Social investment was not the only channel through which advocates of the knowledge economy believed that they could affect the pace and quality of growth. This chapter explores how dynamic markets, international openness and a stable macroeconomic framework were also integral to their plans for delivering inclusive prosperity. On the face of it, these aspects of the knowledge-driven growth agenda closely mirror the policy prescriptions of the neoliberal era. Nevertheless, as we will see, the advent of the knowledge economy brought about a change in how such policies were justified and in the results they were expected to achieve. When coupled with social investment, the combination of market liberalization, open borders and tight macroeconomic policies would supposedly advance progressive goals, empowering labour vis-a-vis capital and combating social exclusion. Taking each of these elements in turn, this chapter aims to reconstruct the case for knowledge-driven growth at its most coherent and compelling, the better to understand its limitations and blind spots.

Market dynamism

In the knowledge economy era, in addition to social investment the other crucial ingredient for increasing productivity (and thus prosperity) was competition, which would incentivize individuals and businesses to innovate. As the UK Treasury put it:

Public policy thus had an important role to play in increasing the pitch of marketcompetition: removing impediments to the free play of market forces and reshaping both economy and government to allow the fullest possible expression of market incentives. This also implied that governments would not pursue activist industrial strategies that distorted market outcomes: in the words of the Lisbon Strategy, governments should “further their efforts to promote competition … shifting the emphasis [away] from supporting individual companies or sectors”.

Taxation, regulation and flexibility

Underpinning this agenda was the belief that markets foster innovation by offering financial rewards to successful innovators.