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The theory of the experimentally organized economy and competence blocs: an introduction

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Abstract

This article presents the theory of the experimentally organized economy and competence blocs. The theory assumes that information is immense and that economic actors are boundedly rational. This makes practically all economic activities to some extent uncertain and unpredictable; they become experimental in nature. Economic growth is, hence, viewed as an evolutionary process of the discovery, use and selection of knowledge. So-called competence blocs—the minimum set of agents with different, but complementary competencies required to generate and commercialize new combinations—are identified as necessary for efficient resource allocation. The incentives given by the institutions to the actors in the competence bloc are crucial for economic performance.

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Notes

  1. It is beyond the scope of this essay to compare or to evaluate the theory of the EOE and competence blocs with other economic theories, e.g. endogenous growth theory (e.g. Romer 1986; Lucas 1988; Aghion and Howitt 1998), neoclassical general equilibrium theory (e.g. Walras 1874; Solow 1957), national systems of innovation (e.g. Lundvall 1992; Edquist and McKelvey 2000) or technological systems (e.g. Carlsson and Stankiewicz 1991; Carlsson 1997).

  2. Knowledge consists of the two subsets: information, the codable and communicable part of knowledge, and tacit knowledge, the non-codable part of knowledge (Eliasson 1996, p. 18). Competence is defined as the ability to use knowledge for a particular purpose (Johansson 2001, p. 16).

  3. According to the Viking mythology, Särimner was a pig in Valhalla, the dwelling of Gods and dead warriors. The warriors slaughtered and ate Särimner. The next day he returned, once again to be slaughtered and eaten.

  4. Note the similarities with the actors inventors, entrepreneurs and creditors in Schumpeterian theory. I have extended the original definition of the competence bloc to include inventors and skilled labor.

  5. In Schumpeterian theory, innovators and entrepreneurs are synonymous, as they carry out the same function. That is not the case in the theory of the EOE and competence blocs.

  6. Cf., for example, Lazerson and Lorenzoni (1999) who conclude that no industrial district in Italy has been promoted by active industrial policy. The industrial revolution in England involved no public activities (Mathias 1969), except institutional changes protecting private property rights and promoting private entrepreneurship (North and Thomas 1973).

  7. This suggests that the total tax level may influence economic growth.

  8. Observe that another competence is added, namely the competence to use the political system to redistribute private wealth. Hence, redistribution implies that unproductive competence controls a larger share of total resources (cf. Bhagwati 1982; Baumol 1990; Tollison 1997). This effect is not explicit in the current version of the theory of the EOE and competence blocs.

  9. Transformation costs are the costs incurred when physically transforming inputs (land, capital, labor etc.) into outputs, while transactions costs define the costs incurred when transferring property rights from one actor to another.

  10. Information costs have also been found to be large. Wallis and North (1986) estimate them to be at least 45% of the U.S. GDP. Eliasson (1985, p. 86) estimates them to be at least 50% of total costs in large Swedish manufacturing firms and much higher at the GDP level.

  11. These four operational tasks are identified as the information activities of both the firm and the entire economy and are called the statistical accounts of the knowledge-based information economy (Eliasson 1990b). They are estimated to have covered more than 50% of the resource input into the average Swedish manufacturing firm in the late 1980s (Eliasson 1990a).

  12. Eliasson (1996) calls these four activities the four growth mechanisms. In Eliasson (2001), he changed the title to the four mechanisms of Schumpeterian creative destruction and growth.

  13. A common explanation of the positive effects on firm growth of many firms and entrepreneurs, suggested by, e.g., Davidsson et al. (1994), is that existing entrepreneurs are positive role models for “to-be” entrepreneurs. The theory of the EOE and competence blocs does not dispute this particular effect but advances a few additional explanations related to competence and knowledge.

  14. The theory of the EOE and competence bloc shares this emphasis on the fundamental importance of heterogeneity in the knowledge base of economic actors with other traditions stressing evolution and complexity (cf., for instance, Dopfer and Potts 2004 and Pyka and Hanusch 2006).

  15. Small firms might also function as a cost-efficient mechanism to identify, select and develop entrepreneurial and managerial talents. Mistakes can be fewer and learning costs lower in small firms because small values are at stake (Lucas 1978; Davis and Henrekson 1997).

  16. The only thing that can protect a firm is a monopoly that reduces competition, guaranteed and enforced by government. Superior products, organization, technology, etc. creating a private monopoly are not a problem in the same way since monopoly profits sooner or later will be eroded by new entry (if allowed).

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Acknowledgement

I am grateful for comments from Niclas Berggren, Gunnar Eliasson and participants at seminars at The Ratio Institute and The Royal Institute of Technology. Financial support from Sparbanksstiftelsen Alfa is gratefully acknowledged.

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Johansson, D. The theory of the experimentally organized economy and competence blocs: an introduction. J Evol Econ 20, 185–201 (2010). https://doi.org/10.1007/s00191-009-0149-5

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