Knowledge economy Totally Explained

Everything about The Knowledge Economy totally explained

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 popularized if not invented by Peter Drucker as the title of Chapter 12 in his book The Age of Discontinuity.
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.
Here, there may be a need to differentiate with the web economy of Google and Ebay that seems to have created wealth based more on services dependent on massive 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. This is also not an ethically correct categorization. There is no worker who doesn't use his brain, and thus doesn't produce some knowledge (see Honey Bee editorial (www.sristi.org), do poor have hands, legs and mouth, but no head?, vol 17(1-2) 2006). it's true that some workers primarily work with hands and some with head but then we should be aware of new caste system being legitimized by such categorization. The knowledge of the poor will get ignored in the process.
it isn't proper to consider information society as interchangeable with knowledge society. Information isn't knowledge. Information has to be analyzed, understood(which requires involvement of multiple actors) and then communicated. Only later it's validated or at least accepted as working hypothesis.

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 isn't 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.
The knowledge economy has manifold forms in which it may appear but there are predictions that the new economy will extend so radically as far as acknowledging a pattern in which even ideas will be recognised and even identified as a commodity. This certainly isn't the best time to make any hasty judgment on this contention, but considering the very nature of 'knowledge' itself, added to the fact that it's the thrust of this new form of economy, there certainly is a clear way forward for this notion, though the particulars (for example the quantum of the revolutionary approach and its applicability and commercial value),remain in the speculative realm, as of now.

Criticism

Much of the above theorizing about the advent of a fundamentally new era in which economic activity is increasingly 'abstract', for example, 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.

Further Information

Get more info on 'Knowledge Economy'.

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