On The Importance of Know-How Transfer

I have wanted to write a post on the necessity of knowledge transfer between countries for some time now, but just hadn’t found the proper incentive. In the end, it came.

I’ve stumbled recently on an article written by Friederich Hayek, called “The Use of Knowledge in Society”. Although this paper is pretty old (it was published in 1945), the ideas Hayek put together are of great significance today.

As economies integrate further, the change of ideas, concepts, information and know-how should be the baseline in forging a higher degree of cohesion between regions. However, as Hayek highlightened, knowledge is easier and cheaper to access than know-how. The difference between these two sets of information is primarily on the way they are generated. If knowledge is mainly produced in universities, schools and research centers (and is generally open publicly), know-how is the product of individual experience (and in the property of few entities). Businesses as well as public institutions fundament their capacity to self govern, organize internal processes and functions and conduct other management functions on a specific set of information arisen mostly from their own experience namely, know-how.

The barriers in transfering knowledge are relatively few and depending on capital intensity and infrastructure. In the case of know-how, certain economic structures and circumstances need to be fulfilled in ordered to break down the barriers. As know-how is found rarely as a public good (as opposed to most of the knowledge), beneficiaries need to buy it (and the price is generally very high). Consultancy agencies and training firms can provide solutions in terms of know-how but first the local competition must require an upgrade of such as provided by importing know-how. In a low-competitive economy, know-how imports (or development) is without an economic stimulus non viable because it’s a non-efficient investment.

Eastern Europe is importing for some time now knowledge from the West and pumping up it’s level of economic efficiency. On innovating and creating knowledge it has remaind behind shedule, but this was to be expected. However, on the level of know-how, there is still much more to be done, mainly because the local competition does not impose such upgrades. In the long run it will, and then B2B consultancy services will be on the forefront. Today knowledge is still more important and that is why international MBAs (such as CEU Budapest) and trans-European university programs are the mainstream.