The Competitiveness of Nations in a Global Knowledge-Based Economy

14.0 Competitiveness

14.0 Competitiveness

14.1 Origins

14.2 Production Function

14.2.1 Inputs

14.2.2 Outputs

Exhibit 2: Production Function of a Knowledge-Based Economy

14.2.3 Reconciliation

14.3 Fitness

14.3.1 Autonomous Agents

14.3.2 Coevolution & Coconstruction

14.3.3 Adjacent Possible

14.4 Comparative Advantage

Exhibit 3: The National Knowledge Endowment

14.4.1 As Noun

14.4.2 As Verb

14.4.3 As Form

14.4.4 As Content

14.4.5 Governance

14.5 Competitive Afterthoughts











It is safe to say that enterprise which depends on hopes stretching into the future benefits the community as a whole.  But individual initiative will only be adequate when reasonable calculation is supplemented and supported by animal spirits, so that the thought of ultimate loss which often overtakes pioneers, as experience undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death.

John Maynard KeynesThe General Theory of Employment, Interest and Money: Chapter 12 The State of Long-Term Expectations, 1936.

* Index & Epithet not in published dissertation

 14.0 Competitiveness

1.         I have now progressively and in increasing depth and detail defined knowledge as:

  • a monophonic abstract Platonic noun reflecting the elemental biological human need to know, the immeasurability and incommensurability of knowledge and its general expression in inherently limited human languages including mathematics.  The biological need to know constitutes the material cause of knowledge;

  • a diaphonic verb – Science by Design – reflecting that the reductive method including in the experimental sciences always take place within the constructive framework of Design.  Science by Design constitutes the efficient cause of knowledge;

  • triaphonic forms of personal & tacit, codified and tooled knowledge then expressed as inputs to the production process as codified & tooled capital, personal & tacit labour and toolable natural resources, and as final outputs of that process as the Person, Code and Tool.  These three constitute the formal cause of knowledge –somatic and extra-somatic; and,

  • quadraphonic content individuated, socialized, legalized and economized using the etymological WIT, psychological PSI, epistemological EPI, pedagogic PED, legal IPR and economic FLX.  Content constitutes the final cause of knowledge – the what, why, who, where and when of knowledge

2.         New knowledge contributes to creative destruction (Schumpeter 1942, 81-86) of the Nation-State or what Kauffman calls ‘coconstruction’ and ‘coevolution’ (Kauffman 2000, 216).  Both the irresistible force (knowledge) and the immovable object (the Nation-State) are organic not mechanical entities.  Ideologically, they are ‘epistemic objects’ (Rheinberger 1997). 

3.         New knowledge affects some or all of the constituent institutions and networks that make up a Nation-State.  It mutates their structure, form and function.  It alters their ‘fitness’.  In the Standard Model of economics, the relevant structure is the production function.  The national production function is simply the horizontal summation of the individual production functions of all firms.  There is no government.  All production is done by private firms while the State buys from such firms using compulsory payments from the population, i.e., taxes.  The State is, in this sense, a consumer, not a producer. 

4.         First, I will examine the term ‘competitiveness’ as used in current debate about the global knowledge-based economy.  Second, I will review the production function of a traditional manufacturing-based economy and then re-design it to reflect a knowledge-based economy.  Third, I will propose biological ‘fitness’ as a more appropriate and robust criterion than competitiveness.  Fourth, and finally, I will consider comparative advantage with respect to knowledge as a noun, verb, form and content.  And, as will be demonstrated, comparative advantage is in fact ideologically commensurable between biology and economics.


14.1 Origins

1.         As noted by Stéphane Garelli, Director of the World Competitiveness Project, some scholars believe that the Nation-State does not compete, only business enterprise (Garelli 2002).  This flies in the face of history.  The Nation-State is the most complex organizational form yet evolved.  It functions in an environment populated by other Nation-States.  In one form or another, it has been involved in competition with its fellows since before recorded history, often the most violent competition - war.  Even in times of peace, Nation-States constantly defend and strive to extend their influence and power through diplomatic and other means including state-sponsored industrial espionage (Whitney and Gaisford 1996).  And war, of course, is but “the continuation of state policy with other means” (Clauswitz 1832). 

2.         With the fall of the Berlin Wall the search began for the pattern or leitmotif of the new post-Cold War world.  For Samuel Huntington, it was “The Clash of Civilizations?” (Huntington 1993); for Robert Kaplan, it was “The Coming Anarchy” (Kaplan 1994).  A very different set of scenarios were cast, however, at about the same time.  One concerned alternative futures for the “information superhighway”, the graphic or icon-based World-Wide Web (WWW) which appeared in 1994.  Another set concerned corporate and national competitiveness in a global economy.

3.         With respect to the WWW, on the one hand, this electronic gateway appeared to open onto Marshal McLuhan’s pastoral “global village” with free access to knowledge by all anywhere in the world.  The distant poor of the Third and Fourth Worlds would ‘plug in’ and prosper with their new found knowledge. On the other hand, the Net” was portrayed as a cybergothic nightmare as charted by William Gibson in a series of novels written between 1984 and 1993 (Gibson 1984, 1986, 1988, 1993).  In Gibson’s version of the webbed future, the mind’s eye fills with swirling multimedia, merging and mutating into a consensual hallucination called “cyberspace” (a term coined by Gibson).  This virtual reality rushes forward fueled by techno-greed for knowledge contained in streaming columns of bits and bytes graphically


portrayed in the Wachowski Brothers’ motion picture The Matrix (Wachowski Bros. 1999).  Hackers, or what in 1984 Gibson called “console cowboys”, fight for encrypted information using identity theft, spam, Trojan Horses, viruses and worms as well as ‘black ICE’, i.e., intrusions countermeasures electronic, often fatal to hackers.  In the process, individuality and privacy erode before the ceaseless search for knowledge by corporate techno-elites that know which buttons to push while the rest of humanity cannot program a VCR.  In Gibson’s future. corporations (and governments) protect know-how and trade secrets by implanting “neural bombs” in employees.  If an employee’s loyalty slips, the bomb goes off killing or mentally maiming: the bottom line, knowledge is protected.   Even artificial intelligence has a place in Gibson’s world qualifying for citizenship in Switzerland (Gibson 1984).

4.         A very different information-based scenario emerged, however, with the 1992 World Competitiveness Report published by the World Economic Forum and the Institute for Management Development in Geneva, Switzerland since 1980 (WEF & IMD 1992, 3).  This report introduced the concept of “the softer side of competition” reflecting the shift to a knowledge-based economy.  It noted that in “the industrialized world today, only 15% of the active population touches a product.  The other 85% are adding value through the creation, the management and the transfer of information” (WEF & IMD 1992, 4).  This scenario I call the competitiveness of nations in a global knowledge-based economy.

5.         Economic competitiveness has always been with us.  Contemporary usage, however, extends traditional mass market price competition to “working smarter” in response to consumer demand for higher quality more customized goods and services, globalization and technological advance.  Competitiveness promises profitable and progressive industries, more satisfying jobs, higher salaries and higher tax revenues collected at lower rates to supply social investment in deficit and debt retirement, education, health, infrastructure and welfare.  It promises to make one’s country, community or company “top dog” in a confusing kaleidoscopic post-Market/Marx world in which former enemies are now trading partners.

6.         Competitiveness is generally expressed in sports metaphors such as: “skating where the puck is going, not where it is” which captures its anticipative nature (Wilson 1992).  In this game, however, some win and some lose in an “us/them” conflict deciding the destiny of our children, our communities and our country.  Arguably, global competitiveness has ideologically quenched the last embers of the ‘60s revolution of rising expectations.  Fear of job loss has smothered the hopes of citizen consumers and workers.  Instead of George H. Bush Sr.’s “kinder and gentler society”, we live with George W. Bush Jr.s fear of downsizing, obsolescence, out sourcing, privatization, redundancies and technological displacement.  This threatens:


·         living to work rather than working to live;

·         vocational training and specialization rather than education and cultural rounding;

·         fear of job loss rather than pride in one’s work; and,

·         fear of the Third World and immigrants as threats to economic security, not partners in a cosmopolitan, cultivated, equitable, peaceful, prosperous, stable and tolerant tomorrow.

7.         A global knowledge-based economy, however, is not just a Darwinian struggle for individual, corporate, communal or national survival.  Arguably it is the apotheosis of the human species marking its “departure or release from earthly life” (OED, apotheosis, 4).  Born of the earth, humanity driven by its biological need to know has spawned a global economy based on intangible virtual property called knowledge.  And with this knowledge it has got itself into outer space, certainly a departure from earthly life.

8.         Whether the global knowledge-based economy becomes a heaven or a hell on earth, the game is afoot.   National innovation systems are being constructed.  Educational systems are being transformed including re-introduction of standardized testing.  Intellectual property rights are continuingly being updated in an effort to keep up with new technological matrices to codify and tool knowledge.  Firms are appointing Chief Knowledge Officers.  And, in this game, the object at play is the production function of the firm and Nation-State.


