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The knowledge economy, or knowledge-based economy, is an
economic system An economic system, or economic order, is a system of production, resource allocation and distribution of goods and services within an economy. It includes the combination of the various institutions, agencies, entities, decision-making proces ...
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 area, an area which a manager, other coaching personnel, and substitutes are allowed to occupy during a football match * Technical advisor, a person who ...
and scientific
innovation Innovation is the practical implementation of ideas that result in the introduction of new goods or service (economics), services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a n ...
. The key element of value is the greater dependence on
human capital Human capital or human assets is a concept used by economists to designate personal attributes considered useful in the production process. It encompasses employee knowledge, skills, know-how, good health, and education. Human capital has a subs ...
and
intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, co ...
as the source of innovative ideas,
information Information is an Abstraction, abstract concept that refers to something which has the power Communication, to inform. At the most fundamental level, it pertains to the Interpretation (philosophy), interpretation (perhaps Interpretation (log ...
, and practices. Organisations are required to capitalise on this "knowledge" in their production to stimulate and deepen the
business development Business development entails tasks and processes to develop and implement growth opportunities within and between business organizations. It is a subset of the fields of business, commerce and organizational theory. Business development is the cre ...
process. There is less reliance on physical input and
natural resource Natural resources are resources that are drawn from nature and used with few modifications. This includes the sources of valued characteristics such as commercial and industrial use, aesthetic value, scientific interest, and cultural value. ...
s. A knowledge-based economy relies on the crucial role of
intangible asset An intangible asset is an asset that lacks physical substance. Examples are patents, copyright, exclusive franchises, Goodwill (accounting), goodwill, trademarks, and trade names, reputation, Research and development, R&D, Procedural knowledge, ...
s within the organisations' settings in facilitating modern
economic growth In economics, economic growth is an increase in the quantity and quality of the economic goods and Service (economics), services that a society Production (economics), produces. It can be measured as the increase in the inflation-adjusted Outp ...
.


