Knowledge-based Economy

Modern society has become a network society that runs on the basis of knowledge and information. It stands to reason that the underlying economy is intertwined with this transformation. Two aspects must be distinguished: the aspect of knowledge economy, in which knowledge is the product of economic action, and that of knowledge-based economy, in which knowledge is the means of production. Not only economies and societies but also human personalities are changing, as people are becoming knowledge entrepreneurs.

Keywords Capitalism; Civilizing Process; Cultural Capital; Digital Divide; Economy of Knowledge; Embeddedness; Great Transformation; Information Technology (IT); Knowledge Economy; Network Society; Social Capital; Sociology of Knowledge

Society & Technology > Knowledge-based Economy

Overview

The historians of economic processes have made note of a relatively recent change: the switch from a physical-labor-based economy to a knowledge-based economy. This has of course not been the first such transformation to occur, and maybe it is not even the most significant in human history. Nonetheless, its importance in regard to human affairs cannot be underestimated.

The very first transformation that was a significant step toward creating the prerequisites for modern society was the decline of feudalism, which existed in Europe between the fourteenth and seventeenth centuries. As Maurice Dobbs argued in his classic Studies in the Development of Capitalism (1963), the landowning nobles in England were struggling to reconstitute their privileges and prerogatives at the time, as well as their income, so to speak. They transferred direct control of agricultural production to rent-paying commoners, who at first were thought of as being nothing but peasants, quickly turned into yeomen and freeholders, and eventually became what is known as gentry. As a result, the landed nobility declined, and the modern market economy based on capitalism was able to emerge in the process.

Growth of the Market Economy

The nineteenth century saw this once-potential consequence become a reality that shaped social structures all over Europe and America in the "Great Transformation," as Karl Polanyi (1944) called it. Polanyi suggested that the emergence of the market society and the modern nation-state are not to be seen as separate occurrences. On the contrary, both were deeply intertwined in the single and coherent process of the creation of market society. With the creation of modern statehood and its subsequent transformation of social structures and institutions, competitive markets could be stabilized in the "civilizing process," as it has been called by Norbert Elias (2000).

However, the classic idea of capitalism itself declined between 1880 and 1930, as Livingston (1997) has argued, for capitalists tried to reconstitute their prerogatives and income in light of the social transformations occurring around them during that time. In that transformation, they reconstructed production and distribution under the guiding metaphor of the corporation and created an age of surplus. The post-capitalist society after World War II and its discontents became a much-discussed topic, beginning in the 1960s when the differences in the modes of production became endemic and physical labor began to decline, at least in the Western world. This seems to be even more the case now with the process known as globalization, or the "Flattening of the World" (Thomas L. Friedman). This new modern age, or "Fourth Epoch" (C. Wright Mills), began with a shift in the way the production of knowledge became fused with governance on the one hand and industrial and military production on the other.

In the context of the American effort and involvement in World War II and the following Cold War between the Western nations and the Communist Soviet Union, theories of communication and information spilled from cryptography and cybernetics into the physical and biological sciences. Decoding the "book of life" became a promising future project, funded by CalTech, the Rockefeller Foundation, and other similar organizations as well as the government, which had great hopes that the new information technology would give America a cutting edge in the Cold War. The rise of computer technology that resulted from the very same development gave the transformation of economy its determining nudge. An ever-larger part of industrial production became subject to automation. In the end, the revolution occurred not only within the language of science itself but also in the way our economies and modes of production actually function.

Midcentury sociological shop talk from Raymond Aron to Amitai Etzioni, Daniel Bell, or Ralf Dahrendorf, coined the now-popular terms "post-industrial society" and "post-capitalist society." Peter Drucker, in his seminal book The Age of Discontinuity (1969), popularized the concepts of the knowledge economy and the knowledge-based economy, as well as their inherent distinction: whether knowledge is viewed as a product or as a tool.

