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The Economics of Work, Knowledge and Ideas Published: Sunday, November 7, 1999 By: Dr. Manuel Angel Morales

There is a powerful behavioral lesson from economics: to increase an activity create a higher reward for it. This very scientific proposition is currently exposed by Paul Romer, professor of economics, who acknowledges that his formulations are highly influenced by the two Nobel-Prize wining economists at the University of Chicago, Gary Becker and Robert Lucas. They are the contemporary experts on the economics of knowledge and ideas. Let us here synthesize this important piece of wisdom coming from these three distinguished scholars.

The initial point is that throughout history standards of living remained largely stagnant. To the contrary, in the last several hundred years there has been a dramatic increase. The explanation to this trend is that economies have learned to better manage knowledge creation, and we will also say, social diffusion. If you add to this event the factor of better distribution, it is understandable why we have come out of stagnation into steadily improving standards of living. In business we are trying to increase the value of the customer and shareholders. Better knowledge management skills for organizations of all types will result in more rapid rates of growth, sales, income and shareholder value. Organizations, leaders and managers have to be alert to the condition that existing patterns of thinking can trap you into a particular worldview. Inventing (creating ideas) and innovations (implementing them), imply shifting resources away from emergencies, operational and basic activities and focusing on tasks that let the organization get better in the long run.

This new mental model postulates we create value by rearranging things, not so much by producing things under the old factory structure. The task is for discovering new designs and instructions for channeling raw materials into a more valuable configuration. By rewarding people for engaging in discovering new processes, designs and softwares you can speed up the rate at which those drivers of growth are implemented. The critical point is to reward people for not only providing new insights, but also for disseminating them.

Employment is going to be less a life long relationship and more like a value-added transaction based on knowledge consultants, outsourcing projects for allowing workers develop new skills. Market turbulence will break rigid and conventional organizations. Globalization will take the knowledge that works in one area and extend it through the world. National borders are becoming boundaryless, producing huge gains from trade associated with letting world knowledge into a nation`s economy while knowledge from that nation is exported for profit. Workers and professionals need to be trained on a continuing basis throughout their careers. Strategic management of educational and research process can lead to better growth and development for the countries.

The challenging quest is for designing the right incentive system to induce discovery, dissemination and implementation of knowledge and ideas.

 Copyright 1999 QBS, Inc.
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