16th Dr. CD Deshmukh Memorial Lecture
ECONOMICS
OF
KNOWLEDGE
By
Dr. R.A. Mashelkar, F.R.S.
Director General
Council of Scientific & Industrial
Research
I feel privileged and honoured to have been invited to deliver the CD Deshmukh Memorial Lecture today. CD Deshmukh was a person of such rare charm and brilliance, erudition and versatility. He had given sufficient indication of an extraordinary career that awaited him when at the young age of 22, he topped the Indian Civil Service Examination in 1918. It was at that time the pinnacle of glory for an Indian. An administrator par excellence in the highest tradition of his service, a lawyer by training, an outstanding expert in finance, an educationist with a vision; Deshmukh was also a great institution builder, a scholar, an author and a poet. Deshmukh wore several caps with equal ease and grace. Few would know that tugged among his several works largely dealing with economics, development, finance and education, there is one, Sanskrit Kavya Malika.
Deshmukh
was instrumental in the creation of several institutions which have played a
foundational role in planning and which influenced the course of evolution of
post independent
When I look at the list of those, who have given this prestigious lecture in the past, I feel truly overwhelmed. I find that they were some of the greatest leaders, visionaries and thinkers covering many walks of our life. My choice as a speaker is perhaps influenced by the fact that I am a scientist and that the breathtaking pace at which science is moving is not only shaping our present, but also is going to dominate our future. This is the last year of the century, and indeed the millennium. We stand at the threshold of the next one with anticipation and excitement. Many feel that the next century will be the century of the mind. Some say that the next century will be the century of knowledge. A nation’s ability to convert knowledge into wealth and social good through the process of innovation is going to determine its future. I, therefore, want to focus on the exciting subject of economics of knowledge, which will dominate the coming century.
Let me set
the stage by dreaming about our tomorrow.
Tomorrow’s societies will be knowledge societies. Tomorrow’s markets will be knowledge
markets. Tomorrow’s wars will be fought
not by the conventional weapons, guns, missiles and so on, but they will be
fought in the knowledge markets with the new thermonuclear weapons called information
and knowledge. The war on a patent right, which took place between Eastman
Kodak and Polaroid, was settled for about one billion dollars recently. This is half of
The power
of knowledge in the knowledge society is there for all of us to see. The paradigm shifts are truly dramatic. For
more than a century, the world’s wealthiest human being has been associated
with oil, starting with John Rockefeller in the last nineteenth century and
ending with the Sultan of Brunei in the late twentieth century. But today, for the first time in history, the
world’s wealthiest person is a knowledge worker, his name happens to be Bill
Gates!
I want to
emphasise that to meet the twin objective of growth with equity, knowledge
cannot be the prerogative of a few; everyone in the society must have access to
knowledge and become a knowledge worker. Nations which do not create knowledge
societies will vanish into the oblivion.
But those that do create these knowledge societies will have the
potential to lead the world.
If the
Indian society has to become a knowledge society, then it is important that
every Indian becomes a knowledge worker.
We need to recognise the concept of a knowledge worker in the broadest
possible sense. It is not scientists and
technologists alone, which will be knowledge workers. Even a farmer can be a
knowledge worker, provided he understands the soil that he is sowing his seeds
in, he understands why and how of the micro nutrient and pesticide addition
that he makes, he lives in an information village, where he has the benefit of
short and medium range weather forecasting to plan his farming activity and so
on. If he does so, then he will be a
continuous user of knowledge and he will be a knowledge worker.
Let me
illustrate this concept further. I had
the privilege of witnessing some truly novel models being tested by M.S. Swaminathan Research Foundation on creating
new knowledge systems in the villages around
If a
customer becomes a knowledge worker, he will change the market dynamics. We take great pride in the white revolution that took place in
Enlightened citizens empowered
with knowledge will be able to see the crucial link between the 5 Es, namely
environment, ecology, economics, equity and ethics. They will not be then guided by
misinformation fed by vested interest groups.
But they will use their knowledge to decide on their own as to what is
wrong and what is right. They will not
stop projects that lead to economic development, but they will stop those that
lead to destruction.
