What is a Knowledge Economy?

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.