[1] The views presented here are solely those of the author and not those of any institution with which he is or has been affiliated.
[3]See Stiglitz (1995), Economic Report of the President (1997). While the public good properties of knowledge had long been noted (Arrow, 1962), early articulations of knowledge as a public good (in the sense defined by Samuelson (1954)) include that of Stiglitz (1977) and Romer (1986). For an early textbook discussion, see Stiglitz (1986).
[4] See Tiebout (1956) and Stiglitz (1977, 1983).
[6] In theory, if the original innovator were a perfectly discriminating monopolist, the adverse effects might be limited, since, it is alleged, he would never charge a fee for the usage of knowledge that would actually discourage a productive utilization (he would simply extract all of the users’ producer surplus.) But in practice, there is not perfect discrimination, partly because the original innovator simply does not have the information required to be a perfectly discriminating monopolist. Moreover, competition in the product market is imperfect, and the innovator will discourage innovations which might result in the loss of some of his own monopoly rents.
[8]Aaron Edlin of the University of California at Berkeley (and a former staff economist at the Council of Economic Advisers) has proposed an ingenious solution to spur innovation and limit the undue exercise of monopoly power: Microsoft would have to release its code, and the duration of its intellectual property protection would be limited to three years. If Microsoft continued to improve its product, the update versions of its software would be protected (for the period of three years). Consumers would have a choice: they could avail themselves of the outdated (three-year old) software, or pay for the more advanced software. Microsoft would thus be forced to continue to innovate at a fast pace, in order to justify its dominant position in the market. Applications using the slightly outdated operating system would compete with those using the newer; and consumers would only be willing to pay for the new operating system if the improvements were worth the price.
[10] According to the standards of optimal tax theory, which seeks to minimizing dead weight losses. Moreover the peculiar property of patents--imposing a high tax rate for a short period, followed by a zero tax rate, would--apart from the other considerations discussed in this section--appear to be far from optimal in terms of standard tax considerations. On the other hand, the tax is a "benefit" tax: those who enjoy the good pay the tax, and such taxes can be motivated by equity concerns.
[11] This would, in a sense, be the opposite of the anti-dumping laws, which stop firms from selling products at lower prices in international markets than they do domestically. While anti-dumping laws have the effect of hurting consumers at the same time that they protect producers, these "price gouging" laws would protect consumers.
[12] This list is not meant to be exhaustive. For instance, some governments also created industrial and research parks, facilitating the exchange of ideas. Another important policy was the reduction of tariffs on intermediate goods, which allowed the importation of essential inputs into more advanced technological processes.
[13] Competition remains, however, far from perfect, so there is still an important role for an effective regulator. Chapter 2 of the 1998 World Development Report documents the success of the countries that have used market basic competition with regulation. Countries that have privatized without adopting a competitive framework have, at least in some cases, seen prices rise and access restricted: the private producer is more efficient in acting as a monopolist than the government was. In one instance, the price of access to the internet was raised to the point that the University could not afford maintaining connectivity. The "reform" thus reduced the ability of those in the country to avail themselves of global knowledge.
[14] I developed the concept of "learning to learn" and its implications for economic growth in Stiglitz (1987b).
[16] The concept of the Knowledge Bank was introduced in Wolfensohn’s address to the Annual meetings in 1996. Wolfensohn (1996).
[18] Assessing Aid points out that foreign aid money is only significantly correlated with positive impacts in those developing countries with sound economic policies and institutions. In particular, in countries with sound overall economic management policies, 1 percent of GDP assistance leads to a sustained increase in growth of 0.5 percent and reduces poverty by 1 percent. In contrast, for those countries with poor economic environments, aid has no significant impact (the coefficient for growth as a result of aid inflow is actually negative, although not statistically different from zero).
[19] Thus, in countries which pursue good economic policies, aid "crowds in" private capital; $1 of aid helps bring in $2 of private capital. This helps explain its strong role in promoting economic growth.
[20] The strong complementarity between knowledge and capital is one of the reasons that it is so difficult to parse out the extent to which growth is due to capital accumulation and the extent to which it is due to closing the knowledge gap. Improved knowledge provides the stimulation for higher levels of investment, and the new investment embodies new technology. Without improvements in knowledge, presumably the countries of East Asia would have quickly experienced diminishing returns; as it was, they could maintain high rates of investment for an extended period of time without their incremental output-capital ratio falling. That is (only) one of the reasons that studies, such as those of Young (1995), which purport to show that there was no East Asian Miracle—that the region’s growth can be explained entirely by investments, including investments in people—are so misleading. It was a miracle that they were able to maintain high returns with the levels of savings and investment—few if any other countries in the world had succeeded in doing so. They did succeed in closing the knowledge gap, though to be sure, some of this knowledge was "purchased", like physical capital. For an alternative, and I think, more convincing interpretation (as well as a technical critique, showing how sensitive Young’s results are to the particular and unconvincing ways in which the variables entering the analysis are measured), see Klenow and Rodríguez-Clare (1997) and World Bank (1998a).
[21] These ideas are developed more fully in Wolfensohn’s speech at the World Bank/International Monetary Fund Annual Meetings in 1998. See Wolfensohn (1998) and in Stiglitz (1998).
[23] We can and should be more precise: since there are likely to be trade-offs, with some arrangements serving to advantage some groups relative to others, the two key questions are standard efficiency and equity issues. Can the international arrangements lead to a reasonably high level of efficiency (that is, not "too large" an undersupply of the global public good knowledge, and not too high a level of "static inefficiency" from restrictive utilization of knowledge) in ways which comport with basic notions of equity?