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by Paul Strassmann
Global Knowledge Power
Further accumulation and consolidation of knowledge is likely to exacerbate global conflicts.By Paul A. Strassmann
Last month ("Knowledge Monopoly," May 2000 KMM) I estimated the distribution of Knowledge Capital in the U.S. economy. I found that only 84 U.S. firms, each with Knowledge Capital in excess of $20 billion, accounted for 83 percent of all of the Knowledge Capital available to 7,288 publicly listed corporations. The fact that only 1.2 percent of all those firms own that much clearly indicates a concentration of economic power.
Such a skewed distribution of assets will have much greater consequences in an information-based economy than in an economy that depends on natural resources or financial capital. It is widely accepted that Knowledge Capital exhibits "increasing economies of scale," a measure that economists use to describe investments whose marginal productivity improves as it grows. Thus, expansion unconstrained by competition will always favor further concentration of economic power by any company that succeeds in occupying an early leading position in any market.
In contrast to the inherent winner-take-all characteristics of knowledge-based marketing, enterprises that continue to depend on natural resources, labor and financial capital will remain limited by the economic laws of diminishing returns, or decreasing economies of scale. Such firms (or countries) will see costs rise and prices decline; these factors will manifest themselves as declining productivity, which was a characteristic of the U.S. economy for much of the period from 1965 to 1995 and is now endemic to most other countries in the world.
The global situation
Much of the prevailing rhetoric by proponents of expanding world trade ignores the rapid approach of confrontations between the rising economic power based on knowledge capital and the increasing vulnerability of those who own other forms of assets. Controversies about topics such as deforestation, ecological damage, genetic engineering and the debts of underdeveloped countries are certainly relevant, but they block an appreciation of the underlying fundamentals. These causes can be summarized as follows.
Concentration of economic power, which I have already shown as prevailing in the United States, is even more pronounced on a global scale. Only six countries, which together are home to 11 percent of the total global population of 5.9 billion people, generate 62 percent of the global gross national product (GNP) of $29 trillion. The U.S. accounted for 27 percent of the world's GNP in 1998; five others--Japan, Germany, the United Kingdom, France and Italy--together accounted for 35 percent.
Most of the world's working population does not participate in the global economy. The 19,691 publicly listed corporations generate $24 trillion of revenue, which accounts for most of the world's GNP. Almost half of those companies originate in the U.S.
The net total of the Knowledge Capital owned by the world's 19,691 listed corporations is about $12 trillion; the U.S. owns 57 percent of that total. The $12 trillion total is generated by only 94 million employees.
The consequences of these disparities are far-ranging and likely to influence the course of international relations for several generations. Although underdeveloped countries will continue to rush into industrialization, their relative economic standings may not improve because knowledge-based economies will control global markets. As a result, local political elites, who traditionally have controlled national information structures, will agitate against the intrusion of international corporations or organizations. Such resistance could take the form of direct political interference or possibly deteriorate into traditional and/or information-based forms of warfare. In the same way that the transition from land-based ownership to capital-based industrialization (which much of the world has not yet completed) shaped most historical developments since the 15th century, equally painful transitions will take place at accelerated speed in the years to come. The difference is that now the desire and the means for acquiring knowledge are pervasive; the world population is becoming aware that knowledge is the ultimate source of power. The intrinsic tendencies that favor concentration of Knowledge Capital will have to be tempered by the political realities of universal dissatisfaction that this imbalance will generate. Politics, not technology, is likely to dictate further progress in the globalization of knowledge management.
Paul A. Strassmann originated the trademarked concepts "information productivity", "return-on-management" and "knowledge capital."
© 2001 Freedom Technology Media Group