Knowledge, skill and innovation

Formal education should be regarded as one link of an integrated system of generating and transferring knowledge. Other links are research institutions and the production system (industry) itself. A many-faced system of documentation functions as an intermediary:

In modern society, this is a highly diversified and complicated system. On its efficiency depends the progress of technical knowledge and its application. One of the main innovations in modern society is that the functioning of this system is not regarded in a ‘laissez-aller’ fashion. It is an object for policy. We may invest in its various parts so as to speed up the rate of economic growth.
The efficiency of this system can be formulated in terms of the relation between input of resources and output in the form of production of goods and services. One would not, however, expert easily to arrive at a measurement of the yield of various types of investment in this field. This is for several reasons. First, the process within each sector is of a complicated cumulative nature. Second, there are complicated circular chains of interaction between the various sectors of the system - research, education and industry. Third, it is not only in the sector of formal education that the gestation period may be long, the effects on production may also be scattered over a long period. Fourth, the relation between input and output is stochastic, especially in the case of research and industrial innovation. Research in this field has, in any case, to begin with partial studies of the behavior of the system. A vast literature on such problems has grown up in late years.
I shall here restrict myself to a few observations, which seem to be relevant from a policy point of view.

I. The functional Integration of the System
In reality, research, education and industry are not entirely organized as separate institutions with different specialized functions, they merge into each other. Higher education is, or should be, integrated with research. Research may be conducted within industrial units. The distinction between basic and applied research is tending to disappear as industrial production becomes more scientific. On the other hand, the ‘development’ of process and products cannot be sharply distinguished from ‘research’. Formal education is combined with training in ‘production’. Education may take place in ‘built in’ units within industry and production itself may be regarded as a ‘learning process’, which may be speeded up by systematic education.
Innovations in the organization of this system may accelerate economic growth. Research may become better integrated with industrial activities, education with research and industry with education.

II. Innovations and the ‘learning process’
Innovations may be defined as shifts in the production function, resulting in increased productivity. On all levels, a ‘learning process’ may develop that gradually increases efficiency. In some special cases, it has been possible to study the course of such ‘learning processes’. The improvement in efficiency, which takes place this way, may only partly be described as the result of increased technical ‘knowledge’, in part it takes the form of growing ‘skill’ acquired by repeated experienced and training.

Reference:
Robinson, E. A. G & Vaizey, J. E (1966). The Economics of Education: Proceedings of a Conference held by the International Economic Association. Macmillan: St Martin’s Press.