Overview


Description

A knowledge economy features a highly skilled workforce within the
microeconomic Microeconomics is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics focuses on the ...
and
macroeconomic Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output/ GDP ...
environment; institutions and industries create jobs that demand specialized skills to meet the needs of the
global market Global marketing is defined as “marketing on a worldwide scale reconciling or taking global operational differences, similarities and opportunities to reach global objectives". Global marketing is also a field of study in general business mana ...
. Knowledge is viewed as an additional input to labour, and
capital Capital and its variations may refer to: Common uses * Capital city, a municipality of primary status ** Capital region, a metropolitan region containing the capital ** List of national capitals * Capital letter, an upper-case letter Econom ...
. 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, such as skill, creativity, enterprise, courage, capacity for moral example ...
is knowledge together with the ability to perform to create
economic value In economics, economic value is a measure of the benefit provided by a goods, good or service (economics), service to an Agent (economics), economic agent, and value for money represents an assessment of whether financial or other resources are ...
. In a knowledge economy, highly skilled jobs require excellent technical skills and relational skills such as
problem-solving Problem solving is the process of achieving a goal by overcoming obstacles, a frequent part of most activities. Problems in need of solutions range from simple personal tasks (e.g. how to turn on an appliance) to complex issues in business an ...
, 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 and earlier, the term is usually applied to people occupied in small scale pr ...
ing
physical object In natural language and physical science, a physical object or material object (or simply an object or body) is a contiguous collection of matter, within a defined boundary (or surface), that exists in space and time. Usually contrasted with ...
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 farmland. Another way to define an agrarian society is by seeing how much of a nation's total production is in agricultur ...
, in which the primary economic activity is
subsistence farming Subsistence agriculture occurs when farmers grow crops on smallholdings to meet the needs of themselves and their families. Subsistence agriculturalists target farm output for survival and for mostly local requirements. Planting decisions occ ...
for which the main requirement is
manual labour Manual labour (in Commonwealth English, manual labor in American English) or manual work is physical work done by humans, in contrast to labour by machines and working animals. It is most literally work done with the hands (the word ''manual ...
or an
industrialized economy In sociology, an industrial society is a society driven by the use of technology and machinery to enable mass production, supporting a large population with a high capacity for division of labour. Such a structure developed in the Western world ...
that features
mass production Mass production, also known as mass production, series production, series manufacture, or continuous production, is the production of substantial amounts of standardized products in a constant flow, including and especially on assembly lines ...
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 in industrialized economies. The current list of Fortune 500 companies contains more service companies and fewer m ...
, 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 or nation in which the relative importance of manufacturing reduces and that of services, information, and research grows. Such economies are often marked by a dec ...
. It is related to an
information economy Information economy is an economy with an increased emphasis on informational activities and information industry, where information is valued as a capital good. The term was coined by Marc Porat, a graduate student at Stanford University, wh ...
, which emphasizes the importance of information as non-physical capital, and a
digital economy The digital economy is a portmanteau of digital computing and economy, and is an umbrella term that describes how traditional Brick and mortar, brick-and-mortar economic activities (production, distribution, trade) are being transformed by the ...
, which emphasizes the degree to which
information technology Information technology (IT) is a set of related fields within information and communications technology (ICT), that encompass computer systems, software, programming languages, data processing, data and information processing, and storage. Inf ...
facilitates trade. For companies, intellectual property such as
trade secret A trade secret is a form of intellectual property (IP) comprising confidential information that is not generally known or readily ascertainable, derives economic value from its secrecy, and is protected by reasonable efforts to maintain its conf ...
s,
copyright A copyright is a type of intellectual property that gives its owner the exclusive legal right to copy, distribute, adapt, display, and perform a creative work, usually for a limited time. The creative work may be in a literary, artistic, ...
ed material, and
patent A patent is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of time in exchange for publishing an sufficiency of disclosure, enabling discl ...
ed processes become more valuable in a knowledge economy than in earlier eras. The global economy's transition to a knowledge economy is also referred to as the
Information Age The Information Age is a historical period that began in the mid-20th century. It is characterized by a rapid shift from traditional industries, as established during the Industrial Revolution, to an economy centered on information technology ...
, bringing about an
information society An information society is a society or subculture where the usage, Content creation, creation, information distribution, distribution, manipulation and information integration, integration of information is a significant activity. Its main drive ...
. 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 modern management theory. H ...
as the title of Chapter 12 in his book '' The Age of Discontinuity'' (1969), which Drucker attributed to economist
Fritz Machlup Fritz Machlup (; ; born Friedrich Eduard Machlup; December 15, 1902 – January 30, 1983) was an Austrian-American economist known for his work in information economics. He was President of the International Economic Association from 1971 to 19 ...
, originating in the idea of
scientific management Scientific management is a theory of management that analyzes and synthesizes workflows. Its main objective is improving economic efficiency, especially labor productivity. It was one of the earliest attempts to apply science to the engineer ...
developed by
Frederick Winslow Taylor Frederick Winslow Taylor (March 20, 1856 – March 21, 1915) was an American mechanical engineer. He was widely known for his methods to improve industrial efficiency. He was one of the first management consulting, management consultants. In 190 ...
.


