"Knowledge-based" Economy: Someone please explain it to me

Factual Questions
1

I got some very good answers on here when I wanted to know what precisely “Cloud-Computing” refers to, so I was hoping I might get help with the other buzz term I see being tossed around (seemingly) quite carelessly.

In several articles which I have read regarding the slow death of manufacturing in North America (specifically, the auto industry), there is talk that we should not try to prop up a faltering manufacturing base here, because it is a futile endeavor. Particularly so, as we are transition to the so-called “Knowledge-based economy.” I will neither accept nor refute that concept, since that’s not what I wish to talk about.

According to wikipedia’s entry on the subject, this is not a newly minted concept:

[QUOTE=Wikipedia]
The initial foundation for the Knowledge Economy was first introduced in 1966 in the book The Effective Executive by Peter Drucker. In this book, Drucker described the difference between the manual worker (page 2) and the knowledge worker. The manual worker, according to him, works with his hands and produces goods or services. In contrast, a knowledge worker (page 3) works with his or her head not hands, and produces ideas, knowledge, and information.
[/QUOTE]

So, as an academic-in-training, it feels nice to know that I am at the vanguard of economic progress here in Canada. However, what I fail to understand is how this is implemented in practical terms, or if the journalists and popular writers using this term understand how this transition will take place.

So…to use North America as my example, if the far east has taken over *all *of our manufacturing duties (gross oversimplification, but nevertheless), what do we become? Are we then a continent of lawyers and engineers? University professors? How can you do this without having a manufacturing base that underlies all of which you do?

I have a feeling I’m missing something profound in all of this, and if someone wants to help out, I’d be appreciative!

2

Well, I suspect that what it means is that rather than manufacturing/extraction being the basis for most of the wealth that’s created, it’ll be knowledge/knowledge based products that are the basis for most of the wealth that’s created.

In a sense, it’s a continuum. There has always been a proportion of wealth that’s been created via knowledge based activities, but it’s always been small relative to the value in manufacturing, mining, and other physical item economic activities. Now things are changing- there’s potentially more value being created via knowledge activities (think websites, software companies, etc…) than in actual physical manufacturing.

Manufacturing will never go away; some things aren’t economical to move elsewhere, or they’re things that we can do cheaper, or just as cheap without the shipping hassle.

3

Would you call Microsoft a manufacturing company or a knowledge company?

4

And computer programmers, scientists, tech writers, translators, trainers, architects, etc.

The same way an individual human can make a living without building his own house, car, etc.: specialization. You sell your intellectual labor and/or created intellectual property, and you use the money to buy manufactured goods. Just as a manufacturing country can survive without a raw materials base, a knowledge country can survive without a manufacturing base. You obviously can’t get into that position overnight, but once you’re there, there’s nothing inherently unstable about it.

Of course actually being 100% knowledge workers would be a problem, just because there are some things that have to be done locally. You can import cars, but not car repair or highway building–much less transit or gardening. But you already recognized that 100% is unrealistic.

Some argue that there is a real-life problem buried in that fantasy problem: If there are no jobs between gardener and engineer, there’s no class mobility. But it’s at least plausible that there could be lower-skilled knowledge jobs that are just as easy to train for as lower-skilled manufacturing jobs.

Another problem with a purely knowledge-based economy is dependence. If east Asia goes into an economic slowdown and can’t afford new innovations to improve their manufacturing for a while (and their consumers can’t afford OS upgrades or fancy college educations for their kids), we’ve got no customers. Worse, in the case of a major collapse in Asia, we’re not self-sufficient. (You can’t make software without computers, and you can’t eat it even if you could.)

But these problems already exist in a manufacturing-based economy, which is dependent on extraction-based economies. If Africa goes into a slowdown and can’t afford new capital expenditures to improve its extraction for a while (and their consumers can’t afford new cars or game consoles), Asia has no customers. Worse, in the case of a major collapse in Africa, Asia isn’t self-sufficient. (You can’t make cars without iron, and you can’t eat them even if you could.)

5

Other industries where there is no physical product, but high profits, cell phones, MMG gaming, mobile media, HD tv.

There is a physical component to all these, but the main money is in the purchase of time.

We are moving across the world more and more into entertainment, or lifestyle products.

6

The question of whether a consumer-goods-only economy is as sustainable as a production-chain-goods economy is a whole other kettle of fish. But they are obviously related, as, generally, the higher up the chain you go, the more consumer-focused you end up.

7

Look at the major metropolitan areas like New York, LA, Toronto, London and Paris. If they all split and became city states that trade with other countries, would they be poor? Do you consider Toronto or London to be subsidised by the manufacturing and agricultural regions of their countries?

