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The knowledge economy (or the knowledge-based economy) is an
economic system An economic system, or economic order, is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environm ...
in which the production of goods and services is based principally on knowledge-intensive activities that contribute to advancement in
technical Technical may refer to: * Technical (vehicle), an improvised fighting vehicle * Technical analysis, a discipline for forecasting the future direction of prices through the study of past market data * Technical drawing, showing how something is con ...

technical
and
scientific Science () is a systematic enterprise that Scientific method, builds and organizes knowledge in the form of Testability, testable explanations and predictions about the universe."... modern science is a discovery as well as an invention. ...

scientific
innovation Innovation is the practical implementation of ideas A mental representation (or cognitive representation), in philosophy of mind Philosophy of mind is a branch of philosophy that studies the ontology and nature of the mind and its relation ...

innovation
. The key element of value is the greater dependence on
human capital Human capital is a concept used by human resource professionals to designate personal attributes considered useful in the production process. It encompasses employee knowledge Knowledge is a familiarity or awareness, of someone or someth ...

human capital
and
intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner o ...
for the source of the innovative
idea In common usage and in philosophy Philosophy (from , ) is the study of general and fundamental questions, such as those about Metaphysics, existence, reason, Epistemology, knowledge, Ethics, values, Philosophy of mind, mind, and Philosoph ...

idea
s,
information Information is processed, organised and structured data Data (; ) are individual facts A fact is something that is truth, true. The usual test for a statement of fact is verifiability—that is whether it can be demonstrated to c ...

information
and practices. Organisations are required to this "knowledge" into their
production Production may refer to: Economics and business * Production (economics) Production is the process of combining various material inputs and immaterial inputs (plans, know-how) in order to make something for consumption (output). It is the act of ...
to stimulate and deepen the
business developmentBusiness development entails tasks and processes to develop and implement growth opportunities within and between organizations. It is a subset of the fields of business Business is the activity of making one's living or making money by producin ...
process. There is less reliance on physical input and
natural resource Natural resources are resource Resource refers to all the materials available in our environment which help us to satisfy our needs and wants. Resources can broadly be classified upon their availability — they are classified into renewabl ...
s. A knowledge-based economy relies on the crucial role of
intangible asset An intangible asset is an asset In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economi ...
s within the organisations' settings in facilitating modern
economic growth Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economics, economy over time. Statisticians conventionally measure such growth as the percent rate of i ...

economic growth
. A knowledge economy features a highly skilled workforce within the
microeconomic Microeconomics is a branch of mainstream economics Mainstream economics is the body of knowledge, theories, and models of economics, as taught by universities worldwide, that are generally accepted by economists as a basis for discussion. Also ...
and
macroeconomic Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and ...
environment; institutions and industries create jobs that demand specialized skills in order to meet the
global market A market is a composition of system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is describ ...
needs. Knowledge is viewed as an additional
input Input may refer to: Computing * Input (computer science), the act of entering data into a computer or data processing system * Information, any data entered into a computer or data processing system * Input device * Input method * Input port (disam ...
to
labour Labour or labor may refer to: * Childbirth Childbirth, also known as labour or delivery, is the ending of pregnancy where one or more babies leaves the uterus by passing through the vagina or by Caesarean section. In 2015, there were about 13 ...
and
capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscule'') and smaller lowercase (or more formally ''minusc ...
. In principle, one's primary
individual capital Individual capital, the economic view of talent, comprises inalienable or personal traits of persons, tied to their bodies and available only through their own free will Free will is the ability to choose between different possible courses of ...
is knowledge together with the ability to perform so as to create
economic value In economics Economics () is a social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the beh ...
. In a knowledge economy, highly skilled jobs require excellent technical skills and relational skills such as
problem-solving Problem solving consists of using generic or ad hoc Ad hoc is a Latin phrase __NOTOC__ This is a list of Wikipedia articles of Latin phrases and their translation into English. To view all phrases on a single, lengthy document, see: * L ...