Further Insights

Knowledge Economy vs. Knowledge-Based Economy

Mid-20th-century knowledge itself became a problem of social science. Its use and production, the role it played in government and economy, and how it was mutually affected by those fields suddenly emerged as explicit fields of study. The distinction between economy of knowledge and knowledge-based economy is crucial, yet their interrelation must also be recognized:

• Economy of knowledge treats knowledge as a product and asks for the conditions of its construction and transformation.
• Knowledge-based economy sees knowledge as an applicable device, tool, or technique that can be used to benefit economic production and market exchange.

Modern information society is the product of the interrelation of both economies. The expansion of these economies, geographically and in ever more sectors of society, has become subsumed under the heading of globalization. The determining factors of a global economy are no longer the traditional factors (land, natural resources, and physical labor); instead, they are expertise, intellectual property (rights), and technique.

Education as a Resource

Education has turned into the most fundamental resource a nation can offer to its citizens. Contrary to the earlier belief that globalization would abolish the need for container concepts such as nation-states, the early twentieth century — in the wake of 9/11, the pending threat of a global recession, and the looming oil crisis — has seen a reinvigoration of the concept of the national, and the economies in question are actually national knowledge-based economies that interact on a global market, despite the existence of a variety of so-called multinational corporations.

These developments have left their imprint on educational institutions. In many European countries, such as Germany, the hope lies in an increase in student numbers and a shortening of the time spent at a university by increasing each student's courses per semester. Ultimately, this trend moves away from a broad, future-oriented education and toward focused training for specific jobs in existing markets—in other words, from the creation of new knowledge to the application of existing knowledge. This describes a trend toward a reduced definition of innovation, which no longer entails invention and merely rests on the expansion of existing technology. Intellectuals and scholars are being reduced to experts and technicians.

The New Economy

The social sciences have to adapt to these developments, taking into account the fact that the economic system is moving from a material economy to a symbolic economy. The prerequisites and rules that accounted for the production, distribution, and consumption of material resources and products are of course entirely different from those governing the dynamics of knowledge production, access, and consumption. This does not mean that the material factors and material economy will disappear. But certainly their importance is continually diminishing and has, at least in Western countries, reached a point where their economic importance is overshadowed by the dynamics of the symbolic economy. This can be verified by the history of the recent economic crises, from the bursting of the 1990s "new economy" bubble to the 2007–8 crisis in the US housing market.

However, Nico Stehr (2002) has argued that between this economic reality and the public and political discourses there exists what can be called a cultural lag. Public discourse and political decision making often rest on outdated theories and data, because the translation of the actual development into theory and data sets is a time-consuming process that is subject to politicking from different parties and interest groups, each with its own agenda. Knowledge of these agendas and groups subsequently factors into the dynamics of the modern economy itself.

The "new economic sociology" that is often associated with Mark Granovetter (1973; 1985) has therefore taken note that not only do modern economies function by laws of supply and demand, of wants and needs, but a most decisive factor lies in the existing social networks within which markets and economies are embedded. The navigation of these markets requires knowledge about them in the same way that knowledge about the application of a technological device is required for its proper use. Such knowledge, described as "soft skills," can be acquired as a form of human or cultural capital, a concept introduced by Pierre Bourdieu.

The Network Society

The importance of such networks, which serve as channels and mechanisms of exclusion and inclusion, became an explicit topic for sociology in 1991, when Dutch social scientist Jan van Dijk coined the term "network society," which was then picked up by Manuel Castells in his renowned trilogy on the information age.

In many respects, the prerequisites of the knowledge-based economy and those of the network society are very similar, beginning with the changes in the concepts of property, the importance of nonmonetary forms of capital, and the rise of the digital age through the increasing importance of information and communications technology (ICT). The latter development, however, brought with it its own form of inequality. Prior epochs have seen inequalities in land ownership, access to the physical resources of production, and social class. Similarly, the digital divide circumscribes some people's access to means of using or knowledge about ICT. Those people excluded from the knowledge of how to use this technology, or deprived of access to the technology itself, are denied participation in the knowledge-based economy and therefore barred from modern labor markets. This phenomenon is a global one.

