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July 25, 2016

How can knowledge and new ideas be turned into jobs?

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Investment in new ideas was supposed to be the universal remedy in developed countries (most notably North America and Europe) for resisting the downward economic spiral triggered by globalization. In a rush to grasp the opportunities afforded by globalization, rather than surrendering as its victims, country after country, and cities and regions within those countries, devised deliberate and targeted strategies to prioritize investments in knowledge and human capital, ranging from spurring company research and development (R&D) to beefing up the research and education efforts undertaken at universities.

However, it didn’t quite work out that way. The Swedish Paradox, later adapted for the entire continent as the European Paradox, articulated the disappointing performance in terms of innovation, job creation, global competitiveness, and economic growth found in countries and regions making robust and impressive investments in R&D, exhibiting high levels of patented inventions, and committing strong budgets and resources to research at universities.

Simply investing in new knowledge is not enough. Rather, in order to enhance economic performance, that knowledge needs to spill over into commercialization and innovation. In the private sector, companies financing R&D and investments in human capital cannot be sure that the ideas generated to introduce new products, improve existing ones, or streamline production processes will actually be effective. There may not actually be a demand for the new or redesigned product. When it comes to innovation, the only sure thing is hindsight. Economic history is replete with “sure things” that bombed, ranging from Ford’s introduction of the Edsel, to Coca-Cola’s infamous reformulation, “New Coke.” The high uncertainty inherent in actually doing something with knowledge and new ideas (i.e. innovation) leads many of the same companies that finance the R&D and human capital to reject, or not pursue and attempt to commercialize, the very ideas generated by their costly investments in new knowledge.

However, other individuals and companies may view the potential value of those new ideas more positively, and choose to use them for their own innovation activity. In the public sector, universities and other non-profit research organizations are legally prohibited from directly engaging in for-profit commercial activities, so the organizations investing in and creating new ideas are inhibited from pursuing them for innovation.

For investments in knowledge and human capital to actually pay off in terms of employment generation and economic growth, new ideas need to spill over into commercialization and innovation activity by potential entrepreneurs and other organizations. Thus, the public policy of generated sustainable employment creation has broadened considerably to focus not just on inducing investments in knowledge and human capital to spur creativity—such as R&D, university research, education, and even culture—but also on mechanisms to facilitate the spillover of that knowledge, such as entrepreneurship and technology transfer from universities and other non-profit research institutions.

Related article:
Knowledge spillovers and future jobs, by David B. Audretsch

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