Abstract:

For the last two hundred years, neo-classical economics has recognised only two factors of
production: labour and capital. This is now changing. Information and knowledge are replacing
capital and energy as the primary wealth-creating assets, just as the latter two replaced land and
labor 200 years ago. In addition, technological developments in the 20th century have transformed
the majority of wealth-creating work from physically- based to "knowledge-based.” Technology and
knowledge are now the key factors of production. With increased mobility of information and the
global work force, knowledge and expertise can be transported instantaneously around the world,
and any advantage gained by one company can be eliminated by competitive improvements
overnight. The only comparative advantage a company will enjoy will be its process of innovation--
combining market and technology know-how with the creative talents of knowledge workers to solve
a constant stream of competitive problems--and its ability to derive value from information. We are
now an information society in a knowledge economy where knowledge management is essential.
This page lists and rates Internet resources related to the field of knowledge based economy and
knowledge management in the new information society.

KNOWLEDGE BASED ECONOMY

(with special reference to India)
“We are living through a period of profound change and transformation of the shape of society and
its underlying economic base ... The nature of production, trade, employment and work in the
coming decades will be very different from what it is today.”

In an agricultural economy land is the key resource.

In an industrial economy natural resources, such as coal and iron ore, and labour are the main
resources.

A knowledge economy is one in which knowledge is the key resource.

It is not a new idea that knowledge plays an important role in the economy, nor is it a new fact. All
economies, however simple, are based on knowledge about how, for example, to farm, to mine and
to build; and this use of knowledge has been increasing since the Industrial Revolution. But the
degree of incorporation of knowledge and information into economic activity is now so great that it is
inducing quite profound structural and qualitative changes in the operation of the economy and
transforming the basis of competitive advantage. The rising knowledge intensity of the world economy
and our increasing ability to distribute that knowledge have increased its value to all participants in the
economic system. The implications of this are profound, not only for the strategies of firms and for the
policies of government but also for the institutions and systems used to regulate economic behaviour.

so great that it is inducing quite profound structural and qualitative changes in the operation of the
economy and transforming the basis of competitive advantage. The rising knowledge intensity of the
world economy and our increasing ability to distribute that knowledge have increased its value to all
participants in the economic system. The implications of this are profound, not only for the strategies of
firms and for the policies of government but also for the institutions and systems used to regulate
economic behaviour.

What Is Knowledge Economy?

“Capitalism is undergoing an epochal transformation from a mass production system where the
principal source of value was human labour to a new era of ‘innovation mediated production’ where
the principal component of value creation, productivity and economic growth is knowledge.”

Definitions:
Defining the knowledge economy is challenging precisely because the commodity it rests on
“knowledge” is itself hard to pin down with any precision. Perhaps for this reason there are few
definitions that go much beyond the general and hardly any that describe the knowledge economy in
ways that might allow it to be measured and quantified.

# The knowledge economy is a vague term that refers either to an economy of knowledge focused
on the production and management of knowledge, or a knowledge-based economy. In the second
meaning, more frequently used, it refers to the use of knowledge to produce economic benefits.

# The knowledge economy is the story of how new technologies have combined with intellectual and
knowledge assets - the "intangibles" of research, design, development, creativity, education, brand
equity and human capital - to transform our economy. The Knowledge Economy is emerging from
two defining forces: the rise in knowledge intensity of economic activities, and the increasing
globalisation of economic affairs.

The rise in knowledge intensity is being driven by the combined forces of the information technology
revolution and the increasing pace of technological change. Globalisation is being driven by national
and international deregulation, and by the IT related communications revolution.

However, it is important to note that the term ‘Knowledge Economy’ refers to the overall economic
structure that is emerging, not to any one, or combination of these phenomena. Various observers
describe today's global economy as one in transition to a "knowledge economy", as an extension of
"information society". The transition requires that the rules and practices that determined success in
the industrial economy need rewriting in an interconnected, globalised economy where knowledge
resources such as know-how,
expertise, and intellectual property are more critical than other
economic resources such
as land, natural resources, or even manpower.
According to analysts of the "knowledge economy," these rules need to be rewritten at the levels of
firms and industries in terms of knowledge management and at the level of public policy as
knowledge policy or knowledge-related policy.

Concepts:
A key concept of this sector of economic activity is that knowledge and education (often
referred to as "human capital") 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.
The initial foundation for the Knowledge Economy was first introduced in 1966 in a book by Peter
Drucker. The Effective Executive described the difference between the Manual worker and the
knowledge worker. A manual worker works with his hands and produces "stuff". A knowledge worker
works with his or her head not hands, and produces ideas, knowledge, and information.

Knowledge Economy Vs. Traditional Economy:

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 that offer benefits of speed,
agility, round the clock operation and global reach can be created . or, on the contrary, reinforced in
some other economic fields, by the creation of business clusters around centres of knowledge, such
as universities and research centres having reached 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, or even to the same person 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.

• Communication is increasingly being seen as fundamental to knowledge flows. Social structures,

cultural context and other factors influencing social relations are therefore of fundamental
importance
to
knowledge
economies.
These characteristics require new ideas and approaches from policy makers, managers
and knowledge workers.

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.