Knowledge-based economy and human capital

In a knowledge economy, human intelligence is the key engine of economic development. It is an economy where members acquire, create, disseminate and apply knowledge to facilitate economic and social development. An economic system that is not knowledge-based is considered to be inconceivable. It describes the process of
consumption Consumption may refer to: * Eating *Resource consumption *Tuberculosis, an infectious disease, historically known as consumption * Consumer (food chain), receipt of energy by consuming other organisms * Consumption (economics), the purchasing of n ...
and production activities that are satisfied from the application of workers' expertise -
intellectual capital Intellectual 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 relat ...
and typically represents a significant level of individual
economic activities Economics () is a behavioral science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyse ...
in modern
developed economies In economics, economic development (or economic and social development) is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and object ...
through building an interconnected and advanced global economy where sources of knowledge are the critical contributors. The present concept of "knowledge" originates from the
historical History is the systematic study of the past, focusing primarily on the human past. As an academic discipline, it analyses and interprets evidence to construct narratives about what happened and explain why it happened. Some theorists categ ...
and
philosophical Philosophy ('love of wisdom' in Ancient Greek) is a systematic study of general and fundamental questions concerning topics like existence, reason, knowledge, Value (ethics and social sciences), value, mind, and language. It is a rational an ...
studies by
Gilbert Ryle Gilbert Ryle (19 August 1900 – 6 October 1976) was a British philosopher, principally known for his critique of Cartesian dualism, for which he coined the phrase " ghost in the machine". Some of Ryle's ideas in philosophy of mind have been ca ...
and Israel Scheffler, who conducted knowledge to the terms "
procedural knowledge Procedural knowledge (also known as know-how, 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 knowledge ...
" 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" as falling in four broad categories: * ''Know-what'' refers to knowledge about facts. Like information, experts utilize know-what to fulfill their jobs, such as with complex occupations such as law and medicine. * ''Know-why'' refers to scientific knowledge of
principle A principle may relate to a fundamental truth or proposition that serves as the foundation for a system of beliefs or behavior or a chain of reasoning. They provide a guide for behavior or evaluation. A principle can make values explicit, so t ...
s and laws of motion in nature. It concerns the theoretical research of scientific and
technological Technology is the application of conceptual knowledge to achieve practical goals, especially in a reproducible way. The word ''technology'' can also mean the products resulting from such efforts, including both tangible tools such as ute ...
fields, which is essential for allowing innovation in the
production process Industrial processes are procedures involving chemistry, chemical, physics, physical, electronics, electrical, or mechanization, mechanical steps to aid in the manufacturing of an item or items, usually carried out on a very large scale. Industr ...
and products development in areas such as universities and specialized firms. It can also reduce error frequency in trial and error procedures. * ''Know-who'' refers to knowledge of specific and selective
social relation A social relation is the fundamental unit of analysis within the social sciences, and describes any voluntary or involuntary interpersonal relationship between two or more conspecifics within and/or between groups. The group can be a language or ...
s, identifying the key persons who know the solutions and can perform under difficult scenarios. Finding the right people can be more essential to innovation than simply knowing basic scientific knowledge. * ''Know-how'' refers to practical skills which allow individuals to do different kinds of things. Individuals share experiences in groups with uniform practices. It constitutes the human capital of enterprises. The
World Bank The World Bank is an international financial institution that provides loans and Grant (money), grants to the governments of Least developed countries, low- and Developing country, middle-income countries for the purposes of economic development ...
has spoken of knowledge economies by associating it with a four-pillar framework that analyses the rationales of human capital-based economies: * ''An educated and skilled
labour force In macroeconomics, the workforce or labour force is the sum of people either working (i.e., the employed) or looking for work (i.e., the unemployed): \text = \text + \text Those neither working in the marketplace nor looking for work are out ...
'' is required to establish a strong knowledge-based economy where workers continuously learn and apply their skills to build and practice knowledge efficiently. * ''A dense and modern information infrastructure'' provides easy access to
information and communication technology Information and communications technology (ICT) is an extensional term for information technology (IT) that stresses the role of unified communications and the integration of telecommunications (telephone lines and wireless signals) and computer ...
(ICT) resources to overcome the barrier of high
transaction cost In economics, a transaction cost is a cost incurred when making an economic trade when participating in a market. The idea that transactions form the basis of economic thinking was introduced by the institutional economist John R. Commons in 1 ...
s and to facilitate the effectiveness in interacting, disseminating and processing the information and knowledge resources. * ''An effective innovation system'' is needed to support a great level of innovation within firms, industries, and countries, allowing them to keep up with the latest global technology and human intelligence to utilize it for the domestic economy. * ''Institutional regime that supports incentives for
entrepreneurship Entrepreneurship is the creation or extraction of economic value in ways that generally entail beyond the minimal amount of risk (assumed by a traditional business), and potentially involving values besides simply economic ones. An entrepreneu ...
and the use of knowledge'' suggests that an economic system should offer incentives for better efficiency in mobilizing and allocating resources and encourage 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 modern management theory. H ...
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, and information.