In a
knowledge society, the knowledge workers will perform different tasks. Some of them will generate knowledge, some
will acquire knowledge, some will absorb knowledge and some will communicate
knowledge. Generating knowledge will
require an ab initio
approach and will build on creativity.
Communicating
knowledge will involve, among other things, creative use of modern information
and communications technology through competitive environment, but at the same
time ensuring that the poor have an access. Revolution in information
technology will galvanize the process of knowledge communication. The cost of transmitting a million bits of
information over a kilometer has plummeted in the last twenty years from over
twenty dollars to a few cents; and the curve is logarithmic. In 2020, half of
the world’s population will be connected by Internet; we will be then talking
about ‘netizens’ and not ‘citizens’ ! Access to
information and knowledge will therefore assume a different dimension
altogether.
Increasingly
the traditional factors of production – land, labour and capital – have become
less important when compared with technology; the economists have termed this
as the ‘expansion of the production frontier’.
The source of technology is in science, that is
rooted in knowledge. It is easy to
visualise that tomorrow’s industries will be knowledge industries. The emphasis
will not be on physical or tangible assets, but on intangible knowledge
assets. The value of intellectual
capital of an industry will determine its rank and competitiveness. In such industries, there will be a major
shift from people, who handled information and did routine and unthinking work,
to those who will use knowledge at every stage. For knowledge workers, information
and knowledge will be both the raw material of their labour as well as its
product.
World’s
major growth industries – such as microelectronics, biotechnology,
designer-made materials, and telecommunications – are already brainpower
industries. These knowledge industries
stimulate other industries, in turn, to become knowledge based. Consider the oil industry. The issue of “bottom of the barrel” is
driving the economics of these industries.
New knowledge embedded in three-dimensional acoustical sounding,
horizontal drilling, and deep offshore drilling is
turning oil business into a knowledge industry.
One might
wonder as to why the physical assets such as machinery in a factory, are
becoming less important. Plant and
machinery are tradable commodities today. Even capital was a scarce commodity
until recently and was used as a competitive advantage. But with globalised markets the companies
around the world have access to finances at inexpensive rates. So even capital is no longer a scarce
commodity. It is the intangible assets
which are knowledge based, and that are non- replicable, unique and
proprietary, that are providing companies with a competitive edge.
The nature
of intangible assets will vary from industry to industry, but they will include
several commonalties such as research and development, patents, proprietary
technologies, databases, brands and even relationships, people and so on. The
dominance of intangible knowledge assets will mean that we will have to make
major changes in the management structures. Around the world, the managements
are built in the framework of strategy, structure and systems. The top
management is always the grand strategist and decides on the allocation of
resources, and the lower management merely implements and administrates the
strategy. With domination of intangible assets, one will have to create new
models. The top management will create only an overarching purpose and an
environment in which the people have the freedom to deliver. This means the
emphasis will shift to defining the purpose of the organisation, setting the
right process and getting the right people and empowering them to deliver.
The
industry will have also to think about things which it never cared for. For instance, among the intangible assets,
customer loyalty which arises out of customer satisfaction and the commitment
of employees will be the two very important intangible assets. The investors
will not merely focus on tangible assets but start assessing the customer
satisfaction index or an employee satisfaction index of a firm. Such intangible
assets may become the heart of the annual reports of the companies. My own CSIR
is a knowledge-based organisation. When
dealing with our industrial clients, we wish to undertake research as a
business and do it in a businessline manner.
Last year we set up the process of evaluating the customer satisfaction
index and making it as one of the performance indicators that will determine
every laboratory’s budget. I expect this
process to spread as rapidly as the quality movement in
Will the
accounting norms for intangible-asset-dominated companies change? Can the
intangible assets be valued and formally be a part of the balance sheet of
firms? Will the stock markets be willing to recognise intangible assets as
something real, particularly when accounting norms do not do so? Will the
lenders who lend today against current fixed assets be prepared to consider
knowledge assets? One does believe that this paradigm shift will come in the
near future and the balance sheets of knowledge based companies will undergo a
formal change. After all
Finally,
for a cash starved but intellectual capital rich
country like
I was
attending a meeting of the Third World Academy of Sciences in
In
Smart countries like
How do we build knowledge networks between the productive sector and R&D institutions and what are the hurdles? Publicly funded R&D institutions should be used as idea generators and providers of new concepts by the industry. Industry should not look at institutions as super markets where off-the-shelf technologies are sold. Indian industry should be prepared to assume the role of partners, who have the technical, financial and marketing strengths to take ideas to the market place. As regards the products emerging from R&D laboratories, these invariably come out as some sort of packages containing knowledge and information, whereas the business units will have to convert these into goods and services, which are saleable.
