rewards. Its practical effect is to help a small number of mega-enterprises dominate the vanguards of production by holding exclusive rights to key technologies that they have either developed themselves or bought from the original inventors. The excuse for concentrating such rents in a small set of capital-rich economic agents is the need to provide incentives to innovation, compensating those who have made long bets on an improbable future. The consequence, however, is to benefit a few only by discouraging and excluding many. It is also further to enhance the already overwhelming advantages of large scale in the control of the knowledge economy.
A special problem and unique opportunity exist with respect to the part of the knowledge economy that trades in the data of millions of people. There a change in the intellectual property would have the most immediate and revolutionary effect. By contrast, the present arrangements, allowing platform companies to monetize personal data without compensation to the individuals whose activities the data track aggravates the perversity of the established regime of intellectual property. That regime awards a handful of giant firms exclusive rights to crucial innovations through patent, copyright, trademark, and other rights in intellectual property, while leaving empty-handed millions of creators of the material on which the business model of the platform companies depends.
Such diversity in the mechanisms of consent and compensation might in turn lead to a more fertile plurality of degrees of engagement of the data creators in the business of the data users. The deepening and detailing of individual data profiles might sometimes have as their counterpart participation of the data creator in some aspect of the business, remunerated by money payments or by equity. The result would be to turn otherwise passive sources of material into engaged agents.
The Political Economy of Rich Countries
Failure to develop the knowledge economy in inclusive form—or even to imagine such a development as a political-economic project—has had enormous consequences for the rich countries and for the positions of both the Left and the Right in their politics. We cannot understand what has happened, or what could happen, in their political life without doing justice to the influence of ideas. Technological and economic forces and class interests alone cannot explain the direction of politics in these countries, or reveal how they might accelerate growth and diminish inequality.
The historical experience of these and all societies demonstrates the formative role of ideas and of the lack of them. Consider, both as an example of this role and as background to the circumstance explored in this section, the evolution of the agenda embraced in the United States and other North Atlantic societies by progressives and reformers in power from the 1930s to today.
Franklin Roosevelt and many of his collaborators were avowed and genuine experimentalists about institutions and policies. The Depression and the Second World War provided an extraordinary opportunity for the pursuit of a transformative agenda. Nevertheless, the institutional experimentalism of the early New Deal had as its organizing principle the corporatist idea of concerted action between the federal government and big business. Its overriding goal was to restabilize rather than to democratize the market order—an effort later retaken with a vengeance under the conditions of the war economy. In its animating assumptions about economic recovery and reconstruction as well as in the details of many of its policies for recovery and employment, it resembled the response to the slump by other governments of the same historical period, including the Nazi regime in its early years.
In the evolution of the New Deal, the corporatist impulse gave way to a narrower focus on the provision of safeguards against economic insecurity. (The Social Security program was the most important example.) The provision of antidotes to economic insecurity was in turn followed, after the war and the war economy, by policies designed to support mass consumption. The turn to mass consumption was facilitated by the expansion of debt and credit, by stark imbalances between surplus and deficit economies, and by countercyclical management of the economy in the spirit of popular Keynesianism.
Throughout each step of this trajectory, the same assumptions remained in place. According to these assumptions, the state can regulate the market economy more intensively and soften its inequalities after the fact by use of progressive taxation and social spending. What it cannot do is to reinvent the constitutive institutional and legal arrangements of a market regime. These arrangements are what they are.
Thinking that is useful to the advancement of an inclusive form of the knowledge economy must challenge these assumptions. Prominent among the conditions of such an alternative are its legal-institutional requirements, understood as a pathway rather than as a blueprint or a system. The pathway begins with initiatives that form part of the established stock of policy ideas. But it moves toward innovations in the legal regimes of property and of employment. Such innovations do more than increase or diminish the space of the market vis-à-vis the state. They put one market order in the place of another.
The absence of an inclusive form of the knowledge economy as a living and influential idea, not just as a yet distant economic and political achievement, has helped shape politics and policy in the rich countries of today on the right and the left as well as in the center. It has done so indirectly by its consequences for economic stagnation and inequality. It has done so directly by its effect on assumptions about alternatives to the present course of economic policy and economic growth. The lack of such an alternative in doctrine as well as in practice has exercised as powerful an influence as was the influence of a dearth of developed alternatives to corporatist concerted action between government and business in the crisis of the 1930s.
As contemporary progressives and right-wing populists envision no alternative market regime, they can have no transformative approach to the supply side of the economy. Progressives have largely abandoned the supply side to conservatives and resigned themselves to the primacy of demand-oriented policies. The supply-side project of populist as well as traditional (classical-liberal or neoliberal) conservatives has been the preservation or restoration of a market order whose legal and institutional content they take to be self-evident. They misrepresent any attempt to reshape economic institutions as governmental intervention in the economy and fail to distinguish between suppressing the market and remaking it. They cannot, or will not, imagine the existence of a different market regime.
