The right of commoners to own urban land or contribute to city design is taken for granted in advanced democracies. Citizens of the struggling urban settlements of medieval Europe bequeathed these rights to present generations nearly a millennium ago. Yet these rights, unique as they were historical, had a more far-reaching implication. Twelfth-century townspeople laid the foundation for democratic institutions by usurping authority from traditional rulers and instituting a sworn community of the ruled. This revolutionaryassumption and legitimization of municipal power did not occur in the Near East or Asia. It was a novel characteristic of the Occidental medieval city.

This chapter traces historical differences in the urban political economy of Europe and Eurasia to shed light on the role of urban land in political and economic development. In Europe, it covers the medieval period from the eleventh century to the ascendency of imperial rule over cities from the sixteenth to nineteenth centuries. In Eurasia, it carries the story through the collapse of communism in 1991, with a focus on Russia.

Although the medieval European city did not lead directly to modern liberal democracy, it charted the course through the institution of urban property rights and responsibilities (Weber 1978 [1922]: 1323). These rights distinguished the political and economic development of Europe in the Middle Ages from cities that evolved in many of today's authoritarian and hybrid regimes, including Russia and Turkey.

The weight of the past, the perils of the present

Moscow offers a distinct case study of real property rights in authoritarian regimes because of its long communist past and brief capitalist present. Russia created capitalism in the early 1990s in the absence of private property, democratic political organizations, regulatory bodies, an active civil society and the rule of law (Rutland 2006). Looking at real property gives a new angle to the “ ‘holy grail’ in the political economy of transition, the evolution of property rights” (Sharafutdinova 2021). Internationally, real property (buildings and land) comprises two-thirds of a nation's wealth (Dam 2006), and is the prin-cipal asset of middle classes and elites in Russia.

This chapter details the Russian odyssey in search of a liberal urban land regime. It reviews how political authorities and bureaucrats succeeded nationally but fell short locally in establishing tradeable real property rights,market-oriented regulatory systems and transparent, contestable planning decisions. Progress by Russia on every element of land governance is undeniable, as testified by millions of registered real property owners and high global rankings on property registration systems. Nevertheless, real property rights are contested, with serious economic and political consequences.

The key insight is that the system of real property rights built by Vladimir Putin sustains yet could eventually undermine his regime. According to Timothy Frye (2021), “Personalistic autocrats struggle to balance defending against the two main threats to their rule: coups by the political elite and protests by the public.” Putin is increasingly pressed to balance these threats.

On the one hand, he helps the middle class build real estate wealth, providing a buffer against income shocks. But he is reneging on the political benefits that evolved alongside real property ownership in democratic societies.

What of the internationalism of the knowledge economy? As we saw in Chapter 3, the politicians, academics and commentators who championed the idea of knowledge-based growth often stressed the importance of international openness to success in the new economy. This was partly because, on their analysis, there was no alternative: globalization (itself abetted by the computing and telecommunications revolution of the 1980s and 1990s) had made labour, capital and ideas internationally mobile, and this was a reality to which countries would simply have to adapt. But it was also because, they conjectured, policies that actively sought to deepen international openness and international ties would enable countries to steal a march on their rivals in the global knowledge economy. Removing obstacles to international investment would help to attract knowledge-intensive overseas businesses, providing domestic workers with opportunities to work for (and learn from) firms at the cutting edge of the global technological frontier. Removing obstacles to international trade would provide domestic consumers with higher-quality (and lower-cost) goods and services while simultaneously exposing domestic industries to efficiency-enhancing competition, allowing them to incorporate the latest technologies and techniques into their own output. Removing obstacles to international immigration – at least for highly skilled workers – would enable technologically advanced, high-wage countries to cream off the most innovative, educated and skilled workers from the rest of the world, further consolidating their lead in knowledge-intensive industries.

Underpinning this optimistic internationalism was a particular analysis of the competitive advantages of developed democracies in the knowledge economy era. This analysis assumed that the presence of a highly educated workforce, combined with high-quality infrastructure and robust rule-of-law institutions, would enable developed democracies to act as a magnet for knowledge work (and the businesses that create it): an advantage that their lower-wage rivals would find difficult to replicate. The same high wages that put advanced economies at a comparative disadvantage in fields such as mass manufacturing should enable these self-same countries to attract and retain highly skilled talent from overseas. And, in an era where knowledge is key, democracies that encourage the free movement of ideas within and across borders (including the products, individuals and firms who embody them) should be well placed to stay at the cutting edge of the global knowledge economy.

