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The Weightless Developing Economy

by Danny T. Quah

For the last fifty years, economists and development practitioners have viewed the accumulation of physical capital-machines, buildings, and highways-as central to economic growth. However, the evidence shows that technological advance, reflecting the accumulation of knowledge, is more important. Today, there are new opportunities to use knowledge for faster development; outsourcing software construction and data entry to workers in emerging economies (such as India) is just one example. 

Economic progress has been knowledge-driven since the Industrial Revolution of the late 18th century, and you could argue that the ancient Sumerians started the process when they first carved financial records onto clay tablets, some 5,000 years ago. Indeed, many of today’s worries-job destruction and rising inequality-were evident when spinning jennies and steam engines first came into use. 

The Weightless Economy

However, the present revolution in information and communications technology (ICT) does raise fresh questions. Today’s weightless economy consists of ICT together with intellectual assets-patents together with copyrights, trademarks, images and so forth-as well as electronic libraries, databases and biotechnologies. We are seeing the emergence of an economy that is qualitatively different from the one that dominated the 20th century.

Knowledge workers generate the technological base of a manufacturng economy. Intellectual property rights such as patents protect their ideas. In contrast, the new weightless economy is built on strings of information; these may exist on the hard disk of a PC or on an Internet server, they may consist of a paper blueprint, or even an idea in someone’s mind. The form that they take is largely immaterial to their value. Hence, intellectual property is more difficult to protect in the new weightless economy.

Moreover, these information strings do not simply plug into a production process as before. Instead, consumers deal with them directly; from your PC you can download computer software, digital entertainment, or use the Web to purchase health consultations, financial instruments, and other valuable items. And the enjoyment of these products by one consumer does not preclude their consumption or use by anyone else. This is qualitatively different from the way consumers interacted with the old manufacturing economy.

Policies for a Weightless Economy

Obviously, encouraging ongoing technological development is critical to the growth of a weightless economy. Less obviously, systems for managing intellectual assets must be changed-sometimes radically. Protecting intellectual property (and thus the incentive to innovate) without at the same time creating socially harmful monopolies is a key issue in the weightless economy, whether it is software or the DNA profile of Iceland’s population. Access is also critical: worldwide there are potentially six billion users for the products of the weightless economy, but getting them hooked up to the new economy is not straightforward. Thus governments and collective bodies should contribute more to the fixed costs that would otherwise inhibit global access, and to encouraging the spread of knowledge about (and desire to use) these exciting, but sometimes complex, knowledge products. 

Lessons from Ancient China

At the end of the Sung dynasty in the 14th century, China stood at the brink of an industrial revolution-400 years before the industrial revolution arrived in late-18th century Europe. China’s output of iron per capita was higher then than that of 18th century Europe-the result of its lead in blast-furnace technology. Yet, the next five centuries saw dismal economic decline, instead of sweeping economic change. Why was this so? 

Fundamentally, China'’s failure to accelerate its growth was a failure of demand. In 14th century China, technological knowledge was tightly controlled-scholars and bureaucrats kept the secrets to themselves and it was said that the Emperor ‘owned’ time itself. A large customer base never developed, and technological development languished after its early and promising start. A European of the eighteenth century was, in contrast, eager to use the products of the new spinning jenny and steam engine and strong consumer demand encouraged more technological progress. So, Europe took the lead, and China languished until the late twentieth century. 

Protecting the Incentive to Innovate​

The weightless economy is a new form of the knowledge-based economy. Historically, societies developed intellectual property rights to protect the incentive to innovate. At times this meant lost efficiency, but the spur to innovation was worth it. As ICT and other technologies drive economies to become progressively weightless, so protecting innovation incentives becomes even more important-but old systems for achieving this are now less effective. The challenge is a crucial one if the weightless economy is to prosper.

Societies must also develop the skills and attitudes that are necessary to consuming and appreciating complex technologies. Because participation matters-not just access-openness to new ideas is crucial to societies seeking to develop a weightless economy. China in the 14th century is a dramatic case in point. It was insufficient scientific knowledge among the general population and within the governing elite about the benefits of science-not inadequate scientific knowledge itself-that crippled an entire nation’s prospects for economic growth and development.
 

Danny Quah is a Professor of Economics at the London School of Economics, and a participant in the UNU/WIDER project on Information Technology and Growth led by Professor Matti Pohjola. This article is based on his presentation to the UNU panel on IT, Economic Growth and Development (UN ECOSOC 2000 preparatory process) in New York on 5 May 2000.

Further details of UNU/WIDER research on information technology and its economic impact can be found on our Web site at: www.wider.unu.edu. Danny Quah’s home page at the LSE is: http://econ.lse.ac.uk/staff/dquah/