14.2 Production Function

1.         The concept of the production function is perhaps the most elegant contribution of economics to human thought.  It is the recipe of inputs (factors of production) to maximize the output of a firm or nation.  It is defined “by a given state of technical knowledge” (Samuelson 1961, 570).  In symbolic form, a production function can be expressed as:

Y =  f  t  (K, L, N)


Y = output

f = some function of …

K = capital

L = labour

N = natural resources

t = time

2.         This reads: Output (Y) is some function (f) in a given time period (t) of capital (K), labour (L) and natural resources (N).  In effect, the state of technical knowledge, or technology,


is implicit in the ‘f’ of the equation.  It is the recipe.  How much of each input, in what combinations and under what conditions can ingredients be mixed to produce maximum output and minimize cost?  This is technology.  It is also time specific, i.e., it has vintage. 

3.         If the object at play, the ball or puck, is the production function then each firm or nation is a team constantly adjusting its play to gain advantage over its opponents.  For a knowledge-based economy, the production function and each of its parameters can now be stated in terms of knowledge.  I will briefly summarize inputs and outputs and then present a re-designed production function for a knowledge-based economy.


14.2.1 Inputs

1.         The traditional factors of production – capital, labour and natural resources - can be expressed as codified & tooled capital, personal & tacit labour and toolable natural resources. 

2.         Capital is codified and tooled knowledge, i.e., knowledge fixed or tooled into an extrasomatic matrix.  It is “knowledge imposed on the material world” (Boulding 1966, 5), or, “frozen knowledge” (Boulding 1966, 6).  It comes in two forms:

·         codified knowledge as human-readable information management systems and databases, operating manuals and libraries as well as associated intellectual property rights such as copyrights, patents, registered industrial designs and trademarks; and,

·         tooled knowledge as ‘hard-tooled’ plant and equipment plus related ‘soft-tooled’ knowledge such as machine-readable computer & genomic programs, standards and techniques. 

3.         Labour as personal & tacit knowledge is somatically fixed in an individual as neuronal bundles of memories and the trained reflexes of nerve and muscle.  It comes in three forms: productive, managerial and entrepreneurial.

4.         Initially a natural resource may appear simply part of the environment – animal, plant, mineral, etc.  With new knowledge, however, such environmental artifacts become recognized as toolable into goods and services serving human purpose, satisfying human wants, needs and desires, i.e., all of Nature will eventually become toolable natural resources as humanity technologically enframes its environment, i.e., planet Earth.

5.         At any given point in time there is a given stock or quantity of factors of production.  In the Standard Model, physical capital stock is static or fixed in the short-run until additional factors are acquired in the long run.  In a knowledge-based economy, however, codified and tooled capital is not static but rather dynamic and organic, exhibiting mutation, change and


increase even with no new additions.  Fusion and fission takes place.  For example, with no additional capital plant and equipment, labour can learn (personal & tacit knowledge) how to use existing equipment more effectively and tinker with it (development) to maintain or improve its capacity. 

6.         In this way, inputs to a knowledge-based economy are more like financial rather than physical capital.  The English word ‘stock’, in its financial sense, is not found in any other language except by adoption.  Its origin is obscure linking a trader's capital to a trunk or stem from which gains are the outgrowth (OED, stock, VI). 


14.2.2 Outputs

1.         The economic value of knowledge is satisfaction of the human biological need to know:

a) directly through final goods or services satisfying carnal as well as intellectual, emotional and intuitive needs to know; and,

b) indirectly through intermediate or producer goods and services used to create final ones and which, in the production process, become part of the final product or lose their identity.

2.         Knowledge takes three forms as an intermediate output (a means to an end) and as a final consumer good (valued in-and-of-itself) - the Person, Code and Tool.  For clarity, I restrict Person to the natural person possessing personal & tacit knowledge.  I restrict Code to matter coded to carry semiotic meaning from one human mind to another.  I restrict Tool to matter tooled to carry function, i.e., to measure and/or manipulate the physical world as sensor, tool or toy.  A Code or Tool, however, have meaning or function only through the agency of a Person.  In this sense, the Person is the ultimate input and output of a knowledge-based economy.  And in the guise of personal & tacit labour one can meaningfully speak of a ‘labour theory of knowledge’. 

3.         Knowledge outputs serve three primary purposes.  First, a knowledge output may serve knowledge-for-knowledge-sake.  In the philosophy of science this is associated with the research community embracing universities, colleges and affiliated research institutes.  The importance of academic research is that it is not restricted by immediate applicability.  In aesthetics, i.e., the fine arts, it is associated with art-for-art’s-sake.  Consumer demand to know for the sake of knowing also should not be under-estimated as demonstrated by the success of the entertainment industry, NASA and other scientific as well as religious institutions.  The hunger to know is a force that moves budgets. 


4.         Nonetheless, traditionally Art and Science are subject to epistemic limits.  In the natural & engineering sciences, knowledge by sight is dominant, i.e., seeing the numbers, seeing the graph, seeing is believing (Idhe 1991).  Other senses are suppressed.  In aesthetics, the distant senses of sight and sound are dominant with the contact senses of taste, touch and smell suppressed (Berleant 1964).  In economics, however, knowledge-for-knowledge-sake is subject to no epistemic inhibition.  Limitations of law may artificially restrict our means but do not stop us from pursuing our pleasures.  The failed attempts to prohibit ‘forbidden knowledge’ such as prostitution (carnal knowledge) and drugs (altered states of conscious) are examples.  If there is a human need to know, the first economic question becomes: Is there a profit to be made?  The second: Is there a law limiting that profit?  The third: Is there a way around the legal limitations?  In this sense, economics is an amoral rather than an objective science.

5.         Second, any output (Person, Code or Tool) may serve a utilitarian purpose such as knowledge-for-decision-or-profit.  In the societal guidance mechanism (public, profit and nonprofit), knowledge supports policy development and program implementation as well as product development, innovation, production and marketing.  In the military, knowledge as ‘intelligence’ plays a similar role.  The reality of decision (public, profit, nonprofit or military), however, is that it is inevitably subject to time and therefore knowledge constraints.  As revealed by Eric Jantsch (1967) in his pioneering survey of technological forecasting and assessment for the OECD, there is never enough time or enough knowledge to make a fully rational decision.  ‘No-knowledge’, i.e., knowing without knowing how one knows, inevitably plays a role.  The most a decision maker can achieve is ‘informed intuition’.  This is consonant with the failure of calculatory rationalism in the Communist Bloc during the Market/Marx wars.  Von Hayek was right.  Simply put, there is more to knowledge than calculation.  Local knowledge combined with an anonymous price system works best.  Abstract knowledge combined with human hubris works worst.

6.         Third, a knowledge output (Person, Code, Tool) may serve as knowledge-for-ethos reinforcing or disestablishing, e.g., revolutionary tracts, the characteristic spirit, beliefs and customs of a nation, community, firm or individual.  The most extreme examples are mass conversions initiated by an Abraham, Moses, Christ, Mohammed, Buddha and Confucius as well as more recent examples of the Republican and Communist Revolutions.  The citizen is motivated by the need to know about his or her world.  How wide or narrow this need will be varies between individuals and the times in which they live.  Ethos is the world of Walter Lippman’s Public Opinion and “the pictures in our heads”, i.e., that part of the world that we


cannot experience directly through our native senses (Lippman 1922).  This is the public domain of a knowledge-based democracy fed by a free press.  


14.2.3 Reconciliation

1.         The production function of a knowledge-based economy (KBE) is displayed as Exhibit 2.  It reads: Output (Y = Persons, Codes and Tools) is some space/time period (s, p) function (f) acting on an embodied stock (e) of codified & tooled capital (K), personal & tacit labour (L) and toolable natural resources (N) subject to continuous endogenous (n), disembodied (d) and exogenous (x) technological change and to changing government policy (g) fostering or inhibiting specific knowledge domains and practices (EPI), disciplines and specialities (PED) and intellectual property rights (IPR).

2.         In contrast to the production function of a traditional manufacturing-based economy, the KBE production function:

-          transforms all factors of production (K, L, N) and outputs (Y) into knowledge that is ultimately personal & tacit;

-          defines each factor and output by a unique set of knowledge qubits, i.e., ∑q = (WIT, PSI, EPI, PED, IPR, FLX);

-          introduces location (s) as well as the historical time period (p) as a salient variable;

-          introduces organizational (HSS) and design (Arts) technology to compliment physical (NES) technological change;

-          introduces Government (g) as a defining variable by selectively fostering or inhibiting specific knowledge domains and practices (EPI), disciplines and specialities (PED) and intellectual property rights (IPR);

-          integrates disembodied (d), embodied (e), endogenous (n) and exogenous (x) technological change into the same production function;

-          expresses personal & tacit and codified & tooled knowledge as the staple commodities of a global knowledge-based economy; and,

-          resolves the schism between capital and labour subsuming human capital as well as managerial and entrepreneurial talent under personal & tacit labour.

3.         If the production function is the object at play in the global-knowledge-based economy then each firm and nation is a team constantly adjusting and refining strategy, tactics and logistics to gain competitive advantage over opponents.  The question, however, arises: Is sports-based competitiveness the appropriate criterion of success?



