Knowledge-Based Economy Research Paper Starter

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



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...

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