Information versus knowledge

Definitions around "knowledge" are considered to be vague in terms of the formalization and
modeling A model is an informative representation of an object, person, or system. The term originally denoted the Plan_(drawing), plans of a building in late 16th-century English, and derived via French language, French and Italian language, Italian ult ...
of a knowledge economy, as it is rather a relative concept. For example, there is no sufficient evidence and consideration for whether the "
information society An information society is a society or subculture where the usage, Content creation, creation, information distribution, distribution, manipulation and information integration, integration of information is a significant activity. Its main drive ...
" could serve or act as the "
knowledge society A 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 info ...
" interchangeably. Information in general, is not equivalent to knowledge. Their use depends on the individual and group's preferences which are "economy-dependent". Information and knowledge together are production resources that can exist without interacting with other sources. Resources are highly independent of each other in the sense that if they connect with other available resources, they transfer into
factors of production In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilised amounts of the various inputs determine the quantity of output according to the rela ...
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 The New Economy refers to the ongoing development of the American economic system. It evolved from the notions of the classical economy via the transition from a manufacturing-based economy to a service-based economy, and has been driven by ...
that is distinguished from traditional production factors.


Evolution

From the early days of economic studies, though economists recognised the essential link between knowledge and
economic growth In economics, economic growth is an increase in the quantity and quality of the economic goods and Service (economics), services that a society Production (economics), produces. It can be measured as the increase in the inflation-adjusted Outp ...
, knowledge was still identified only as a supplemental element in economic factors. The idea behind it has transformed recently when new growth theory praised knowledge and technology in enhancing productivity and economic advancement.


Overview

The developed society has transitioned from an agriculture-based economy, that is, the pre-industrial age where economy and wealth were primarily based upon agriculture, to an
industrial economy In economics, industrial organization is a field that builds on the theory of the firm by examining the structure of (and, therefore, the boundaries between) firms and markets. Industrial organization adds real-world complications to the perfe ...
where the
manufacturing sector In macroeconomics, the secondary sector of the economy is an economic sector in the three-sector theory that describes the role of manufacturing. It encompasses industries that produce a finished, usable product or are involved in construction ...
was booming. In the mid-1900s, world economies moved towards a
post-industrial In sociology, the post-industrial society is the stage of society's development when the service sector generates more wealth than the manufacturing sector of the economy. The term was originated by Alain Touraine and is closely related t ...
or
mass production Mass production, also known as mass production, series production, series manufacture, or continuous production, is the production of substantial amounts of standardized products in a constant flow, including and especially on assembly lines ...
system, where they were driven by the service sector that creates greater wealth versus manufacturing; to the late 1900s - 2000s, knowledge economy emerged with the highlights of the power of knowledge and human capital sector, and it's 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 science-based innovations. The 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 the globally competitive need for differentiation with new
goods and services Goods are items that are usually (but not always) tangible, such as pens or Apple, apples. Services are activities provided by other people, such as teachers or barbers. Taken together, it is the Production (economics), production, distributio ...
, and processes that develop from the research community (i.e., R&D factors,
universities A university () is an educational institution, institution of tertiary education and research which awards academic degrees in several Discipline (academia), academic disciplines. ''University'' is derived from the Latin phrase , which roughly ...
, labs, educational institutes). 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 manufacturing industries because of ongoing societal demands for physical goods and services. For the modern knowledge economies, especially in
developed countries A developed country, or advanced country, is a sovereign state that has a high quality of life, developed economy, and advanced technological infrastructure relative to other less industrialized nations. Most commonly, the criteria for eval ...
, information, and knowledge have always taken on enormous importance in the development of either traditional or industrial economies, particularly with the efficient use of
factors of production In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilised amounts of the various inputs determine the quantity of output according to the rela ...
. Owners of production factors should possess and master information and knowledge so as to apply them to economic activity. In the knowledge economy, the specialised
labor force In macroeconomics, the workforce or labour force is the sum of people either working (i.e., the employed) or looking for work (i.e., the unemployed): \text = \text + \text Those neither working in the marketplace nor looking for work are out ...
is characterised as computer literate and well-trained in handling data, developing
algorithm In mathematics and computer science, an algorithm () is a finite sequence of Rigour#Mathematics, mathematically rigorous instructions, typically used to solve a class of specific Computational problem, problems or to perform a computation. Algo ...
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 businessman and professor at Harvard Business School. He was one of the founders of the consulting firm The Monitor Group (now part of Deloitte) and FSG, a social impact consultancy. ...
asserts that today's economy is far more dynamic and that the conventional notion of
comparative advantage Comparative advantage in an economic model is the advantage over others in producing a particular Goods (economics), good. A good can be produced at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior t ...
s within a company has changed and is less relevant than the prevailing idea of
competitive advantage In business, a competitive advantage is an attribute that allows an organization to outperform its competitors. A competitive advantage may include access to natural resources, such as high-grade ores or a low-cost power source, highly skille ...
s which rests on "making more productive use of inputs, which requires continual innovation". Therefore, the technical
STEM Stem or STEM most commonly refers to: * Plant stem, a structural axis of a vascular plant * Stem group * Science, technology, engineering, and mathematics Stem or STEM can also refer to: Language and writing * Word stem, part of a word respon ...
careers, including
computer scientists Computer science is the study of computation, information, and automation. Computer science spans theoretical disciplines (such as algorithms, theory of computation, and information theory) to applied disciplines (including the design an ...
,
engineer Engineers, as practitioners of engineering, are professionals who Invention, invent, design, build, maintain and test machines, complex systems, structures, gadgets and materials. They aim to fulfill functional objectives and requirements while ...
s,
chemist A chemist (from Greek ''chēm(ía)'' alchemy; replacing ''chymist'' from Medieval Latin ''alchemist'') is a graduated scientist trained in the study of chemistry, or an officially enrolled student in the field. Chemists study the composition of ...
s,
biologist A biologist is a scientist who conducts research in biology. Biologists are interested in studying life on Earth, whether it is an individual Cell (biology), cell, a multicellular organism, or a Community (ecology), community of Biological inter ...
s,
mathematician A mathematician is someone who uses an extensive knowledge of mathematics in their work, typically to solve mathematical problems. Mathematicians are concerned with numbers, data, quantity, mathematical structure, structure, space, Mathematica ...
s, and scientific inventors will continue to see demand. Porter further argues that well-situated clusters (that is, geographic concentrations of interconnected companies and institutions in a particular field) are vital with global economies, connect locally and globally with linked industries,
manufacturers Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of the secondary sector of the economy. The term may refer to a r ...
, and other entities that are related by skills, technologies, and other common inputs. 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 whose main capital is knowledge. Examples include ICT professionals, physicians, pharmacists, architects, engineers, scientists, designers, public accountants, lawyers, librarians, archivists, editors, and ...
s to contribute and make decisions.