Exhibit 2

Production Function of a Knowledge-Based Economy

Y = s, p ( K e, Le, N ed, n, x ,g                                                              (1)


Y = Person, Code & Tool

K = codified & tooled capital

L = personal & tacit labour

N = toolable natural resources

f = some function of

s = space

p = time period or era

d = disembodied technological change *

e = embodied technological change *

n = endogenous technological change *

x = exogenous technological change *

g = government **


e = h (P, O, D)                                                                               (2)

d = g (P, O, D)                                                                               (3)

n = i (P, O, D)                                                                                 (4)

x = j (P, O, D)                                                                                 (5)


g, h, i & j = some function of


P = physical technology ***

O = organizational technology ***

D = design technology ***


P = α ( p, c, t )                                                                                (6)

O = β ( p, c, t )                                                                                (7)

D = γ ( p, c, t )                                                                                (8)


α , β , y = some function of


p = personal & tacit knowledge                                             (9)

c = codified knowledge                                                           (10)

t = tooled knowledge                                                               (11)


p, c & t = ∑Q (WIT, PSI, EPI, PED, IPR, FLX) ****             (12)


Q = a combinatory set of knowledge Qubits


* Technological Change: impact of new knowledge on the production function of a firm or nation,: disembodied (systemic) or embodied (localized); and endogenous or exogenous to the firm or nation

** Government: as ‘rule maker’ of, among other things, intellectual property rights and national innovation systems.  While government partners with private owners of K, L & N & decision making is political and therefore exogenous to the economic system.  It plays one or more roles as Custodian, Facilitator, Patron, Architect and/or Engineer of the national knowledge-base.  

*** Physical Technology from the Natural & Engineering Sciences (NES); Organizational from the Humanities & Social Sciences (HSS); Design from the Arts – literary, media, performing & visual.

**** A Qubit is a four-fold unit of knowledge including the etymological WIT (knowing by the senses, mind, doing, experience); psychological PSI (knowing by Reason, Revelation, Sentiment, Sensation); epistemological EPI (knowing by the NES, HSS, Arts, Practices); pedagogic PED (knowing by domain/practice, discipline, sub-discipline, speciality); legal IPR (knowledge fixed in a utilitarian or non-utilitarian matrix, Person or public domain); and, economic FLX (knowledge as disembodied, embodied, endogenous or exogenous technological change)


14.3 Fitness

1.         In sports, it is the opposing team that is the challenge.  The playing field, the environment itself, is generally fixed, invariant and subsidiary to the consciousness of players at play.  In biology, however, natural selection involves not just an opponent but also new invariants and affordances thrown up by an ever changing environment.  In this sense Darwinian fitness is not simply bodily strength, intelligence, vigor or bravery vis-à-vis rivals.  Rather, fitness is a compounded result of the mutual relationship between an organism and its environment including symbiotic as well as predator/prey relationships.  And, as will be seen, symbionts can significantly enhance fitness, i.e., the probability one will survive and leave descendants. 

2.         A fitness landscape is thus constantly changing, altered and distorted by perpetual adaptation by competitors and symbionts as well as environmental variation and change such as increased heat or cold, wet or dry and the rise and fall of mountains, etc.  Shifting to a biological metaphor expands focal attention to include the environment and symbionts, dimensions the sports analogy does not readily capture.

3.         In this regard, Kauffman has extended fitness in molecular biology to the economy, or the ‘econosphere’ (Kauffman 2000, 211-241).  He argues humanity exhibits the same basic pattern of behaviour as all life - making a living:

The parallels are at least tantalizing, and probably more than that.  While the mechanisms of heritable variation differ and the selection criteria differ, organisms in the biosphere and firms and individuals in the econosphere are busy trying to make a living and explore new ways of making a living.  (Kauffman 2000, 216)

4.         I will now examine three of Kauffman’s principle ideas: the autonomous agent, coevolution/coconstruction and the adjacent possible.  I will then apply them to a concept he finds commensurate with economics: comparative advantage.  Arguably, what Malthus did for biology by inspiring Darwin, David Ricardo did for Kauffman. 

5.         Kauffman’s intellectual affinity with economics as well as his debt and contribution to it is apparent throughout his work.  In this regard, he recommends a series of very sophisticated mathematical techniques for application in economics.  Their sophistication is such that I am not qualified to judge their internal workings or technical merits.  I have, however, strong epistemic reservations, as previously noted, about low grade social scientific data fueling ever more sophisticated mathematical models, i.e., garbage in garbage out.  Such low quality evidence


should not be confused with that generated, relatively speaking without human mediation, by the instrumental experimental natural & engineering sciences including biology. 


14.3.1 Autonomous Agents

1.         Kauffman’s central concept is the autonomous agent (Kauffman 2000, 49-79).  This is a Kantian-like entity with natural purpose acting on its own behalf in an environment and able to reproduce itself through “thermodynamic work cycles” (Kauffman 2000, 49).  For Kauffman, such work cycles involve, in almost Heideggerian fashion, the constrained or enframed linkage of endergonic (energy requiring) and exergonic (energy releasing) chemical reactions whereby:

the coherent organization of … constraints on the release of energy … constitutes the work by which agents build further constraints on the release of energy that in due course literally build a second copy of the agent itself…” (Kauffman 2000, 72)

2.         Kauffman thus extends Kant from the cellular to the molecular level where he finds autocatalytic sets of “self-reproducing molecular systems” (Kauffman 2000, 130).  In effect, he finds the origin of life in chemistry.  He argues that life is the inevitable outcome of some threshold concentration of organic chemicals widely dispersed throughout astronomical space.  While this may be so, like Kant asserting there would never be a Newton for a blade of grass, Kaufman concludes that while linking exergonic and endergonic reactions is essential to definition of an autonomous agent, life itself is a “mysterious concatenation of matter, energy, information, and something more …” (Kauffman 2000, 47).

3.         In the biosphere there is also a hierarchy of autonomous agents.  Kauffman points to the evolutionary transition from single-cell organisms without nuclei, prokaryotes, to eukaryotes, i.e., single-cell organisms with a nucleus plus mitochondria in animals or plastids in plants using chlorophyll.  He concludes that:

eukaryotic cells are symbionts of two or more earlier separate autonomous agents that contributed the mitochondria, the plastids, and perhaps the nuclear structure of eukaryotes into a single novel reproducing entity, the eukaryotic cell. (Kauffman 2000, 120)

4.         Life, of course, has burgeoned far beyond single-celled creatures.  Kauffman notes there are some 265 different cell types in the human body (Kauffman 2000, 182).  Each is an autonomous agent.  Each, however, collectively combines to form a higher order agent – an organ - that, in turn, forms a functioning part of a yet higher order agent – the individual human being.  Kauffman takes this hierarchy up from the geosphere of chemistry to the biosphere to the noösphere and beyond to the universe itself.  The process I characterize as the increasing diversity and complexity of autocatalytic systems pursuing Kantian natural purpose.


14.3.2 Coevolution & Coconstruction

1.         The mechanism driving increasing diversity and complexity is coevolution defined as the mutual evolutionary influence of two species (molecular, organic or social) that become dependent on each other.  Each exerts selective pressures on the other, thereby affecting each others’ evolution.  This often involves morphological coconstruction, e.g., the shape of an orchid flower matching the bill of the hummingbird.  Coevolution and conconstruction apply in both symbiotic and predator/prey relationships between autonomous agents.

2.         In fact, Kauffman argues that the primary mechanism of molecular evolution is not the template model of sequentially constructing DNA step-by-step up the ladder.  Rather it is through coconstruction of its segments by sets of mutually dependent autocatalytic molecules that then integrate the parts into a new coherent living whole.  This catches the Kantian sense that “each part is reciprocally means and end to every other.  This involves a mutual dependence and simultaneity that is difficult to reconcile with ordinary causality” (Grene & Depew 2004, 94).

3.         Given an ever changing fitness landscape, autonomous agents constantly adapt, adjust and evolve or go extinct, e.g., out of business, sometimes in avalanches of change.  They do so by experimenting with mutations called preadaptations or exaptations which:

… in an appropriate environment [are] a causal consequence of a part of an organism that had not been of selective significance [but] might come to be of selective significance and hence be selected.  Thereupon, that newly important causal consequence would be a new function available to the organism.” (Kauffman 2000, 130)

Arguably, in a knowledge-based economy, research & development (R&D) plays a commensurable role.  It should be noted, however, that the concept of the self-organizing universe based on coevolution was first (to my knowledge) put forward by Eric Jantsch in Design for Evolution (1975) and then The Self-Organizing Universe (1980).

4.         There are at least two other important characteristic of life on a fitness landscape.  First, having reached a peak of fitness if the rate of mutation, change or experimentation becomes too rapid, i.e., crosses some threshold, then “the population ‘melts’ off the fitness peak and wanders away across the fitness landscape” (Kauffman 2000, 155).  As will be argued below, this may be the case with some traditional First World countries.  Second, among the many border or transition states identified by Kauffman as characteristic of life one of the most intriguing is that life exists on the quantum/classic frontier.

