The significance of a knowledge economy started taking off in the 1990s. Peter Drucker in the early 1980s had begun to stress the point. In 1990 Michael Porter of the Harvard Business School reintroduced Marshallian ideas about clusters of related industries in The Competitive Advantage of Nations. Other books like Working Knowledge, Intellectual Capital, The Invisible Continent, The work of Nations and The Wealth of Cities were all published and consulting and accounting firms were boasting of their knowledge practices. The idea of Increasing returns of knowledge was taking off.
By the mid 1990s a new economy had been discovered. In 1997 the market soared, and the Dow Jones industrial average gained nearly 2000 points. Business Week did a cover story entitled "the triumph of the new economy." This caused the usage of the term "new economy" to increase greatly. Other terms associated with the new economy began to be used as well; the "death of distance" the "frictionless economy," "the weightless society," the "flattened world." Romer appeared in several books including The New New Thing and The Earth is Flat. Even though it seamed the world was beginning to catch onto the idea of increasing returns to knowledge at the beginning of the twenty-first century there was still almost no hint of what had really happened.
A for Will.
ReplyDeleteI'm not sure that I agree with Warsh on this. Perhaps it wasn't that people were unaware of these developments, but that they were off busy doing their own thing.
For all the great intuition in new growth theory that increasing returns to ideas are a key source of growth ... most people still work in the competitive sector ... and most people in the increasing returns sector haven't figured out how to internalize those increasing returns.