3.4 Knowledge Economy

3.4 Knowledge Economy

            The knowledge economy is a term that refers either to an economy of knowledge focused on the production and management of knowledge in the frame of economic constraints, or to a knowledge-based economy. In the second meaning, more frequently used, it refers to the use of knowledge technologies (such as knowledge engineering and knowledge management) to produce economic benefits as well as job creation (Wikipedia, 2012).

            As we know in an agricultural economy land is considered the key resource; in an industrial economy natural resources and labour are considered the main resources but in a knowledge economy knowledge is advocated the key resource. In a repor: Our Competitive Future: Building the Knowledge Driven Economy, Department of Trade and Industry (UK) defines knowledge economy as: … one in which the generation and the exploitation of knowledge has come to play the predominant part in the creation of wealth. It is not simply about pushing back the frontiers of knowledge; it is also about the more effective use and exploitation of all types of knowledge in all manner of economic activity. (DTI, 1998)

            The use of knowledge in economic activities is not a new idea. Knowledge has always been the driving force of change in human societies.  Tens of thousands of years ago, the shift from a hunter-gatherer society to the agricultural society was driven by the knowledge of how to use seeds to sow and harvest food. In the agricultural society the main `fuel' is fertile land, but the knowledge about how to use it what is changed the way humans lived, from smaller nomadic societies to more stable, organized and larger settlements.

            Again in industrial society knowledge played a very important role. Knowledge helped us to control machines, particularly the internal combustion engine and the steam engine, and how to transform fossils into new form of fuels for industry. It is very obvious that both the agricultural society and the industrial society had one thing in common: the economic progress through the increasing use of knowledge.

            The present society is also driven by knowledge but the use of information technology has created the major difference. Although the economic activities of all societies are based on knowledge but the degree of incorporation of knowledge and into economic activity is now so great that knowledge has been recognized as the driver of productivity and economic growth (Kogut & Zander, 1992; Nonaka & Takeuchi, 1995; Choo & Bontis, 2002; Zítek &  Klímová, 2011).

            The economic progress is no longer means using more physical resources. The creation and dissemination of knowledge has speeded up as result of advances in science and information technologies. Consequently, the use of knowledge intensifies in every field of life. This burgeoning use of knowledge along with high pace of technological advancements gives birth to a new society; a society which is global in nature, deeply innovative and knowledge-intensive (Chichilnisky, 1998); transforming Peter Druckerʼs vision of a knowledge-based economy into a reality.

            The Knowledge Economy is emerging from three defining forces: the rise in knowledge use in economic activities, the increasing globalization of economic affairs and the high pace of technological advancements particularly information & communications technologies. The last thirty years have seen an explosion in the application of information and communications technologies in all areas of business and community life. The invention of the Internet exemplifies the phenomena of information revolution which has created impacts on every aspect of the economy, on both goods and services; and on every element of the business chain, from research and development to production, marketing and distribution. Because the cost of manipulating storing and transmitting information is very marginal, the application of knowledge to all aspects of the economy is being greatly facilitated, and the knowledge intensity of economic activities greatly increased (Houghton & Sheehan, 2000).

            Knowledge Economy is different from the traditional economy in several aspects. One of the key aspects of knowledge economy is that it considers that the application of knowledge adds more value than the traditional economic factors like capital, raw materials and labour.  It means that knowledge is the main source of growth in the knowledge economy.  Many writers have commented on such an economy, using a variety of synonymous terms including: the ‘information society’ (Giddens, 1994), the ‘learning society’ (Commission of the European Communities, 1996), the ‘network society’ (Castells, 1998), the ‘learning economy’ (Field, 2000; Lundvall & Borás, 1997), and ‘economies of expertise’ (Venkatraman and Subramaniam, 2002).