problem-solving
, the flexibility to interface with multiple discipline areas as well as the ability to adapt to changes as opposed to moving or
craft A craft or trade is a pastime or an occupation that requires particular skills and knowledge of skilled work. In a historical sense, particularly the Middle Ages In the history of Europe The history of Europe concerns itself wit ...
ing
physical object A bubble of exhaled gas in water In common usage and classical mechanics, a physical object or physical body (or simply an object or body) is a collection of matter within a defined contiguous boundary in three-dimensional space Three-dimen ...
s in conventional manufacturing-based economies. A knowledge economy stands in contrast to an
agrarian economy An agrarian society, or agricultural society, is any community whose economy is based on producing and maintaining crops and Agricultural land, farmland. Another way to define an agrarian society is by seeing how much of a nation's total production ...
, in which the primary economic activity is
subsistence farming Subsistence agriculture occurs when farmer A farmer is a person engaged in agriculture Agriculture is the science, art and practice of cultivating plants and livestock. Agriculture was the key development in the rise of sedentary ...
for which the main requirement is
manual labour Manual labour (in British English British English (BrE) is the standard dialect A standard language (also standard variety, standard dialect, and standard) is a language variety that has undergone substantial codification of grammar a ...
or an industrialized economy that features
mass production Mass production, also known as flow production or continuous production, is the production of substantial amounts of standardized Standardization or standardisation is the process of implementing and developing technical standard A techni ...
in which most of the workers are relatively unskilled. A knowledge economy emphasizes the importance of skills in a
service economy Service economy can refer to one or both of two recent economic developments: * The increased importance of the service sector The tertiary sector of the economy, generally known as the service sector, is the third of the three economic secto ...
, the third phase of economic development, also called a
post-industrial economy A post-industrial economy is a period of growth within an industrialized economy An economy (from Greek language, Greek οίκος – "household" and νέμoμαι – "manage") is an area of the Production (economics), production, Distribut ...
. It is related to an
information economy Information economy is an economy An economy (from Greek language, Greek οίκος – "household" and νέμoμαι – "manage") is an area of the Production (economics), production, Distribution (economics), distribution and trade, as we ...
, which emphasizes the importance of information as non-physical capital, and a
digital economy Digital economy refers to an economy that is based on digital computing technologies, but is often perceived as conducting business through markets based on the internet The Internet (or internet) is the global system of interconnecte ...
, which emphasizes the degree to which information technology facilitates trade. For companies,
intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner o ...
such as
trade secret Trade secrets are a type of intellectual property that comprise formulas, best practice, practices, business process, processes, designs, legal instrument, instruments, patterns, or compilations of information that have inherent economic value be ...
s,
copyright Copyright is a type of intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. ...

copyright
ed material, and
patent A patent is a type of intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depe ...

patent
ed processes become more valuable in a knowledge economy than in earlier eras. The global economy transition to a knowledge economy is also referred to as the
Information Age#REDIRECT Information Age The Information Age (also known as the Computer Age, Digital Age, or New Media Age) is a historical periodHuman history is commonly divided into three main Era, eras — Ancient history, Ancient, Post-classical history, ...
, bringing about an
information societyInternet design and usage influence other areas, and there are discussions about how big the influence of specific media or specific modes of production really is. Frank Webster notes five major types of information that can be used to define informa ...
. The term ''knowledge economy'' was made famous by
Peter Drucker Peter Ferdinand Drucker (; ; November 19, 1909 – November 11, 2005) was an Austrian-American management consultant, educator, and author, whose writings contributed to the philosophical and practical foundations of the modern business cor ...
as the title of Chapter 12 in his book '' The Age of Discontinuity'' (1969), that Drucker attributed to economist
Fritz Machlup Fritz Machlup (; ; December 15, 1902 – January 30, 1983) was an Austrian-United States of America, American economist who was president of the International Economic Association from 1971–1974. He was one of the first economists to examine kno ...
, originating in the idea of
scientific management Scientific management is a theory of management Management (or managing) is the administration of an organization An organization, or organisation (Commonwealth English The use of the English language English is a West G ...
developed by
Frederick Winslow Taylor Frederick Winslow Taylor (March 20, 1856 – March 21, 1915) was an American mechanical engineer Mechanical may refer to: Machine * Mechanical system, a system that manages the power of forces and movements to accomplish a task * Machine (mech ...
.


Concepts


Knowledge-based economy and human capital

An
economic system An economic system, or economic order, is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environm ...
that is not knowledge-based is considered to be inconceivable. It describes the process of
consumption Consumption may refer to: *Resource consumption *Tuberculosis, an infectious disease, historically in biology: * Consumption (ecology), receipt of energy by consuming other organisms in social sciences: * Consumption (economics), the purchasing of ...
and
production Production may refer to: Economics and business * Production (economics) Production is the process of combining various material inputs and immaterial inputs (plans, know-how) in order to make something for consumption (output). It is the act of ...
activities that are satisfied from the application of workers' expertise -
intellectual capitalIntellectual capital is the result of mental processes that form a set of intangible objects that can be used in economic activity and bring income to its owner (organization), covering the competencies of its people (human capital), the value relati ...
and typically represents a significant level of individual
economic activities Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. ...