I understand knowledge work to be work where the most important capital is skills, not tools or raw materials.

As for “Are we all gonna be lawyers and engineers?” No, not anymore than most New Yorkers or Londoners are. People incapable/unwilling to attain higher skills can be accountants with associates degrees rather than full accountants or they can be plumbers, construction workers, repairmen, nurses, lab technicians (and many other kinds of technicians) or any kind of job which will grow in importance or be created. There are also many jobs where importing is inefficient but don’t require much in the way of skills (e.g.: trash pick up, janitors).
Manufacturing doesn’t underly anything anymore than agriculture does. A priori, a tangible good is not more valuable than an intangible one because the value of something is its utility and a service can be extremely useful while a good can have a very low utility. If we produce services for which the Chinese want to trade the manufactured goods they produce, we’ll exchange our respective goods.

If they were to send us manufactured goods without buying anything from us (directly or through multilateral trade), then they’ve actually exchanged their manufactured goods for ours bits of paper and ink. Now we can have their manufactured goods AND the services we produce. Keep in mind that fundamentally, people exchange goods for goods, not goods for money. Money is just a very convenient form of exchange medium.
You might want to look up the concepts of creative destruction and of comparative advantage.

8

I have a feeling I’m missing something profound in all of this, and if someone wants to help out, I’d be appreciative!
[/QUOTE]

The OP glossed over this part I bolded and I don’t think it’s gotten enough attention since.

The working world isn’t split between knowledge workers and manufacturing workers. It’s actually tripartite, with service workers as a third leg.

Service traditionally was lower class, as in households servants. The original industrial revolution gave a non-farm alternative to service, by introducing large number of factory jobs. By the beginning of WWI, house servants - once present in almost every middle-class household - had almost vanished except for the homes of the rich. Many of these positions, especially those held by women, didn’t go over to manufacturing, but to the new service jobs catering to the middle class. These were predominantly clerks in the new department stores and other retail establishments, but also telephone operators, receptionists, waitresses and other business that became traditionally female-oriented jobs.

Jobs perceived as being female almost always got less pay, less job security, less chance of advancement, less in the way of health and pension benefits, because they were seen as second jobs, therefore not as essential to the household.

The recent loss of manufacturing jobs doesn’t reflect a switchover to knowledge-based positions, but a combination of knowledge-based and service-based jobs. That’s where the concerns about American jobs comes from.

Until after WWII, no more than about 5% of the U.S. population went to college. Knowledge-based jobs were premium and paid well, because the pool of applicants was small and well-qualified. Today about 50% of the U.S. population goes to college. The number of jobs requiring a college degree has grown, but the proportion of them which truly require advanced education remains small. For the rest, a college degree is an artificial barrier.

That puts both the middle and lower sectors of the population in a bind. There are fewer manufacturing jobs for the semi-skilled worker, and therefore fewer opportunities to join the middle class. There are fewer laboring job for the lower classes. Neither can complete for the professional-level jobs. Where do they go but into the expanded service industry? But that merely increases the pool of applicants - greatly expands the male pool of applicants - for jobs that still receive less pay, less job security, less chance of advancement, and less in the way of health and pension benefits.

Most people are not really suited for knowledge-based jobs. But the spectrum of the remaining jobs has changed, as least for now, for the worse in terms of pay and prestige.

Since 1966 many people have recognized that it’s the problems of a service-based economy that the U.S. is suffering, partly because so much emphasis was placed on achieving a knowledge-based economy that was wholly unreasonable. I have to ask the OP where these articles about transitioning to a knowledge-based economy are coming from. That’s so last century.

The real issues are improving jobs in the service-based economy so that even two-income families don’t fall out of the middle class.

That has no factual answers, of course, so anything further belongs in GD.

9

I could scour it up if I really tried, but I remember reading an op-ed about Buzz Hargrove’s plea to the Canadian government to save union jobs in Ontario’s Ford, GM and Chrysler plants. This was back last spring, but I never got around to asking what the author was referring to when they said something to the effect of “There’s no sense in saving a dying manufacturing industry in North America, particularly as we are transitioning to a knowledge based economy.” Again, I would neither accept nor refute the claim, but I’m wondering what the precise meaning of the term the author was using.

