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Gross Domestic Knowledge Product: A New Measure Of The Wealth Of Nation After Adam Smith – OpEd

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India could be the first country in the world to calculate the wealth of nation in terms of knowledge produced, bought sold and circulated, a challenging innovation respect to classical Adam Smith’s vision of wealth in terms of goods produced and related services.

I personally elaborated the first quantitative model to make this calculation and I submitted it to Indian authorities: scientific entities, the important think tank “ICRIER”; business community, FICCI (Federation of Indian Chambers of Commerce and Industry) which not only accepted the model but they asked me to apply the model to Indian economy.

Then the project arrived to the Prime Minister Office that promoted several meetings with the Chief of Economic Advisor, who also expressed favorable opinion subject to the concrete feasibility in terms of activity of the Central Statistic Office, the entity which should have made the calculation. And following two meetings, one of them with the full participation of all senior members of Government of India Central Statistic Office, the DG of CSO produced for the first time a preliminary GDKP of India for two years. An astounding innovative measure of the Wealth of Nation which could have a tremendous impact on national budgeting, international financial decision making process, optimization of Knowledge capital investment and Company as well as Country risk analysis.

While for the final decision of GDKP India it is expected the last clearing from Ministers of Statistic and Planning, comparative tables of preliminary GDKP calculation of 50 countries for 15 years have been calculated by Dr. Ashish Kumar, former DG of CSO and will appear in the official web site of the Center for Digital Future, Annenberg School of Communication of the University of Southern California, directed by Dr. Jeff Cole where soon will be opened a forum for discussion.

Since the process has progressed so much with unanimous approval, there is widespread optimism of all team participants for positive decision, but while I hopefully wait for final approval, probably needed from the PM himself, I think it is worth expounding a bit on this calculation which could very well mark an historical new way of measuring wealth of nation in a globalized world, where IT revolution daily makes easier and easier circulation of what can be considered by far the most important raw material produced by man: knowledge.

FROM GDP TO GDKP

Dismissed as useless tool by all economists in the ‘30s, valued the most important theoretical economic innovation in the ‘90s, the GDP, originally elaborated by Kutznes has become the most popular economic index in the world, but in the last 20 years has been strongly criticized to the point that at OECD it was established the Sarkozy – Stiglitz commission to overhaul that index. We get from the web :

The Commission on the Measurement of Economic Performance and Social Progress (CMEPSP), generally referred to as the Stiglitz-Sen-Fitoussi Commission after the surnames of its leaders.[1] is a commission of inquiry created by the French Government in 2008. The inquiry examined how the wealth and social progress of a nation could be measured, without relying on the uni-directional gross domestic product (GDP) measure.[2] The Commission was formed in February 2008 and Joseph E. Stiglitz was named as the Chair. Amartya Sen was the Economic Adviser and the French Economist Jean-Paul Fitoussi was the Co-ordinator. The Final Report was published in September 2009.[3]

It is in line with those recommendations that I elaborated a specific model which had to have those characteristics:

1. Be applicable to all countries
2. Fully express and underline Government Policy making
3. Be linked to standard international measures but also to national values
4. Capable of measuring individual participation to creation of wealth
5. Express quality wealth increase
6. Be fully compatible with technical calculation of GDP

In other words all fundamental criticisms and recommendations of that commission had to be usefully considered with one strong fundamental addition, the possibility of comparisons “ say ratios” of the new index with the GDP.

To fulfill all these requests there was only one goods that would do the job: Knowledge. That’s why I elaborated a model to calculate the GDKP which I submitted to Indian authorities.

But in order to immediately underline the importance of point 6 let us anticipate that once GDKP is calculated we’ll be able to calculate the K factor of each country (GDP/GDKP) which will measure the impact of increasing GDKP over total GDP; and in the other fundamental tool of the model the CKPM (Country Knowledge Producing Matrix) we’ll be able to calculate the specific Ki’s (knowledge segment multipliers) which will greatly improve Keynes policy across the board multiplier that so much criticism (correctly) has produced, while maintaining Friedman’s monetary policy for large areas of economy. A compromise in name of developing knowledge which hardly could be criticized and could open up new horizons also in Europe for young people employment future.