economic activities
in modern developed economies through building an interconnected and advanced global economy where sources of knowledge are the critical contributors. The present concept for "knowledge" is origins from the
historical History (from Ancient Greek, Greek , ''historia'', meaning "inquiry; knowledge acquired by investigation") is the study and the documentation of the past. Events before the History of writing#Inventions of writing, invention of writing systems a ...

historical
and
philosophical Philosophy (from , ) is the study of general and fundamental questions, such as those about existence, reason Reason is the capacity of consciously applying logic Logic is an interdisciplinary field which studies truth and reasoning ...

philosophical
studies by
Gilbert Ryle Gilbert Ryle (1900–1976) was a British philosopher, principally known for his critique of Cartesian dualismCartesian means of or relating to the French philosopher René Descartes—from his Latinized name ''Cartesius''. It may refer to: ...
and Israel Scheffler who conducted knowledge to the terms "
procedural knowledge Procedural knowledge (also known as knowing-how, and sometimes referred to as practical knowledge, imperative knowledge, or performative knowledge) is the knowledge exercised in the performance of some task. Unlike descriptive knowledgeIn epistemolo ...
" and " conceptual Knowledge" and identified two types of skills: "routine competencies or facilities" and " critical skills" that is intelligent performance; and it's further elaborated by Lundvall and Johnson who defined "knowledge" economically highlighting four broad categories: * ''Know-what :'' is of the knowledge about "
fact A fact is something that is true True most commonly refers to truth Truth is the property of being in accord with fact or reality.Merriam-Webster's Online Dictionarytruth 2005 In everyday language, truth is typically ascribed to things ...
s", presenting the ownership of information. Examples include
population Population typically refers the number of people in a single area whether it be a city or town, region, country, or the world. Governments typically quantify the size of the resident population within their jurisdiction by a process called a ...

population
of a country and
history History (from Greek#REDIRECT Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hellenic Republic, is a country located in Southeast Europe. Its population is approxima ...

history
evidence. As with
information revolution The term information revolution describes current economic An economy (; ) is an area of the production Production may be: Economics and business * Production (economics) * Production, the act of manufacturing goods * Production, in the out ...
is emerging, complex occupations such as
law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by its bounda ...
and
medicine Medicine is the science Science () is a systematic enterprise that builds and organizes knowledge Knowledge is a familiarity, awareness, or understanding of someone or something, such as facts ( descriptive knowledge), skills (proced ...

medicine
remain highly demanding for knowledge and
expertise An expert is somebody who has a broad and deep competence in terms of knowledge Knowledge is a familiarity, awareness, or understanding of someone or something, such as facts ( descriptive knowledge), skills (procedural knowledge), or obj ...

expertise
under this category. * ''Know-why :'' is of the
study Study or studies may refer to: General * Education **Higher education * Clinical trial * Experiment * Observational study * Research * Study skills, abilities and approaches applied to learning Other * Study (art), a drawing or series of drawing ...

study
within the
human mind Humans (''Homo sapiens'') are the most abundant and widespread species In biology, a species is the basic unit of biological classification, classification and a taxonomic rank of an organism, as well as a unit of biodiversity. A speci ...

human mind
and
society A society is a group A group is a number A number is a mathematical object used to counting, count, measurement, measure, and nominal number, label. The original examples are the natural numbers 1, 2, 3, 4, and so forth. Numbers can be ...

society
at the base of the knowledge of
principle A principle is a proposition or value that is a guide for behavior or evaluation. In law, it is a Legal rule, rule that has to be or usually is to be followed. It can be desirably followed, or it can be an inevitable consequence of something, suc ...

principle
s and
laws of motionIn physics, a number of noted theories of the motion of objects have developed. Among the best known are: * Classical mechanics ** Newton's laws of motion ** Euler's laws of motion ** Cauchy momentum equation, Cauchy's equations of motion ** Kepler's ...
in nature. It concerns the of
scientific Science () is a systematic enterprise that Scientific method, builds and organizes knowledge in the form of Testability, testable explanations and predictions about the universe."... modern science is a discovery as well as an invention. ...

scientific
and
technological Technology ("science of craft", from Greek#REDIRECT Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hellenic Republic, is a country located in Southeast Europe. I ...

technological
fields, which is essential for allowing
innovation Innovation is the practical implementation of ideas A mental representation (or cognitive representation), in philosophy of mind Philosophy of mind is a branch of philosophy that studies the ontology and nature of the mind and its relation ...

