Regular readers know I believe that tradable sector activity does not have to carry the burden of knowledge dispersal and product formation, solely through its own resource capacity. The threat of knowledge use limits in times of economic stagnation, comes through in this post title from Brad Delong, "Regional Policy and Distributional Policy in a World Where People Want to Ignore the Value and Contribution of Knowledge- and Network-Based Increasing Returns". Even though he appears to envision the problem in terms of generating more efficient monetary redistribution, the dispersal of knowledge is far more crucial, in that it directly affects output potential, hence total monetary capacity. Here's Delong:
Perhaps in the end the problem is that people want to pretend that they are filling a valuable role in the societal division of labor, and are receiving no more than they can contribute.
But that is not the case. The value - the societal dividend - is in the accumulated knowledge of humanity and in the painfully constructed network that makes up our value chains.
A "contribution" theory of what a proper distribution of income might be can only be made coherent if there are constant returns to scale in the scarce, priced, owned factors of production. Only then can you divide the pile of resources by giving to each the marginal societal product of their work and the resources that they own.Delong explains that this isn't the world we live in, and continues:
In a world - like the one we live in - of mammoth increasing returns to unknown knowledge and to networks, no individual and no community is especially valuable. Those who receive good livings and those who are lucky - as Carrier's workers in Indiana have been lucky in living near Carrier's initial location.First, I want to briefly highlight Delong's use of scale, as both redistribution means and recognizable wealth creation. While scale measure approximation is salient (for monetary redistribution) from tradable sector activity which provides a value (measure) for skills contribution via product output, the scale gains of non tradable sector activity are not as readily distinguished. The value of time for time based services, occurs in more subjective ways.
Hence the knowledge gains of non tradable sector activity are the intangibles, the secondary market movers, the subjective knowledge use scale gains over time which Delong emphasized in his post. They also belong to the fiat monetary formation which populations learned to accept on faith in the 20th century, for both services generation and other vital secondary markets.
While government linked secondary market structure is indeed valuable, time based product is only capable of immediate measurable scale, via patterns which allow for knowledge continuity between groups. And while institutions have learned to provide this vital capacity to a limited degree, not just any community has been given the chance to participate in the institutions which provide a valid knowledge use continuum for all concerned.
Even though today's schools begin a coordinated time use continuum with high levels of public and private commitment: for many of these institutions, the process is broken off abruptly - upon graduation - in irretrievable ways. Even in the best of circumstance, one may find little economic purpose with neighbors in a hometown upon graduation, unless they've managed to snag a scarce local job. Nonetheless, homeowners are often expected to commit their property tax dollars to these schools through the course of a lifetime, with little measurable return in terms of lifelong local services capacity, or tangible knowledge use gains close to home.
Meanwhile, communities are presumed lucky - or not - depending on whether substantial tradable sector activity exists nearby, where at least these institutions are (hopefully) structured to continue the vital processes of knowledge use and skill application for all concerned. Just the same: in terms of wealth creation, broad and complex knowledge use patterns (productive agglomeration) are the ultimate scarcity, especially when productive agglomeration is heavily government dependent. This core scarcity inhibits both the redistribution of money and time based services product, in the present.
Consider Delong's characterization of luck, along with some other implications in this particular context. For one, small communities are designated "lucky", should tradable sector activity exist nearby to provide local employment, above and beyond subsistence levels. Equally important - in terms of wealth creation - is the present dependence on tradable sector wealth, for the follow through knowledge wealth which governments are also "supposed" to somehow fairly apportion to their citizens, in spite of existing harsh institutional limits on actual supply. Just as communities feel lucky with tradable sector activity nearby, so too the knowledge beneficiaries which recognize their own good fortune in this regard, since tradable sector wealth is a more tangible source of redistribution, politically speaking, than mere local holdings of international wealth.
So there's a problem. The extent of aggregate knowledge use potential in this instance - both via available revenue and actual product formation - is limited to the wealth creation which has already been generated via means not directly related to knowledge product. Consequently, any underlying assumption of government dependence on tradable sectors for knowledge based services creation which Delong may hold, is still valid. After all, the follow through and government linked secondary market activity which flows from primary markets, has been more extensive than the initial wealth creation of fortuitous tradable sector activity, for some time. Hence the note of fear - or at least existential uncertainty - in Delong's post title.
Fortunately, it's not necessary to "force" governments to further redistribute more tradable sector wealth than has already been the case, especially given today's lack of prominence of manufacture as a primary market activity, in communities as a whole. Nor is it necessary for governments to force today's non tradable sector beneficiaries of knowledge use to part with their earlier good fortune regarding skills valuation, as it was in fact reinforced by governments in the first place. These providers could gradually phase in greater knowledge use by entire populations, within the same time frame that populations eventually phase in more direct sources of social security and less government redistribution in the near future.
Indeed, we don't have to associate fortuitous resource reciprocity of tradable sector activity, as the only source for first mover wealth creation. After all, the "luck" of fortuitous location can be recreated, any time that a society decides to organize economic time reciprocity, so that it becomes capable of internal wealth generation. By so doing, no one would need to "force" tradable sector activity in certain locations, or the limited wealth it presents, for the activity of knowledge use. Sometimes, institutional organization becomes a matter of recreating our own "luck".