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Ricardo Hausman on know-how and economic development

Economic development depends on the accumulation of know-how. The theory of economic growth has long emphasised the importance of something called technical progress, but what that is, and how it grows has not been well elucidated.

Technical progress is really based on three separate aspects: tools, or embodied knowledge, recipes or blueprints or codified knowledge and know-how or tacit knowledge. While tools can be shipped and codes can be e-mailed, know-how exists only as a particular wiring of the brain and as such it is hard to move around. That is why the growth of know-how can easily become the binding constraint on the development process.

This means that an important implication of the growth of know-how has been ignored. It is our brain’s capacity to do things that we are not fully conscious of, and that we do not understand, even conceptually, but we know how to do. For example, we know how to walk but we do not really understand what we do in order to walk: which muscles we move and how we keep our balance. As a consequence, we do not transmit the ability to walk by talking about it to our children. They learn from imitation and repetition over a protracted period of time, just as they learn to play an instrument or to speak a language. Transferring tacit knowledge or know-how, is more difficult and generally takes longer than passing on objective knowledge.

Adam Smith’s pin factory required increased specialisation of tasks; the same specialisation is required of know-how. As economic development proceeds, societies acquire the capabilities to make more and more complex products. This means that the other side of the coin of individual specialisation is the fact that production requires teamwork and co-operation among larger and larger numbers of people. A clay pot is a more complex product than a stone-age axe but the knowledge required to produce it could reside within a single brain.

A modern jet airliner is made up of thousands of components some of great complexity in themselves. Its production is spread across scores of companies that employ the know-how of thousands of individuals. It is a characteristic of developed economies that they have the know-how to make such complex products. Indeed development may be seen as exactly the acquisition of more and more know-how together with the arrangements to combine and recombine it to make complex products. Think of units of capability as elements of practical knowledge. The more such capabilities a society has, the richer it can be.

Of course in a world of international trade, the know-how that can be embodied in goods and services can be effectively imported as machines or intermediate inputs that can be used to produce locally. If they can be brought in from other places, these elements will not restrict what can be produced in a given place. But for production to take place there, beyond intermediate inputs or machines, capable teams must be assembled in place and what teams can be put together will be limited by what know-how exists there.

Ricardo Hausman – Economic Development and the Accumulation of Know-how

See also:

The feel of the thing; or, embodied knowledge

Technology (21): Dan Wang on Technology as Process and Learning by Doing

Ben Horowitz on task-relevant maturity and micromanagement

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