innovation
in the production process and products development in areas such as
universities A university () is an of (or ) and which awards s in several . Universities typically offer both and programs in different schools or faculties of learning. The word ''university'' is derived from the ''universitas magistrorum et scholari ...

universities
and . It can also reduce
error An error (from the Latin ''error'', meaning "wandering") is an action which is inaccurate or incorrect. In some usages, an error is synonymous with a mistake. In statistics Statistics is the discipline that concerns the collection, o ...

error
frequency in procedures. * ''Know-who :'' refers to the specific and selective
social relation In social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of plant life and a branch of biology. A botan ...
s, that is the identification of the key persons that know the solutions and are able to perform under difficult scenarios. Finding the right people can be more essential than knowing basic scientific knowledge for the success of innovation. * ''Know-how'' : is of an individual's skills and experience to do different kinds of things on a practical level. Individuals share experiences in groups with uniform practices. It constitutes the human capital of enterprises. In a knowledge economy, human intellectual is the key engine of economic enhancement. It is an economy where members acquire, create, disseminate and apply knowledge for facilitating economic and social development. The
World Bank The World Bank is an international financial institution An international financial institution (IFI) is a financial institution that has been established (or chartered) by more than one country, and hence is subject to international law. Its o ...
has spoken of knowledge economies by associating it to a four - pillar framework that analyses the rationales of a human capital based economies: * ''An educated and skilled
labour force The workforce or labour force is the labour Labour or labor may refer to: * Childbirth Childbirth, also known as labour or delivery, is the ending of pregnancy where one or more babies leaves the uterus by passing through the vagina or ...
:'' The establishment of a strong knowledge-based economy required workers to have the ability to continuously
learn Learning is the process of acquiring new understanding, knowledge, behaviors, skills, value (personal and cultural), values, attitudes, and preferences. The ability to learn is possessed by humans, animals, and some machine learning, machines; t ...

learn
and apply their skills to build and practice knowledge efficiently. * ''A dense and modern information infrastructure'': is of the easy access to the
information and communication technology Information and communications technology (ICT) is an extensional term for information technology (IT) that stresses the role of unified communicationsUnified communications (UC) is a business and marketing Marketing refers to activities a c ...
(ICT) resources in order to overcome the barrier of high
transaction cost In economics and related disciplines, a transaction cost is a cost in making any economic trade when participating in a Market (economics), market. Oliver E. Williamson defines transaction costs as the costs of running an economic system of companie ...
, and to facilitate the effectiveness in interacting, disseminating and processing the information and knowledge resources. * ''An effective innovation system'': a great level of
innovation Innovation is the practical implementation of ideas A mental representation (or cognitive representation), in philosophy of mind Philosophy of mind is a branch of philosophy that studies the ontology and nature of the mind and its relation ...

innovation
within firms, industries, and countries to keep up with the latest global technology and human intelligence so as to utilize it for the domestic economy * ''Institutional regime that supports incentives for
entrepreneurship Entrepreneurship is the creation or extraction of value. With this definition, entrepreneurship is viewed as change, generally entailing risk beyond what is normally encountered in starting a business, which may include other values than simply ...
and the use of knowledge:'' An economy system should offer incentives to allow for better efficiency in mobilizing and allocating resources, together with encouraging entrepreneurship. The advancement of a knowledge-based economy occurred when global economies promote changes in material production, together with the creation of rich mechanisms of economic theories after the second world war that tend to integrate science, technology and the economy.
Peter Drucker Peter Ferdinand Drucker (; ; November 19, 1909 – November 11, 2005) was an Austrian-American management consultant, educator, and author, whose writings contributed to the philosophical and practical foundations of the modern business cor ...
discussed the knowledge economy in the book-''The Effective Executive 1966'', where he described the difference between the manual workers and the knowledge workers. The manual worker is the one who works with their own hands and produces goods and services. In contrast, the knowledge worker works with their head, rather than hands, and produces ideas, knowledge as well as information. Definitions around "knowledge" are considered to be vague in terms of the formalization and
modelling In general, a model is an informative representation of an object, person or system. The term originally denoted the plans of a building in late 16th-century English, and derived via French and Italian ultimately from Latin ''modulus'', a measure. ...
of a knowledge economy, as it is rather a relative concept. For example, there is no sufficient evidence and consideration in whether the "
information societyInternet design and usage influence other areas, and there are discussions about how big the influence of specific media or specific modes of production really is. Frank Webster notes five major types of information that can be used to define informa ...
" could serve or act as "
knowledge societyA knowledge society generates, shares and makes available to all members of the society knowledge that may be used to improve the human condition. A knowledge society differs from an information society in that the former serves to transform inform ...
" interchangeably.
Information Information is processed, organised and structured data Data (; ) are individual facts A fact is something that is truth, true. The usual test for a statement of fact is verifiability—that is whether it can be demonstrated to c ...