… it is probably of more than passing interest that real living entities, cells, do straddle the classical and quantum boundary.  One photon hitting a visual


pigment molecule can beget a neural response.  In short, real living systems straddle the quantum classical boundary.  If there is a tendency of coevolving autonomous agents to increase the diversity of alternative events that can occur, then living entities must eventually hit the Heisenberg uncertainty limit and abide at least partially in the quantum realm. (Kauffman 2000, 149)


14.3.3 Adjacent Possible

1.         But from where do preadaptations and exaptations come?  According to Kauffman, using chemical reaction charts as his model, they come from the ‘adjacent possible’ consisting “of all those molecular species that are not members of the actual, but are one reaction step away from the actual” (Kauffman 2000, 142).  Extended to the noösphere, it is those thoughts and ideas which are candidates for application at the next level of ideological evolution.  Economic and biological systems expand or explore the adjacent possible as quickly as possible subject to timely selection of the fit and unfit, e.g., going out of business.  If selection takes too long, then fitness may decline or simply melt away.  Arguably, this explains ‘de-industrialization’ of some First World Nation-States.  They maintained existing plant and equipment, e.g., in steel production, until fully depreciated through voluntary (and sometimes involuntary) quotas on imports from developing Asian producers who were investing in the best new technologies emerging from the adjacent possible.  The fitness of the West fell, at least in terms of the traditional manufacturing-based economy.

2.         A characteristic of the chemical adjacent possible is that its size (its possibilities) increases exponentially faster than the increase in the diversity, complexity and number of autonomous agents.  For example, a doubling in diversity may result in a fourfold or greater increase in the size of the adjacent possible, i.e., the number of new possible forms just one step away from becoming actual.   This, Kauffman argues, is one reason for the proliferation and diversification of life.  The same may be said for knowledge itself.  From this conclusion he argues that there is: “a tendency for self-constructing biospheres [and econospheres] to enlarge their workspace, the dimensionality of their adjacent possible, perhaps as fast, on average, as is possible ...”  (Kauffman 2000, 244).  This means an exponential increase in the ways and means by which autonomous agents make a living is the inevitable outcome of increased diversity and complexity.  The transition from an agricultural- to a manufacturing-based economy demonstrates such an exponential increase in job opportunities, not just in number but in the kinds of jobs.

3.         Kauffman is, however, critical of contemporary economics for its treatment of compliments and substitutes in what he calls the technological adjacent possible.  Quite simply,


the Standard Model offers no explanation for the emergence of compliments or substitutes or for the increasing diversity and complexity of new goods and services, e.g., the book versus the DVD player.  Kauffman uses the classic example of the automobile replacing not just the horse but also the network of goods and services associated with it.  He points out the new web of compliments that followed innovation or emergence of the automobile.  These included paved roads, garages, gasoline stations, parking lots, car insurance, the drive-in, then the drive-thru, etc.  Such ‘Kauffman webs’ are, at least in part, commensurate with Paul David’s “network externalities effects” in economics (David 1990, 356).  Kauffman would have us, however, look much deeper into the adjacent possible for compliments and substitutes to enhance economic fitness.


14.4 Comparative Advantage

1.         If the production function is the most elegant contribution to thought by economics, i.e., Y = f (K, L, N), then the theory of comparative advantage is one of its most obscure.  When challenged by mathematician Stanislaw Ulam to “name me one proposition in all of the social sciences which is both true and non-trivial,” the Nobel Prize winning economist Paul Samuelson responded with the theory of comparative advantage because:  

That it is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them. (Samuelson 1969)

2.         This obscurity partially results because the theory engages a complex web of economic ideas including absolute advantage, division and specialization of labour, exchange, factor endowments, opportunity cost, production possibility frontiers, relative prices and trade.  Furthermore, it would more accurately be called the theory of comparative cost rather than of advantage.  And, of course, some of its results appear counter-intuitive. 

3.         Semantic obscurity has lead to the theory finding general expression as a numeric example such as that first used by David Ricardo to demonstrate the theory in his 1817 book The Principles of Political Economy and Taxation.  In his case, it concerned wheat and wine production in England and Portugal.  In summary, comparative advantage means that mutually beneficial exchange is possible whenever relative production costs differ prior to trade.  One of its counter-intuitive deductions, however, is that if a country enjoys an absolute advantage in the production of all goods and services, i.e., can produce all of them cheaper than anyone else, it is still better off trading with other countries.  The theory was used by Ricardo to counter


arguments in favour of protective tariffs and trade barriers which, intuitively, promise national prosperity.  It continues to serve this free-trade purpose.

4.         The theory of comparative advantage, in effect, separates consumption from production.  Without trade, a nation can only consume what it produces.  With trade, it is able to consume more than it produces.  Put another way, by specializing in what it does best, a nation can afford to buy more of what it does worst.

5.         For Kauffman, and biology in general, the advantages of trade are old news:

Economics has its roots in agency and the emergence of advantages of trade among autonomous agents.  The advantages of trade predate the human economy by essentially the entire history of life on this planet.  Advantages of trade are found in the metabolic exchange of legume root nodule and fungi, sugar for fixed nitrogen carried in amino acids.  Advantages of trade were found among the mixed microbial and algal communities along the littoral of the earth’s oceans four billion years ago.  The trading of the econosphere is an outgrowth of the trading of the biosphere. (Kauffman 2000, 211)

6.         To demonstrate the advantages of trade, Kauffman uses a biological example that, to my mind at least, is intuitive:

Consider two bacterial species, red and blue.  Suppose the red species secretes a red metabolite, at metabolic cost to itself, that aids the replication rate of the blue species.  Conversely, suppose the blue species secretes a different blue metabolite, at metabolic cost to itself, that increases the replication rate of the red species.  Then the conditions for a mutualism are possible.  Roughly stated, if blue helps red more than it costs itself, and vice versa, a mixed community of blue and red bacteria may grow.  How will it happen?  And is there an optimal “exchange rate” of blue-secreted metabolite to red-secreted metabolite, where that exchange rate is the analogue of price?  (Kauffman 2000, 216-17)

7.         How it will happen and at what rate it will happen is determined by coevolution.  The benefits of trade lead each to adjust to the other until optimal growth is achieved by both.  Without each others help, individually, each would be less fit.  In such a symbiotic relationship there is also potentiality for emergence of a higher order autonomous agent, e.g., prokaryotes coevolving into eukaryotes. 

8.         For the Nation-State, as an autonomous agent, at any given point in time there is a knowledge endowment with which to specialize and trade.  It consists of a unique mix of knowledge as noun, verb, form and content (Exhibit 3).  It is composed of codified & tooled


Exhibit 3

National Knowledge Endowment


Biological Need






Trans-Disciplinary Induction








Personal &Tacit




Personal &Tacit Labour

Codified &Tooled Capital

Toolable Natural Resources






Event Horizon


Etymology **






Psychology ***






Epistemology ****




The Arts

The Practices







Law *****





Public Domain

Economics ******






 *    A four-fold measure of knowledge

**    Derived primarily from the Oxford English Dictionary (OED)

***  Adapted from the Analytic Psychology terms for the four human faculties of knowing: thinking, intuition, feeling and sensation

**** NES = Natural & Engineering Sciences

HSS = Humanities & Social Sciences

The Arts = Literary, Media, Performing & Visual Art

The Practices = Accounting, Architecture, Engineering, Law, Medicine & other self-regulating professions

*****   Legal requirement that new knowledge be fixed in a material matrix to qualify for protection as property bought and sold before eventually entering the public domain.  Alternatively the matrix may be utilitarian, non-utilitarian or a person. Without fixation knowledge immediately enters the public domain.

****** Technological change in Economics is defined as the impact of new knowledge on the production function of the firm or nation.  Alternatively, such new knowledge may be disembodied (systemic) or embodied (localized); and/or, endogenous or exogenous to the firm, economy or the nation.


capital, toolable natural resources as well as routinized patterns of behaviour and values, i.e., institutions, embodied as personal & tacit labour.  This endowment is inherited from the past as a social genetic code, adapted in the present then transmitted to future generations if the Nation-State is to survive.    

14.        Components of a national knowledge endowment emerge at different points in a national historiography.  Some emerge at the beginning, e.g., the U.S. military won the revolutionary war, while others appear later, e.g., the National Endowment for the Arts.  The law of primacy applies.  The first colours all subsequent components.  Put another way, a national creation myth informs development of the Nation-State.  The endowment is, in effect, composed of strands of overlapping temporal gestalten (Emery & Trist 1972) or epistemes (Foucault 1973) woven together into the present.  Holistically, it is the ethos of a nation.  Of course, the quality of the weave and its pattern changes and evolves through time.  Such a view contradicts the concept of ‘modernity’ as the homogenous co-temporality of all sectors of society.  Instead, the Present is seen as a fabric woven out of uneven and unequal strands stretching ontologically backwards into the Past of a Nation-States’ culture, language, religion, etc..  In this sense Time’s Arrow runs both backwards and forwards in the noösphere.

10.        I will now present a sketchy and impressionistic assessment of the competitiveness of nations in a global knowledge-based economy.  I assume an initial national endowment of knowledge as noun, verb, form and content.  I consider national comparative advantage with respect to each of these components (Exhibit 3).  I will also map out some alternative fitness pathways towards the enhanced competitiveness of nations in a global knowledge-based economy.

