Information about Knowledge Economy

The knowledge economy is a vague term that refers either to an economy of knowledge focused on the production and management of knowledge, or a knowledge-based economy. In the second meaning, more frequently used, it refers to the use of knowledge to produce economic benefits. The phrase was popularised if not invented by Peter Drucker as the title of Chapter 12 in his book The Age of Discontinuity^[1].

Various observers describe today's global economy as one in transition to a "knowledge economy", as an extension of "information society". The transition requires that the rules and practices that determined success in the industrial economy need rewriting in an interconnected, globalised economy where knowledge resources such as know-how, expertise, and intellectual property are more critical than other economic resources such as land, natural resources, or even manpower. According to analysts of the "knowledge economy," these rules need to be rewritten at the levels of firms and industries in terms of knowledge management and at the level of public policy as knowledge policy or knowledge-related policy. [citations needed]

Here, there may be a need to differentiate with the Web Economy of Google, Skype and Ebay that seems to have created wealth based more on services dependent on mass interconnectivity rather than on knowledge-based skills.

Concepts

A key concept of this sector of economic activity is that knowledge and education (often referred to as "human capital") can be treated as:

• A business product, as educational and innovative intellectual products and services can be exported for a high value return.
• A productive asset

The initial foundation for the Knowledge Economy was first introduced in 1966 in a book by Peter Drucker. The Effective Executive described the difference between the Manual worker (page 2) and the knowledge worker. A manual worker works with his hands and produces "stuff". A knowledge worker (page 3) works with his or her head not hands, and produces ideas, knowledge, and information.

Driving forces

Commentators suggest that at least three interlocking driving forces are changing the rules of business and national competitiveness:

• Globalization — markets and products are more global.
• Information/Knowledge Intensity — efficient production relies on information and know-how; over 70 per cent of workers in developed economies are information workers; many factory workers use their heads more than their hands.
• Computer networking and Connectivity – developments such as the Internet bring the "global village" ever nearer.

As a result, goods and services can be developed, bought, sold, and in many cases even delivered over electronic networks.

As concerns the applications of any new technology, it depends how it meets economic demand. It can stay dormant or get a commercial breakthrough (see diffusion of innovation).

Characteristics

It can be argued that the knowledge economy differs from the traditional economy in several key respects:

• The economics is not of scarcity, but rather of abundance. Unlike most resources that deplete when used, information and knowledge can be shared, and actually grow through application.
• The effect of location is either
• diminished, in some economic activities: using appropriate technology and methods, virtual marketplaces and virtual organizations that offer benefits of speed, agility, round the clock operation and global reach can be created .
• or, on the contrary, reinforced in some other economic fields, by the creation of business clusters around centres of knowledge, such as universities and research centres having reached world-wide excellence.
• Laws, barriers and taxes are difficult to apply on solely a national basis. Knowledge and information "leak" to where demand is highest and the barriers are lowest.
• Knowledge enhanced products or services can command price premiums over comparable products with low embedded knowledge or knowledge intensity.
• Pricing and value depends heavily on context. Thus the same information or knowledge can have vastly different value to different people, or even to the same person at different times.
• Knowledge when locked into systems or processes has higher inherent value than when it can "walk out of the door" in people's heads.
• Human capital — competencies — are a key component of value in a knowledge-based company, yet few companies report competency levels in annual reports. In contrast, downsizing is often seen as a positive "cost cutting" measure.
• Communication is increasingly being seen as fundamental to knowledge flows. Social structures, cultural context and other factors influencing social relations are therefore of fundamental importance to knowledge economies.

These characteristics require new ideas and approaches from policy makers, managers and knowledge workers.

Criticism:

• Much of the above theorising about the advent of a fundamentally new era in which economic activity is increasingly 'abstract', ie. disconnected from land, labour, and physical capital (machines and industrial infrastructure) is associated with the 'business management' literature of the 'new economy' NASDAQ bubble, which collapsed in 2001. This literature is known more for its hyperbole and faddishness than for its academic integrity.

Similar concepts

Other terms for the concept include "Knowledge society" and "Knowledge wave", as in catching or riding the "knowledge wave" in a similar manner that a surfer catches and rides a surf wave.

External links

• Knowledge for Development Program, World Bank
• Colloquium
• IS-Driven Organizational Responsiveness in a Knowledge Economy
• Public Service Modernization Act - Canada
• MTI
• EnterWeb
• recent BOOK: The Knowledge-Based Economy in Central and East European Countries
• The Work Foundation Knowledge Economy Programme

[1] (Musgrave Ireland (MSVC) with The National College of Ireland (NCI) undertake the Knowledge Economy Skills Passport (KESP) )

• http://www.who42.comHuman Capital for the Knowledge Economy

Wikibooks

• b:Legal and Regulatory Issues in the Information Economy

References

• Arthur, W. B. (1996). Increasing Returns and the New World of Business. Harvard Business Review(July/August), 100-109.
• Bell, D. (1974). The Coming of Post-Industrial Society: A Venture in Social Forecasting. London: Heinemann.
• Drucker, P. (1969). The Age of Discontinuity; Guidelines to Our changing Society. New York: Harper and Row.
• Drucker, P. (1993). Post-Capitalist Society. Oxford: Butterworth Heinemann.
• Machlup, F. (1962). The Production and Distribution of Knowledge in the United States. Princeton: Princeton University Press.
• Romer, P. M. (1986). Increasing Returns and Long-Run Growth. Journal of Political Economy, 94(5), 1002-1037.
• Rooney, D., Hearn, G., Mandeville, T., & Joseph, R. (2003). Public Policy in Knowledge-Based Economies: Foundations and Frameworks. Cheltenham: Edward Elgar.
• Rooney, D., Hearn, G., & Ninan, A. (2005). Handbook on the Knowledge Economy. Cheltenham: Edward Elgar.