Transitions to the knowledge economy: path dependence and policy choice

Since at least the early 1990s onwards, developed democracies have self-consciously sought to orient themselves towards the growth of the “knowledge economy”. The widespread adoption of ever-more sophisticated ICTs promised gains in productivity and profit for individuals, businesses and countries that embraced them. Entire industries were transformed by the adoption of new technologies and the shift to online, while novel industries arose to capitalise on the new opportunities created by this wave of innovation. These upheavals prompted shifts in economic policy settings as policymakers sought to position their countries to benefit from knowledge-driven growth. This paper explores European transitions to the knowledge economy from the mid-1990s to the mid-2010s. It begins by mapping outcomes in terms of changes in productivity and inclusivity across different countries, before tracing these outcomes back to divergent background settings and policy choices. This analysis highlights (i) how different pre-existing sectoral specialisms and institutional arrangements shaped the distributive impacts of new technologies, measured in terms of both income inequality as well as capital-labour shares, and (ii) how divergent policy choices around social investment and labour market liberalisation nevertheless led to similar economic outcomes for some groups of countries. The paper concludes by highlighting the implications of this analysis for established frameworks in the comparative political economy literature, in particular varieties of capitalism and growth models approaches, as well as the implications for economic policy practice.