Move to a Knowledge Economy

One among the interesting topics discussed in our previous class was how the big economies like US, UK and EU is shifting towards being a knowledge economy. Knowledge has been addition to one of the resources in Land, Labor and Capital. Addition of this resources has brought a whole lot new meaning to the economics of supply and demand and added a new dimension to the world economy. Countries like India and China which is considered as one of the manufacturing hub is also making slow and stead progress to establish themselves as a knowledge economy. To understand this statements its essential to understands the basic of knowledge economy and current scenario of its advancement.

Defining Knowledge Economy
“The weakness or even complete absence of definition is actually pervasive in the literature…this is one of the many imprecisions that make the notion of “knowledge economy” so rhetorical that than analytically useful” (Keith Smith, What is the knowledge Economy? Knowledge Intensity and Distributed Knowledge bases, Institute for new technologies discussion paper 2002-6, The United Nations University, June 2002

During the 1960s the term " Knowledge Economy" was introduced in Drucker (1959) and Machlup ( 1962). The concept was central in much OECD -based research " being and economy in which the production factor labor and capital are aimed at the development and application of new technologies". ( Godin, 2004)

"production and services based on knowledge-intensive activities that contribute to an accelerated pace of technical and scientific advance, as well as rapid obsolescence. The key component of a knowledge economy is a greater reliance on intellectual capabilities than on physical inputs or natural resources". ( Powell and Snellman, School of Education, Stanford University,2004)

Criticism:
There is an opposite view emerging questioning whether the notion of Knowledge economy really exists at all. It has been argued that economy has always been driven by Knowledge leading to innovation and technical change and knowledge based institution have helped to store and share knowledge for centuries. What we see today is essentially more of the same but operating on a bigger scale and at a faster pace.

OECD towards Knowledge Economy: In reference to UK Economy
" the role of knowledge ( as compared with natural resources , physcial capital and low skill labor has taken a greater importance. Although the pace may be differ all OECD economies are moving towards knowledge based economy" (OECD,1996)

UK exports of Knowledge based service ( 1995-2005)

Exports in Billions 1995 2005
1. Business Service 10.1 30.7
2. Financial Services 8.6 24.8
3. Computer Services 0.8 5.8
4. Communications 1.0 3.0
5. Culture/ Media 0.7 2.0
6. Government 1.4 2.0
7. Royalties/ License 3.9 7.3
Knowledge Services 27.3 75.6

Non- Knowledge services 23.3 35.5
Total 50.6 111.1

( Note: All figures in GBP, current prices balance of payment basis. Totals may not sum due to rounding . Source: Office for National Statistics , Knowledge Economy Programme report, Ian Brinkly, the work Foundation)

Based on the Factbook, 2006,published by OECD , all the oecd economies has increased the investement in knowledge marginally but it doesnt mean they have outstripped the investment in physical structures. The factbook shows that Sweden has ranked 1st and among the high investment economies are US, Finland, Korea , Denmark, Japan and Canada. The middle investment economies are Australia, Germany, Netherland, France, Belgium, UK and Austria . Low investment economies are Spain, New Zealand, Ireland, Greece, Italy and Portugal. Out of all the economies , Ireland is a single economy which has negative percentage of investment .

Note: Comparative figures of 1994 to 2002.

( Source: Factbook 2006, OECD)

Knowledge Economy: Is it Only for Knowledge Intensive Organisations?
My personal view stands with the following statement " the idea of knowledege economy is not just a description of high tech knowledge intensive organisation. It describes a set of new sources of competetive advantage which can apply to all sectors, all companies and all regions, from agriculutre and retail to software and biotechnology and manufacturing." ( New measure for the new economy report by Charles lcadbeater, June 1999).

David and forey paper publised in 2002 describe a move to the knowledge or knowledge based economy as sea change or "soft discontiniuty" rather than sharp break from the past.