Information
in general, is not equivalent to knowledge. Their use depends on the individual and groups preferences which are "economy-dependent". Information and knowledge together are production
resource Resource refers to all the materials available in our environment which help us to satisfy our needs and wants. Resources can broadly be classified upon their availability — they are classified into renewable A renewable resource, also know ...

resource
s that can exist without interacting with other sources.
Resource Resource refers to all the materials available in our environment which help us to satisfy our needs and wants. Resources can broadly be classified upon their availability — they are classified into renewable A renewable resource, also know ...

Resource
s are of highly independent of each other in a sense that if they connect with other available resources, they transfer into
factors of production In economics Economics () is a social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behavio ...
s immediately; and production factors are present only to interact with other factors. Knowledge associated with intellectual information then is said to be a production factor in the new economy that is distinguished from the traditional production factors.


Evolution

From the early days of economic studies, though economists recognised the essential link between knowledge and
economic growth Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economics, economy over time. Statisticians conventionally measure such growth as the percent rate of i ...

economic growth
, it was still identified only as a supplemental element in economic factors. The idea behind has transformed in recent years when new growth theory gave praise to knowledge and technology in enhancing productivity and economic advancement. Thus far, the developed society has transitioned from an agriculture-based economy, that is, the pre-industrial age where economy and wealth is primarily based upon agriculture, to an
industrial economy In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of good ...
where the
manufacturing sector In macroeconomics Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics Economics () is the social science that studies how people interact with value; in particular, the Production ...
was booming. In the mid-1900s, the world economies moved towards a
post-industrial In sociology Sociology is the study of society, human social behaviour, patterns of social relationships, social interaction, and culture that surrounds everyday life. It is a social science that uses various methods of Empirical method, e ...
or
mass production Mass production, also known as flow production or continuous production, is the production of substantial amounts of standardized Standardization or standardisation is the process of implementing and developing technical standard A techni ...
system, where it is driven by the service sector that creates greater wealth than the manufacturing industry; to the late 1900s - 2000s, knowledge economy emerged with the highlights of the power of knowledge and human capital sector, and is now marked as the latest stage of development in global
economic restructuring Economic restructuring is used to indicate changes in the constituent parts of an economy in a very general sense. In the western world, it is usually used to refer to the phenomenon of urban areas shifting from a manufacturing to a service sect ...
. In the final decades of 20th century, the knowledge economy became greatly associated with sectors based in research-intensive and high-technology industries as a result of the steadily increased demand for sophisticated innovations. Knowledge economy operates differently from the past as it has been identified by the upheavals (sometimes referred to as the knowledge revolution) in technological innovations and globally competitive need for differentiation with new
goods and services Goods are items that are usually (but not always) tangible According to the philosopher Piyush Mathur (2017), "''Tangibility is the property that a phenomenon exhibits if it has and/or transports mass and/or energy and/or momentum". Mathur, P ...
, and processes that develop from the research community (i.e., R&D factors,
universities A university () is an of (or ) and which awards s in several . Universities typically offer both and programs in different schools or faculties of learning. The word ''university'' is derived from the ''universitas magistrorum et scholari ...

universities
, , ). Thomas A. Stewart points out that just as the industrial revolution did not end agriculture because people have to eat, the knowledge revolution is unlikely to end the industry because society remains in demands for physical goods and services. . For the modern knowledge economies, especially the
developed countries A developed country (or industrialized country, high-income country, more economically developed country (MEDC), advanced country) is a sovereign state A sovereign state is a political entity that is represented by one centralized governmen ...
, information and knowledge have always taken on enormous importance in the development in either traditional or industrial economy, in particular for the efficient use of
factors of production In economics Economics () is a social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behavio ...
. Owners of production factors should possess and master information and knowledge so as to apply it during one's economic activity. In the knowledge economy, the specialised
labor force The workforce or labour force is the labour Labour or labor may refer to: * Childbirth Childbirth, also known as labour or delivery, is the ending of pregnancy where one or more babies leaves the uterus by passing through the vagina or ...
is characterised as
computer literate Computer literacy is defined as the knowledge and ability to use computer A computer is a machine that can be programmed to Execution (computing), carry out sequences of arithmetic or logical operations automatically. Modern computers can ...
and well-trained in handling data, developing
algorithm In and , an algorithm () is a finite sequence of , computer-implementable instructions, typically to solve a class of problems or to perform a computation. Algorithms are always and are used as specifications for performing s, , , and other ...

algorithm
s and simulated models, and innovating on processes and systems. Harvard Business School Professor,
Michael Porter Michael Eugene Porter (born May 23, 1947) is an American academic known for his theories on economics, business strategy, and social causes. He is the Bishop William Lawrence University Professor at Harvard Business School Harvard Business ...