The Commercial-Industrial-Academic Complex

It is a cliché to say that "knowledge is power," yet there is evidently some truth to it. Knowledge and information are turned into the currency that our societies and economies increasingly thrive upon. But it is critical to understand that in an economy and society, whoever controls access to and distribution of knowledge wields a substantial power. It seems therefore imperative to ascertain the autonomy of educational and research institutions. But as we can see in regard to the biological sciences and the advances made in pharmacology, genetics, and so on, a commercial-industrial-academic complex is already in existence.

For example, the irony is noted that research into alternative forms of energy production at private universities is funded by oil companies, the very entities who seem to have the least financial interest in this kind of research. This demonstrates that the emergence and proliferation of a knowledge-based economy entails a dimension of moral and ethical questions that are not easily answered or free of biases. Companies that invest in certain kinds of research that seem to contradict their current financial goals may have other motivations. It may be seen as manipulation of data or clever marketing, but it could also be seen as genuine concern for ethical and environmental issues, or a clever investment in future technology to ensure the company's long-term survival.

The larger problem seems to be whether or not a society with a knowledge-based economy allows for a truly open public discourse of these moral issues. Nico Stehr (2002; 2005) argues that while knowledge is being increasingly transformed into the basis of economic production, the resulting products, services, and technologies embody social norms and values. In other words, they are moral objects as well as ethical subjects.

Language & Economy

It should be mentioned that economy has never been independent from knowledge, and vice versa. Economic action is dependent on the use of language, and language itself is shaped in economic ways and by economic metaphors. This shows an interrelation that suggests a coevolution of economy and knowledge throughout human history. An exemplary discussion of this concept is found in the work of linguist Florian Coulmas (1993).

In his seminal work The Logic of Writing and the Organization of Society (1986), Jack Goody argued that the emergence of written language was tied to the emergence of organized markets, and subsequently both have made possible the emergence of larger organized societies. From this perspective, the current shift toward a knowledge-based economy would have to be viewed not as a novelty but merely as a move toward new forms of knowledge and information distribution, coupled with new ways of controlling the channels and any access to them. Goody suggests that this control was formerly in the hands of states and is now in the hands of the market. The critical moral issue, then, is whether or not the market can guarantee autonomous knowledge production and free and fair access to knowledge.

Aside from critical theory and neo-Marxism, it is the field of sociology of knowledge that is most concerned with this question. The social production and application of knowledge and the relevant conditions and prerequisites are the field's primary concerns. This field of sociology was developed in the 1920s by Max Scheler and Karl Mannheim, two German sociologists and philosophers, and carried into American sociology by Germans fleeing the Nazi regime as a result of the influence of sociologists such as Robert K. Merton and Talcott Parsons, who had studied with Mannheim in Heidelberg. With Peter Berger and Thomas Luckmann's The Social Construction of Reality (1966), the whole field was revised. Modern conceptions in sociology of knowledge, such as research into the knowledge-based economy, may be regarded as the outcome of the Berger and Luckmann contribution on the one hand and Daniel Bell, Ralf Dahrendorf, and Peter Drucker on the other.

Viewpoints

A critical question is whether these developments are necessarily for good or for ill. While it is true that participation in modern economy and society can be strictly regulated by those who control access to information and education, at the same time, the increasing availability of knowledge opportunities gives people the freedom to make their own choices, whether about their life course or in individual acts of consumption. The Internet has opened up the possibility of comparing prices and qualities of a vast amount of goods and services. It has created entirely new fields of services that in turn enable people to act economically on a global scale in ways that could not previously have been conceived of. In other words, the transformation is not in itself good or bad. What is of utmost importance is that the institutions that control access to channels of information and education remain autonomous, while inequalities in the knowledge markets must be addressed by reasonable governance.