            Apart from much literature available on knowledge economy, there is no consensus on the definition of the term. Zítek &  Klímová (2011) have quoted various definitions. Some of them are listed below:

    • Knowledge-based economies are economies which are directly based on the production, distribution and use of knowledge and information.‖ Knowledge-based economies are characterized by growth in high-technology investments, high-technology industries, more highly-skilled labour and associated productivity gains (OECD, 1996: pp. 7).
    • Knowledge economy is what you get when firms bring together powerful computers and well-educated minds to create wealth ‖ (Brinkley, 2006: pp. 3).
    • Knowledge-based economies are - economies in which the proportion of knowledge-intensive jobs is high, the economic weight of information sectors is a determining factor, and the share of intangible capital is greater than that of tangible capital in the overall stock f real capital (Foray, 2004: pp. ix).
    • The knowledge economy is an increasingly pervasive and useful concept used to capture important aspects of contemporary economic reality‖ (Cooke & Piccaluga, 2006: pp. ix).

            It is obvious from the above definitions that there is no consensus on how to define ‘knowledge economy’. However, in a World Bank report, Dahlman & Andersson (2000) have identified four key pillars of today’s knowledge economy:

  • An educated and skilled labor force that continuously upgrades and adapts skills to efficiently create and use knowledge;
  • An effective innovation system of firms, research centers, universities, consultants, and other organizations that keeps up with the knowledge revolution, taps into the growing stock of global knowledge, and assimilates and adapts new knowledge to local needs,
  • An economic incentive and institutional regime that provides good economic policies and institutions, which promote efficient creation, dissemination, and use of existing knowledge.
  • A modern and adequate information infrastructure that facilitates the effective communication, dissemination, and processing of information and knowledge.

            Similarly, Brinkley (2006) has summarized some of the key characteristics of knowledge economy as below:

    • The knowledge-based economy is not new economy with new rules. It represents a soft discontinuity from the past.
    •  The knowledge-based economy is present in all sectors of economy.
    •  The knowledge-based economy is characterized by high and growing intensity of ICT usage by well-educated workers.
    •  A growing share of GDP devoted to knowledge intangibles compared with physical capital.
    •  The knowledge economy consists of innovating organizations.
    •  Organizations reorganize work to allow them to handle, store and share information through knowledge management practices.

            Houghton & Sheehan (2000) have listed some other key characteristics of knowledge economy:

    • There is enormous increase in the codification of knowledge, which together with network and the digitalization of information, is leading to its increasing codification. Increasing codification of knowledge is leading to shift in the balance of the stock of knowledge – leading to a relative shortage of tacit knowledge. It means codification is promoting a shift in the organization and structure of production. For example, it is producing a convergence, bridging different areas of competence, reducing knowledge dispersion, and increasing the speed of turnover of the stock of knowledge.  In parallel, the increased rate of codification and collection of information are leading to a shift in focus towards tacit (‘handling’) skills.
    • Information and communication technologies increasingly favour the diffusion of information over re-invention, reducing the investment required for a given quantum of knowledge.
    • Knowledge is not necessarily exhausted in consumption. The increasing rate of accumulation of knowledge stock is positive for economic growth.
    • The innovation system and its ‘knowledge distribution power’ are critically important.
    • Learning is increasingly central for both people and organizations. Learning involves both education and learning-by-doing, learning-by-using and learning-by-interacting.
    • Learning organizations are increasing networked organizations.
    • Initiative, creativity, problem solving and openness to change are increasingly important skills.

            Knowledge economy has given a new domension to business world. Production is being rationalized globally, with organizations combining the factors, features and skills of various locations in the process of competing in global market. Most of the organizations with dominant position no longer belong to just one leading country. They are multinational and transnational. To compete with their rivals successfully organizations must now compete head-to-head in all market. In this new global competation, competativeness  depends increasingly on the coordination of, and synergy  generated between, a broad range of specilized industrial, finacial, technological, commercial, administrative and cultural skills which can be located anywhere around the world.  To meet these challenges, organizations need to become learning organizations, continously adapting management, organization and skills to accommodate new technologies and grasp new oppetunities. They also need to promote inter-organization and intar-organization linkage to strengthen their system of innovation (Houghton  & Sheehan,  2000; Powell  & Snellman, 2004; Cooke & Piccaluga, 2006).

