The Knowledge Economy

In my first blog (ever), I was trying to distinguish between Data, Knowledge, Information and Wisdom. As per my research, I could find some distinctive descriptions for each of the items. However after attending Mark’s Lecture (in Week 2) on differences and relationship between data, information and knowledge, I came to know that scholars have different view on looking at Data, Knowledge and Information. Moreover in Aboubakr’s lecture (Week 3) he described that how data for one person can be information for others and the knowledge for a third person. Even one of the student argued that the same data/knowledge/information could be “Nothing” for him.

This week I would like to blog on “Knowledge Economy”.

In a traditional economy men, materials, land and labor where the key assets for any business. The innovations made in Technology and emergence of IT as a business enabler has changed the traditional mode of conducting business. Lopes et.al (2005) argues that knowledge and information have been accepted as an important assets or resources for any organization. Frederick et.al (1999) states that knowledge has become a gold standard, especially for the countries who lead the world economy , knowledge has become perhaps the most important factor determining the standard of living. Moreover knowledge and information have the power to bring changes in the behaviors of the individuals, teams and organizations and have been used to reach sustainable standards of development and growth (Lopes et.al 2005, 2006). ‘Inherent contextual complexities in which most firms operate have made knowledge resources a primary source of competitive advantage for organizations’ (Garcia-Perez and Mitra, 2004). The changes occurred since the middles of 1990s in the information and communication technologies and their impact in the economic and corporate growth, place knowledge as the most important and valuable asset in organizations today (Frederick et.al, 1999).

Romer(1990) has proposed a change to the neo-classical economic model where technology and knowledge becomes an essential part of the economic system in addition to labor and capital. The knowledge economy refers to the use of knowledge to produce economic benefits (CIKMKE, 2008). It is not simply about pushing back the frontiers of knowledge; it is also about the more effective use and exploitation of all types of knowledge in all manner of economic activities. ‘A knowledge-driven economy is one in which the generation and exploitation of knowledge play the predominant part in the creation of wealth’ (United Kingdom Department of Trade and Industry, 1998). Moreover, Knowledge Economy is associated with the impact of the technological innovation which reflects in reduced prices, bigger levels of efficiency through the combined use of telecommunications, computers, mobile devices and the Internet. According to Frederick et.al (1999) the basis of the knowledge economy are human ingenuity and skill and a commitment to innovation through research and development.

What builds a Knowledge Economy?

According to Houghton and Sheehan (2000), knowledge economy emerges from two different forces; the rise in knowledge intensity of economic activities and the increasing globalization of economic affairs. The rise in knowledge intensity is due to the growth in IT and increasing pace of technological changes. Emerge of globalization over the past two decades has changed the business world. Moreover Beinhocker and Stephenson (2009) states that ‘due to globalization, the world economy became fundamentally more interrelated and interdependent’. Globalization is being driven by national and international deregulation, and by the IT related communications revolution.

Lopes et.al (2005) suggests that Knowledge economy is build up of 4 pillars, namely Technological innovation, Science and education, culture and citizenship.

Technological innovation pillar: This pillar is considered the most important as it has a direct impact on economic success. The major pointers that support this pillar are R&D (Research and Development) and number of patents registered.

Science and Education Pillar: Qualified human resources are critical for any economy and organization. Education and science are strongly linked with information/knowledge society creation. Lopes et.al (2005) argues that countries that invest more in science, strongly linked with R&D investment level and education policies, can expect to grow faster than those that undervalue or ignore this important pillar.

Citizenship and culture Pillar: The integration of citizens with the Knowledge Economy is majorly done by encouraging them to use new technologies, specially the information and communication technologies (ICT). The use of the Internet and e-commerce, the e-governance and the existence of specialized personnel in ICT in the companies, are the pointers that characterize the citizenship pillar (Lopes et.al, 2005). The culture is linked with the existence of the person as human being, always the main factor of its development.

Fig : 1 The Knowledge economy pillar (Taken from Lopes et.al, 2005)

The Knowledge can be codified and stored in a computerized system and made available on demand. So, the main purpose of knowledge management is the acquisition, capture, transformation, access, diffusion and re (use) of the knowledge throughout the individuals and communities. Those activities can be more efficient, depending on the context that allows and facilitates their development (ibid).

