Monitoring the success or otherwise of a an economy that is in transition is a tricky undertaking where not all the elements are easy to quantify.
Knowledge is a power that is hard to harness
Almost all economists refer to reason to get their message across. Economics is a constructed discipline with deep roots in causality. Most ideas can be accepted provided they broadly make sense and you can measure or prove what you are trying to theorise. The problem, however, occurs where some things don't make perfect sense and when you can't measure what you are trying to manage.
The knowledge-based economy, an exciting and highly constructed concept, is an example. Since the release of the Abu Dhabi 2030 Vision, a large body of literature and consulting has been accumulating which, in essence, supports a drive towards a knowledge-based economy in the country. This is a perfectly reasonable undertaking but with one caveat: we are dealing with relatively separate concepts that can't be measured. Despite a decade of literature, some of the most obvious questions, such as how one measures whether a social transformation has occurred towards or away from a knowledge-based economy, remain unanswered.
Explaining causality in economic development carries a great risk, especially when livelihoods and large sums of money are involved. The danger of not having history as a guide is that spurious assumptions can morph into unnecessary conditions with ease. One could, for instance, argue that knowledge-based economy needs a world-class information and communication technologies (ICT) infrastructure to thrive. What seems logical, however, is not always necessary. Those who manage knowledge best do not necessarily have the best ICT networks.
Some also argue that setting up institutes and training centres along with a hubbub of ICT support services along all lines of government neatly contribute to the knowledge-based economy. This kind of knowledge-economy has emerged but it doesn't automatically mean that economic activity has become knowledge-based. If that were the case there would be no need to duplicate and triplicate the same residency information across the different functional architectures at the ministry and corporate levels. It would be done just once.
On the same continuum of plausible consulting opportunities, knowledge management comes to the fore. The argument goes that if knowledge is managed effectively, productivity will ensue. Again this depends not only on the architecture but on the quality of the information under management. Therefore, how you define knowledge is key. It also seems plausible that to develop a knowledge-based economy, one has to undertake the act of creating knowledge itself. It may, however, not be necessary to do so if someone else is already doing it elsewhere in the world. Why should the same discoveries be duplicated?
Furthermore, bringing knowledge-based industries to the UAE shouldn't be confused with creating knowledge. Generating knowledge and using it are two very different things. Intel's presence in the UAE is a case in point. So, what does the knowledge-based economy look like? The expression "knowledge-based economy" is often used to demarcate a transition away from a different type of productive focus, usually manufacturing. The concept is a layered combination of several disciplines, which tries to lay reason to the direction of industrial capitalism.
Since the UAE is neither abruptly capitalist nor entirely a manufacturing hub, this raises several questions about whether several economic transition theories apply neatly as one would like. The Noble prize winner for economics, Professor Stiglitz, rightly notes from economic history that economic transition does not always follow the same path, in the same way that there is more than one way to make a profit.
Classical economic theory, however, lends a hand in providing some direction by explaining that capital and labour form the basis of economic growth. In this sense, it is ironic that the suitability of a knowledge-based economy in the UAE hinges on the question of expatriate residency. Without labour there is no sizeable domestic market and hence low levels of production. Prolonged residency provides institutional memory - yet another variable that cannot be measured easily. Such memory is important for knowledge creation and transfer but comes at the political price of participatory rights.
There is no doubt that knowledge-based economies spur innovation. This innovation, both in practice and theory, leads to productivity, which then turns to growth. The nagging question, however, is always a practical one: if whatever this "productivity" produces cannot be exported or sold in the domestic market, then what value does knowledge hold? The danger here is that meaningful innovation is suffocated by lack of profit or institutional framework to churn it up.
Fortunately, there are ways to overcome this chicken-egg dilemma. One such could be to make all knowledge-economy activities linked inexorably to profit. This creates narrow yet financially sustainable knowledge industries. The second could be to rule out the risks of financial failure by making knowledge-economy enterprises financially infallible. This comes with risks. Sponsoring companies in the sector could allow projects to meander without inexorable positioning and purpose.
The advent of Abu Dhabi's Masdar clean energy initiative is a good example of the benefits of government support. The project, like others, too, must one day turn a tangible profit. The immediate difference here is that the benefits of energy efficiency through the combined use of technology and innovation can at least be measured in monetary terms. The benefits of the Masdar Institute, however, are some way off from yielding a return. It is highly likely that the required transition from creating knowledge to basing the economy around that knowledge takes place long after the knowledge-economy consultants have come and gone.
All of this, of course is pure postulation. Economists who run dry on reason can seek their solace in either physics or sociology. Measuring concepts becomes critical in instances where large sums of money are being spent to induce the "process". To this effect, Einstein once wisely quipped: "Not everything that counts can be counted and not everything that can be counted counts." Ikaraam Ullah is an economist and writer based in Abu Dhabi.