Michael Porter
, asserts that today's economy is far more dynamic and that conventional notion of
comparative advantage In an economic model In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics) ...

comparative advantage
s within a company has changed and is less relevant than the prevailing idea of
competitive advantage In business, a competitive advantage is the attribute that allows an organization to outperform its competitors. A competitive advantage may include access to natural resources , Malaysia Malaysia ( ; ) is a country in Southeast Asia. ...
s which rests on "making more productive use of inputs, which requires continual
innovation Innovation is the practical implementation of ideas A mental representation (or cognitive representation), in philosophy of mind Philosophy of mind is a branch of philosophy that studies the ontology and nature of the mind and its relation ...

innovation
". As such, the technical
STEM Stem or STEM may refer to: Biology * Plant stem, the aboveground structures that have vascular tissue and that support leaves and flowers ** Stipe (botany), a stalk that supports some other structure ** Stipe (mycology), the stem supporting the c ...
careers, including
computer scientists Computer science deals with the theoretical foundations of information, algorithms and the architectures of its computation as well as practical techniques for their application. Computer science is the study of Algorithm, algorithmic proc ...
,
engineer Engineers, as practitioners of engineering Engineering is the use of scientific principles to design and build machines, structures, and other items, including bridges, tunnels, roads, vehicles, and buildings. The discipline of enginee ...

engineer
s,
chemist A chemist (from Greek ''chēm(ía)'' alchemy; replacing ''chymist'' from Medieval Latin Medieval Latin was the form of Latin Latin (, or , ) is a classical language A classical language is a language A language is a structu ...

chemist
s,
biologist A biologist is a professional who has specialized knowledge in the field of biology Biology is the natural science that studies life and living organisms, including their anatomy, physical structure, Biochemistry, chemical processes, Mol ...
s,
mathematician A mathematician is someone who uses an extensive knowledge of mathematics Mathematics (from Greek: ) includes the study of such topics as numbers (arithmetic and number theory), formulas and related structures (algebra), shapes and spaces ...

mathematician
s, and will see continuous demand in years to come. Professor
Porter Porter may refer to: Companies * Porter Airlines, Canadian regional airline based in Toronto * Porter Chemical Company, a defunct U.S. toy manufacturer of chemistry sets * Porter Motor Company, defunct U.S. car manufacturer * H.K. Porter, Inc., a ...

Porter
further argues that a well situated clusters (that is, geographic concentrations of interconnected companies and institutions in a particular field) is vital with global economies, connect locally and globally with linked industries,
manufacturers Manufacturing is the creation or production Production may be: Economics and business * Production (economics) * Production, the act of manufacturing goods * Production, in the outline of industrial organization, the act of making products ( ...
, and other entities that are related by skills, technologies, and other common inputs. Hence, knowledge is the catalyst and connective tissue in modern economies. Ruggles and Holtshouse argue the change is characterised by a dispersion of power and by managers who lead by empowering
knowledge worker Knowledge workers are workers The workforce or labour force is the labour pool either in employment or unemployed.https://www.bls.gov/bls/glossary.htm It is generally used to describe those working for a single types of companies, company ...
s to contribute and make decisions. With Earth's depleting natural resources, the need for green infrastructure, a logistics industry forced into
just-in-time#REDIRECT Just in Time {{Redirect category shell, 1= {{R from other capitalisation {{R from ambiguous page ...
deliveries, growing global demand, regulatory policy governed by performance results, and a host of other items high priority is put on knowledge; and research becomes paramount. Knowledge provides the technical expertise, problem-solving, performance measurement and evaluation, and data management needed for the trans-boundary, interdisciplinary global scale of today's competition. Worldwide examples of the knowledge economy taking place among many others include:
Silicon Valley Silicon Valley is a region in Northern California Northern California (colloquially known as NorCal) is a geographic and cultural region that generally comprises the northern portion of the U.S. state of California California is a U.S ...

