Capitalism, the most enduring economic system in history, is believed to have been engendered by conditions conducive to the unfettered accumulation of private capital and the pursuit of profit. The accrual of private capital beyond a tipping point is said to have created the fundamental conditions for an explosion in private enterprise, ushering in the age of capitalism.
Economic historian Joel Mokyr, while teaching and studying Britain’s Industrial Revolution which marked the beginning of the capitalist era, began seeing things in a somewhat different light. He suspected the secret sauce of the capitalist recipe is not just capital or the spirit of enterprise but a specific type of knowledge system.
In his much-acclaimed book The Gifts of Athena: Historical Origins of the Knowledge Economy (2002), he postulated that useful knowledge could be categorised into two types: “Propositional Knowledge”, the scientific understanding of the natural world, and “Prescriptive Knowledge”, the practical techniques that derive from a scientific understanding of the world and how things work.
His theory claims that before the Industrial Revolution, practical knowledge often advanced without a corresponding scientific understanding of underlying processes and phenomena. This, according to him, eventually stopped innovation and growth, or at best allowed them in fits and starts, and not in a sustained way essential to economic transformation.
Mokyr argues that not only is knowledge a vital condition for economic take-off but it is also essential there is a knowledge culture that fosters learning and its application in practical matters. This emphasis on the role of knowledge in economic development is not entirely novel, but Mokyr takes it to another level by specifying the conditions necessary for the successful operation of knowledge systems and how it is self-sustaining. These ideas won him the 2025 Nobel Prize for Economics (along with two others).
Mokyr’s postulates have enormous relevance for India which is on its way to become the world’s third largest economy and yet continues to struggle to break out of underdevelopment and low living standards. It is useful to see how conditions in India stack up against his ideas.
First of all, he demonstrated that if innovations are to become part of a self-generating process, not a one-off phenomenon, it is not only necessary to know how something works but to also need to have scientific explanations for why it works in that manner. This notion is alien to most Indians, who extol “jugaad” as the best way to doing things. But “jugaad” isn’t really a system. It doesn’t tell us what is wrong and what is the source and nature of the problem. It doesn’t provide any systematic or scientific explanation for something that works or why it fails.
Second, Intellectual Property Rights (IPR), according to Mokyr, were crucial in fostering the knowledge environment and technological progress by making inventions lucrative. In India, IPRs haven’t traditionally been enforced strictly, and inventors are rarely great successes. However, of late the number of patents issued in this country is rising, though their quality is said to be low and IPR protection remains weak, due mainly to the poor state of India’s judicial system.
Most important perhaps is Mokyr’s emphasis on the need for society to be open to new ideas and change. Here too, India does not score high. Indians are weighed down by traditions, obscurantism and traditional ways of doing things; there is great resistance to learning, especially at the worker level.
Nobel Prize-winning economist Amartya Sen was pessimistic about India’s prospects for emerging as a developed country. In a 2015 interview to the London School of Economics, he said: “India is the only country in the world which is trying to become a global economic power with an uneducated and unhealthy labour force. It’s never been done before, and never will be done in the future either. There is a reason why Europe went for universal education, and so did America. Japan, after the Meiji restoration in 1868, wanted to get fully literate in 40 years and they did. So did South Korea after the war, and Taiwan, Hong Kong, Singapore and China.” Sen blamed the Indian government for not paying sufficient attention to basic education for all or addressing the problem of the quality of human labour.
Sen is correct about the quality of the country’s working classes as a whole, who are either uneducated or poorly educated, extremely resistant to learning and adopting new work methods. At the other end of the socio-economic spectrum is India’s big business class, the people with money and means to use knowledge and technology to carry the economy and country forward. But here too the results have been disappointing. Indian business is dominated by specific caste groups whose forte is and has always been finance, at which they are excellent, but not in innovation.
The silver lining is the burgeoning Indian middle class, which is better educated today than it ever was and has shown ample innovative tendencies. A large number of successful start-ups point to their dynamism. It is not surprising that it took a business outsider, a middle-class person like N.R. Narayana Murthy, to use innovation and knowledge to burst into the country’s top corporate echelons. He remains an exception currently but the way things are progressing India will likely witness a corporate landscape dominated by innovative tech entrepreneurs rising from the middle classes.
Former President A.P.J. Abdul Kalam, in his 2005 address to the National Knowledge Commission, had foretold: “The aspiration to transform India into a developed nation can only be realized if we evolve into a knowledge society. Knowledge is the primary source of wealth creation and societal well-being in the twenty-first century.” Two decades later we are still struggling with that task.
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