11.        Before doing so, however, three qualifications are in order.  First, as previously noted, there is a wide variety and diversity among the 191 Nation-States that are members of the United Nations in 2005.  They vary by geographic and population size, by resource endowment, language and culture.  There are also an increasing number of regional trading blocs operating under the WTO global umbrella.  Entities such as the Andean Community, European Union, Mercosur and NAFTA are, in some cases, arguably higher order autonomous agents relative to their member States.  On the other hand, tiny Nation-States such as Monaco and East Timor are arguably of a lower order.  I will not, at this time, attempt to distinguish between types of Nation-States or symbiotic supra-national entities.

12.        Second, the Nation-State is not the only autonomous agent operating in the global economy.  What was called ‘multinational’ in the 1960s then ‘transnational’ and finally ‘global’


business enterprise has grown in size and complexity surpassing many Nation-States.  Similarly, international institutions such as the World Bank, International Monetary Fund, World Intellectual Property Organization (WIPO) and the WTO act sometimes as symbionts fostering, and at other times constraints on, the autonomy of the Nation-State.  I will not, at this time, treat the implications of global private enterprise and international institutions.

13.        Third, it is important to recognize a bias inherent in Kauffman’s system of ideas, his ideology.  It supports a Republican concept of the Person as the elemental autonomous agent of human society.  Next up on his hierarchy is the for-profit business enterprise or the firm.  Increased autonomy, complexity and diversity of the Person plus free enterprise enhance, according to Kauffman, the fitness of a human society.  He makes no explicit reference to ‘community’ or to the Nation-State. 

14.        Ideologically, this contrasts with the Communist concept of the person as an homogenized component of a Class which, in terms of socialist realism, is the actual autonomous agent.  In this regard, Emery & Trist in their 1972 Towards a Social Ecology highlighted the distinction between redundancy of control (Communist) and redundancy of function (Republican).  The former sought to standardize individual behaviour using overlapping layers of hierarchical control; the later continues to personalize behaviour fostering increasing complexity and diversity of human wants, needs and desires.  I will not, at this time, examine implications of this distinction.  I will, however, provide some indication of the importance of redundancy to the fitness of a Nation-State.  I now begin my sketch of the comparative advantage of a national endowment of knowledge as a noun, verb, form and content. 


14.4.1 As Noun

1.         As a noun, knowledge is monotonic, immeasurable and incommensurable.  Nonetheless, a distinction can be made between knowledge and ‘not knowledge’, i.e., that which is censored, excluded, ignored or otherwise denied status as knowledge.  Any assessment of a national knowledge endowment begins with cultural choices, historically made, as to what is and is not acceptable as knowledge.  In effect, each Nation-State sees the world through its own coloured glasses.  What is acceptable and legitimate knowledge in one may be denied and subject to criminal sanction in another, e.g., images of women in the ‘secular’ West versus those on Saudi Arabian television. 

2.         While much of a national endowment results from non-discretionary historical forces, some result from conscious current choice.  In fact, government has censored and suppressed


knowledge throughout history.  Whether it was Roman emperors burning Christians and their tracts or Christian zealots burning the Library at Alexandria or the first emperor of China burning 2500 years of recorded history or Adolph Hitler’s book burnings or those of Mao during the Cultural Revolution, some knowledge is not allowed to be studied or preserved.  It is forbidden knowledge.  It is a choice that, as will be seen, has an opportunity cost, i.e., the next best alternative foregone.

3.         It is not, however, just codified knowledge that is censored and suppressed.  Three examples of tooled knowledge demonstrate.  First, the ancient Indus Valley culture (about 3,000 to 1,500 B.C.E.) appears to have rejected a new technology of war - the socket-headed axe.  It then fell under the blows of invaders who adopted it (Piggott 1950).  Second, early in the 15th century China had gunpowder and transoceanic sailing fleets that dwarfed those of Columbus (Diamond 1997) but to maintain harmony in the Middle Kingdom the Emperor burnt the vessels, their plans, shipyards and shipwrights.  China was, of course, subsequently partitioned by the heirs of Columbus.  Third, medieval Islamic medicine was the best of its time.  But the human body, created in God's image, is, in Moslem tradition, a temple not to be violated.  When dissection emerged in Western Europe as the next step in medical science, Islamic law inhibited its use and Islamic medicine rapidly fell behind.  These societies succeeded in suppressing tooled knowledge but at the price of decline and/or fall. 

4.         Two contemporary examples demonstrate the opportunity costs associated with rejection.  First, the People’s Republic of China wants Chinese culture recognized by UNESCO as one of the founding human civilizations along with the ancient Egyptians and Sumerians (Eckholm 2000).  There is a written record tracing the ancient Egyptian and Sumerian civilizations, dynasty by dynasty, back to at least 3,000 B.C.E.  The Chinese government, however, is frustrated because much of the written record prior to the great book burning of the first emperor, Qin Shi Huangdi, in 213 B.C.E. literally went up in smoke (Wilhelm, 1950, xlvii) together with his alleged aphorism: Before Me, No History!

5.         A second example is contemporary genomics.  Genomics is not a single technology but rather a multi-purpose tool or engine, like the computer.  It has the potential of affecting every sector of the economy and society.  Resistance to genomic innovation tends therefore to be sectoral and selective rather than general or across the board.  This is evident with respect to fetal tissue research.  Sweden has embraced it; Britain regulates it; the United States rejects it; and, Canada hasn’t made up its mind.  Similarly, xenogenetic transplants to humans, especially from the standard animal surrogate, the pig, will not be accepted in Islamic or Jewish cultures.  The fact that the European Union is resistant to genetically modified foodstuffs but accepting of


medical genomics while the reverse appears the case for the United States highlights the potentially selective nature of rejection.  In competitive terms, the cost of rejection may grow through time as a knowledge base matures and application spreads among innovating Nation-States.  Similarly, benefits of rejection, e.g., maintaining traditional cultural values and life ways, may decline overtime due to trade and exchange with innovating States.  An example is suppression of ‘rock n’roll’ by communist governments during the Cold War which proved untenable as radio broadcasts from and trade with the West grew.


14.4.2 As Verb

1.         While the opportunity cost of acceptance or rejection may be straight forward with knowledge as Noun, as a Verb it is not.  Knowing by Science and knowing by Design - by reduction and construction - are compliments not substitutes or opposites.  Each contains the seed of the other like the Chinese “t’ai chi t’u” - a white dot on black, a black dot on white. 

2.         At any point in time a Nation-State may, however, enjoy a competitive advantage in one or the other.  If so, then the question becomes whether to exploit this advantage, balance it or, at the extreme, initiate an epistemic revolution.  In Japan, such a revolution was formalized with the Meiji constitution of 1889 marking the transformation of the Japanese economy and society from one dedicated to Design rooted in the organic patterns of nature, i.e., works of aesthetic intelligence, to works of technological intelligence.  Until then development and use of firearms was banned in Japan.  The Japanese navy, however, defeated the imperial Russian fleet just sixteen years later in 1905 and Japan joined the select group of industrialized nations even gaining colonies such as Taiwan and Korea.

3.         That the white dot remains part of the black, even after an epistemic revolution, is suggested by the fact that Japan continues to enjoy a comparative advantage in design of both works of technological and aesthetic intelligence but a disadvantage in the pure sciences due, as has been argued, to the nature of the Japanese language itself (Kawasaki 2002).  Similarly, Italy enjoys a comparative advantage in works of aesthetic intelligence, but exhibits poor performance with respect to organizational technology (Galbraith 1983).


14.4.3 As Form

1.         Knowledge does not exist in a vacuum.  As an input, it is fixed in material form.  Personal & tacit knowledge is embodied as neuronal bundles of memories and trained reflexes of nerve and muscle available on the market as personal & tacit labour.  Codified knowledge is


fixed in a communications media while tooled knowledge is embodied in a functioning material matrix.  Together, as inputs, they are available on the market as codified & tooled capital, i.e., frozen knowledge.  Similarly, with the appropriate knowledge, environmental features become available on the market as toolable natural resources.

2.         The Person, however, is duplex, i.e., it is the ultimate input to and output of a knowledge-based economy.  Accordingly, a central pillar of any knowledge-based competitiveness strategy must be the Person.  Such centrality places education and training in the policy cross-hairs but what kind of education and training?  Should it stress Science or Design or a blend?  Furthermore, the Person carries the customs and traditions of one’s Nation-State (Schlicht 1998).  Such patterns may or may not be supportive of a self-regulating market.  Accordingly, a break, at the individual level, with customary practice may be required if a Nation-State is to become globally competitive.  And, is the cost worth it, in terms of fitness, in the short- and long-run? 

3.         Accepting the centrality of the Person, the next question is should a Nation-State specialize in Code or Tools or a blend?  Again, an assessment of the national knowledge endowment is required.  Does a nation have a comparative advantage in Code, e.g., copyrights, designs, patents and trademarks?  If so, the flow of IPR royalties should be a significant source of national income.  This raises, however, questions about the adequacy of the System of National Accounts reporting IPR income streams (UN Statistics Office).  My reading is that decades of down-sizing government has not spared national statistical bureaux.  As a result, data collection, especially regarding IPR revenue streams, is problematic at best, even in the most statistically advanced nations such as the United States.  This limits mathematical analysis and biases public and private policy towards that which can be counted, i.e., traditional outputs of the primary, secondary and tertiary sectors.  What I call the ‘quaternary sector’ of the economy (Chartrand 1990) consists of royalty payments for copyrights, industrial designs, know-how, patents, trademarks and trade secrets plus sui generis rights.  These, however, are not, in my opinion, adequately accounted for in the system of national accounts. 

