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What is a Knowledge Economy?

Updated May 16, 2024
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The term knowledge economy (KE) or, more popularly, knowledge-based economy (KBE) first came to public consciousness after the publication of management expert Peter Drucker’s book The Age of Discontinuity. The term was employed to describe the move away from the "labor-material" paradigm of production to a socio-economic outlook where intangibles such as knowledge and know-how play an increasingly central role in an economy’s prosperity.

Whereas knowledge was seen as extrinsic to the mainstays of the industrialized world’s economic outlook of labor, capital, materials and energy, the role of knowledge and the knowledge economy has assumed a pivotal role in the age of information and globalization. Indeed, the inter-connectedness of people via global telecommunications networks and the Internet coupled with the ubiquity of the English language as the world’s lingua franca has precipitated the creation of what some are won't to call the "Global Village." The Global Village refers to the economic engines that utilize knowledge and the saleability of know-how as their currency.

This move toward a knowledge economy has spurred among economists a fresh and broader appreciation of the economic role that knowledge plays and indeed has encouraged a new praxis that seeks to assimilate recent developments into an over-arching knowledge economy model. The "New Growth Theory" is the latest facet of learning that seeks to better understand how investments in research and development, education and training have provided a bonus to those countries’ economies which are moving into increasingly intangible areas of production and prosperity.

One major result of this new field of research has been the codification of the various strata of knowledge that exist in the knowledge economy. The fine delineation of the various types of knowledge is indicative of an economic system that is increasingly coming to terms with itself. Among the many divisions of knowledge-based economy the four principal ones are: know-what, know-why, know-how and know-who. The first two divisions are very much the nuts-and-bolts of the knowledge economy, describing as they do the body of empirical knowledge that underpins any knowledge-based system. The latter two divisions, on the other hand, are more subtle ingredients as they describe more nebulous notions such as social practice and convention.

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Discussion Comments
By ValleyFiah — On Apr 09, 2011

@Cougars- So how does one inject fairness into a knowledge economy? How do you balance knowledge and social productivity? If you do not allow sharing of intellectual property to some extent, it seems like a knowledge-based economy would lead to a large disparity between the rich and the poor. It seems like eventually the innovation and technology would be self-serving, only designed to generate money rather than solve complex social problems.

By cougars — On Apr 06, 2011

@Chicada- I am no expert on the matter, but from what I understand, the debate has to do with how technology and innovation are handled. What is the knowledge related to technology and innovation worth? How do we decide on ways to share this knowledge? Should this knowledge be shared for compassionate reasons, or is it purely property that must be sold for profit? The debate ranges from the patenting of things like genes, things that are completely natural and seen by many as public.

Say for example a cancer drug was created from a gene that you gave in a blood sample. What is that gene worth? The company that developed the drug can patent the gene, thus owning the rights to it and the drug. Say they spent a billion dollars developing the drug, but only expect to sell the drug to 100,000 patients. The drug company would need to sell the drug for at least $10,000 per patient to break even. The drug may only cost $100 in pure production costs. This values the intellectual property of each dose at $9,900. Is this fair? Should you be able to take the same gene and create the drug yourself, or buy a reverse engineered generic within the first year of the drugs release if you had cancer? This is where you insert your opinion.

By chicada — On Apr 04, 2011

I have heard a lot about the debate over copyrights in the knowledge economy. What is this all about? I do not understand what the debate is or what the positions in the debate are. Can someone please explain this to me a little better? Maybe a friendly debate can help me better understand this issue.

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