What of the broader moral and political case for knowledge-driven growth, predicated on its ability to deliver social mobility, equality of opportunity and a fairer distribution of economic rewards? In light of the shortfall of knowledge work already identified, it should come as little surprise that the inclusivity of knowledge-based growth has fallen short too: if being included means securing a well-paid knowledge job, then there are not enough of these jobs to go around. Even if we define inclusion more modestly, as the ability to access these jobs on an equal footing, it is unclear whether policy-makers have delivered. A 2018 report into social mobility by the OECD noted that opportunities for people to move up and down the income distribution have decreased across the developed world since the 1990s, with the highest earners more likely to remain highly paid and the lowest earners more likely to remain poorly paid than they were two decades before, with your parents’ education and occupation increasingly decisive in shaping your own life chances.

This chapter explores why the social inclusion agenda has faltered. It begins by examining the uneven geographical distribution of opportunity, before turning to the relationship between education and economic success. Does what you earn really does depend on what you learn? Or are other factors – access to capital and social networks, for instance, or the competitive structure of certain knowledge-intensive sectors themselves – to blame for rising inequality?

The landscape of opportunity

Knowledge-based growth was seen by some of its 1990s advocates as a solution to the problem of regional economic divergence, and in particular to the loss of jobs in former industrial heartland regions arising from globalization. Yet, far from reversing these trends, the knowledge economy era has witnessed a further deepening of regional economic inequalities. For example, in the USA, whereas prior to 1980 cities with lower wages saw faster wage growth (and thus convergence with their more affluent counterparts), post-1980 this trend has stalled, with some higher-wage cities – such as Boston, New York and San Francisco – pulling further away from the pack. Similar patterns are replicated across western Europe.

Why has this happened? Much as academic theorists of endogenous growth and increasing returns originally anticipated (in contrast to many cheerleaders of the knowledge economy among the political class and the professional commentariat), knowledge-intensive businesses have tended to cluster together in large cities and their surrounding regions.

Since the global financial crisis, many developed democracies have experienced seismic political upheavals. Knowledge-driven growth strategies – and their champions in the political establishment – today stand on unstable electoral ground. Centrists of both the left and the right have seen their vote share eroded. Party systems that just a few years ago appeared frozen have suddenly become fluid. New political movements and organizations have seized votes, seats and even government office from their better-pedigreed rivals. In other cases, outsiders have contested the leadership of mainstream parties, posing serious challenges to candidates favoured by established party hierarchies and powerbrokers, and on occasion even emerging victorious. These outsiders pose serious challenges to diverse aspects of the knowledge-driven growth agenda: calling into question everything from its commitment to international openness to its celebration of dynamic markets, from its vision of prudent macroeconomic policy to its insistence that social investment will suffice to tackle problems of inequality and exclusion.

In Part I, we explored how the knowledge-driven growth agenda came to dominate economic policy debate and practice in developed democracies from the early 1990s onwards. In Part II, we examined the diverse ways in which that knowledge-driven growth agenda has fallen short. In this chapter, we unpack the political implications of those shortcomings. The chapter begins by revisiting the idea of the knowledge economy as a growth regime: a set of economic policy ideas and assumptions that are underwritten politically by a distinctive coalition of supporters. It identifies three groups who have been particularly badly affected by the shortcomings of knowledge-driven growth, and thus who are particularly likely to withdraw their support from the status quo: younger people, lower-paid and/or lower-skilled workers, and residents of regions undergoing relative economic decline. The chapter goes on to examine electoral data showing declining levels of support for the political mainstream, as well as evidence that these declines are particularly pronounced among the three groups that our analysis predicts. The chapter concludes by comparing this analysis to alternative accounts of the outsider insurgency, showing how it is compatible with these rival explanations but also how it is complementary to them, filling in their gaps and resolving their inconsistencies.

Fragmentation

As outlined in Chapter 1, a growth regime consists of two components. It denotes a set of ideas about the causal mechanisms underpinning economic growth, on the back of which governments base their policy choices.