The outcome of all these developments is another form of subjectivation, with personalities adapting through the process of socialization (the learning and integration of social norms) to the interpenetrating demands of information and network societies and a knowledge-based economy. The concept of self that is taking shape is a concept of a knowledge entrepreneur. Every person, every acting subject, understands him- or herself to be in all social matters using and producing knowledge in an economic or market-related fashion. Claims are not made, argued, and reasoned until consensus is found. Instead, ideas are increasingly marketed, budgeted, and based on prior ideas that were the outcome of the same knowledge-market economy that has pervaded all social reality.

But aside from these theoretical matters, it should be taken into consideration that physical labor and material products and factors did not disappear. A critical approach would suggest that the specifically Western knowledge-based economy rests on the outsourcing of material economy to poorer countries that run on low wage structures. From a critical point of view, this could be seen as a new form of colonization. However, even such a critical perspective would have to allow that bringing jobs to these countries could serve as a stabilizing force and create demand for more service- or knowledge-oriented markets in these countries as well. This, therefore, functions as a factor for development. This is a question that will not be entirely answered in the decades to come and certainly provides for ongoing research opportunities.

Terms & Concepts

Civilizing Process: Norbert Elias wrote The Civilizing Process in the late 1930s. The book became a sociological bestseller in 1976 upon the release of a newedition. This meticulous study of Western civilization describes the interdependent processes of state formation and psychological development over time, from the Middle Ages to modern civilization. In other words, the transformation of social structures and personality structures are mutually dependent and deeply intertwined.

Cultural Capital: The concept of cultural capital as a form of symbolic capital was made popular by French sociologist Pierre Bourdieu, who showed that in addition to money, other forms of capital exist that regulate access to social classes, such as knowledge, network connections, and experiences.

Digital Divide: This term describes the disparity in access to and practical knowledge about the use of information technology, specifically the Internet. The divide exists between different kinds of groups. Internationally, it exists between developing and developed nations. On the community level, it exists between rural and urban areas, or populated areas that are of more or less economic interest for Internet service providers. Finally, it exists between social classes.

Economy of Knowledge: Economy of knowledge treats knowledge as a product and asks for the conditions of its construction and transformation.

Embeddedness: Markets are, according to Mark Granovetter, not closed-off entities. Instead, their functioning depends on the context and conventions of the social networks in which they are embedded.

Great Transformation: Karl Polanyi's theory of the great transformation argues that the historical development of the modern nation-state is interlinked with the development of market economy. They are but two aspects of the same development in human society: the emergence of market society.

Information Technology (IT)/ Information and Communications Technology (ICT): These terms are summary names for technologies such as the Internet, mobile phones, PDAs, and personal computers, as well as the ability to command standard programs such as e-mail and office or data management.

Information Society: This concept describes a form of society in which production, distribution, use, and conservation of knowledge and information is the main factor in all social aspects, from the political to the economical and cultural sectors.

Knowledge-Based Economy: This form of economy sees knowledge as an applicable device, tool, or technique that can be used to benefit economic production and market exchange.

The Social Construction of Reality: In 1966, Berger and Luckmann published their landmark study The Social Construction of Reality. In their view, the reality that exists for members of a society is based on phenomena they construct by their social actions, by behaving as if they are following conventional rules and the phenomenon does exist. The most famous example is perhaps the assumption of the existence of social status.

Bibliography

Berger, P., & Luckmann, T. (1966). The Social Construction of Reality. Garden City, NY: Anchor Books.

Coriat, B., & Weinstein, O. (2012). Patent regimes, firms and the commodification of knowledge. Socio-Economic Review, 10, 267–292. Retrieved October 28, 2013, from EBSCO Online Database SocINDEX with Full Text. http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=73764720&site=ehost-live

Coulmas, F. (1993). Language and Economy. Oxford: Blackwell Publishing.

