Berkeley Roundtable on the International Economy

The rise of the digital economy reignites debates over the transformation of production in industrial economies. For several decades, analysts attempted to describe the central features of the next economic epoch with labels like the knowledge, information, or service economy. The conventional argument claimed that just as an agricultural economy gave way to a manufacturing economy, an industrial economy was giving way to a service economy. Hence, their arguments went, industrial production was of diminishing importance.

This essay examines the place of manufacturing in an emerging digital economy. In short, we argue that in order to understand the place of digital innovations in the production process, we require a new nomenclature, one stripped of the grime of the 19th century manufacturing. We will use the word “production,” almost a synonym for manufacturing, meaning the creation and making of a good. The real issues in a digital era with powerful ‘tools for thought’ and diffused “intelligence processing” then are quite basic. First, what creates value? The tools for thought permit not only new products, but also a segmentation of the market into different needs and an adaptation of products to the varied segments. Second, what permits control? Certainly, the formal character of digital information knowledge permitting control of the production and evolution of the product or service would be increasingly held as formal intellectual property rather than individual or organizationally specific know-how.