Introduction

As the world’s economy becomes increasingly globalised, nation states have had to reassess their comparative and competitive advantage. The patterns of production and trade in manufactured goods have shifted towards the new international division of labour, in which multinational enterprises have sought locations in areas of low labour cost, typically in the newly industrialised countries (NICs) and subsequently in the less developed countries (LDCs) (Daniels and Lever, 1996). As more of the world’s economy has been engaged in services, the new, international division of labour (Coffey and Bailly, 1992) has emerged, again capitalising on low labour costs in the LDCs in sectors such as data processing and global tourism (Howland, 1996). Against this background the developed nations have had to consider in which sectors they retain a competitive advantage and how this competitive advantage can be sustained. The answer generally has been that governments should work to develop the ‘knowledge-based economy’. Typical of such views is the UK’s White Paper, Our competitive future: Building the knowledge driven economy (DTI, 1998). Such documents argue that “all businesses, large and small, new and established, in manufacturing and services, low and high technology, urban and rural located, will need to marshall their knowledge and skills to satisfy customers, exploit market opportunities and meet society’s aspirations for a better environment” (DTI, 1998, p 6). In March 2000, the European Council of Ministers indicated the importance of transforming the European Union economy into one based on knowledge in order to sustain its competitiveness against other major trade blocks such as North America, South East Asia and, prospectively, China, up to 2010 and thereafter.

The term ‘knowledge’ as used in these reports can be defined in several ways (OECD, 1995; DTI, 1998). There is technical knowledge, which contributes to the development of new products and new processes. There is customer-base knowledge, which covers new markets, consumer choice and tastes and fashions. There is knowledge that relates to financial inputs to the production process. Lastly, there is knowledge as human capital in the form of skills. All of these types of knowledge are accessible to policy intervention, and the reports list a series of government strategies to increase and improve the knowledge base. The objective of such interventions is usually to facilitate, in some way, the research and development that increases knowledge.