Knowledge economy

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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. The phrase was popularized if not invented by Peter Drucker as the title of Chapter 12 in his book The Age of Discontinuity.

The essential difference is that in a knowledge economy, knowledge is a product, in knowledge-based economy, knowledge is a tool. This difference is not yet well distinguished in the subject matter literature. They both are strongly interdisciplinary, involving economists, computer scientists, software engineers, mathematicians, chemists, physicists, as well as cognitivists, psychologists and sociologists.

Various observers describe today's global economy as one in transition to a "knowledge economy", as an extension of an "information society". The transition requires that the rules and practices that determined success in the industrial economy need rewriting in an interconnected, globalized economy where knowledge resources such as know-how and expertise are as critical as other economic resources. 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.

Concepts

A key concept of the knowledge economy is that knowledge and education (often referred to as "human capital") can be treated as one of the following two:

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

It can be defined as

" The concept that supports creation of knowledge by organizational employees and helps and encourages them to transfer and better utilize their knowledge that is in line with company/organization goals "

The initial foundation for the Knowledge Economy was first introduced in 1966 in the book The Effective Executive by Peter Drucker. In this book, Drucker described the difference between the manual worker (page 2) and the knowledge worker. The manual worker, according to him, works with his hands and produces goods or services. In contrast, a knowledge worker (page 3) works with his or her head not hands, and produces ideas, knowledge, and information.

The key problem in the formalization and modeling of knowledge economy, is a vague definition of knowledge, which is a rather relative concept. For example, it is not proper to consider information society as interchangeable with knowledge society. Information is usually not equivalent to knowledge. Their use, as well, depends on individual and group preferences (see the cognitive IPK model) - which are "economy-dependent".

Driving forces

Commentators suggest there are various interlocking driving forces, which are changing the rules of business and national competitiveness:

• Globalization — markets and products are more global.
• Information technology, which is related to next three:
  • 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.
  • New Media - New media increases the production and distribution of knowledge which in turn, results in collective intelligence. Existing knowledge becomes much easier to access as a result of networked data-bases which promote online interaction between users and producers.
  • Computer networking and ConnectivityTemplate:Ndash 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 regards the applications of any new technology, this depends on how it meets economic demand. It can remain dormant or make 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 are not of scarcity, but rather of abundance. Unlike most resources that become depleted 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. However, clusters already existed in pre-knowledge economy times.
• Laws, barriers, taxes and ways to measure are difficult to apply solely on 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 radically, creating a pattern in which even ideas will be recognised and identified as a commodity. This certainly is not 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 is the thrust of this new form of economy, there certainly is a clear way forward for this notion, though the particulars (i.e. the quantum of the revolutionary approach and its applicability and commercial value),remain in the speculative realm, as of now.

See also

Attention economy Digital economy Information economy Intelligent city International Innovation Index Internet Economy Knowledge market Knowledge organization Knowledge management

Knowledge policy Knowledge Revolution Knowledge tagging Knowledge value chain Learning economy The Long Tail Network Economy Smart city Social Information Processing

External links

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

Wikibooks

• Legal and Regulatory Issues in the Information Economy

Bibliography

• 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.