Working Paper No. 47. Eliasson, Gunnar (2004). Ignorant Actors in the Resource Rich World of the Knowledge Based Economy – On Rational Management in an Experimentally Organized Economy (EOE).

Abstract: The internal dynamics of the Experimentally Organized Economy (EOE) force actors to constantly innovate to survive competition from all other actors in the same situation, or from new actors entering the market. Since ignorance of circumstances that may be critical for survival characterize the situation of each actor, business mistakes abound. With tacit knowledge distributed over hierarchies and markets analytical methods of management not only feed management with the wrong information but also mislead management, and especially so when something unusual occurs. The change from a seemingly orderly and plannable market environment to an unpredictable, faster and differently organized New economy over the last few decades has made this dynamic an acute management problem. Advance in economic and management theory to help policy makers and management cope is lagging economic development . The managers of the new, distributed (over the market) production organizations have little to learn from the experience of their predecessors in monolithic hierarchies. Hence, the rate of business mistakes has escalated, jeopardizing the life even of the big companies with ample resources to finance a come back. The business manager in the new economy is being subjected to a genuine Darwinian learning experience in the market. Access to competence blocs of organized tacit knowledge distributed over markets, however, minimizes the economic consequences for the firm and for the economy at large of business mistakes, notably the risk of losing the “winners”. Since creating and identifying winners and carrying them on to industrial scale production is the single most important growth promoting factor, a broad based competence to choose the appropriate management method for the occasion is also the important growth promoting factor. For the policy maker this means helping to organize vertically complete and horizontally varied competence blocs of actors with tacit competencies.