The Online Encyclopedia and Dictionary






Knowledge economy

The Knowledge Economy refers to the use of knowledge to produce economic benefits. The phrase came to prominence in New Zealand in the mid-to late-1990s as a way of referring to the manner in which various high-technology businesses, especially computer software, telecommunications and virtual services , as well as educational and research institutions, can contribute to a country's economy.

A number of New Zealand businesses had been identified as being highly innovative and leading their fields as a result of the knowledge and intellectual creativity that went into their products and services. The resulting success is seen as a pathway for others to follow.

Various observers describe today's global economy as one in transition to a "knowledge economy", or an "information society". But the rules and practices that determined success in the industrial economy of the 20th century need rewriting in an interconnected world where resources such as know-how are more critical than other economic resources.



A key concept of this sector of economic activity is that knowledge and education can be treated as:

  • A business product, as educational and innovative intellectual products and services can be exported for a high value return.
  • A productive asset

Driving forces

Commentators suggest that at least three interlocking driving forces are changing the rules of business and national competitiveness:

  • Globalization -- markets and products are more global.
  • Information/Knowledge Intensity -- efficient production relies on information and know-how; over 70 per cent of workers in developed economies are information workers; many factory workers use their heads more than their hands.
  • Networking and Connectivity -- developments such as the Internet bring the "global village" ever nearer.

As a result, goods and services can be developed, bought, sold, and in many cases even delivered over electronic networks.

As concerns the applications of any new technology, it depends how it meets economic demand. It can stay dormant or get a commercial breakthrough (see diffusion of innovation)


It can be argued that the knowledge economy differs from the traditional economy in several key respects:

  • The economics is not of scarcity, but rather of abundance. Unlike most resources that deplete when used, information and knowledge can be shared, and actually grow through application.
  • The effect of location is
    • either diminished, in some economic activities. Using appropriate technology and methods, virtual marketplaces and virtual organizations can be created that offer benefits of speed and agility, of round the clock operation and of global reach.
    • or on the centrary reinforced in some other economic fields, by the creation of Porter's clusters around centers of knowledge, such as universities and research centers having reached a world-wide excellence.
  • Laws, barriers and taxes are difficult to apply on solely a national basis. Knowledge and information "leak" to where demand is highest and the barriers are lowest.
  • Knowledge enhanced products or services can command price premiums over comparable products with low embedded knowledge or knowledge intensity.
  • Pricing and value depends heavily on context. Thus the same information or knowledge can have vastly different value to different people at different times.
  • Knowledge when locked into systems or processes has higher inherent value than when it can "walk out of the door" in people's heads.
  • Human capital -- competencies -- are a key component of value in a knowledge-based company, yet few companies report competency levels in annual reports. In contrast, downsizing is often seen as a positive "cost cutting" measure.

These characteristics require new ideas and approaches from policy makers, managers and knowledge workers.

Similar concepts

Other terms for the concept include "Knowledge Society" and "Knowledge Wave", as in catching or riding the "knowledge wave" in a similar manner that a surfer catches and rides a surf wave.

Last updated: 05-13-2005 07:56:04