Dobbs, M. (1963). Studies in the Development of Capitalism. New York, NY: International Publishers.

Drucker, P. (1969). The Age of Discontinuity: Guidelines to our Changing Society New York: Harper and Row.

Goody, J. (1986). The Logic of Writing and the Organisation of Society. Cambridge: Cambridge University Press.

Granovetter, M. (1973). The strength of weak ties. American Journal of Sociology, 78, 1360-1380.

Granovetter, M. (1985). Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 91, 481-510.

Graz, J., & Hartmann, E. (2012). Transnational authority in the knowledge-based economy: Who sets the standards of ICT training and certification? International Political Sociology, 6, 294–314. Retrieved October 28, 2013, from EBSCO Online Database SocINDEX with Full Text. http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=79823709&site=ehost-live

Polanyi, K. (1944). The Great Transformation: The Political and Economic Origins of Our Time. Boston: Beacon Press.

Stehr, N. (2002). Knowledge & Economic Conduct. Toronto: University of Toronto Press.

Stehr, N. (2005). Knowledge Politics: Governing the Consequences of Science and Technology. Boulder, CO: Paradigm Publishers.

Tocan, M. C. (2012). Knowledge based economy assessment. Journal of Knowledge Management, Economics & Information Technology, 2, 188–201. Retrieved October 28, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=88272949&site=ehost-live

Suggested Reading

Autor, D. H. (2001). Wiring the labor market. Journal of Economic Perspectives, 15. 25-40. Retrieved May 3rd 2008 from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=4196650&site=ehost-live

Autor, D. H., Katz, L.F. & Krueger, A.B. (1998). Computing inequality: Have computers changed the labor market? Quarterly Journal of Economics, 113, 1169-83. Retrieved May 3rd 2008 from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=1287850&site=ehost-live

Bashehab, O., & Buddhapriya, S. (2013). Status of knowledge based economy in the kingdom of Saudi Arabia: An analysis. Journal of Social & Development Sciences, 4, 268–277. Retrieved October 28, 2013, from EBSCO Online Database SocINDEX with Full Text. http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=89922915&site=ehost-live

Beck, U. (2006). Power in the Global Age: A New Global Political Economy. Cambridge: Polity Press.

Bourdieu, P. (1986). The forms of capital. In, Handbook of Theory and Research in the Sociology of Education, J. C. Richardson, ed. 241-58. New York: Greenwood.

Bresnahan, T. F., Brynjolfsson, E. & Hitt, L.M. (2002). Information, technology, workplace organization and the demand for skilled labor: Firm-level evidence. Quarterly Journal of Economics, 117, 339-76. Retrieved May 3rd 2008 from EBSCO online database, Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=5942286&site=ehost-live

Castells, M. (2001). The Internet Galaxy:Reflections on the Internet, Business and Society. New York: Oxford University Press.

De Muro, P., Monni S., & Tridico, P. (2011). Knowledge-based economy and social exclusion: Shadow and light in the Roman socio-economic model. International Journal of Urban & Regional Research, 35, 1212–1238. Retrieved October 28, 2013, from EBSCO Online Database SocINDEX with Full Text. http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=66746701&site=ehost-live

Elias, N. (2000). The Civilizing Process. Oxford: Backwell.

Pick, J. B., & Azari, R. (2008). Global digital divide: Influence of socioeconomic, governmental, and accessibility factors on information technology. Information Technology for Development, 14 , 91-115. Retrieved May 3rd 2008 from EBSCO online database, Academic Search Complete. http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=31581293&site=ehost-live

Van Dijk, J. A. G. M. (2005). The Deepening Divide: Inequality in the Information Society. Thousand Oaks, CA: Sage.

Warschauer, M. (2003). Technology and Social Inclusion: Rethinking the Digital Divide. Cambridge, MA: MIT Press.