SEEKING NEW HORIZONS
Globalisation has played a key role in making the world economy more knowledge-based.
By Major General Ajay Sah (Retd)
Knowledge Economy, the latest buzzword, is in the limelight with the allure of changing some of the most deeply embedded regularities of economic life and dramatically increasing productivity and growth. The advanced technologies that define the knowledge economy, like AI and robotics, sadly remain exclusive to some economies only, even if the rest of the global community has started grasping its value and the dramatic changes it can foster in our economic and social lives.
A 2014 Asian Development Bank report predicted that India, blessed with its youth bulge and flourishing information and communication technology (ICT) industry, had the potential to become a "leading knowledge-driven economy." However, its Vice President for Knowledge Management, Bindu N Lohani drew a caveat, “Making this a reality will require many steps like putting in place supportive laws, improving infrastructure, dismantling barriers to trade and investment, upskilling the labour force, boosting research and development spending, and providing innovative financing options for small businesses and entrepreneurs.”
Opening a New Vista
The management guru Peter Drucker and the economist Fritz Machluporiginally invented and analysed the knowledge economy.In the 1950s, they defined the new economyas moving from labour-intensive, heavy-industrial economies to the knowledge economy. Drucker defined it as“the systematic and purposeful acquisition of information and its systematic application. When the intellectual says knowledge, he usually thinks of something new. But what matters in the knowledge economy is whether knowledge, old or new, is applicable, e.g. Newtonian physics to the space program. What is relevant is the imagination and skill of whoever applies it, rather than the sophistication or newness of the information”.
Oxford references further define it as using knowledge as the primary tool to produce new economic benefits or maximise existing ones. Unlike industrial economies, knowledge economies focus on intangibles such as information over raw materials and are, therefore, motivated by the economics of abundance rather than scarcity. Knowledge industries (computing, media, medicine, etc.) demand people of high intellectual calibre; knowledge workers are educated to a level where they can be autonomous and flexible decision-makers and experts in their specialist fields.
The essence of the Knowledge Economy is that production and consumption are based on intellectual capital (the value of a company's employee knowledge, skills, business training, or any proprietary information that may provide the company with a competitive advantage). In this technology-driven age, the ability to harness scientific innovations and applied search would be critical in driving the knowledge economy. The knowledge economy lies at the intersection of private entrepreneurship, academia, and government-sponsored research.
The World Bank defines knowledge economies according to four pillars:
Institutional structures that provide incentives for entrepreneurship and the use of knowledge
.
Availability of skilled labour and a good education system
.
Access to information and communication technology (ICT) infrastructures
.
A vibrant innovation landscape that includes academia, the private sector, and civil society.
While Developing economies are characterised by their obsession with agriculture and manufacturing, highly developed countries have a larger share of service-related and knowledge-based economic activities like research, technical support and consultation.
The knowledge economy of the 21st Century is witnessing the lightning-fast expansion of knowledge facilitated largely by computerisation, big data analytics, automation, etc. Imagine what will happen when quantum computers become mainstream! The Global North relies on intellectual capital and skills to maintain its economic edge rather than production processes.
Academic institutions and private corporations are churning out new software and search engines for data and passing on the results of their research to workers in more traditional spheres- health workers using digital data to cure patients with robot-assisted surgeries, farmers employing software applications and digital solutions to manage crops and livestock and expensive technical institutions conducting lucrative courses to students all over the world for a hefty fee. Human capital, which addresses education and knowledge, becomes a productive asset or a business product to be sold and exported for profit. This economy relies greatly on intellectual capabilities instead of natural resources or physical contributions. In the knowledge economy, products and services based on intellectual expertise advance technical and scientific fields, encouraging innovation in the economy as a whole.
The complete nature of the working force has changed with the advent of the Knowledge Economy. Unlike the conventional manufacturing sector, where the semi-skilled labour force was good enough to do the repetitive assembly line work, now a much higher percentage of highly skilled employees with special knowledge or skills are essential with the capacity to think and analyse data.
Global Knowledge Landscape
In most developed economies, the knowledge economy makes up a large share of all activity. A significant component of its value comprises intangible assets such as the value of its workers' knowledge, skills, and intellectual property that empowers its industry. In fact, the 1080 Bayh-Dole Act that the U.S. enacted allowed universities, the home of many innovations, to retain the title to their inventions made with federal R&D and to negotiate exclusive licenses to monetise their IPR. This turned knowledge into a credible industry.
