The knowledge economy consists of the usage of knowledge in order to form both materialistic and non materialistic values. With the help of technology a part of the humans can be transformed their knowledge about machines. This new knowledge would help to boost up the economic values. In fact the knowledge economy does not necessarily have to revolve around technologies, it can work without the use of technologies as well.
The term found fame after Peter Drucker used it as the title of Chapter 12 in his book “The Age of Discontinuity”, which was influenced by Fritz Machlup’s authentic idea of “scientific management”, formed by Frederick Winslow Taylor. In this book, he explains the variation between the manual worker and the knowledge worker. According to him, the manual worker works with her/his hands and makes goods and services. On the contrary, a knowledge worker with her/his mind rather thanhands, to form ideas, knowledge and information.
On the other hand, apart from the agricultural- intensive economies and labour- intensive economies, the global economy works alongside to a “knowledge economy”. The main concept of the knowledge economy is that knowledge and education can be treated as, a business product or productive asset.
According to Walter W. Powell and Kaisa Snellman in “The Knowledge Economy” is defined as, “Production and services based on knowledge-intensive activities that contribute to an accelerated pace of technical and scientific advance, as well as rapid obsolescence. The key component of a knowledge economy is a greater reliance on intellectual capabilities than on physical inputs or natural resources.”
This economy is also considered as the latest stage of development in global economic restructuring. The latest stage is identifies with the increase of technological innovations and a global competitive demand for innovation with new products and processes that is derived from the research community.
The specialized labour forces in the knowledge economy are well educated and computer literate, when it comes to handling information, creating algorithms and replicated models, and being creative on processes and systems. Michael Porter professor of the Harvard Business School state that the 21st century economy is more based on producing innovative products, and that the comparative advantage is less as compared to the competitive advantage on “making more productive use of inputs, which requires continual innovation”. Therefore, knowledge is crucial and a connective tissue in modern economies. Some examples of a knowledge economy taking place among others include, Silicon Valley in California, aerospace and automotive engineering in Munich etc.