Implicit and Explicit Knowledge

What makes the world we are in so extraordinarily productive is that we dwell in what might be called the knowledge economy, which is the commercialization of scientific knowledge and technological advance that makes the difference in living standards today.

Knowledge consists of symbols and relations retained in the human mind. Knowledgeable people are able to make use of what they know, often in novel and creative ways.

One aspect of human knowledge worth discussing relates to how relevant knowledge is retained in people’s minds and passed on.

Certain types of knowledge can easily be put in words, written down and passed on in the form of manuals or textbooks.

Most scientific and technical knowledge can, for example, be made explicit to be passed on in schools and university lectures. It can also be described in patent applications and sold to businesses that want to utilize it. But such explicit knowledge Opens in new window is far from all that we know and use to enhance our living standards.

There is much implicit knowledge, on which we rely tacitly in our daily lives and our work routines. We often refer to it as knowhow and skills.

It is often surprisingly difficult and costly, if at all possible, to make knowhow explicit: just try to write down an instruction how to tie shoelaces for someone who has never done it!

Implicit (or tacit) knowledge can be acquired through learning by doing. It is internalized in the human mind Opens in new window so that people then use it without reflection (Polanyi, 1966).

Much learning is concerned with practicing and internalizing tacit knowledge.

Just think of the young fellow who learns skateboarding with alacrity by imitating friends and going through the same routines time and again, until he is a master skateboarder!

It would be near-impossible to convey all relevant knowledge in explicit form to a teenager by handing him manuals about gravity, friction, velocity and centripetal forces!

Or, to cite another example, would you entrust your life to a surgeon who has studied all the relevant knowledge for open-heart surgery from books and professors, but without ever acquiring the necessary routine skills by operating on frogs and pig hearts?

Yet, the leaders of many post-colonial developing countries kept foreign experts and multi-national companies out who could have conveyed implicit knowhow and skills. Instead they relied solely on the acquisition of explicit industrial knowledge.

The industrial record of such countries suggests that underrating the importance of practical routines, skills and knowhow has costly and far-reaching consequences.

For the same reason, industries that stress hands-on work in apprenticeships and engineering studies tend to use technical knowledge better than industries where explicit knowledge is overrated and implicit knowhow, skills and efficient work routines are ignored or neglected.

Knowledge is often generated spontaneously by the interaction of people. It may also be created by conscious design when people get together in an organized, systematic way and develop new knowledge following a plan of research and development.

The knowledge problem derives from the fact that human beings have only a limited capacity to develop, test and apply knowledge.

Ignorance therefore is a constitutional element of human existence, including in economic pursuits, that is, in how to overcome scarcity.

Constitutional here means that it is an essential part of the human condition and must not be assumed away.

The sum of human knowledge is contained in the diverse brains of all the people who live on earth. Only a tiny fractions of it can be concentrated in any one mind.

Knowledge therefore is used effectively only if mechanisms can be found to draw on the diverse, specialized knowledge of large numbers of people.

The division of labor and knowledge allows people to specialize, but requires them to cooperate.

Thanks to specialization, communities are able to acquire more knowledge and use it to solve problems. With experience, they are likely to chance upon more knowledge.

Over time, they become more effective in meeting their own and other peoples’ wants, as they learn new and adapt or discard old knowledge. The division of labor and knowledge therefore is a dynamic, evolving concept.

One has to distinguish between emergent and adaptive additions to knowledge:
  • Whereas emergent knowledge refers to major creative breakthroughs (for example, the splitting of the atom)
  • the daptive development of knowledge refers to the steady flow of creativity   Opens in new window in which small, stepwise improvements are made in response to opportunities of supply and demand (for example, the gradual improvements of computer software programs).

Emergent additions are often the result of discovery of ideas that were previously completely unknown, whereas adaptive additions to knowledge are often the result of systematic information search.

Knowledge evolves in a tension between:

  • a conservative instinct, which aims to retain what has proved useful and has been appreciated by others, and
  • an experimental instinct, which derives from curiosity and the desire to better meet one’s aspirations by matching (often changing) circumstances.

Knowledge specific to space and time refers primarily to knowhow, which differs from place to place and evolves over time. It is essential to effective human interaction. In economics Opens in new window, it relates primarily to commercial knowledge:

The Economic Man might just be an unrealistic fiction

The orthodox neoclassical economics that one finds in many introductory textbooks has pushed the knowledge problem aside by simply assuming that economic agents have perfect knowledge.

This assumption tends to be made cursorily on page 1 of many textbooks, so that the authors can begin with logical deductions from this and other premises.

What this implies in practice is that the preferences of millions of people for trillions of goods, services and satisfactions, are known, as well as all the resources on earth and billions of relevant production techniques!

With that sort of knowledge, it is of course possible to reduce economics to a simple computing exercise of how known resources are transformed by known technologies to meet the pre-existing, known preferences of a standardized economic man.

The elegant neoclassical model thus shirks the quintessential question of economics. The assumption of perfect knowledge is the birth defect of neoclassical theory, which often deprives it of relevance to the real human existence, namely the constant struggle to test existing knowledge and know more .