Globalisation has played a key role in making the world economy more knowledge-based, with each country contributing its own best practices. These knowledge-based factors create a web of interconnected economic connections where human expertise and trade secrets reign supreme; knowledge becomes the key to economic success! The knowledge economy has turned into a marketplace for the sale of scientific and engineering discoveries, with patents and IPRs being put on sale. Consequently, research labs and innovators become active economic players, and as funds flow in, their ability to produce even greater cutting-edge technology expands exponentially.
Experts find it hard to answer how big the knowledge economy is; unlike manufacturing, it is hard to put a price tag on it. Some quarters have made an effort to arrive at a rough estimate by gauging some major components; for example, we know that the U.S. IPR market is worth $ 6.6 trillion (US Chamber of Commerce data). In fact, IP-intensive high-tech industries account for almost a third of the American GDP. American higher education institutions themselves are worth a mammoth $ 568 billion. No wonder striking students and faculty all over the U.S. campuses are demanding the turning off of the investment faucet controlled by the incredibly rich higher education sector in order to starve the Israeli war machine from waging war in Gaza.
In Asia, predicted to drive global growth in the 21st Century, Japan, South Korea, Singapore, and Taiwan are some success stories that have successfully transitioned from manufacturing to knowledge-based industries. While China and India have built a few pockets of excellence where knowledge-based growth takes place, they cannot be termed true knowledge economies as yet.
Another interesting characteristic of the knowledge economy is that one type of 'product' gets clustered in a particular geographic area—advanced automotive in Germany, ICT in Silicon Valley, semiconductors in Taiwan, and electronics in South Korea. Will we see AI-driven devices, robotics, and quantum computers in China?
The United Nations Development Program's Global Knowledge Index is a good guide for measuring the front runners in the knowledge economy. In the Global Knowledge Index 2023, India was ranked a low 95, even below Bhutan! The ranking is based on five metric scores -pre-university education, technical and vocational education and training, higher education, R&D and innovation, ICT, economy and the enabling environment. Evidently, India has to cover a great deal of distance before it can become a real Knowledge Economy. The top ten countries are Switzerland 69.1%, Finland 68.1%, Sweden 68%, Netherlands 67.3%, United States 66.9 %, Denmark 66.7 %, Luxembourg 66.0 %, United Kingdom 65.7 %, Austria 65.3 % and Norway 65.1%.
The Road to Knowledge-Economy
In a knowledge economy, value is created through knowledge-intensive activities, relying more on intellectual capital than physical inputs or natural resources. The key to this transformation is skilled human resources that create the core of a knowledge economy—research, innovation, scientific progress, and tech evolution. For example, South Korea took 15 years to transform into a knowledge economy.
The transition from an industrial economy is not easy. For one, the entire workforce would need to be given the requisite skill sets to be optimally productive in a knowledge economy. Therefore, companies must implement extensive and expensive on-the-job training programmes, hire high-value experts from all over the globe to train their core workforce, and even send selected workers to expensive schools overseas. Local universities must keep pace to provide the facility to train students in the particular skills that the marketplace requires.
While we may be justifiably proud of India's achievements in science and technology, as the Global Knowledge Index shows, we have miles to go. We have many challenges: equitable and affordable access to high-quality education, sealing the urban-rural gap and the consequent digital divide, nurturing a culture of innovation and risk-taking, and sustaining the rule of law to protect patents and IPRs. More importantly, academia, industry, and policymakers must abandon their ivory towers and collaborate.
Key Takeaways
If India is to make headway into the knowledge economy, it must remember that this economy is fuelled by innovation, research, and high-quality human resources. A
competitive advantage in the marketplace depends on
the
ability to quickly adapt to an ever-changing world through continual innovation in processes and business systems
.
If India has to pull millions of its citizens out of the poverty line,
development policy
should be empowered to use
knowledge more effectively to raise the productivity of agriculture, industry, and services and reduce poverty.
India already has the essential attributes to transform into a knowledge-based economy: skilled human capital, a resourceful private sector, macroeconomic stability, English-speaking skills, an established institution of the free market, and global niches in IT. It has to only boldly venture out to grab opportunities and leverage its existing strengths in a planned, calculated manner.
