Can Knowledge Drive Your Local Economy?
Updated: Apr 6
The creation of a local knowledge economy requires intent. It is built on the long-term effort to harness to potential of the production, distribution and application of knowledge.
This article examines how you can leverage the knowledge economy to improve outcomes for your local economy. Building on the understanding of what the knowledge economy is through theory and examples, the conditions and process for successfully creating a “local knowledge economy cluster” are discussed.
Defining the knowledge economy
Concerning the knowledge economy, consider this. An increase in the number of patents in your local economy will lead to a proportional increase in your economic growth. As will an improvement in the quality of education (all levels), the number of scholarly articles published by those that work in your area, and, unsurprisingly, the level of royalty payments that are collected by organisations that are situated locally.
Also consider the effect of knowledge on employment. For every skilled job in the tradable sector, another 2.5 jobs are created in the non-tradable sector. And for every high-skilled job in high-tech manufacturing, another 4.9 jobs are created in the non-tradable sector.
So, what is the knowledge economy? In essence, the knowledge economy is the production, distribution and application of knowledge. And with knowledge becoming ever more critical to business and economic success it is important to understand these three factors.
Production: the production of knowledge is just that. It’s the creation of new understandings about any aspect the world in which we live and the ways we do things. Not only is it about the quintessential scientific discovery in say medicine, but it’s also about insights from the soft sciences like economics and psychology.
Distribution: the second factor, the distribution of knowledge, is about letting others know about what is known. Yes, it is through formal university lectures and in the TAFE classroom, but distribution of knowledge also occurs in the context of business networking activities and through social media platforms.
Application: thirdly, the application of knowledge. This is where people use knowledge to develop innovations. Whether these innovations be new products or improved business processes, the important outcome is that something new has been developed because of what has been learnt.
Fig 1: Factors of the Knowledge Economy. (Source: Author)
Another way of putting all this about the knowledge economy is this. There is a relationship between your community’s “knowledge-base” and its capacity to generate and utilise economically beneficial innovation. That the growth of your local economy is linked to a continual improvement to the stock of knowledge held by your citizens. As one economist put it: “long-run growth is driven primarily by the accumulation of knowledge by forward-looking, profit-maximizing agents”.
Let’s pause to consider one implication of these last two paragraphs. Do the conditions exist in your local economy for people in general, and those in business in particular, to learn new things? Is there an openness to improvement, to being taught by outsiders, to keeping up with the changes that are happening in the economy?
Examples of a local knowledge economy
Given the factors of a knowledge economy are the production, distribution and application of knowledge, let us turn to see how this applies in practice.
The most straightforward examples are referred to variously as “knowledge clusters”, “research parks” and “science and technology precincts” among other labels. These terms describe a defined geographical area in which, among its constituent economic actors, knowledge is created, is allowed to flow, and is used to develop new products and processes.
Another concept that is used to define these places is the term “Triple Helix Cluster”. A Triple Helix Cluster is one in which government, academia and business work together for the common good. Typically, its where academia produces and distributes knowledge, where business applies knowledge, and where government facilitates each of the three processes.
Fig 2: Components of The Triple Helix Cluster. (Source: Author)
One of the most famous examples of a local “knowledge cluster” is Silicon Valley. This San Francisco-based locale has generated several trillion dollars of wealth from its activities in the high technology sector. It is a place where academia (ie. Stanford University), government (ie. ARPA, NASA, etc.) and business (ie. Fairchild Semiconductor, HP, etc.) each played their part and worked collaboratively for significant and mutually beneficial outcomes.
Two other examples are worth reviewing. The first is “BioTurku”, the Turku Science Park of Finland. The focus of this cluster is on biotech. It was established in the early 1990's with the then understanding that biotech and pharmaceutical industries were about to grow rapidly. All of its activities are coordinated by the business policy company called “Turku Science Park Ltd”. And this cluster has been well supported throughout its life through appropriate government policies and support.