Also, now that I think about it, my rabble rousing student union loves to throw it around a lot, too. It’s come up in a lot of literature my with regards to demanding government to lower tuition rates:

[QUOTE=www.dropfees.ca]
The message is clear: students are against these fees and want to see action. With economic uncertainty, investing in education must be central to a recovery plan. Competition in today’s knowledge based economy requires an educated populace that is not burdened by thousands of dollars of debt. Premier McGuinty and his Minister John Milloy must not ignore students’ demands when planning for the next tuition and ancillary free framework for next year.
[/QUOTE]

http://cnews.canoe.ca/CNEWS/Canada/2009/08/24/10582336-sun.html

10

Are you clear on the definition of knowledge work? If so, a knowledge economy is one in which a majority/plurality of the jobs/GDP are done in knowledge work sector. In the same way that an economy can be qualified as an agrarian economy if a majority/plurality of jobs/GDP are in the agricultural sector.

“if the journalists and popular writers using this term understand how this transition will take place.”
Perhaps some do. The process can be understoof through creative destruction and specialisation on one’s comparative advantage, just like every other similar economic shift in the history of humanity.

How did humanity move away from hunting and gathering to a mainly agricultural economy? How did humanity move away from a mainly agricultural economy to a mainly industrial one? Same thing.

11

In other words, people are throwing around buzzwords without understanding them or with meanings so changed from the original that they can be used for anything the speaker pleases (cf. politically correct). You can’t walk ten feet (or read ten column inches) without encountering one - or more usually several.

Ignore them. It’ll be better for your blood pressure.

12

Good advice!

13

Daniel Pink in A Whole New Mind has an interesting slant on the question of knowledge workers and the information age.

14

That sounds like an interesting book. I shall have to give it a read, thank you!

15

I would not bother if I were you. Anyone who is still putting “right-brain” buzzword nonsense in the subtitle of their book in this day and age is clearly either an idiot or a charlatan (or both). “Knowledge-based economy” does at least have some basis in economic reality, but (although it remains true that language processing is mostly in the left hemisphere) the notion of left versus right brain thinking styles has no basis whatsoever in real neuroscience or psychology.

16

I always figure anyone who wants to convince me of the amazing powers to be unlocked by using the right brain really shouldn’t be using a book to do so. There’s really no activity that’s less right-brain than reading a book (and this is true whether you go by real neuroscience or by their silly mumbo-jumbo).

17

They will, when they get laid off cause its cheaper to syndicate a blogger :slight_smile:
Declan

18

We are moving in a direction away from the traditional notion of the “nation state” IMHO. The world is becoming increasingly interconnected and interdependent and that is not going to change. Markets are global. The labor poor is world-wide. Multinational corporations operate across national borders. Why should it matter that a product is made in China any more than the customer service center is located in Minnesota?

19

Well, it matters for anyone trying to preserve the nation-state. And I think protecting the nation-state is pretty much the foundation of anti-globalism, both right-wing and left-wing,* even if the people involved don’t always realize that. Whether you want to preserve the 40-hour work week or to keep America safer from attack than the rest of the world, you need America (and taxes on American people and businesses) to do it. (If you’re not American, feel free to substitute your own country.)

On the other hand, if your argument is that people shouldn’t want that, or that it’s completely impossible (so it doesn’t really matter if they want that), I’ll accept that possibility. If the concept of America is irrelevant, then the issue of America moving toward a knowledge-based economy is no more interesting than, say, the Silicon Valley doing so.

  • This isn’t quite true. Some people would be perfectly happy if there were a global state with the same powers that current nation-states have. (Others, of course, would not be.) But that doesn’t seem to be coming in the immediate future, so I think we can gloss over it.
20

A knowledge economy just means that you are creating goods that are heavily dependent on highly specialized expertise. The goods may be tangible or intangible. Movies and entertainment would be considered intangible. But microprocessors and Dreamliners are certainly tangible.

Processes and methods can be both. Fracking gas shale is a tangible service but it relies upon specialized and usually proprietary knowledge.

While intellectual property might be subject to theft, I think it is the rare case that the technology itself is of much use without the necessary infrastructure. China can spend a few hundred billion on developing chip fabs (factories) and maybe can even steal the technology needed to make them, but without the ability to make lithography masks, grow high quality silicone wafers, dope them properly, etc, etc., those fabs are useless.

So it’s really more accurate to call it the knowledge infrastructure economy. Every technique, process and invention is the product of so many converging lines of knowledge and expertise that only an advanced tech/industrial country like the US, Canada and Europe will be able to create new technologies. That is the “value added” that we contribute to the world. China turns cotton into tube socks and creates value through manufacturing. We turn concepts into tools, machines and processes that either do stuff that has never been done before or which does it in ways that are vastly more efficient. We create value by essentially pulling it out of our ass.