Critics

However on contrary researcher’s and scholars argues that the Knowledge economy is not a new concept. According to Houghton and Sheehan(2000) knowledge playing an important role in a countries economy not a new fact. All economies, however simple, are based on knowledge about how, for example, to farm, to mine and to build; and this use of knowledge has been increasing since the Industrial Revolution. Roberts (2009) argues that the knowledge economy “is at best a widely-used metaphor, rather than a clear cut concept”, and questions the validity of the notion by suggesting that the contemporary economy is as much characterized by ignorance as by knowledge. Furthermore, Godin (2006) suggests that the knowledge-based economy is simply a concept, promoted mainly by the Organisation for Economic Co-operation and Development(OECD), to direct the attention of policy makers to science and technology issues of relevance to the economy.

My position regarding knowledge economy is that it is essential for any country or any organization to concentrate on developing, managing and protecting knowledge to build their economy. Knowledge is undisputedly an important resource or asset for the economy. Even though knowledge exists in all type of economy, the success lies in identifying, codify and improving it by means of research and development and education.

Example of a successful knowledge economy

Finland is a country that has successfully transformed itself into a knowledge economy in a short time. In 1990s Finland became the most ICT- (information and communication technology) specialized economy in the world and thus completed its move from the resource-driven to knowledge and innovation-driven development. ‘Four times to date at the beginning of the twenty-first century, the country has ranked as number one in the World Economic Forum’s (WEF) competitiveness index, and as one of the most developed IT economies’ (Dahlman et.al, 2005). It was ranked top in the OECD’s Program for International Student Assessment (PISA) studies of learning skills and educational attainment, and also achieved the highest Knowledge Economy Index in the World Bank comparisons (figure 2).

A few facts that made Finland a strong Knowledge Economy are

• Finland’s innovation system successfully converted R&D and educational capacity into industrial strengths
• Increasing R&D intensity was facilitated through national consensus building.
• The science and technology system in Finland has many public and private institutions with specialized functions
• The expansion of the Finnish higher education system has followed and supported the course of economic development

(Dahlman et.al, 2005)

References

Beinhocker, E. and Stephenson, E., (2009), “Globalization Under Fire: General Analysis on Globalization”, 22/07/2009, Available: http://www.globalpolicy.org/globalization/globalization-of-the-economy-2-1/general-analysis-on-globalization-of-the-economy/47947.html, Accessed on 31/01/2010

Center for Informatics, Knowledge Management and Knowledge Economy (CIKMKE), (2008), "Knowledge Economy", Available : http://www.sancikmke.org.za/economy.htm , Accessed: 01/02/2010

Dahlman, C.J., Routti, J., Ylä-Anttila, P., (2005), "Finland as a Knowledge Economy : Elements of Success and Lessons Learned", Available on :

http://info.worldbank.org/etools/docs/library/201645/Finland_ES.pdf , Accessed : 02/02/2010

Frederick, H., Beattie, D., McIlroy, D.J., (1999), "The Knowledge Economy : a submission to the New Zealand Government by the Minister for Information Technologies IT Advisory Group", ITAG, ISBN 0-478-23435-X

Garcia-Perez, A. and Mitra, A. , (2004), “Tacit Knowledge Elicitation and Measurement in Research Organisations: a Methodological Approach.” The Electronic Journal of Knowledge Management Volume 5 Issue 4, pp. 373 - 386, available online at www.ejkm.com, ISSN 1479-4411

Godin, B., (2006), “The knowledge-based economy: Conceptual Journal of Technology Transfer,Vol.31 No.1, pp. 17-30.

Houghton, J. and Sheehan, P., (2000), "A Primer on the Knowledge Economy", ISSN: 1322 5138, CSES Working Paper No. 18, Available :

http://www.business.vu.edu.au/cses/documents/working_papers/cses/wp18_2000_cses.pdf

Lopes I, Martins M and Nunes M (2005) “Towards the Knowledge Economy: the Technological Innovation and Education Impact on the Value Creation Process” The Electronic Journal of Knowledge Management Volume 3 Issue 2, pp 129-138, available online at www.ejkm.com

Lopes I and do Rosário Martins M (2006) “The New Business Models in the Knowledge Economy: the Strategic Way to Value Creation” The Electronic Journal of Knowledge Management Volume 4 Issue 2, pp 159 - 168, available online at www.ejkm.com

Roberts, J.,(2009), "The global knowledge economy in question", Critical Perspectives on International Business, Vol.5No.4,2009, pp.285-303, Emerald Group Publishing Limited

Romer, P. M., (1990) Endogenous Technological Change. Journal of Political Economy 98(5), pp. 71-10