Green infrastructure

With Earth's depleting natural resources, the need for
green infrastructure Green infrastructure or blue-green infrastructure refers to a network that provides the “ingredients” for solving urban and climatic challenges by building with nature.Hiltrud Pötz & Pierre Bleuze (2011). Urban green-blue grids for sustain ...
, a logistics industry forced into just-in-time deliveries, growing global demand, regulatory policy governed by performance results, and a host of other items place a high priority on knowledge, and research becomes paramount. Knowledge provides the technical expertise, problem-solving, performance measurement and evaluation, and data management needed for today's competition's transboundary, interdisciplinary global scale.


Prevailing and future economic development

Prevailing and future economic development will be highly dominated by technology and network expansion, in particular on knowledge-based
social entrepreneurship Social entrepreneurship is an approach by individuals, groups, Startup company, 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 ...
and
entrepreneurship Entrepreneurship is the creation or extraction of economic value in ways that generally entail beyond the minimal amount of risk (assumed by a traditional business), and potentially involving values besides simply economic ones. An entrepreneu ...
as a whole. The knowledge economy is incorporating the
network economy The network economy is the emerging economic order within the information society. The name stems from a key attribute - products and services are created and value is added through social networks operating on large or global scales. This is i ...
, where the relatively localised knowledge is now being shared among and across various networks for the benefit of all network members, to gain
economies of scale In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of Productivity, output produced per unit of cost (production cost). A decrease in ...
in a wider, more open scale.


Globalisation

The rapid
globalisation Globalization is the process of increasing interdependence and integration among the economies, markets, societies, and cultures of different countries worldwide. This is made possible by the reduction of barriers to international trade, th ...
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 that is characterized by an emphasis on transparency and collaboration. That is, openness refers to "accessibility of knowledge, technology and other resources; the transparency of action; the permeability of or ...
in the global economy, the prevailing pace and intensity of globalisation are without precedent. Fundamental
microeconomic Microeconomics is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics focuses on the ...
forces are the significant drivers of globalizing economic activities and further demands for
human intelligence Human intelligence is the Intellect, intellectual capability of humans, which is marked by complex Cognition, cognitive feats and high levels of motivation and self-awareness. Using their intelligence, humans are able to learning, learn, Concept ...
. These forces include the rapid integration of the world's financial and capital markets since the early 1980s, which influences essentially each level of the developed country's financial and economic systems; increased multinational origin of the inputs to productions of both
goods and services Goods are items that are usually (but not always) tangible, such as pens or Apple, apples. Services are activities provided by other people, such as teachers or barbers. Taken together, it is the Production (economics), production, distributio ...
, technology transfers and information flow.