The Indian
industry should willingly integrate national R&D resources into their
business strategy. Improved
communication and understanding, faith in mutual growth and development of
healthy working relationships is necessary.
The fact that new knowledge has to make an economic sense has not been
realised by our institutions. On the
other hand the fact that competitive advantage in business will be reached by
using cutting edge knowledge has not been realised by our industry. There has to be a meeting ground between the
long-term horizon of R&D institutions and the short-term horizon of
business units. CSIR, as a large
publicly funded R&D system, is trying to make a cultural shift in its
operations, by looking at research as a business, defining a new product,
defining a new process and doing it in a business like manner. The transformation process has just begun,
but CSIR hopes that it will become an effective hub in the Indian knowledge
network and play a crucial role in driving forward the issue of getting
economic gains from a vibrant Indian knowledge bank.
I have spoken about Indian
knowledge networks, but I see equally exciting possibilities for global
knowledge networks for economic gains, where
What is
driving this process? Many companies
across the world today consider it to be rather unwise to attempt for
self-sufficiency in technology development, particularly in an era, where the
R&D costs are increasing rapidly.
The concept that technology could be acquired rather than reinvented is
gaining momentum. As a part of the
global innovation strategy, several companies world over are scouting for new
ideas and patents. These companies believe that the surest way of becoming
technically strong is through knowledge networking with premier organisations
across the world. In an era of global
connectivity through modern information technology, the concept of virtual
laboratory is gaining ground. These global networks are allowing the real-time
management and operation of laboratories in any part of the world. Thus, companies are seeking to gain a
competitive advantage by using the global knowledge resource and working with a
global time clock.
Basic skills are gaining
importance and the new paradigm is skill-based competition. The high technology companies are asking as
to what skills, capabilities and technologies should they build up, rather than
asking a stereotype question, as to which markets should they enter, and with
which products. I see an enormous opportunity for
I made a
reference earlier to the expensive wars in the knowledge market that the Indian
industry will have to face, as it integrates its economy with the global
economy. Intellectual Property Rights
(IPR) will be crucial in fighting these wars! Indeed in the world of knowledge
based competition, IPR will emerge as a key strategic tool.
The issue
of patents in particular, has created a national interest and debate of great
dimension. I thought it might be useful
to focus on this specific area. A weak
physical infrastructure, inadequate intellectual infrastructure, poor public
awareness and delays in implementing government policies is hurting
Skills in
filing, reading and exploiting patents will be most crucial in the years to
come; but our ability to read or write patents is very poor. Neither can we
properly protect our inventions nor can we understand the implications of the
patents granted to our competitors. Many
of the patents written by our professionals could be easily circumvented. Manpower planning for IPR protection needs
priority. IPR must be made a compulsory subject matter in the law courses in
the universities in
There are
several areas of conflict and debate in the existing patenting system. One
issue is that of public vs. private knowledge.
Some types of knowledge – for example educational technologies, life
saving technologies, must be available to all, not just to the rich. We need to develop principles by which we
determine as to when the knowledge will be publicly available and when it will
be kept private. Agencies should be set
up to buy knowledge for the public good, including by using those principles
used in land-acquisition proceedings – but this requires a clear legal and
policy framework.
The present
patent system is made applicable to all types of industries, types of inventors
and types of knowledge. This cannot
work. The electronics industry, where
product life cycles are small, wants speed and short term protection. Whereas pharma industry,
where profits are earned, after a long time of rigorous evaluation of safety,
toxicity etc., wants long term protection. We must realise that one size does not fit
all and revisit the patenting system based on the issues of cost, speed of
issuance, dispute settlement and so on based on the type of industry, inventor,
knowledge, etc.