Some key statistics:
2 universities and three universities of applied sciences
300 organisations and businesses
17,500 employees, 31,000 students, 400 professors
210,000m2 of premises across 11 buildings
Bayer production plant, 650 employees
Also: Flakt Woods, Meyer Werft, Orion Corporation, Wartsilia
The second example is Sweden’s “Kista Science City”. Also known as the Stockholm IT Region, it is the largest ICT cluster in Europe. It was formed in 1986 when academia, industry and the public sector formed a collaborative venture called the “Electrum Foundation”. The Electrum Foundation runs both the Kista Science City organisation (which promotes triple-helix collaboration) and The Stockholm Innovation & Growth organisation (which is an incubator for high-growth businesses)
Some key statistics:
2 universities, with 15 research institutes nearby
700 organisations and businesses
Cisco, IBM, Intel, Microsoft
Fig 3: Cities with a higher share of college educated workers have created more jobs. (Source: Citi-GPS “Technology at Work 2.0)
Conditions for a local knowledge economy
Reflecting upon what I have written here and gleaned from other sources and research, it is clear that a local knowledge economy is not one-dimensional. That it can be described as a jigsaw puzzle with specific pieces each uniquely important. Three of the pieces are academia, industry and the public sector. A fourth is a governance committee characterised by a forward-looking and collaborative mindset. A fifth piece is a shared understanding and commitment to pursue opportunities in a single sector. The last piece of the jigsaw is for the cluster to be imbued with culture of learning and entrepreneurialism, of the acceptance of what is new, fresh and potentially disruptive.
While it will take time to successfully put together this jigsaw puzzle, when it does get going there are observations that can be made to help ensure the ongoing health of your “local knowledge economy cluster”.
Through their LEED (Local Economic and Employment Development) program a few years back the OECD published a paper that listed several such observations. This study developed a set of measurements that could be used to understand the performance of “local business clusters in the knowledge economy”. They nominated measurements such as employment growth, increases in firm profitability and viability as well as the age of firms in the cluster.
Among the findings were two observations. Firstly, clusters devoted to knowledge-intensive service activities outperform hi-tech manufacturing when it comes to employment growth and economic turnover. Secondly, entrepreneurism (ie. young firms) is linked to growth in both employment and economic turnover.
Creating a local knowledge economy
Thinking about these jigsaw puzzle piece and what is common among them, one can see that the successful creation of a local knowledge economy cluster does indeed come down to people. It comes down to those willing to champion such an initiative, and those willing to support these champions. There is no set profile for a champion. Referring to the examples used in this article: Bio Turku got started with a property developer, and Silicon Valley had academic John Terman as its primary instigator.
In short, it does come down to leadership, to men and women able to see where the possibilities lie. Then, as the vision of the early leader(s) comes into view, people and organisations from each of the components of the Triple Helix need to be gathered. Where the overarching intent is to ensure the three knowledge economy factors and the remaining pieces of the jigsaw are harmoniously unfolding the founding idea.
Where the possibilities are found in leveraging the existing strengths, skills and knowledge of your local economy. Where like-minded people and organisations are drawn to the nascent vision. And where structures are put in place to ensure long term success.
The creation of a local knowledge economy requires intent. It is built on the long-term effort to harness to potential of the production, distribution and application of knowledge. In this context, relevant are the words of Winston Churchill: “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”
Citi-GPS “Technology at work 2.0: The future is not what it used to be”, Oxford Martin School
David P, Foray D (1994). “Accessing and expanding the science and technology knowledge base”, DSTI/STP/TIP (94)4, OECD, Paris
Moretti, E (2010). “Local Multipliers”, American Economic Review: Papers and proceedings 100, May 2010, pp373-377
Romer P (1986), "Increasing Returns and Long-Run Growth", The Journal of Political Economy, Vol. 94, No. 5 (Oct, 1986), pp. 1002-1037
Ross, A (2018). “The Industries of the Future”, Simon and Schuster, Great Britain
Schultz T (1980). “Investing in people: The economics of population quality”, The Royer Lectures, University of California Press, 1981, London
Temouri, Y. (2012), “The Cluster Scoreboard: Measuring the Performance of Local Business Clusters in the Knowledge Economy”, OECD Local Economic and Employment Development (LEED) Working Papers, 2012/13, OECD Publishing.
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This article was published in the 2019 Autumn Edition (Vol.12, No.1) of Economic Development Quarterly, the journal of Economic Development Australia