But why I decided to offer my model to India (the only alternative I considered was China).

INDIA GDKP and Government involvement

India is by far one of the most important country in history in terms of importance given to knowledge. Suffice to say that the key religion books Veda, mean Knowledge. But the greatness of this country in this field is that it is not only important for ancient knowledge but also for modern knowledge. If that must be recognized on the excellency levels, on distribution level of knowledge many criticisms can be formulated. In other words we have excellency in many areas, but we have relevant deficiencies at global individual level. With the powerful rise of the emerging middle class and widespread diffusion of IT, that divergence is going to be become a relevant political issue, whose lack of solution could create social unrest. We should also consider that countries like India and China if they were able to make a solid growth in GDKP they might be able to increase GDP at very high level unreachable for other countries.

Essentials of Model presented to India

In that model we recognize the following parts

a. Preliminary GDKP data from disaggregation and different aggregation of data from GDP
b. Elaboration of Country Knowledge Producing Matrix (CKPM)
c. Elaboration of Country Knowledge User Matrix (CKUM)
d. Cost of learning for individuals (by rural and urban areas, by age brackets, by status of employment)
e. Knowledge Balance sheet

The first part serves to identify inner structure of knowledge content creation within goods and services of a GDP of a country. It is extremely important because it gives a preliminary GDKP production of that country. CSO did it specifically for two years in India. Later it was done for 50 countries for 12 years. It roughly be considered relevant for typical Knowledge economy analysis.

The second, third and fourth part is a total departing measure of population GDKP which Is based of recognitions of Knowledge Items, their production, distribution, diffusion and multiple impact over time. Here the essentials of those parts:

A. KNOWLEDGE ITEMS PRODUCED, distribution and cost
B. Distinction between diffusion and multiplier effect on knowledge item production and acquisition
C. Distinction between one time use or multiple time use of knowledge items and populations impact of knowledge infrastructures
D. Production of knowledge by institutional Knowledge great producers (Government, industry, agriculture, service and household)
E. Definition of National K factor, that is to say the multiplier effect of gov’t knowledge spending
F. Definition of Ki factors, that is to say multiplier effect of private capital knowledge investment in sectors of economy
G. Definition of cost of learning of individuals (by geographical areas, by urban or rural areas, by bracket of ages, and by occupation)

Once the GDKP India will be calculated there will be important new type of decision making for national budgeting and private investment. Obviously international financial community will look at the GDKP data as a proper tool for assessing growth of the economy and also to produce a new type of risk analysis. Probably the triple K – H will integrate the triple A- B in order to provide within countries with same risk class a differentiated growth horizon based on Knowledge policy.

Finally the first time people effect of spreading knowledge will create a proper national policy decision making process to move from the “demographic bomb” to the “knowledge bomb” which has been long searched from countries like China and India with tremendous knowledge developing attitude.


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Umberto Sulpasso

Umberto Sulpasso

Umberto Sulpasso, senior Fellow of Center for Digital Future Annenberg School of Communication, University of Southern California has a Degree in Economics in Italy and MBA from Columbia University. Has been teaching in different countries Economy of Knowledge, and publishing books and directing ecnclopedias. His most recent publication has been Darwinomics where for the first time the model of GDKP was announced.

One thought on “Gross Domestic Knowledge Product: A New Measure Of The Wealth Of Nation After Adam Smith – OpEd

  • July 28, 2016 at 11:51 am
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    This is a seminal thought, even more so, as the role of knowledge in wealth creation is becoming exponentially more important.

    Professor Sulpasso’s project will have a revolutionary impact on our understanding of economics and government’s ability to intervene in the economy in an effective manner for a more inclusive growth.

    Reply

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