The
industrial property systems were set up centuries ago for inanimate objects,
and that too in formal systems of innovations. A great challenge is now
emerging to look at the systems that will deal with animate objects (such as
plants and animals) and with informal systems innovation (such as those by
grass root innovators like farmers, artisans, tribes, fishermen and so on). The
standard intellectual property system will certainly not suit such innovators and
their innovations. We need innovation in the intellectual property system
itself. Shorter duration patents for smaller innovations, including specific
improvements in the traditional knowledge need to be conceived. They will
involve simple registration-cum-petty patent system where the inventive
threshold would be lower but even a small improvement in material, process,
product or use could be protected at much lesser costs and for shorter
duration. This will give a boost to the creative capabilities of otherwise
deprived innovators. We, in
The
knowledge based industry in
The same is
the case with our pharma industry. From an importer of even the formulations in
early 50s, our pharma industry has become a net exporter. We need to recognise that it will start
feeling the heat of the global competition soon. The global pharmaceutical
industry is a knowledge industry and the emerging Indian pharma industry will
have to be no exception. It has survived
so far without developing new molecules. Indeed, only fourteen new molecules
have been developed so far in the last forty years, out of which eleven have
been from the CSIR system. But with the
advent of the new patent regime, the strategies will have to change. I do
strongly believe that the Indian industry can once again rise to the occasion
just as it did in the 70s under the provisions of the Indian Patents Act 1970.
Indian pharma industry, apart from pursuing novel synthetic routes to known
molecules must pursue basic research
for patent-worthy inventions comprising new molecules. It will have to forge
partnerships with national laboratories in a Team India spirit to surge ahead.
As a new strategy, the pharma industry could pursue the development of new
molecules up to the point of pre-clinical stage and then forge strategic
alliances for co-development or license these to national and international
partners. Some of the enlightened pharma players in the Indian industry are
already beginning to reap the benefits of this strategy.
Before we protect IP, we must
generate IP which is worth protecting.
Our institutions, national laboratories and industrial R&D
laboratories will have to gear up for this. Nurturing a strong innovation base
through a balanced system of recognition and rewards is the need of the
hour. We will have to invest liberally
to enhance the skills and knowledge base of scientists, through structured
in-house and external professional training programmes, some even abroad, on
understanding, interpreting and analysing the techno-legal and business
information contained in IP documents, and in drafting of IP documents. For this
we need to avail the services of high-class national and foreign consultants
and attorneys. We need to encourage the publication of R&D results in
scientific papers only after careful consideration of the consequences on IP
rights. It is hard to estimate the loss of Indian intellectual property due to
the inadvertent publication of usable knowledge in the last few decades.
Monitoring national and international patents and other IP through access to
on-line databases, to ensure effective protection and to ward off infringements
and threats to
I believe
that we will have to mobilise public opinion and influence government decisions
and policies on diverse IP issues. This should be done, not through emotional
cries, but on the basis of analytical and scientific studies taken up in-house
or commissioned nationally and internationally. We must spearhead a movement
towards formulating a national IP policy.
In my pursuit of economics of
knowledge so far, I have dealt with factors which will drive knowledge markets
dominated by conventional industries as in industrialised societies. The issue of economics based on traditional
knowledge and biodiversity are far more complex.
Knowledge-rich
companies and researchers from the developed world have been attracted to the
wealth the poorer countries have in their biodiversity and the traditional
knowledge systems. Some argue that the
access to such biodiversity and community knowledge by the industrially
developed nations is necessary for the larger welfare of mankind as this
advances knowledge and leads to new products which contribute to the well being
of global consumers. However, this is
not the point. The point is that this
access to the resources of the poor does not benefit them in any way, while
their natural resource and intellectual property continues to be appropriated
and exploited.