On 7 March 2000 – three days before the tech-heavy NASDAQ Composite stock index hit a peak that it would not reach again for 15 years – almost 400 people crowded into the Connaught Rooms, a conference venue in central London. The event, entitled “Knowledge 2000”, had been organized jointly by the UK's Department of Trade and Industry and Department for Education and Employment. It brought together business and labour interests to discuss how to build a successful, knowledge-driven economy fit for the challenges and opportunities of the twenty-first century. The attendee list testified to the breadth of the coalition backing this agenda. Representatives from the Confederation of British Industry mingled with representatives from the Trades Union Congress. Antonio Guterres – then Portuguese prime minister and president of the European Council, later to be secretary-general of the United Nations – was also present, a symbol both of the strident internationalism of the New Labour government and of the global appeal of knowledge-driven growth. Topping the bill of speakers was Tony Blair, who was exactly 15 months away from a general election that would see him win the second-largest UK parliamentary majority of the postwar era – eclipsed only by the record he himself had set just under three years before. In his keynote address, Blair outlined an economic strategy that would capitalize on the opportunities of the knowledge economy era, generating a truly inclusive form of growth: “Knowledge and skills, creativity and innovation, adaptability and entrepreneurship are the ways by which the winners will win in the new economy … That way we can all prosper.”

Over the next two chapters, we will map out the economic policy agenda championed by advocates of knowledge-driven growth in the 1990s and early 2000s. Four elements of this agenda stand out. First, policy-makers believed that social investment in education, infrastructure and research would act as a magnet for internationally mobile knowledge jobs and would help knowledge-intensive industries to grow. Moreover, these social investments would combat poverty and social exclusion, overcoming differences in opportunity between economically marginalized people and places and their more affluent peers. Knowledge-driven growth also required dynamic markets, aided by the removal of tax and regulatory burdens that might hamper businesses from responding in an agile fashion to their rapidly changing environment.

A case could be made that the knowledge economy era ended with the bursting of the dot-com bubble in 2000, or the attack on the twin towers in 2001, or the collapse of Lehman Brothers in 2008. Certainly, each of these epochal events undermined the heady optimism of the 1990s, with its bold predictions of increasing returns to individuals, firms and countries willing to specialize in the production of knowledge. Routine elections, too, brought changes in the political guard: over time, the centre-left parties and politicians who bestrode the political scene in Europe and North America at the end of the twentieth century gave way to rivals on the right.

This chapter will show how, despite all this flux, the economic strategies pursued by developed democracies remained remarkably stable. Although they seldom referred to “the knowledge economy”, politicians and policy-makers of diverse partisan loyalties continued to espouse a vision of knowledge-driven growth, advancing a policy programme based around social investment, market dynamism, macroeconomic stability and international openness, at the foundations of which lay certain assumptions about the mechanics of the modern economy. True, they modified this agenda in line with their partisan leanings, as well as in response to changing global circumstances. Nevertheless, for mainstream politicians and parties, continuity triumphed over change, albeit with diminishing expectations about what these knowledge-driven growth strategies would actually achieve.

Rightward shift

The election of George W. Bush saw marked changes in the tone and focus of US policy. The terrorist attacks of 11 September 2001, and the bellicose response that these atrocities elicited from neoconservative hawks within the Bush administration, meant that political debate during this period was dominated by foreign military adventures and domestic security measures rather than comparatively pedestrian questions of economic growth. Moreover, older market-driven accounts of growth had remained highly influential in the USA, sustained during Clinton's presidency by advocates in Congress and right-leaning think tanks, upon whose work and personnel Bush-era economic policy-makers regularly drew. Nevertheless, despite this ideological shift, the rhetoric of knowledge-driven growth persisted, and Bush's economic agenda can be seen as a species of knowledge-driven growth strategy.

Perhaps the most obvious example of this was the fact that Bush's flagship policy initiative outside the “war on terror” focused on education.

This chapter outlines the origins of the knowledge economy concept, as well as its core characteristics. Drawing on recent academic scholarship, it distinguishes knowledge-driven growth strategies from the market-driven approaches to growth with which these strategies are often conflated. It explores how transitions between different “growth regimes” occur, through a combination of intellectual developments, socioeconomic change and political leadership. Finally, it applies this framework to the rise of the knowledge economy, demonstrating how new ideas – such as the “endogenous growth theory” referred to in the poem above – provided politicians in developed democracies with tools both to critique market-driven approaches to growth and to map out an electorally-appealing alternative.

