Europe and the Knowledge Economy

Europe and the Knowledge Economy

Larry Elliot reports in the Guardian on an interesting paper presented to the Royal Economic Society by Rocco Huang of the World Bank. It:

looked at how tolerant different countries were of uncertainty and investigated whether that was linked to a willingness to devote resources to innovative sectors of the economy. Huang found that that was the case. There is evidence, he says, to show that attitudes to uncertainty differ greatly across countries. The Anglo- Saxon nations and the Scandinavians are far less conservative when it comes to new ideas than southern Europeans.

He notes that ‘The data supporting Huang’s argument is a bit dated, stretching back two or three decades’ but that ‘[Huang believes] the findings are robust because attitudes change little over the short run’.

Elliot says that ‘If this [thesis] is true, then it could explain why Europe as a whole has lagged behind the US in the information revolution. Capitalism, as Schumpeter explained, is all about occasional episodes of wrenching change in which an old set of technologies is replaced by a wave of innovations. Clinging on to the old delays the arrival of the new’.

Elliot argues that ‘When they met in Lisbon five years ago, leaders of the European Union made a commitment to becoming the “most competitive and dynamic knowledge-based economy in the world by 2010″. This pledge now looks embarrassing, if not downright ridiculous. The gap between Europe and the US has grown and is likely to grow wider still.’ But, he says that ‘If this [Hunag's] thesis is right, then we should be able to discern a difference in performance within the European Union, between the Protestant countries of the north and the Catholic countries of the south. Interestingly, this is precisely what [a] Centre for Economic [this should be European] Reform pamphlet does show. The Nordic members of the EU – Sweden, Denmark and Finland – are right up there with the US as worldclass economies’.

As for those being left behind, he warned against presuming there will be a catch up as in the industrial era: ‘It took many decades for the consumer products of the last wave to make it from the drawing board to the shops, leaving plenty of time to catch up with the innovators. Today, the emphasis is on constant change, with the highest returns going to those who come up with the big new ideas. The Europeans and Japanese are also kidding themselves if they think the Americans will repeat the mistakes of the last technological age, and simply allow other nations to exploit all the ideas coming out of Silicon Valley or the Sun Belt’.

The Centre for European Reform pamphlet he mentions is: The Lisbon Scorecard V Can Europe compete?

Huang’s Paper is: Tolerance of Uncertainty and the Growth of Informationally Opaque Industries