Guillaume Esquelisse tipped me about an interesting discussion arising from Andy Grove’s article on the need for US job creation and industrial policy, which highlights the relationship between innovation,manufacturing and trade. Rajiv Sethi summarized its central point : “An economy that innovates prolifically but consistently exports its jobs to lower cost overseas locations will eventually lose not only its capacity for mass production, but eventually also its capacity for innovation“.

Unlike some of the commentators of Tim Duy’s article, I’m not one of those heretics who openly toy with protectionist ideas as a protection against the shameless exploiters of the international trade system. But as Tim Duy warns : “if you scream ‘protectionist fool’ in response, then you need to have a viable policy alternative that goes beyond the empty rhetoric“. So here is a proposal.

I believe that the fix does not lie in the selfish tweaking of trade barriers – that is merely treating a symptom. We need to act much deeper by addressing a foolishly held belief about the fundamental nature of the knowledge economy : underlying the fabless follies of glamorous captains of industry no longer worthy of the title is the fallacious narrative that applies capitalist analogies to the knowledge economy.

Knowledge cannot be hoarded. Like electricity production, knowledge creation is an online process : there are marginal hacks for storing some of it, but to benefit you must be plugged in the grid. As John Hagel III, John Seely Brown and Lang Davison put it : “abandon stocks, embrace flows”. Read their article and let it sink in : knowledge flows trumps knowledge stocks.

This is the same point that Mike Masnick found in Terence Kealey’s “Science is a Private Good–Or: Why Government Science is Wasteful” :

“How many people in this room can read the Journal of Molecular Biology. How many people in this room can read contemporary journals in physics? Or math? Physiology? Very, very few. Now the interesting thing — and we can show this very clearly — is that the only people who can read the papers, the only people who can talk to the scientists who generate the data, are fellow specialists in the same field. And what are they doing? They are publishing their own papers.

And if they try not to publish their own papers… If they say, ‘we’re not going to get engaged in the exchange of information; we’re going to keep out of it and just try to read other people’s papers, but not do any research of our own, not make any advances of our own, not have any conversations with anyone,’ within two or three years they are obsolescent and redundant, and they can no longer read the papers, because they’re not doing the science themselves, which gives them the tacit knowledge — all the subtle stuff that’s never actually published — that enables them actually to access the information of their competitors.”

This is a huge point that fits with similar points that we’ve made in the past when it comes to intellectual property and the idea that others can just come along and “copy” the idea. So many people believe it’s easy for anyone to just copy, but it’s that tacit knowledge that is so hard to get. It’s why so many attempts at just copying what other successful operations do turn into cargo cult copies, where you may get the outward aspects copied, but you miss all that important implicit and tacit information if you’re not out there in the market yourself.

Collecting ideas is easy, but acquiring tacit knowledge takes actual involvement. Tacit knowledge requires doing. This is quite far from being news to the practitioners of knowledge management or to anyone who has ever reflected on what internalizing knowledge actually means… But is is no longer just a self-improvement recipe nor an organizational issue : it has now acquired visibility at the national policy level.

The Chinese are not just mindlessly pillaging out intellectual property : they have also understood the systemic effects of a fluid knowledge economy – take open standards for example. We must now get on with the program and admit that the whole idea of capitalizing intelectual property is a lost cause. Political leaders will soon understand it… Patent trolls are already dead – but they just don’t know it yet.

But we have already advanced far into a de-industrialization process whose only redeeming strategic value is that the Chinese must be laughing hard enough for their gross national product to be slightly negatively affected. Is it too late ?