Examples of knowledge economies

Worldwide examples congregate around regions or cities with high concentrations of talented human capital and are often accompanied with
High tech High technology (high tech or high-tech), also known as advanced technology (advanced tech) or exotechnology, is technology that is at the state of the art, cutting edge: the highest form of technology available. It can be defined as either the ...
-oriented companies as well as innovation hubs. The knowledge economic hubs include information technology in
Silicon Valley Silicon Valley is a region in Northern California that is a global center for high technology and innovation. Located in the southern part of the San Francisco Bay Area, it corresponds roughly to the geographical area of the Santa Clara Valley ...
,
United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
; water and agricultural technology in
Silicon Wadi Silicon Wadi (, ) is a region in Israel that serves as one of the global centres for High tech, advanced technology. It spans the Israeli coastal plain, and is cited as among the reasons why, for some, the country has become known as the world ...
,
Israel Israel, officially the State of Israel, is a country in West Asia. It Borders of Israel, shares borders with Lebanon to the north, Syria to the north-east, Jordan to the east, Egypt to the south-west, and the Mediterranean Sea to the west. Isr ...
; aerospace and automotive engineering in
Munich Munich is the capital and most populous city of Bavaria, Germany. As of 30 November 2024, its population was 1,604,384, making it the third-largest city in Germany after Berlin and Hamburg. Munich is the largest city in Germany that is no ...
,
Germany Germany, officially the Federal Republic of Germany, is a country in Central Europe. It lies between the Baltic Sea and the North Sea to the north and the Alps to the south. Its sixteen States of Germany, constituent states have a total popu ...
; biotechnology in
Hyderabad Hyderabad is the capital and largest city of the Indian state of Telangana. It occupies on the Deccan Plateau along the banks of the Musi River (India), Musi River, in the northern part of Southern India. With an average altitude of , much ...
,
India India, officially the Republic of India, is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area; the List of countries by population (United Nations), most populous country since ...
; electronics and digital media in
Seoul Seoul, officially Seoul Special Metropolitan City, is the capital city, capital and largest city of South Korea. The broader Seoul Metropolitan Area, encompassing Seoul, Gyeonggi Province and Incheon, emerged as the world's List of cities b ...
,
South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia. It constitutes the southern half of the Korea, Korean Peninsula and borders North Korea along the Korean Demilitarized Zone, with the Yellow Sea to the west and t ...
;
petrochemical Petrochemicals (sometimes abbreviated as petchems) are the chemical products obtained from petroleum by refining. Some chemical compounds made from petroleum are also obtained from other fossil fuels, such as coal or natural gas, or renewable s ...
and the renewable energy industry in
Brazil Brazil, officially the Federative Republic of Brazil, is the largest country in South America. It is the world's List of countries and dependencies by area, fifth-largest country by area and the List of countries and dependencies by population ...
. 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 to attract highly 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. File:Yair Agricultural Research and Development Station 07.jpg, Yair Agricultural Research and Development Station, Israel File:San Francisco from Twin Peaks September 2013 panorama 5 edit.jpg, San Francisco, California, USA. The city is a central city in Silicon Valley. File:BMW Vierzylinder Tower Munich 2014 01.jpg, Munich, Germany File:Hyderabad Financial district,India.jpg, Hyderabad


Technology

The technology requirements for a
national innovation system The National Innovation System (also NIS, National System of Innovation) is the flow of technology and information among people, enterprises and institutions which is key to the innovative process on the national level. According to innovation syst ...
, 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 c ...
, must be able to disseminate a unified process 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 that result in the introduction of new goods or service (economics), services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a n ...
would further enable the World Bank Institute's vision outlined in its
Millennium Development Goals In the United Nations, the Millennium Development Goals (MDGs) were eight international development goals for the year 2015 created following the Millennium Summit, following the adoption of the United Nations Millennium Declaration. These w ...
.