Silicon Valley
,
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
; aerospace and automotive engineering in
Munich Munich ( ; german: München ; bar, Minga ) is the capital and most populous city of Bavaria. With a population of 1,558,395 inhabitants as of 31 July 2020, it is the List of cities in Germany by population, third-largest city in Germany, ...

Munich
,
Germany ) , image_map = , map_caption = , map_width = 250px , capital = Berlin Berlin (; ) is the Capital city, capital and List of cities in Germany by population, largest city of Germany by both area and population. Its 3,769,495 inh ...

Germany
; biotechnology in
Hyderabad Hyderabad ( , , ) is the capital and largest city of the India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the ...
,
India India, officially the Republic of India (Hindi Hindi (Devanagari: , हिंदी, ISO 15919, ISO: ), or more precisely Modern Standard Hindi (Devanagari: , ISO 15919, ISO: ), is an Indo-Aryan language spoken chiefly in Hindi Belt, ...

India
; electronics and digital media in
Seoul Seoul (, like ''soul''; ko, 서울 ; ), officially the Seoul Special City, is the capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppe ...

Seoul
,
South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korea, Korean Peninsula and sharing a Korean Demilitarized Zone, land border with North Korea. Its western border is for ...

South Korea
;
petrochemical Petrochemicals (sometimes abbreviated as petchems) are the chemical products Products are the species formed from chemical reaction A chemical reaction is a process that leads to the chemical transformation of one set of chemical substance ...
and energy industry in
Brazil Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America and Latin America. At 8.5 million square kilometers (3.2 million square miles) and with over 211 mill ...

Brazil
. Many other cities and regions try to follow a knowledge-driven development paradigm and increase their knowledge base by investing in higher education and research institutions in order to attract high skilled labour and better position themselves in the global competition. Yet, despite digital tools democratising access to knowledge, research shows that knowledge economy activities remain as concentrated as ever in traditional economic cores. The prevailing and future economic development will be highly dominated by the
technologies Technology ("science of craft", from Greek#REDIRECT Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hellenic Republic, is a country located in Southeast Europe. I ...

technologies
and network expansion, in particular on the knowledge-based
social entrepreneurship Social entrepreneurship is an approach by individuals, groups, start-up companies or entrepreneurs, in which they develop, fund and implement solutions to social, cultural, or environmental issues. This concept may be applied to a wide range of ...
and the
entrepreneurship Entrepreneurship is the creation or extraction of value. With this definition, entrepreneurship is viewed as change, generally entailing risk beyond what is normally encountered in starting a business, which may include other values than simply ...
as a whole. The Knowledge economy is incorporating the network economy, where the relatively localised knowledge is now being shared among and across various networks for the benefit of the network members as a whole, to gain economies of scale in a wider, more open scale.


Globalisation

The rapid
globalisation Globalization, or globalisation (Commonwealth English The use of the English language English is a of the , originally spoken by the inhabitants of . It is named after the , one of the ancient that migrated from , a peninsu ...

globalisation
of economic activities is one of the main determinants of the emerging knowledge economy. While there are no doubts on the other stages of relative
openness Openness is an overarching concept or philosophy Philosophy (from , ) is the study of general and fundamental questions, such as those about reason, Metaphysics, existence, Epistemology, knowledge, Ethics, values, Philosophy of mind, mi ...

openness
in the global economy, the prevailing pace and intensity of globalisation are of an extent without precedent. The fundamental
microeconomic Microeconomics is a branch of mainstream economics Mainstream economics is the body of knowledge, theories, and models of economics, as taught by universities worldwide, that are generally accepted by economists as a basis for discussion. Also ...
forces are the significant drives of globalising economic activities and further demands for
human intelligence Human intelligence is the intellectual capability of humans, which is marked by complex cognition, cognitive feats and high levels of motivation and self-awareness. High intelligence is associated with better outcomes in life. Through intelligenc ...
. Forces such as the rapid integration of the world
financial Finance is a term for the management, creation, and study of money and investments. Pamela Drake and Frank Fabozzi (2009)What Is Finance?/ref> Specifically, it deals with the questions of how an individual, company or government acquires money ...

financial
and
capital market A capital market is a financial market A financial market is a market Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an island shared by Finland and Swed ...
since the early 1980s, which influences essentially on each level of the developed country's
financial system A financial system is a system that allows the exchange of funds between financial market participants There are two basic financial market participant categories, Investor vs. Speculator and Institutional vs. Retail Retail is the proc ...

financial system
s; increased multinational origin of the inputs to productions of both
goods and services Goods are items that are usually (but not always) tangible According to the philosopher Piyush Mathur (2017), "''Tangibility is the property that a phenomenon exhibits if it has and/or transports mass and/or energy and/or momentum". Mathur, P ...
, technology transfers and information flow etc.


