The Headless Economy

The true cutting edge of the global economy is dulled and fragmented, like an overused razor, due to the lack of the necessary social arrangements. What we have the technical ability to tackle is blocked because we do not know how to handle it socially. A good example would be putting every book ever printed in any language online. A huge project that would have incalculable benefit for productivity and for human culture. (And also spur education world-wide and create a massive new translation industry combining crude but easy machine translation with higher-quality human translation where needed.) Technically, this would now be a laughably easy task. With computer storage costs plummeting, it would not even be particularly expensive. But socially, it is out of the question. The obstacle shows up as a copyright issue, but it actually runs much deeper than that. Another area where the obstacles are clearly social, not technical is online distribution of music, video, and books.
The economy has shifted from being labor-driven (the more labor one could mobilize, the more powerful the economy), to capital driven, and now to knowledge driven. The problem is that knowledge is fundamentally different from both labor and capital. Knowledge, once created, is wildly easy to reproduce. By comparison, labor and capital are about as difficult to reproduce as to create (although the initial phase of the reproduction of labor is notoriously fun and does play a major role in human culture).
Trying to organize knowledge-driven production with the rules of a capital-driven economy (i.e. our economy up to the 50s or 60s or so), is like trying to organize a capital-driven 1950s economy by the rules of medieval feudalism. Put it this way. The difference between what the cutting edge of our economy actually is and what it could be is at least as large as the difference between the former East Germany and West Germany. Possibly more like North Korea and South Korea.
The rules we play by for organizing labor and capital for production can not organize knowledge-centered production. To get around this contradiction, we cripple the reproducibility of knowledge by using copyrights and patents to convert knowledge into a product that is either difficult-to-reproduce or an outright monopoly. The alternative is that we give it away or take it for free as though it has no value at all. (When the taking is against the will of a copyright/patent holder, this is called piracy.) The third alternative is that we give the knowledge away for free but with counter-knowledge (advertising) attached. This more or less works as long as knowledge is peripheral to economic production. But when knowledge becomes the core of the economy, then these approaches cut the heart out of economic development.
For a knowledge-driven economy to move forward, two aspects of knowledge must be supported: its creation and its dissemination. Copyrights and patents reward knowledge creation but at the cost of crippling knowledge dissemination. This also indirectly undermines the next cycle of knowledge creation. (Company X is rewarded for the profitable knowledge it creates (a new drug, a new song, a new technique for producing electronic circuits) but is held back by its lack of access to knowledge held by Company Y.) Giving it away/taking it for free maximizes dissemination but discourages knowledge creation. The advertising model does reward knowledge creation and supports some dissemination, but warps both processes by rewarding only that information that fits with advertisers' agendas. To see what I mean, just watch CNBC. In addition, it is hard to see how advertising could be applied to books or pharmaceutical research, for example.
We take it for granted that developing, catching-up economies like Japan in past decades, then the Asian Tigers, and China now can grow at much higher rates than the most advanced economies. This is only the result of the loss of the cutting edge. Advanced economies mobilizing knowledge should be able to grow much faster than catching-up economies, which normally are first mobilizing labor, then capital. What we think of as high growth in an advanced economy (4-5%) is catatonia compared to what we will accomplish when we find ways to organize knowledge-centered production. However, the transition involved will be at least as large as the transition from the Medieval Age to the Modern Age.
If any society is going to lead us into this transition, it will need to be one already at the very cutting edge of current production and with sophisticated, flexible social organization. Because of their high level of R&D and because they show some signs of questioning the copyright/patent shiboleth, I would lay my bet on the Scandinavians.