I highly recommend Ricardo Hausman’s post “The Tacit Knowledge Economy.” Ricardo poses the following revealing puzzle:
Brazil in 2010 was 84.3% urban; its fertility rate was 1.8 births per woman; its labor force had an average of 7.2 years of schooling; and its university graduates accounted for 5.2% of potential workers. These are better social indicators than the United Kingdom had in 1960. …
Brazil is not a unique case: Colombia, Tunisia, Turkey, and Indonesia in 2010 compare favorably to Japan, France, the Netherlands, and Italy, respectively, in 1960. Not only did these countries achieve better social indicators in these dimensions; they also could benefit from the technological innovations of the past half-century: computers, cellphones, the Internet, Teflon, and so on. …
So today’s emerging-market economies should be richer than today’s advanced economies were back then, right?
Wrong – and by a substantial margin. …
Why can’t today’s emerging markets replicate levels of productivity that were achieved in countries with worse social indicators and much older technologies?
Ricardo proposes this answer to the puzzle:
The key to this puzzle is tacit knowledge. To make stuff, you need to know how to make it, and this knowledge is, to a large extent, latent – not available in books, but stored in the brains of those who need to use it.
Getting it there is really tough.
You can see my take on this theme of difficult-to-transfer knowledge in one of my favorite posts, “Two Types of Knowledge: Human Capital and Information.” Here is the key idea there:
Human capital is knowledge that is hard to transfer.
Information is knowledge that is easy to transfer.