Origins

The concept of the “knowledge economy” can be traced back as far as the 1960s and early 1970s, when the term was first used to contrast “manual workers” (who engage in physical labour to produce conventional goods and services) with “knowledge workers” (who engage in intellectual labour and produce ideas and information). According to these early commentators, technologically advanced economies were experiencing a shift from manual work to knowledge work, which would drive future growth and prosperity for individuals, firms and countries alike. The “knowledge economy” was conceived as the end point of this upheaval, a state of affairs in which knowledge work would become the dominant productive force in society.

The concept was not widely adopted during the 1970s and 1980s (see Figure 1.1). Relative to the broader shift from manufacturing to services in developed democracies over those two decades, the trends associated with the knowledge economy were small in size and significance.

Can the knowledge economy redeem its promise of inclusive prosperity? Or is an alternative needed if policy-makers are to achieve equitable growth? Certainly, the belief that knowledge-driven growth strategies might yet succeed seems to underpin existing plans to “build back better” in developed democracies following the Covid-19 pandemic. After the savage cuts of the austerity years, social investments in skills, infrastructure and research are once again on the agenda. The OECD has argued that governments need to engage in “high-quality public investment”, with a particular focus on “active labour market programmes and enhanced vocational education and training … to create opportunities for all”. The UK chancellor of the exchequer professed the same creed in his 2021 Autumn Budget speech, declaring that, “as well as investing in infrastructure and innovation, there is one further part of our plan for growth that is crucial: providing a world-class education to all our people”, which would “lead to higher regional productivity [which] leads to higher wages”. In Germany, the SPD’s 2021 plurality-winning election manifesto committed to the creation of “sustainable, good jobs” by using the power of the state “to encourage innovations, to promote science and research, to embark on large ongoing investments in modern infrastructure”.

It is far from clear, however, whether such knowledge-driven growth strategies will prove effective. As we saw in Part II, over the last 30 years, both the tempo and the inclusivity of growth in the knowledge economy era have disappointed. Labour-saving innovation continues apace, but it is by no means certain that knowledge-intensive industries will generate enough new tasks to redeploy the labour that they displace, at least not in the short or even medium term. The rewards of knowledge-driven growth to date have been highly concentrated geographically, with unfavoured regions trapped in a self-reinforcing cycle of depressed demand, inadequate investment and economic stagnation. These rewards have also been highly concentrated socially, with the benefits accruing to the already wealthy and those with a capital stake in cutting-edge firms, as well as to the comparatively small workforces these high-tech businesses need in order to develop and exploit high-value knowledge assets such as intellectual property rights and data from proprietary platforms. High barriers to entry constrain entrepreneurial dynamism while simultaneously curtailing social mobility.

The rise of the knowledge economy not only promised a new model of growth, with innovation building upon innovation to drive productivity ever higher. Critical to its appeal was the promise of a surfeit of highly paid, highly skilled jobs; at least for those developed democracies enlightened enough to adopt an economic strategy centred around social investment. True, even optimistic advocates of the knowledge economy recognized that technological progress would lead to changes in the nature of work and to the loss of certain types of routine jobs. However, they anticipated that the knowledge economy would generate proportionately more new opportunities for better work, and consequently that technological and economic change could improve the lot of the overwhelming majority. The new jobs created would not only be well remunerated but would also provide workers with cognitively stimulating problems to solve and the autonomy necessary to think creatively about solutions.

This prediction was premised on the expectation that knowledge-intensive industries would continue to grow their workforces as the knowledge economy expanded, and that developed democracies that invested in educating their citizens would be well positioned to secure a disproportionate share of this jobs growth. It also depended on the “knowledgification” of existing jobs, with a better-educated workforce capable of adding more value (and thus commanding higher salaries), even when employed in what had historically been lower-skilled roles and industries.

The high-skill, high-wage economy

Has the expansion of high-skilled work that earlier advocates of the knowledge economy once promised taken place? In a word, yes. Over the last three decades, developed democracies have seen knowledge workers account for an increasingly large proportion of the overall workforce. More and more people are employed as scientists, architects, software engineers and management consultants; more and more people work in knowledge-intensive sectors such as finance, education and healthcare. Data compiled by Maarten Goos, Alan Manning and Anna Solomons for a selection of EU countries show that, between 1993 and 2010, employment rates in higher-skilled occupations such as corporate managers, healthcare professionals and engineers did indeed increase across the board. More recent research by the OECD, using the same classification system but covering more countries and a longer time period, confirms these trends (see Figure 6.1).