The Economy

The EconomyBy Mapaseka Ayanda Dube

The

kno

wle

dge

econ

omy

and

soci

ety

- And

re S

aito

What is the knowledge economy?

• Knowledge has become the main resource• The pace of innovation is accelerating

(not only in products and services, but also in processes, markets, sourcing, business models, etc.)

2

Capital

Knowledge

Land

Labor

Agricultural age

Industrial age

Knowledge age

Are terms like Knowledge “Economy” and “Information Society” useful? For what? Views vary ...

Man

ches

ter I

nstit

ute

of In

nova

tion

Rese

arch

All sound and fury - not really much serious

change

All sound and fury - not really much serious

change

A lot of action, but no strong common

themes, no central axis for a new social

formation

A lot of action, but no strong common

themes, no central axis for a new social

formation

A lot of action, but the ground-rules stay the

same

A lot of action, but the ground-rules stay the

same

A lot of change, some fundamentals are

shifting

A lot of change, some fundamentals are

shifting

A lot of change, shaking the foundations of institutional

structures

A lot of change, shaking the foundations of institutional

structures

Immense change in the nature of societies – value creation,

equality, power, leadership, etc…

Immense change in the nature of societies – value creation,

equality, power, leadership, etc…

UniversalThings like….

- Laws of Nature

- Essential

natures of things

- Mathematical and logical theorems

Plato

Key Features

•Information Society •Knowledge Economy

Man

ches

ter I

nstit

ute

of In

nova

tion

Rese

arch

TECHNOLOGICAL

1)Hard to differentiate; so common list:

Internet; computers, comm standards, e-devices; cross-discipline techs,

2) Diffusion of tech from large institutions to individuals, empowerment: Internet – user-generated content and software

3) IS – advent of computers; KIS: mode 2; biotechnologies

• Limited supply

• Unlimited demand

• Law of demand and supply

• Market mechanism of coordination & ownership

• Price takers vs. price makers

Figure: Craven, John (1990): Introduction to Economics, p.61

6

TRADITIONAL ECONOMY

Supply, Demand & Equilibrium

The

kno

wle

dge

econ

omy

and

soci

ety

- And

re S

aito

Knowledge has different properties

• Low rivalry (usually said non-rivalry)Use by one person does not diminish it

• Low excludability (usually said partial excludability)It is difficult to prevent others from using it

• Knowledge is both input and outputToday’s innovations feed tomorrow’s

In other words…• Knowledge is an infinite resource• Knowledge tends to spread

7

High first-copy costs (Fixed costs)

Low marginal costs

Declining infrastructure costs (processing, storage, bandwidth)

Economies of networks

Abundance rather than scarcity Amazon: 2,3 Mio books Bookshop: 40-100.000 books Figures: compiled by author, based on Stahler (2001): Geschaftsmodelle in der digitalen Okonomie, p.197

8

DIGITAL ECONOMY

DIGITAL GOODS HAVE…

Over-supply Increasing storage & processing capacity

at decreasing costs Unlimited “shelf-space” of digital

businesses

Demand Irrational behavior with free products

No cost-benefit analysis at zero price Difficult to map utility No-cost = no disadvantage

Power of competition Webmail: Google & Yahoo

Critical mass crucial9

FREE ECONOMY

CHARACTERISTICS

• Choice under scarcity

• Self interest vs max profit

• Max Utility with limited budget

• Substitute & Income effect influence demand

Figure: Mankiw, N. Gregory and Taylor, Mark P. (2006): Microeconomics: Microeconomics, p.432

10

TRADITIONAL ECONOMY

Consumer Behavior

Problems with this “Information Sector” Approach

“Information Occupations” are not the only Information-Processors. They are specialised and visible ... but are they more significant, more sophisticated? Would new IT be used to replace human effort especially here? Problems of Classification:

(a) Boundary Cases(b) Heterogeneity

Periodisation issues – in what way is “information society” (in this view) now a new stage rather than a step in a trend?

Man

ches

ter I

nstit

ute

of In

nova

tion

Rese

arch

The

kno

wle

dge

econ

omy

and

soci

ety

- And

re S

aito

Organizational level• External issues

• Scan the environment (e.g., public policies, S&T development, competitors’ behavior, etc.

• Improve knowledge creation and transfer through collaborative arrangements and acquisitions

• Open channels with customers and society• Internal issues

• Develop absorptive and innovative capacity• Manage knowledge work and workers• Explore contracting and outsourcing alternatives

12

Sectoral Workforce skills (educational levels)

Agriculture

Manufacturing

HORECA

Trade Transport

Pub. Admin.

Other Sers.

FIRE

Education

Business Sers._ Health & Soc.

Sers.

HIGH SKILL

LOW SKILL

MEDIUM SKILL

Data on EU workforce, 2000

Knowledge-intensive services

Low-skill services

Medium-skill services

Firms and Sectors

• Society (concept of eco-services, informal economy and self-services)

• Formal Economy (in-house services, plus services delivered to others - sometimes sold - by non-service firms)

• Services Sectors (main activity concept of eco-services)

• Knowledge-Intensive Services• Business-Related Services• Business Services• Knowledge-Intensive Business Services

Firms and Sectors

Society

Formal Economy

Services Sectors

Knowledge-Intensive Services

Business-Related Services

Business Services

Knowledge-Intensive Business Services

Porat’s Picture

Man

ches

ter I

nstit

ute

of In

nova

tion

Rese

arch

1860 1880 1900 1920 1940 1960 1980

4 sector aggregation of

US workforce

Info

Serv

Mfg

Agr

Agricultural Industrial Information

Man

ches

ter I

nstit

ute

of In

nova

tion

Rese

arch

Knowledge Economy

• Less of a technological focus….• Less specifically information technology…• Greater reliance on innovation and thus on innovation-

facilitating knowledge in industry – increasing R&D, dependence on hi-tech products and processes

• (Other types of knowledge important too – for innovation and coordination – thus greater share of knowledge workers and use of KIBS)

• Increased investment in knowledge production (=R&D), distribution (=education), management (knowledge management), etc.

References

• Christian Dahlhausen, Dirk Schreiber, Rainer Clement(2008), Free Economy. University of Applied Science

• Ian Miles(2008), Knowledge Economy and Information Society.

• Ian Miles (2009), Knowledge Intensive Service firms, sectors, systems.Centre for Service Research & MIoIR,Manchester Business School

• Katsuhiro Umemoto (2006), The Knowledge Economy and the Knowledge Society.

• Stephen Downes(2007), Future Knowledge Society.