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Are knowledge monopolies driving global inequality?

In a new release for the UNU-WIDER and Cambridge University Press Elements in Development Economics series, I look at global capitalist economic history through a new lens. In the book, I highlight how the creation of, command over, and exclusion from knowledge is a critical factor explaining why some countries have higher levels of economic development and per capita income than others.

This new perspective shows the necessity for development policy to explicitly address the development of the knowledge economy. More than just accumulating capital and developing capabilities, development is also a matter of developing and creating knowledge.

Inequality in this development process arises from the enclosure of technological knowledge and the difference in economic returns between enclosed or monopolized knowledge and knowledge that remains in the commons. Economic units—firms and countries—with monopolized knowledge secure monopoly returns, or higher profits, while firms and countries with knowledge in the commons face greater competition and generate much fewer profits. This analysis contradicts mainstream theories of economic development that assume an unimpeded flow of technological knowledge across the world. 

The book, Knowledge and Global Inequality Since 1800 examines the way this enclosure of knowledge played out in two historical periods: the Industrial Revolution and the accompanying colonial period (from around 1800 to 1950) and the contemporary, post-colonial period (1950 until the present). I use the terms Global North and Global South to denote two sets of countries that have largely remained stable (with few exceptions) across the global economy. 

During these periods, both divergences and limited convergences between countries share common explanatory features: the difference in returns between enclosed knowledge and knowledge in the commons; the structures of the world economy created through such knowledge differentiation, and the movement in development from being mainly users of knowledge to becoming producers of knowledge that is, in turn, monopolized. 

Adverse specialization

In the colonial period, per capita incomes in, say, China and India fell from about 40–50% to below 10% of European per capita incomes from 1800 to 1950—what is known as the Great Divergence. The Global North specialized in manufacturing, benefiting from economies of scale and increasing profits. Through the imposition of free trade policies, Southern economies specialized in the production of agricultural and other raw materials. 

I term this specialization of the South in low-return economic activities ‘adverse specialization’, which is a specialization that provides lower profits and importantly, in a dynamic sense, does not open the way to securing higher profits from manufacture. Japan, which was not colonized or dominated by imperialism, was the only economy not in the Global North to acquire and develop the knowledge of factory-based manufacture.

Drawing lessons from adverse specialization in agriculture and raw material production, countries of the Global South took up industrialization in the post-colonial period. But they have since confronted a different form of exclusion—from high-value knowledge within the manufacturing process. In the contemporary form of production in global value chains, the headquarter firms of the Global North specialize in value-capturing, knowledge-intensive activities—such as design, branding, and marketing. On the other hand, the supplier firms of the Global South specialize in the low value-capturing activities of manufacture and raw material production, based on knowledge commonly available. 

In the well-known example of iPhones, Apple, with its intellectual monopoly capital, secures a profit margin of more than 50%, while assemblers get profits in single digits. The same story plays out in garments or footwear, with profit margins over 40 or 50% for the big brands and around 10% for manufacturers. 

Middle-income trap

Nevertheless, movement from agriculture to manufacturing and some processing of materials has enabled a movement from low-income to middle-income status for several countries in the global economy. But most of these economies are stuck in the middle-income trap. In my book, I identify the factor that has enabled a few economies, most notably South Korea, to escape the trap. This factor is the capability to move from users of knowledge to creators of knowledge, in the process developing their own brands. 
Some, like Singapore and Poland, have developed higher-knowledge-based services. The critical factor, however, is the movement to becoming creators of knowledge that can be monopolized for higher profits. 

China clearly is in the process of developing, not just production knowledge such as solar panels and electric vehicles, but general-purpose technology, such as Artificial Intelligence (AI), even challenging US domination of the new core technology of the age of artificial intelligence. Thus, such technological knowledge development is not only necessary to move out of the middle-income trap but also becomes the basis for great power rivalry.

Reforming the knowledge economy

Any analysis of global inequality must necessarily deal, even if partially, with methods for reducing global inequality. The current intellectual property regime, developed over at least 400 years, allows the owners of these rights to create intellectual monopoly capital. 

Knowledge and technology creation do require some incentive. What I propose is a form of compulsory licensing, one which will provide advantages, including for risks taken in the creation of technological knowledge, without providing a monopoly or restricting the spread of that knowledge. A system of compulsory licensing can be initiated to supply global public goods, such as those required to deal with pandemics and climate change. A successful roll-out for such easily recognized public goods can then be possibly generalized across the global economy.

Dev Nathan is Professor at the Institute for Human Development, Delhi and Ranchi. He is also with the Southern Centre for Inequality Studies at WITS University, Johannesburg, and the GenDev Centre for Research and Innovation, Gurgaon.

The views expressed in this piece are those of the author(s), and do not necessarily reflect the views of the Institute or the United Nations University, nor the programme/project donors.