Challenges for developing countries

The United Nations Commission on Science and Technology for Development report (UNCSTD, 1997) concluded that for developing countries to integrate ICTs successfully and
sustainable development Sustainable development is an approach to growth and Human development (economics), human development that aims to meet the needs of the present without compromising the ability of future generations to meet their own needs.United Nations General ...
to participate in the knowledge economy, they need to intervene collectively and strategically. Suggested collective intervention includes the development of effective national ICT policies that support the new regulatory framework, promote the selected
knowledge production The knowledge economy, or 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 advancement in technical and scientific innovation. ...
, and use of ICTs and harness their organizational changes to be in line with the
Millennium Development Goals In the United Nations, the Millennium Development Goals (MDGs) were eight international development goals for the year 2015 created following the Millennium Summit, following the adoption of the United Nations Millennium Declaration. These w ...
. The report further suggests that developing countries develop the required ICT strategies and policies for institutions and regulations, considering the need to be responsive to the issues of convergence.


See also

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Attention economy The attention economy refers to the incentives of advertising-driven companies, in particular, to maximize the time and attention their users give to their product. Attention economics is an approach to the management of information that treats ...
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Automation Automation describes a wide range of technologies that reduce human intervention in processes, mainly by predetermining decision criteria, subprocess relationships, and related actions, as well as embodying those predeterminations in machine ...
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Basic income guarantee Universal basic income (UBI) is a social welfare proposal in which all citizens of a given population regularly receive a minimum income in the form of an unconditional transfer payment, i.e., without a means test or need to perform work. I ...
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Cognitive-cultural economy Cognitive-cultural economy or cognitive-cultural capitalism is represented by sectors such as high-technology industry, business and financial services, personal services, the media, and the cultural industries. It is characterized by digital tech ...
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Computational knowledge economy The computational knowledge economy is an economy 'where value is derived from the automated generation of knowledge. The term was coined by Conrad Wolfram to describe the extension to the knowledge economy caused by ubiquitous access to automate ...
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Digital Revolution The Information Age is a History by period, historical period that began in the mid-20th century. It is characterized by a rapid shift from traditional industries, as established during the Industrial Revolution, to an economy centered on info ...
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Digital economy The digital economy is a portmanteau of digital computing and economy, and is an umbrella term that describes how traditional Brick and mortar, brick-and-mortar economic activities (production, distribution, trade) are being transformed by the ...
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Endogenous growth theory Endogenous growth theory holds that economic growth is primarily the result of endogenous and not external forces. Endogenous growth theory holds that investment in human capital, innovation, and knowledge are significant contributors to economic ...
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Frugal innovation Frugal innovation or frugal engineering is the process of reducing the complexity and cost of a good and its production. Usually this refers to removing nonessential features from a durable good, such as a car or telephone, in order to sell it in ...
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History of knowledge Within academia, the history of knowledge is the field covering the accumulated and known human knowledge constructed or discovered during human history and its historic forms, focus, accumulation, bearers, impacts, mediations, distribution, appli ...
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Information economy Information economy is an economy with an increased emphasis on informational activities and information industry, where information is valued as a capital good. The term was coined by Marc Porat, a graduate student at Stanford University, wh ...
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Indigo Era The Indigo Era (or Indigo economies) is a concept publicized by businessman Mikhail Fridman, describing what he views as an emerging new era of economies and economics based on ideas, innovation, and creativity, replacing those based on the posses ...
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Industrial espionage Industrial espionage, also known as economic espionage, corporate spying, or corporate espionage, is a form of espionage conducted for commercial purposes instead of purely national security. While political espionage is conducted or orchestrat ...
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International Innovation Index The International Innovation Index is a global index measuring the level of innovation of a country, produced jointly in 2009 by The Boston Consulting Group (BCG), the National Association of Manufacturers (NAM), and The Manufacturing Institut ...
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Internet economy The digital economy is a portmanteau of digital computing and economy, and is an umbrella term that describes how traditional brick-and-mortar economic activities (production, distribution, trade) are being transformed by the Internet and Worl ...
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Information revolution The Information Age is a historical period that began in the mid-20th century. It is characterized by a rapid shift from traditional industries, as established during the Industrial Revolution, to an economy centered on information technology. ...