• Computer networking and Connectivity developments such as the Internet bring the
"global village" ever nearer.
As concerns the applications of any new technology, it depends how it meets economic
demand. It can stay dormant or get a commercial breakthrough.

Globalization
The other main driver of the emerging knowledge economy is the rapid globalisation of economic
activities. While there have been other periods of relative openness in the world economy, the pace
and extent of the current phase of globalisation is without precedent.
The global communications revolution has been accompanied by a widespread movement
to economic deregulation, including
# the reduction of tariff and non-tariff barriers on trade in both goods and services; the
floating of currencies and deregulation of financial markets more generally;
# the reduction of barriers to foreign direct investment and other international capital
flows, and of barriers to technology transfers; and
# the deregulation of product markets in many countries, particularly in terms of the reduction in the
power of national monopolies in areas such as telecommunications, air transport
and
the
finance
and
insurance
industries.
Together these changes have led to rapid globalisation. As a result, goods and services can be
developed, bought, sold, and in many cases even delivered over electronic networks.

Increasing knowledge intensity

The last twenty years have seen an explosion in the application of computing and communications
technologies in all areas of business and community life. This explosion has been driven by sharp
falls in the cost of computing and communications per unit of performance, and by the rapid
development of applications relevant to the needs of users. Digitalization, open systems standards,
and the development software and supporting technologies for the application of new computing and
communications systems – including scanning and imaging technologies, memory and storage
technologies, display systems and copying technologies – are now helping users realise the
potential of the IT revolution. It is in the Internet that these technologies come together, and it is the
Internet phenomenon that exemplifies the IT revolution. Over the first decade of its development the
Internet remained a specialist research network. By 1989 there were 159,000 Internet hosts
worldwide. Now, just 10 years later, there are more than 43 million.

In economic terms, the central feature of the IT revolution is the ability to manipulate, store and
transmit large quantities of information at very low cost. An equally important feature of these
technologies is their pervasiveness. While earlier episodes of technical change have centered on
particular products or industrial sectors, information technology is generic. It impacts on every
element of the economy, on both goods and services; and
on every element of the business chain, from research and development to production,
marketing and distribution.
Because the marginal cost of manipulating, storing and transmitting information is virtually zero, the
application of knowledge to all aspects of the economy is being greatly facilitated, and the
knowledge intensity of economic activities greatly increased. This increasing knowledge intensity
involves both the increasing knowledge intensity of individual goods and services, and the growing
importance of those goods and services in the economy.

Computer Networking and Connectivity

It is virtually impossible to separate technology from the act of living in today¹s world. We are all
connected to our work, to our product and service providers, and to each other in myriad ways that
could never have been predicted just ten years ago. Out of this vast degree of interconnectivity
spring networks - and nodes of contact within networks - that add momentum to the pace of still
more technological opportunities and developments. It is an undeniable fact that ICTs play a very
important role in the development of every nation these days. This is because growth is induced by
the flow of information and this realization has led most economies into knowledge based ones.
Developing countries have realized this and are rigorously pursuing the use of ICTs as a platform for
socio- economic development.
Electronic commerce (e-commerce) is a rapidly growing segment of the economy, which is expected
to increase yet more rapidly over the next few years. Current internet commercial transactions are
estimated at hundreds of millions and are projected for billions within the decade. The growth of net
transacted revenues will be energized with Visa and MasterCard’s release of secure software
standards for their card members' internet transactions, and the acceptance of standards for
micropricing. All in all, it is reasonable to project that, in a decade's time, the vast majority of
economic transactions will involve a significant electronic component. Business is experiencing a
significant transition. This transition is based on the fact that we are now in a networked
environment. ICT can bring business transformation, changing work environments and global
economy. Advent of the "new economy", embodied by the expansion of the internet, would be the
signal of the end of geography and space. Distances are reportedly abolished as markets are from
now on at a click away.

Growing Interest
Various management writers have for several years highlighted the role of knowledge or intellectual
capital in business. The value of high-tech companies such as software and biotechnology
companies, is not in physical assets as measured by accountants, but in their intangibles such as
knowledge and patents. The last few years have a growing recognition by accounting bodies and
international agencies that knowledge is a crucial

factor of production. For example, the OECD has groups investigating ‘human capital’
and also the role of knowledge in international competitiveness.

Policy Implications
The evolving knowledge economy has important implications for policy makers of local, regional and
national government as well as international agencies and institutions e.g.: • Traditional measures of
economic success must be supplemented by new ones • Economic Development policy should
focus not on 'jobs created' but rather on infrastructure for sustainable 'knowledge enhancement' that
acts as a magnet for knowledge-based
companies. •
Develop regulation and taxation for information and knowledge trading at international level, looking
to future knowledge-based industries rather than traditional industries. • Stimulate market
development through new forms of collaboration.
Issues And Challenges:
The main challenges facing policy makers and business leaders are the following: • It is difficult to
'go it alone'. Stakeholders, especially employees and business partners must
share
similar
views
for
your
own
initiatives
to
succeed •
alone recognition and reward systems usually do not sufficiently recognise recognizee contributions.
They are linked to performance measures of the traditional economy. • Measures of return on
investment are done using traditional accounting methods, thus investments in knowledge
enhancing activities need s

trong advocates at senior levels.