Knowledge Endowment and Composition as Dynamic Capabilities

The principal research question in this paper concerns the role of knowledge and competences in structural economic dynamics and business cycle. In particular, we will study the trade-off between the need of change, flexibility and new human resources inputs faced by the firms in the business cycle downswings and the destruction of knowledge and competences taking place in them. This question is tackled in the second part of the paper. Section 5 presents a stylised model, building on a model presented in a previous paper (Antonelli, Pegoretti, 2005). The model is based on a very simplified stylisation of the actual working of the economic system. It offers only an aggregate view of the production process. In particular, it concentrates on the impact on firm productivity of some of its key determinants. Since the economic system is typified by a representative firm, the stress is on international competition between different economic systems, rather than on competition between different firms within each system. Given the importance of productivity dynamics, the model shows that even very simple assumptions concerning its determinants can bring about complex paths that soften usual unilateral conjectures about the causal links between productivity and employment. Different configurations of the ‘competence pipeline’ and the related cost functions are explored. The knowledge endowment of an economic system depends on the existence of a coherent and balanced mechanism for the creation and management of potential/acquired knowledge, on the one side, and actual/used knowledge, on the other. It is the final outcome, measurable by means of its different dimensions considered in this work, of the external and internal organisation of knowledge each system has been capable to develop over time. Both apparatuses function as focusing devices as well as rewind structures. They converge in the formation of the competencies pipelines, which can be considered as reservoirs for used knowledge. Their size and composition are long term assets crucial for the competitive advantage of the economy. The conclusion we can learn from the investigation carried out in the present work is very simple. A proper evaluation of the costs and benefits of flexibility/rigidity in the labour markets in terms of competitive advantage cannot be confined to their obvious short term effects on the firm budget associated with variously conditioned utilizations of a productive factor. A systemic and dynamic view is required. In this framework, what really matters is the brand of the overall interaction of the firm with the other component of the economic system, and particularly with the components which influence the organisation of creation and use of knowledge in the economic arena. Differences in the performance of these components can drastically influence the competitive position of a country. Therefore the competitive advantage should be considered as the final outcome of the degree of flexibility/rigidity side by side with the social capabilities available in the system.