In their book, Creating a Learning Society, written by Professors Stiglitz and Greenwald and published last year, they look in detail on the economic benefits of learning. It may seem strange, but up to now most economists have argued that productivity mostly increases because of changes in technology and in capital.

They use their phrase, a learning society, at a number of levels: a country, a city, an organisation, a company. The book is detailed, but some of their main conclusions are that –

1 – most firms operate below optimal productivity, with firms in most sectors showing big differences between the levels of average and best practices (room for improvement)

2 – organisations in some economic sectors are better at learning than those in other sectors

3 – knowledge is about far more than just the law (patents) and universities (research)

4 – tacit knowledge includes how individuals and organisations interact, and the norms of behaviour within organisations, institutions and networks

5 – free market economies alone usually fail to efficiently transmit knowledge,

and that

6 – productivity depends on learning how to do things better, through “the continuous accumulation of small improvements”, rather than, say, working people harder or longer for less pay.

They quote as a case study the position of improving productivity in South Korea. The classic economist’s advice would be for them to become ever more productive in producing rice. But although they would be highly productive, they would still be poor. Instead they chose to develop their semiconductor manufacturing, and became rich.

Enough of the book.

I would just add that tacit knowledge is not captured by asking someone to write down what they do before they leave.

Now, let’s consider a European city, one where austerity is cutting deep into the public sector. We can imagine that many cities are operating below par, but that some others are showing best practice. The best practices would be based on pulling together a number of small improvements, rather than one ‘big bang’. And mostly, these improvements are in behaviours, in norms, in how the people working in the city’s organisations work together.

Now apply austerity to that city’s public sector. Remove experienced people to save money. Ask the remaining staff to “do more with less”.

So, based on the economic theories of learning societies, I’d suggest we can now see how austerity will lead to a decline in the productivity of the city.