Technology

The technology requirements for a national innovation system as described by the
World Bank Institute The World Bank Institute is the capacity building branch of the World Bank. It provides learning programs, policy advice and technical assistance to policy makers, government and non-government agencies and development practitioners of developing co ...
must be able to disseminate a
unified process The Unified Software Development Process or Unified Process is an iterative and incremental software development process In software engineering, a software development process is the process of dividing software development Software dev ...
by which a working method may converge scientific and technology solutions, and organizational solutions. According to the World Bank Institute's definition, such
innovation Innovation is the practical implementation of ideas A mental representation (or cognitive representation), in philosophy of mind Philosophy of mind is a branch of philosophy that studies the ontology and nature of the mind and its relation ...

innovation
would further enable the World Bank Institute's vision outlined in their
Millennium Development Goals The Millennium Development Goals (MDGs) were eight international development International development or global development is a broad concept denoting the idea that societies and countries have differing levels of "development" on an inte ...
.


Challenges for developing countries

The United Nations Commission on Science and Technology for Development report (UNCSTD, 1997) concluded that for developing countries to successfully integrate ICTs and
sustainable development Sustainable development is the organizing principle for meeting human development goals while simultaneously sustaining the ability of natural systems to provide the natural resources and ecosystem services Social forestry in India, Social ...

sustainable development
in order to participate in the knowledge economy they need to intervene collectively and strategically. Such collective intervention suggested would be in the development of effective national ICT policies that support the new regulatory framework, promote the selected
knowledge production The knowledge economy (or the knowledge-based economy) is an economic system in which the production of goods and services is based principally on knowledge-intensive activities that contribute to a rapid pace of advancement in technical and ...
, and use of ICTs and harness their organizational changes to be in line with the
Millennium Development Goals The Millennium Development Goals (MDGs) were eight international development International development or global development is a broad concept denoting the idea that societies and countries have differing levels of "development" on an inte ...
. The report further suggests that developing countries to develop the required ICT strategies and policies for institutions and regulations taking into account the need to be responsive to the issues of convergence.


See also

*
Attention economy Attention economics is an approach to the management of information that treats human attention as a scarce commodity and applies economic theory to solve various information management problems. According tHazel Henderson "media in all forms no ...
*
Automation Automation describes a wide range of technologies that reduce human intervention in processes. Human intervention is reduced by predetermining decision criteria, subprocess relationships, and related actions — and embodying those predeterm ...
*
Basic income guarantee Universal basic income (UBI), also called unconditional basic income, basic income, citizen's income, citizen's basic income, basic income guarantee, basic living stipend, guaranteed annual income, universal income security program or universal ...
*
Cognitive-cultural economyCognitive-cultural economy or cognitive-cultural capitalism is represented by sectors such as high-technology industry, business and financial services, Personal service sector, personal services, the Mass media, media, the Cultural industry, cultur ...
* Computational knowledge economy *Digital Revolution *Digital economy *Endogenous growth theory *Frugal innovation *History of knowledge *Information economy *Indigo Era *Industrial espionage *International Innovation Index *Internet economy *Information revolution *Information society *Know-how trading *Knowledge Economic Index *Knowledge market *Knowledge organization *Knowledge management *Knowledge market *Knowledge policy *Knowledge production modes *Knowledge society *Knowledge tagging * *Knowledge value chain *Learning economy *Learning society *Liverpool Knowledge Quarter *Long tail *Network economy *Precision agriculture *Productivity improving technologies (historical) *Purple economy *Smart city *Social information processing *Working hours


Notes


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. *Porter, M. E. Clusters and the New Economics of Competition. ''Harvard Business Review''. (Nov-Dec 1998). 77–90. *Powell, Walter W. & Snellman, Kaisa (2004). "The Knowledge Economy". ''Annual Review of Sociology'' 30 (1): 199–220 *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. *Stehr, Nico (2002). ''Knowledge and Economic Conduct. The Social Foundations of the Modern Economy''. Toronto: University of Toronto Press. *The Brookings Institution. ''MetroPolicy: Shaping A New Federal Partnership for a Metropolitan Nation. Metropolitan Policy Program Report''. (2008). 4–103.


External links

*b:Legal and Regulatory Issues in the Information Economy, Legal and Regulatory Issues in the Information Economy (Wikibook) {{DEFAULTSORT:Knowledge Economy Knowledge economy, Economics catchphrases Information Age Business terms Social information processing