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Information society An information society is a society or subculture where the usage, Content creation, creation, information distribution, distribution, manipulation and information integration, integration of information is a significant activity. Its main drive ...
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Know-how trading Know-how trading is a web-based research and design phenomenon related to open innovation and crowdsourcing.http://stuff.mit.edu/people/evhippel/papers/Knowhow%20Trading.pdf Hippel on Know-How trading It denotes fee-based knowledge markets that tre ...
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Knowledge Economic Index The Knowledge Indexes were designed as a tool for benchmarking a country's position in relation to others in the global knowledge economy. It was created by the World Bank Institute using the Knowledge Assessment Methodology (KAM). The World Bank ...
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Knowledge market A knowledge market is a mechanism for distributing knowledge resources. There are two views on knowledge and how knowledge markets can function. One view uses a legal construct of intellectual property to make knowledge a typical scarce resource, ...
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Knowledge organization Knowledge organization (KO), organization of knowledge, organization of information, or information organization is an intellectual discipline concerned with activities such as document description, indexing, and classification that serve to ...
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Knowledge management Knowledge management (KM) is the set of procedures for producing, disseminating, utilizing, and overseeing an organization's knowledge and data. It alludes to a multidisciplinary strategy that maximizes knowledge utilization to accomplish organ ...
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Knowledge policy Knowledge policies provide institutional foundations for creating, managing, and using organizational knowledge as well as social foundations for balancing global competitiveness with social order and cultural values. Knowledge policies can be v ...
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Knowledge production modes A knowledge production mode is a term from the sociology of science which refers to the way (scientific) knowledge is produced. So far, three modes have been conceptualized. Mode 1 production of knowledge is knowledge production motivated by sc ...
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Knowledge society A 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 info ...
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Knowledge tagging In information systems, a tag is a keyword or term assigned to a piece of information (such as an Internet bookmark, multimedia, database record, or computer file). This kind of metadata helps describe an item and allows it to be found again ...
* * Knowledge value chain *
Learning economy A learning economy is a society that values skills like assets, where learning and employment information is readily exchanged from institution to institution, and controlled by the learner and worker. History of knowledge economies Modern econo ...
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Learning society Learning is the process of acquiring new understanding, knowledge, behaviors, skills, values, attitudes, and preferences. The ability to learn is possessed by humans, non-human animals, and some machines; there is also evidence for some kind ...
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Liverpool Knowledge Quarter The "Knowledge Quarter" is an area of Liverpool city centre covering 450 acres, incorporating the vicinity around London Road, Islington, the so called 'Fabric District', Paddington Village and part of Canning, Liverpool, Canning. The Knowledge ...
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Long tail In statistics and business, a long tail of some distributions of numbers is the portion of the distribution having many occurrences far from the "head" or central part of the distribution. The distribution could involve popularities, random n ...
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Network economy The network economy is the emerging economic order within the information society. The name stems from a key attribute - products and services are created and value is added through social networks operating on large or global scales. This is i ...
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Precision agriculture Precision agriculture (PA) is a management strategy that gathers, processes and analyzes temporal, spatial and individual plant and animal data and combines it with other information to support management decisions according to estimated varia ...
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Productivity improving technologies (historical) The productivity-improving technologies are the technological innovations that have historically increased productivity. Productivity is often measured as the ratio of (aggregate) output to (aggregate) input in the production of goods and service ...
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Smart city A smart city is an urban area that uses digital technology to collect data and operate services. Data is collected from citizens, devices, buildings, or cameras. Applications include traffic and transportation systems, power plants, utilities ...
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Social information processing Social information processing is "an activity through which collective human actions organize knowledge." It is the creation and processing of information by a group of people. As an academic field Social Information Processing studies the inform ...
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Working hours Working time or laboring time is the period of time that a person spends at paid labor. Unpaid labor such as personal housework or caring for children or pets is not considered part of the working week. Many countries regulate the work wee ...


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 *Rindermann H. (2012). Intellectual classes, technological progress and economic development: The rise of cognitive capitalism. Personality and Individual Differences 53 (2) 108–113 *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

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