The Higher Purpose of the Knowledge Economy
The insularity of the most advanced practice of production contributes to an evil distinct from the evils of economic stagnation and inequality. By condemning the vast majority of the labor force in even the richest countries, with the most educated populations, to less productive jobs, it also belittles them. It forces them to live diminished lives, giving inadequate scope to the development of their powers and to the expression of their humanity. To overcome the evil of belittlement through the transformation of workday experience is the higher purpose of an inclusive vanguardism.
It is true that many who remain outside the knowledge economy in its present quarantined form may escape belittlement in jobs that require them to care for other people. This caring economy, however, can also be transformed, and better empower both its beneficiaries and its agents, if it takes on features of the now most advanced practice of production.
One way to deepen insight into the larger value of a deepened and widespread form of the knowledge economy is to consider and criticize the views of Marx and Keynes about the place of economic activity in the self-construction of humanity. Contrary to what Marx and Keynes supposed, we have no prospect of overcoming scarcity, although the significance of scarcity may change under a form of production that loosens or reverses the constraint of diminishing marginal returns—which has up to now remained the most persistent and universal regularity of economic life. Neither, however, should we accept the instrumental view of work, under any established division of labor. The instrumental view of labor was the view that Marx and Keynes took for granted, seeing work in the production system as brute necessity, imposed on us by scarcity and diverting us from our greater possibilities.
This idea of work amounts to a species of world abandonment. It despairs of seeing the higher attributes of our humanity expressed in our material life unless and until the weight of scarcity has been lifted. The ideal of work that enables us to build and to change ourselves by trying to change a piece of the world seems, according to this idea, pertinent only to a society in which material need have ceased to bind us to the wheel of production. Until then, even the advantaged will be unfree; they will be consumed by the struggle to maintain their privilege and exercise the powers accompanying it, unless they are isolated artists or thinkers, living as apostates from the social order. These happy few will require insight, virtue, and luck to remain uncorrupted by their advantages.
Economic life, understood in this way, is always a terrain of constraint. Freedom is freedom from the economy rather than freedom in the economy.
No economic regime or practice of production offers freedom without constraint. The extent to which production can become a field of freedom as well as of constraint, however, varies from one economic and political regime to another, and from one practice of production to another. As it deepens and spreads, by the means and in the direction that I have described, the knowledge economy ascends the ladder of openness to experiences of freedom. It does so more through its deeper characteristics—its potential for increasing returns, its reshaping of production as discovery, and its heightening of trust and discretion—than on account of its superficial traits—those that it displays in its present insular form. It does more by virtue of the cognitive-educational, social-moral, and legal-moral requirements of its deepening and dissemination than as a consequence of those deeper characteristics. And it does so more as an effect of the background conditions favorable to fulfilling those requirements—the radicalization of the experimentalist impulse in culture and high-energy democracy in politics—than as a result of their fulfillment.
There have been three main conceptions of work in the history of civilization. The first two have shadowed mankind throughout history. The third is a recent, revolutionary invention. The first is the instrumental view of work: work as what the vast majority of people have had to undertake in the unequal societies, bent under the yoke of scarcity, that history has seen. Relief and humanity will lie elsewhere: in family life and in personal relations outside the prison house of unavoidable labor.
The second is the idea of work as an honorable calling: a station, a profession, a specialty in the social division of labor, affording respect and self-respect as well as a livelihood. To occupy such a station is to reconcile material and moral need, albeit at the cost of accepting a set of stable routines and a predefined role in the society and the economy. It is to accept the inevitability of a mutilation: that to be something in society we turn ourselves into someone in particular, accepting a rigidly confined place in the division of labor and foregoing the selves that we might have become.
The third is the idea of the transformative vocation: an invention of the age of democracy and of romanticism, carried later to the whole world on the wings of the global romantic culture and of the political doctrines of liberalism, socialism, and democracy. By seeking to change part of the world around us, we make ourselves greater and freer. We affirm our transcendence over station and circumstance. We refuse the last word to the social and conceptual worlds that we inhabit and keep the last word for ourselves.
To live the idea of the transformative vocation, not just to entertain it as a fantasy, has remained the prerogative of a tiny elite of innovators and leaders. Yet the knowledge economy holds the promise of making this experience available to many. It cannot do so in its present insular form. Moreover, its prospect of keeping that promise depends on the movement toward deepening and spreading the most advanced practice of production. Among the requirements for this movement, the one bearing most directly on this hope is change in the legal status of labor: the gradual replacement of economically dependent wage work by the combination of self-employment (not as disguised wage work) and cooperation (organized by alternative property regimes). These and other changes in the arrangements of the economy, the character of education, and the organization of politics determine whether the idea of the transformative vocation can live in economic reality.
To the extent that it does live, it holds the prospect of sharing in a basic aspect of freedom: our ability to empower ourselves by turning the tables on the habitual framework of our activity. Freedom, in its most radical and comprehensive meaning, is affirming, in deeds not words, that there is more in us—in each of us individually and in all of us collectively—than there is or even can be in the social and conceptual worlds that we build and join and in the roles that we perform.