4.         Alternatively, a nation may enjoy an advantage in production of Tools or works of technological intelligence.  The split between production of Code and Tools increasingly defines the relationship between the First, Second (China) and Third Worlds.  What is called ‘off shore production’ for First World firms generally involves, initially, manufacturing of standardized products, e.g., cars, hats, scarves, television sets and personal computers.  Experience in production of standardized goods, however, offers, the opportunity for learning that potentially


can shift a nation from Second or Third to First World status, e.g., South Korea became the 29th member country of the OECD in December 1996. 

5.         There is, however, an arguable and generally unrecognized ‘fitness’ limit to the degree of specialization and division of labour afforded by the economic theory of comparative advantage.  In the short-run such advantages enhance fitness.  In the long-run, however, changes in the environment may turn advantages to ashes.  Recent experience with the banning of Canadian and American beef products in international markets due to isolated cases of BSE as well as current discussion about the impact of a possible global avian flu pandemic (Osterholm 2005) highlight how fragile the global economy remains.  If a Nation-State does not retain some minimal redundancy in its primary, secondary and tertiary industries then environmental change may cause it to quickly melt off the heights of its fitness landscape and it may not survive the fall.


14.4.4 As Content

1.         Having sketched out the comparative advantage of knowledge as a noun, verb and form, there remain advantages associated with the content of a national knowledge endowment expressed by a unique set of qubits, i.e., four-fold knowledge units.  I will consider the six qubits so far identified by discipline: etymology (WIT), psychology (PSI), epistemology/pedagogy (EPI/PED), law (IPR) and economics (FLX).  At this time, I can only consider them individually and must leave any advantages associated with their collective interaction for future study. Etymology

1.         The WIT is a qubitic or four-fold measure of knowing in the English language. There are four meanings – to know by the Senses, Mind, Doing, and/or Experience.  In other languages there are other senses of ‘to know’ that can be expressed in English only with great difficulty, if at all.  The Logical Positivists of Vienna and the Philosophical or Logical Atomism of Betrand Russell (Kauffman 2000, 50) attempted to overcome this problem by restricting themselves to the language of mathematics.  Mathematics, however, is a subset of language, not the other way around.  In the Anglosphere this, in turn, led to the Analytic Philosophy of Ryle (1949, 1968) for whom all knowing is language.  Similarly, English, and other Western European languages use Platonic idealized nouns not found in all major languages, e.g., Japanese (Kawasaki 2002).  These etymological differences appear to have competitiveness implications.  The most obvious is the comparative advantage of Anglosphere Nation-States whose entire population operates primarily in the international language of science, commerce and computing – English.


2.         In the pre-global market prior to 1995 for most Nation-States virtually all knowledge was expressed in a single national language.  Bilingual and multilingual Nation-States struggled to maintain political coherence, e.g., Belgium, Canada and India.  With the arrival of the global knowledge-based economy and the coincidental ascendance of English as the language of international commerce, computing and science most States, excepting those of the Anglosphere, had no choice but to become functionally bilingual.  Knowledge of English is now a critical global asset.  Anglosphere countries therefore enjoy a comparative advantage, one, however, that they tend to take for granted.

3.         While all Western European cultures inherited an epistemic hierarchy from the ancient Greeks placing the Liberal Arts (knowing by the mind) above the Mechanical Arts (knowing by the doing and senses), the etymological economy of English has, arguably, produced its extreme expression in the aphorism: ‘Gentlemen don’t work with their hands’.  This became a cause célèbre in the 1970s known as the ‘British disease’ that was arguably cured by Margaret Thatcher (Wiener 1981).  By contrast, in Germany, a nation noted for its manufacturing acumen, the distinction between knowing by the senses and knowing by the mind is represented by two separate verbs kennen and wissen.  As previously observed this has led to a striking contrast between the apprenticeship systems of Canada and Germany (Economic Council 1992) as well as separate and distinct traditions of academic and technical universities in German which has never taken root in the Anglosphere.

4.         The relevant WIT policy question is what is the preferred national mix of to know by the senses, mind, doing or experience?  Which enhances fitness best?  Should policy heighten sensual awareness to foster the Pleasure Industries and which – sports, sex, gambling, food or drugs?  Alternatively, should policy cultivate knowing by the mind?  Should it foster hands-on knowing by doing?  Should the State strive to diversify and broaden the population’s skill set and enhance redundancy of function so each individual can play many roles?  Should it capture and codify the experience of the older generation, e.g., expert systems?  Should retiring employees be rewarded for formalizing experiential or personal & tacit knowledge and encouraged to transmit it to younger workers by demonstration or other means?  Is this the meaning of ‘mentoring’?  How much should be codified and/or otherwise communicated?  Each question involves a choice; each choice is an opportunity cost relative to relevant rivals. Psychology

1.         The PSI is a qubitic measure of psychological ways of knowing including Reason, Revelation, Sentiment and Sensation.  In each individual, all four function.  Like quarks, they do


not exist alone.  There are no free faculties.  They exist together uniquely entangled as the ‘self-awareness’, ‘consciousness’, ‘knowing’, ‘mind’ or ‘wit’ of the individual human being. This uniqueness colours use and interaction of each faculty as a power of the mind. 

2.         Invoking circular causality, if there is a human want, need or desire ‘to know’ through Reason, Revelation, Sentiment or Sensation then there will be industries producing goods and services to satisfy such needs.  Such industries will exist in every Nation-State but some countries will enjoy a comparative advantage in one or another.  I will review each and offer examples.

3.         The human want, need or desire for Reason, i.e., ‘reasoned’, ‘calculated’ or ‘reductive’ knowledge, finds satisfaction through the Science Industry inclusive of the natural and engineering as well as the social sciences to the degree that they rely on calculatory rationalism.  In the 20th century the United States established preeminence in the Science Industries including computing.  This is reflected in its ‘ivy league’ graduate school system that attracts the best and the brightest scientific minds from around the world (personal & tacit knowledge); as world leader in publication of scientific research papers (codified knowledge); and, in the design and development of scientific instruments (tooled knowledge) (Baird 2004).  With respect to codified scientific knowledge, at least, its preeminence may be slipping as the European Union is accelerating its output, threatening U.S. dominance (Pistoi 2002).

4.         The human want, need or desire for Revelation is satisfied through the Spiritual Industry inclusive of religion and myriad psychic movements and communities as well as ‘self-help’ groups.  To put it another way, from an economic perspective God is real and means very big business.  Globally, Saudi Arabia, as custodian of the two holiest Islamic sites – Mecca and Medina, is an example of a nation with a comparative advantage in Revelation, as is Italy and Israel.

5.         The human want, need or desire for Sentiment defined as “an opinion or view as to what is right or agreeable” is satisfied through the Arts Industry inclusive of the amateur, applied, entertainment, fine and heritage arts in all media of expression, i.e., the literary, media, performing and visual arts (Chartrand 2000).  Art provides the technology of the heart; it manages and manipulates Sentiment.  Italy is an example of a nation with an established comparative advantage in the Arts.  Arguably, Milan is the design capital of the world.  France and Japan also rely heavily on aesthetic design.  Similarly, England has successfully branded itself as a cultural power.  Thus the former Arts Council of Great Britain once ran a marketing campaign that read: “What sunshine is to Florida, theatre is to London!”  U.S. dominance of


the media arts – motion pictures, television, music, etc. – is well known and, after defense, the largest American export (The Economist., March 11, 1989: 65-66).  Arguably, the Arts Industry is the largest sector of final consumer demand for knowledge outputs.  Education is arguably the largest user of intermediate or producer knowledge outputs.

6.         The human want, need or desire to know Sensation is satisfied through the Pleasure Industry inclusive of ‘sex, drugs and rock’n roll’ as well as gaming, leisure spas, sports, food and tourism.  At present, the Netherlands, with its relatively permissive sex and drug laws compared to the Anglosphere, arguably, enjoys a comparative advantage as does Thailand with its Buddhist tolerance of sex and Monaco with respect to gambling.

7.         From an economics perspective what is important is whether a faculty generates human wants, needs and desires to know that producers can satisfy for a profit.  Again, unlike aesthetics, epistemology and science, economics admits no a priori moral limitations.  All the human senses – near and far – are admitted in a global knowledge-based economy. Epistemology & Pedagogy

1.         The EPI is a qubitic measure of a nation’s pragmatic epistemology.  These include the Natural & Engineering Sciences (NES), the Humanities & Social Sciences (HSS), the Arts (literary, media, performing and visual), and the Practices or self-regulating professions.  In brief, the NES generate knowledge about the physical world.  In application, they produce physical technology to manipulate matter and energy to satisfy human want, needs and desires.  The HSS generate knowledge about being human – individual and collective in families, communities, firms and Nation-States.  When applied, they produce organizational technology, i.e., the ability to shape and mold human institutions and societies.  The Arts generate knowledge about the human heart and emotion.  In application, they produce aesthetic or design technology, i.e., the ability to manipulate emotion providing a ‘technology of the heart’.  The Practices apply knowledge to answer practical and pressing problems of daily human life, e.g., death and taxes. 