            Form above discussion we can see that the advent of the knowledge economy, as Prof. José M. Viedma Martí (2012) mentions,  has fundamentally changed the basis of wealth creation in modern social communities (regions and nations); knowledge and other human based intangibles have become the fundamental resources for wealth creation. Consequently principles and theories of wealth creation have fundamentally changed. 

            Knowledge economy advocates for flexible organization.   Flexible organizations merge flexibility, high product quality and a degree of customization, with the speed and low unit costs of mass production. Flexible organizations reduce waste and increase the productivity of both labour and capital by integrating ‘thinking’ and ‘doing’ at all levels of their operations. In doing so they eliminate many layers of middle management; which are dysfunctional in term of information flow. Flexible organizations also avoid excessive specialization and compartmentalization by defining multi-task job responsibilities and by using teamwork and job rotation (Houghton  & Sheehan, 2000).

            The emergence of the knowledge economy has ushered in a wide ranging debate about the demand for higher levels of competencies. While there is growing agreement on the importance of skills per se as a key engine for economic growth and the spread of the knowledge economy, there is far less agreement on which competencies and skills make the difference.  Some of the most agreed upon workplace competencies by different analysts, surveys and country reports in (Houghton & Sheehan, 2000) are:

    • Inter-personal skills:
    • Team work and the ability to collaborate in pursuit of a common objective.
    • Leadership capabilities.
    • Intra-personal skills:
    • Motivation and attitude.
    • The ability to learn.
    • Problem-solving skills.
    • Effective communication with colleagues and clients.
    • Analytical skills.
    • Technological or ICT skills.

            In his article, Trent Batson, the Executive Director of The Association for Authentic, Experiential and Evidence-Based Learning (AAEEBL) shared his own experiences  “After working as a professor or college administrator for much of my life, when I made a life-change and started a new business--the professional association that I direct--I felt like (and still feel like) I have returned to graduate school…I am, once again, overwhelmed with how much I have to learn and how quickly I have to put into practice what I just learned. Having been a professor, an administrator, and now an active participant in the knowledge economy, I am painfully aware of the discrepancies between college preparation (what I used to do) and the realities of this economy (what I do now). That the traditional economy is declining so strikingly this year only adds painful urgency to the need for reform”. He has listed 12 important skills required in today’s knowledge economy.

  • Being an innovator in thought and action
  • Thinking like an entrepreneur
  • Communicating in writing in all mediums and forms with varying groups of people and a wide range of purposes
  • Communicating via speaking in all the mediums available to us today: telephones, Skype, conferencing systems, and even in face-to-face meetings or conferences or hallway conversations
  • Finding the right Web 2.0 tools to enable or improve a particular business need, understand the business model of the provider of the tools (viable?), and assess the cost and benefits including maintaining the Web site associated with the tools over time
  • Working cooperatively across distances in ways that benefit all
  • Identifying a core service, staying with it, and resisting the abundance of opportunities and side paths in this highly fluid knowledge economy
  • On the other hand, maintaining a reflective and integrative approach to new trends, new ideas, and new opportunities from anywhere in the world--what fits and what doesn’t fit with the core service?
  • Being able to research quickly and find what is useful within minutes, not hours or days. Knowing enough about many disciplines so you can settle on search terms to find the rights kinds of knowledge for your purpose
  • Staying nimble and ready to re-think all that you do
  • Staying attuned to our culture
  • Being as literate in Web 2.0 as in reading books

       In this section we have overviewed various facets of knowledge economy. We have seen that the knowledge economy offers the possibilities of prosperity to those who have the capacity to use available knowledge in innovative ways.  For this, individuals, teams, and organization need to develop the necessary competencies which make them able to participate in today’s technology driven, knowledge intensive, complex work places. Traditional approaches to management, training, and development will not provide the learning environment that is required. Organizations need to convert day to day work environment into a powerful learning environment (Kessels, 2001).