Many
researchers who have obtained knowledge about biodiversity and its uses from
local innovators, communities and institutions do not even acknowledge their
contributions, let alone sharing of the benefits resulting from such
knowledge. One recalls here the case of
a new antibiotic. This was launched in the
The local
communities or individuals do not have the knowledge or the means to safeguard
their property in a system which has its origin in very different cultural
values and attitudes. The communities have a storehouse of knowledge about
their flora and fauna – their habits, their habitats, their seasonal behaviour
and the like – and it is only logical and in consonance with natural justice
that they are given a greater say as a matter of right in all matters regarding
the study, extraction and commercialisation of the biodiversity. A policy that
does not obstruct the advancement of knowledge, and provides for valid and
sustainable uses and intellectual property protection with just benefit sharing
is what we need. When we come up for
reviewing TRIPS, we need to push for TRIPS plus, meaning TRIPS plus equity and
ethics.
It needs to
be emphasised that the issues of the economics of community knowledge are truly
complex. While it is true that many indigenous cultures appear to develop and
transmit knowledge from generation to generation within a system, individuals
in local or indigenous communities can distinguish themselves as informal creators
or inventors, separate from the community. Furthermore, some indigenous or
traditional societies are reported to recognise various types of intellectual
property rights over knowledge, which may be held by individuals, families,
lineages or communities. Discussion of
IPRs and traditional knowledge should draw more on the diversity and creativity
of indigenous approaches to IPR issues.
In addition, there are power divisions as well as knowledge divisions
among people in many communities, and sharing of benefits with a community as a
whole is no guarantee that the people who are really conserving traditional
knowledge and associated biodiversity will gain the rewards they deserve for
their efforts.
To
encourage communities, it is necessary to scout, support, spawn and scale up
the green grass root innovation to generate employment and use natural
resources sustainably through linking of innovation, enterprise and
investment. This requires building up
adequate linkages with modern science and technology and market research
institutions. In short, one needs new
models of development, employment generation and conservation of natural
resources. In this connection, one looks with hope to organisations like
Gujarat Grassroots Innovation Augmentation Network (GIAN). GIAN has attempted to set up venture capital
fund for small innovation providing for its linkage with R&D and scaling it
up into viable enterprise. The recent
effort by DSIR and DST to set up a Technopreneurs Promotion Programme is also
noteworthy, since it provides the much needed financial support for the first
time for such endeavours.
There is
also a deep philosophical divide on the issue of IPR that we have to deal
with. The existing IPR systems are
oriented around the concept of private ownership and individual invention. They
are at odds with indigenous cultures, which emphasise collective creation and
ownership of knowledge. There is a
concern that IPR systems encourage the appropriation of traditional knowledge
for commercial use without the fair sharing of benefits, or that they violate
indigenous cultural percepts by encouraging the commodification of such
knowledge.
While
recognising the market-based nature of IPRs, other non-market-based rights
could be useful in developing models for a right to protect traditional
knowledge, innovations and practices. Geographical indications and trademarks,
or sui generis analogies, could be
alternative tools for indigenous and local communities seeking to gain economic
benefits from their traditional knowledge.
To date, debate on IPRs and biodiversity has focused on patents and
plant breeders’ rights. The potential value of geographical indications and
trademarks needs to be examined too. They protect and reward traditions while
allowing evolution. They emphasise the relationships between human cultures and
their local land and environment. They are not freely transferable from one
owner to another. They can be maintained as long as the collective tradition is
maintained.
Whether one
likes it or not, it is a hard fact that a mere focus on morally defined rights
will not be successful, because it is too difficult to build arguments to
bridge the wide gap between general human rights and indigenous peoples’ rights
in the changing value systems in the modern world. It is generally difficult to attribute an
objective economic value to the knowledge of local and indigenous communities,
and associated resources, for a number of reasons. One could be the absence of
a market for genetic resources, and the complexity of inputs into creation of
new crop varieties. It will be more
pragmatic to focus on the costs of conservation to indigenous and local
communities as a guide to designing economic incentives that will help them
gain adequate rewards. Different
interest groups, such as industry, intellectual property experts, and
indigenous and local peoples’ organisations need to cooperate in order to
define mechanisms for more effective sharing of benefits with the providers of
traditional knowledge and genetic resources.
Finally
I believe
the next century will belong to
I believe
many schools will flourish, where brilliant new theoretical frameworks for
economics of knowledge of the 21st century will be developed and
Thank you.