2.         From a competitiveness perspective, a critical factor is that each Nation-State has culturally and historically differentiated pedagogic and licensing practices for the knowledge domains and practices.  Globally, national pedagogic complexes tend to be patterned after models developed in influential countries such as France, Germany, Great Britain, and the United States.  In some cases, such as France and Germany, these complexes are directly administered by State agencies.  In others, such as Britain, Canada and the United States, they 


are legally, if not financially, independent of the State.  Such national differences exist in all knowledge domains and practices at all levels of education – primary, secondary and tertiary.  These differences are relevant not just with respect to domestic performance but also in the growing and increasingly competitive field of international higher education.  Foreign students represent an increasingly important revenue source for educational institutions in many First World countries including Canada (Chartrand October 1992; May 1993).

3.         Beyond the export competitiveness of the pedagogic system, i.e., attracting foreign students, each country may or may not enjoy a comparative advantage vis-à-vis relevant rivals at one or more levels of a domain/practice, discipline, sub-discipline and specialty.  This quartet constitutes the pedagogic knowledge qubit PED.  The United States, for example, has a comparative advantage at the graduate and post-graduate levels.  In effect, a National Innovation System is constructed by selecting specific knowledge domains and practices (EPI) to be preferentially encouraged at a specific level of concentration, i.e., disciplinary, sub-disciplinary and specialty (PED).  Each Nation-State identifies its comparative advantage and networks educational institutions, private enterprise and government agencies to commercially exploit new knowledge.  To date, the NIS has been restricted to the NES.  There is, however, no reason why it cannot be extended to other knowledge domains and practices.  Informally, national cultural policy in the Arts corresponds to NIS in the Sciences.  The Practices, with the notable exceptions of medicine and related engineering, have not, however, been the subject of NIS.  Accounting and legal praxis are applied to develop NIS development.  They have not, however, been subjected to comparative advantage analysis, nor networked into NIS nor held accountable for their contributions – positive and negative – to competitiveness and/or fitness. Law

1.         The IPR is a qubitic measure of the privatization of knowledge as legal property.  Intellectual property rights are granted to new knowledge fixed in a material matrix for a limited time.  The matrix may be utilitarian as with patents & designs; it may be non-utilitarian as with copyrights & trademarks; or it may be a person – natural or legal – as with trade secrets and know-how.  All other knowledge (new and old) fall into the public domain that constitutes the bulk of the national knowledge-base. 

2.         Sui generis or ‘one-off’ rights may be fixed in any matrix and are usually created by selecting from and mixing the bundle of rights collectively constituting traditional IPRs.  In reality, however, each national intellectual property regime is sui generis in that it is the unique cultural product of the distinctive legal history of a Nation-State.  This is one reason why


intellectual property rights are subject only to ‘national treatment’ rather than harmonization under the TRIPS Agreement of the WTO.  Such differences serve not only to distinguish one Nation-State from another but also provide an opportunity for competitive advantage in a global knowledge-based economy (Paquet 1990).

3.         International competitiveness, since the time of Adam Smith, has involved the division and specialization of labour married to comparative advantage which is a concept introduced by Smith’s successor David Ricardo (Blaug 1968, 131).  Market forces direct entrepreneurial activity, and, ideally, there is no government involvement in the economy.  Given that knowledge as a marketable product can only exist through government action, this traditional strategy is inadequate in a global knowledge-based economy.  An appropriate strategy can, however, be developed from the policy paradigm of another of Smith’s contemporaries – the French Physiocrats.

4.         Behind the Gallic façade of laissez faire and laissez passer, there were deeper policy implications, implications never realized because of the French Revolution.  First, unlike classical economists such as Smith and Ricardo, the Physiocrats accepted government as an active and productive agent in the economy.  Like Polanyi’s self-regulating market, Smith’s market was spontaneous and autonomous; that of the Physiocrats became so, however, only after having been carefully and institutionally designed by government to direct resources towards attainment of national objectives (Samuels 1962, 159).

5.         The nature of Physiocratic public intervention is radically different from Marxist ownership of the means of production and Keynesian management of aggregate demand.  Accepting that private property and self-interest were the drivers of economic growth and development, the Physiocrats reached beneath the surface of the laissez faire, laissez passer marketplace.  They reached down to the legal foundations of capitalism (Commons 1924) to manipulate the nature of property rights themselves.  For the Physiocrats, “the public interest is manifest in the continuing modification or reconstitution of the bundle of rights that comprise private property at any given time (Samuels 1962, 161).

6.         In effect, the Physiocrats wanted to load the dice to raise the commanding heights of the national economy.  They wanted to consciously manipulate capitalist self-interest – accumulation of marketable property – to foster and promote the economic growth and development of the nationThe Physiocrats thus viewed property rights as instruments of economic policy.  They also saw them as providing the foundation of the economy itself defining what is bought and sold, how and where.  Accordingly, the Physiocrats:


implicitly recognize that the basic economic institutions (the organization of economy) are legal in character; that law is an instrument for the attainment of economic objectives and that economy is an object of legal control (Samuels 1962, 162).

7.         In summary, the Physiocratic policy paradigm is made up of an objective, strategy, tactics and logistics including:

(a) the objective being the competitiveness of the nation, absolutely and relatively, to rival states;

(b) the strategic choice of a core sector which contributes most to attainment of that objective;

(c) development of tactical instruments in the form of property rights and manipulation of the legal structure to direct individual and collective action in favour of the core sector; and,

(d) logistical deployment of these instruments into a free wheeling, private property, laissez faire, laissez passer marketplace.

8.         Given the degrees of freedom under national treatment, the Physiocratic policy paradigm offers a succinct national competitiveness strategy for a global knowledge-based economy.  It begins with the strategic choice of knowledge then tactical development of an IPR regime that directs individual and collective action to favour development of the national knowledge-base and finally logistical deployment of the resulting legal regime into a laissez faire, laissez passer marketplace.  This policy paradigm accommodates: (i) coherent development of a national IPR regime rather than the piecemeal process that has characterized copyright and patent reform in most Nation-States over the last twenty years; and, (ii) the institution-building and networking required by a NIS. Economics

1.         The FLX (pronounced ‘flex’) is a qubitic measure of economic knowing, specifically of technological change.  In the Standard Model, technological change refers to the impact of new knowledge on the production function of a firm or nation.  Such new knowledge may be: disembodied or systemic to the economy such as general improvements in communications or transportation.  It may be embodied in a specific piece of equipment such as the transistor in a transistor radio.  It may be endogenous i.e., developed internally to a firm or nation; and/or, exogenous, i.e., developed externally to the firm or nation.  

2.         From a competitiveness perspective, technological change has two dimensions: invention and innovation.  Roughly speaking invention involves creation of new knowledge and


innovation involves its application.  The first step is to determine if a Nation-State enjoys a comparative advantage in invention or innovation.  Once this is determined, then the strategic decision must be made to pursue and enhance this advantage, balance it, or engage in an epistemic revolution. 

3.         The fax machine is a case in point.  Arguably the modern fax machine was invented in the U.S.  It was, however, successfully innovated and brought to mass market first in Japan.  To paraphrase the 1992 World Competitiveness Report: most inventions do not fail because they are ill conceived but because they are badly innovated.  Competitive organizations have correctly mastered innovation and the management processes linked to it (WEF 1992). 

4.         Arguably it was the Japanese language that led to mass market innovation.  Before the 1980s, business communication relied on (other than telephone and ‘snail’ mail) the ‘telex’ machine to electronically transmit information using an alphanumeric keyboard.  In Japan, however, kanji script is pictographic and some 500 characters are required for basic written communication.  Alphanumeric keyboards could not accommodate (at the time) the Japanese alphabet.  The fax machine, however, allowed handwritten pictographic messages to be sent with relative ease.  In the phonetic United States, by contrast, telex was an efficient communications medium and the fax machine was reserved only for occasions when sending pictures quickly was required for business or other purposes, e.g., pictures of wanted criminals.  There was no apparent need for mass market fax machines in the U.S.  Thus a Japanese linguistic disadvantage turned into a marketing triumph.

5.         Development of a national FLX competitiveness strategy begins with a national comparative advantage assessment of the sources and types of technological change.  Does the nation endogenously generate a significant share of new knowledge relative to rivals?  If yes, then a relatively restrictive IPR regime is in order to protect national knowledge assets.  If not, then a relatively lax IPR regime will allow easier access to exogenously developed knowledge.  A lax intellectual property regime is also appropriate if a nation is comparatively adept at embodying or innovating new knowledge.  Conversely, if it is not adept, then a tighter intellectual property regime is in order.  In the case of a lax IPR regime the public domain will grow more rapidly; a more restrictive regime will slow its growth.

