Growth-accounting exercises show that through most of the modern era, the main determinant of growth has been the "catch-all" technical progress term of growth models.
This in turn can be explained in terms of the generation and application of new knowledge. The difference now is that knowledge generation and dissemination services are becoming a major industry, with their own dynamic of demand and supply.
At the same time, the technologies for connectivity have reduced by several orders of magnitude the cost of gathering and disseminating knowledge.
Recognising this, the government of India has constituted a new Knowledge Commission under the chairmanship of Sam Pitroda. There is a risk that the Commission may recommend more of the same: more public spending on research and extension, more schools and colleges, special programmes for quality upgrade, etc.
These are surely important. But what is as crucial is the market environment within which enterprises operate and whether this environment generates pressures for innovation and rewards technological excellence.
The competitive edge of corporations and countries is defined more and more by how well they are positioned in the knowledge business.
The points of intervention in the knowledge business are the skill base, the knowledge connectivity between this base and the source points, and the effectiveness of the source points in generating new knowledge and technologies.
India has a base of around 25 million college graduates. But that is only about 5 per cent of the total workforce. The corresponding figure for the developed world is in the range of 15-20 per cent of the work force.
The number of engineers in this pool is about 1 million and, with the IT boom, shortages are emerging. More engineers and scientists are only part of the answer. The knowledge business requires other disciplines and, most importantly, better education in high schools.
However, our problem is not necessarily numbers. Parents with modest means are more and more ready to invest in their children's education as the only way out of the constraints of the inherited caste and class environment. It is more a matter of quality.
There is a demand for quality talent from Indian and foreign enterprises that are seeking to sell knowledge-based services and products. The Commission must identify what stands in the way of a supply response.
Addressing this is going to require more than additional resources for the UGC, networking among centres of excellence, etc. In fact, it requires a reexamination of our entire system of higher education from top to bottom.
Knowledge connectivity is crucial. If we are to truly inject new knowledge at the farm and small enterprise level, we will need a more effective extension system to connect small producers with sources of technology.
Here too the Commission needs to look beyond the standard solution of investing in a publicly-funded extension bureaucracy.
There are examples now of different approaches that empower NGOs and community organisations to provide the knowledge connectivity for farmers and small producers or which rely on market incentives to get large enterprises to take on the task or which make creative use of new communication technologies.
The ease with which technologies can be disseminated depends on the regime for intellectual property protection. There is now a widespread sentiment that the WTO-inspired IPR regime may have veered too far to protect property rights and put unnecessary barriers on a more rapid dissemination of new technologies.
Some of the most important advances in the use of new technologies in agriculture and in health came before they were extensively privatised and protected. The Knowledge Commission must re-examine the IPR framework and ask whether the balance between inventor's rights and social welfare is fair and reasonable.
The real challenge before the Commission is at the source end where new knowledge and new technologies are generated. One red herring it needs to avoid is the choice between imported and indigenous technology. This is not an issue now with the liberalisation of industrial policy. In any case, the choice is not an either-or one. In most cases both will be needed.
When it comes to knowledge generation we of course have a network of publicly funded research institutions under the CSIR, ICAR, DRDO, the departments of space and atomic energy, research capacities in universities, large corporate R&D centres, and technology missions.
Large publicly funded initiatives may be the only choice in certain areas like defence, space, and atomic energy. They have helped in agriculture because the system there was less centralised and better connected with field needs. The Commission will undoubtedly try and evaluate the effectiveness of these institutions in terms of their stated substantive goals and as technology incubators and many will be found wanting.
But to get innovation into the mainstream of the economy, a substantially different approach is required.
Today innovation comes from interaction between research institutions, technology entrepreneurs, and venture capital. The process is not sequential. The development of new technologies, assessment of market opportunities, raising funds for research and production, and finding investors willing to take risks take place more or less simultaneously.
All of this requires trust between researchers, financiers, and entrepreneurs. That is why venture funds and technology entrepreneurs congregate near research centres like Bangalore. The incentive to take risk is greater for the new entrants who want to break in rather than for established players who want to keep others out.
This Schumpeterian paradigm of technology-driven development is almost the exact opposite of what we have built up so far. The Knowledge Commission must examine the nexus between technology generation and dissemination, and capital markets and recommend what we need to do to stop protecting elderly incompetents and promote new players.
Much of our success today stems from the investments in education and research that were made in the first decade of planning. After that, our knowledge system has been in a maintenance mode. The context today is different. We need not just public but also private investments and, above all, better policies to match the demand and supply for knowledge services. Sam Pitroda's Commission must be bold and help us to begin a new phase of knowledge-driven development.