Economic success is increasingly based on upon the effective utilisation of intangible assets such as knowledge, skills and innovative potential as the key resource for competitive advantage. The term “knowledge economy” is used to describe this emerging economic structure” (ESRC, 2005).
The phrase was popularized by Peter Drucker as the title of Chapter 12 in his book The Age of Discontinuity, And, with a footnote in the text, Drucker attributes the phrase to economist Fritz Machlup and its origins to the idea of “scientific management” developed by Frederick Winslow Taylor.
The knowledge economy is also seen as the latest stage of development in global economic restructuring. Thus far, the developed world has transitioned from an agricultural economy (pre-Industrial Age, largely the agrarian sector) to industrial economy (with the Industrial Age, largely the manufacturing sector) to post-industrial/mass production economy (mid-1900s, largely the service sector) to knowledge economy (late 1900s – 2000s, largely the technology/human capital sector). This latest stage has been marked by the upheavals in technological innovations and the globally competitive need for innovation with new products and processes that develop from the research community (i.e., R&D factors, universities, labs, educational institutes).
Definitions of the knowledge economy
The role of knowledge as compared with natural resources, physical capital and low skill labour has taken on greater importance. Although the pace may differ all OECD economies are moving towards a knowledgebase economy (OECD 1996). The idea of the knowledge driven economy is not just a description of high tech industries. It describes a set of new sources of competitive advantage which can apply to all sectors, all companies and all regions, from agriculture and retailing to software and biotechnology” (New measures for the New Economy, report by Charles Leadbeater, June 1999).
Economic success is increasingly based on upon the effective utilisation of intangible assets such as knowledge, skills and innovative potential as the key resource for competitive advantage. The term “knowledge economy” is used to describe this emerging economic structure (ESRC, 2005).
Knowledge as an economic good
The ability to store, share, and analysis knowledge through networks and communities using the new ICT technologies allows firms to exploit the unique properties of knowledge to gain competitive advantage. Perhaps the most important property is that knowledge is the ultimate economic renewable – the stock of knowledge is not depleted by use.