6.         A national FLX competitiveness strategy must, however, not only address knowledge as a factor of production or input but also as a final good and service.  Just as branding has been achieved by some Nation-States with respect to cultural or environmental factors, it can also be achieved with respect to knowledge.  Under GATT, Nation-States can and do deny access to


knowledge considered immoral or threatening to the cultural sovereignty of the nation.  Other Nation-States, however, may consider the exact same knowledge as acceptable – legally if not morally – and permit or even facilitate access.  Such differences, in effect, create knowledge havens where access to forbidden knowledge is available just across the border.  Thus internet cafes in a foreign country may offer the ‘knowledge tourist’ satisfaction of his or her knowledge wants, needs and desires that cannot be satisfied at home.


14.4.5 Governance

1.         Ideally, Government is the institutional incarnation of ‘We, the People’ or, in my terms, of ‘We, the Person’ as the ultimate input and output of a knowledge-based economy.  Only the natural person can know and therefore all knowledge is ultimately personal & tacit.  In this sense, the Person is a Noun acting as “a centre of force” containing knowledge (Catholic Encyclopedia, Noun, 1911).  The natural person is, however, also a Verb, a social solitaire (Bronowski 1973).  It is the ability of the Person to share and exchange knowledge with others that permits social organization up to its institutional apex – Government.  As such, Government is the quintessence of the knowledge-based economy.  And, in this sense, a knowledge-based is a political economy, i.e., political decisions play a central role in the satisfaction of the human want, need and desire to know, subject to limited means.  Put another way, no Government, no knowledge-based economy.

2.         At each level of knowledge – as noun, verb, form and content - Government plays five distinct roles – as custodian, facilitator, patron, architect and/or engineer of the national knowledge-base.  Each Government determines its own particular blend.  Choice, however, entails opportunity costs.

3.         I will now sketch out the principle choices associated with each role.  It is only a sketch.  It is, again, illustrative, not a detailed evaluation.  It does, however, provide examples and additional tools of thought that hopefully will thicken public and private policy debate and discussion.

4.         As Custodian of the national knowledge-base, Government is concerned with its preservation and transmission to future generations, i.e., it is concerned with patrimony and the survival of the nation.  The continuity of knowledge is in fact one function of any human community.  This function is generally performed by national archives, libraries and museums and involves opportunity costs.  Faced with limited means, Government must decide what is and what is not worthy of preservation.  This is a pressing issue for national archives and libraries


faced with acidic-based paper.  Books, newspapers, periodicals and other written records fixed in this matrix are literally disintegrating in libraries and archives around the world (The Economist, February 27, 1987: B-1).   Government as custodian is also, however, concerned with prohibiting the growth and development of forbidden knowledge.  Over time, however, what is forbidden often changes.  Accordingly, prohibition may leave future generations without what they may consider acceptable, desirable or even essential knowledge, e.g., fetal tissue technology.

5.         As Facilitator of the national knowledge-base, Government is concerned with fostering knowledge production through exemption from taxation.  Government relies on the preferences and tastes of corporate, foundation and individual donors.  The policy dynamic is random reflecting the changing tastes of private donors.  The Facilitator is also potentially subject to abuse, e.g., research & development tax credits in Canada (Auditor-General 1984, 3.34-3.49).  Nonetheless, the Facilitator role offers Government the opportunity to promote a ‘creativity haven’, i.e., a jurisdiction in which knowledge workers want to live.  Exemption from income tax of copyright income earned by resident artists (not legal persons) in the Republic of Ireland (Eire) is an example relevant to all knowledge domains.

6.         As Patron of the national knowledge-base, Government is concerned with promoting production of knowledge through endowing arm’s length institutions.  Such institutions generally direct funding according to peer evaluation.  In Canada, for example, during the last decade the federal government of Canada has endowed a number of quasi-public foundations to support knowledge production, e.g., “Canada Health Infoway Inc., received $500 million from the federal government; others have received multiple payments amounting to, for example, $300 million to Genome Canada and $250 million for the Green Municipal Funds” (Auditor-General of Canada 2002, 1.9).  In the past foundations, endowments or grant-giving councils were essentially involved in the production of knowledge for knowledge sake.  Today, however, as part of the national innovation strategy many of the new foundations are concerned with ‘knowledge for profit’.  This means that commercial confidentiality veils many of their activities from public scrutiny.  This, in turn, raises serious questions about the accountability of private interests serving the public purpose, i.e., Government by Moonlight: The Hybrid Parts of the State (Birkinshaw, Harden and Lewis 1990)

7.         As Facilitator and Patron, Government transfers its spending to others allowing them to decide what knowledge to promote and develop.  As Architect, however, Government is concerned with the direct application of its spending power as well as its legislative authority to achieve specific objectives.  It funds knowledge production and conservation through ministries,


departments and specialized agencies such as national statistics bureaux.  Bureaucrats, in effect, make decisions on behalf of their political masters. 

8.         The most recent example of the Architect is design and development of national innovation systems (NIS).  In these systems nonprofit academic institutions partner with government and private for-profit actors to create networks of specialized research centres in priority domains, disciplines, sub-disciplines and specialties (OECD 1997).  Such centres are intended to facilitate commercial exploitation of new knowledge and enhance the competitiveness of the nation.  As always, there are opportunity costs.  Thus almost since their inception, certain costs and strains with respect to NIS have become apparent.  In many knowledge sectors, e.g., electronics (Patel & Pavitt 1998), such partnerships necessarily involve multinational or transnational corporations whose attachment to any Nation-State is secondary to profit.  Accordingly, whether or not new knowledge can be commercially exploited to the benefit of a Nation-State is problematic.  

14.        It is here that ‘tacit’ versus ‘codified’ knowledge question enters the public policy debate (Cowan, David & Foray 2000).  If new knowledge is embodied as the trained reflexes of a Person it cannot be easily appropriated.  If it is codified, however, then it can be much more easily exploited by others.  For example, if Agriculture Canada in collaboration with its NIS partners successfully fosters new knowledge about canola that is tacit in nature then Canada can internalize virtually all benefits.  On the other hand, if it is codified then participating multinationals with access to the knowledge can apply it where and when it serves their purposes which are not necessarily those of Canada.  To prevent the escape of NIS generated knowledge becomes a serious enforcement problem for Government.

10.        While as Custodian, Facilitator, Patron and Architect Government relies principally on fiscal policy, i.e., tax and spend, as Engineer it acts as owner.  It exercises its power through many different forms and types of legal frameworks, e.g., broadcast licensing, copyright and patent deposit requirements, security & exchange legislation, IPRs, spectrum allocation, taxation and international trade agreements including any health, safety and morals clauses contained therein.  With respect to trade agreements, it is important to note that only the Nation-State can sign internationally binding treaties and that they are the only institutions that, according to at least some observers, “can curb the inherent excesses of global capitalism” (Gwyn 1995, 266).  In effect, Government sets the rules of the game for all other autonomous agents in the knowledge-based economy. 


14.5 Competitive Afterthoughts

1.         Competitiveness or fitness?  Which is the more appropriate metaphor for the success of a Nation-State in a global knowledge-based economy?  Each carries ideological baggage.  The competitiveness of sports brings the sense of win/lose against an opponent and winner takes all.  The fitness of biology brings the sense of survival/reproduction in an environment increasing enframed and enabled by human technology and populated by many more symbionts than predators.  The first is hostile and aggressive; the later, cooperative and coevolutionary.

2.         In effect, most Nation-States, especially smaller ones, have opted for coevolution with other Nation-States in the guise of trading blocs such as NAFTA and the European Union.  Division and specialization of knowledge remains limited by the extent of the market and most Nation-States are not large enough in population and/or natural resources to specialize in everything.  They can no longer independently reproduce themselves.

3.         Environmentally, it is also critical to recognize that human technology, transcendent to all Nation-States, is enframing and enabling the entire planet – the geosphere, biosphere and even the noösphere, e.g., the WWW – making it ready at hand to satisfy human wants, needs and desires.  This physical technology, rooted in the early natural & engineering science success of the West, has successfully been adopted by the East, e.g., China, India, Japan, Malaysia, Singapore, South Korea and Taiwan.  How it is applied, however, depends not on knowledge from the NES but rather from the HSS and the Arts, i.e., values and tastes.  Such ‘soft knowledge’ will play, I believe, an increasingly important role in determining the fitness of Nation-States.  As physical technology becomes ubiquitously available to all, it will be value and taste differences that will determine fitness to survive and reproduce.

4.         In this regard, the production function of a knowledge-based economy is based on a critical and arguably provable assumption – all knowledge is ultimately personal & tacit and is the possession of a natural Person.  In effect, this humanizes labour yielding a labour theory of knowledge and its corollary, the knowledge theory of capital.  Codified and tooled knowledge only have meaning or function through the mediation of a natural Person.  Accordingly, there are two critical questions each Nation-State must answer.  First, can we afford to waste human resources?  And second, how do we get the most out of the individual?  These are questions of motivation not addressed by the billiard ball causality of traditional physics but rather by the HSS and the Arts and, perhaps, also by biology.  These are questions invoking causality by purpose which arguably is a primary function of the Nation-State.  This epistemic shift reflects, I believe, a critical facet of contemporary ideological evolution.




15.0 Conclusions

The Competitiveness of Nations in a Global Knowledge-Based Economy