By definition, a knowledge-based economy relies on the use of ideas rather than physical abilities and on the application of technology rather than the exploitation of cheap labor. It is an economy in which knowledge is created, acquired, transmitted, and used more effectively by individuals, companies, and communities to promote economic and social development. Today in industrial countries such as the U.S and Europe, knowledge-based industries are expanding rapidly where new technologies have been introduced, demand for high-skilled workers, particularly in information technology workers has increased significantly but at the same time, demand for lower-skilled workers has declined and this put a lot of pressure on the current education system of industrial countries to produce more high skilled people.
The information technology revolution has provided new opportunities for easy access to information from anywhere. It has also created new opportunities for generating and transferring information via the internet, the personal computer, and the mobile phone. Knowledge networks and sharing of information have expedited innovation and adaptation worldwide. Changes in information technology have revolutionized the transmission of information as semiconductors are getting faster, computer memories are expanding, and computing prices are falling. Data transmission costs have fallen dramatically and continue to fall, bandwidth is growing, and Internet hosts are multiplying in every country. Cellular phone usage is also growing worldwide, adding to the pace of and capacity for change and innovation. The information technology revolution has promoted more trading and business worldwide and countries that are able to integrate their economy into the world economy have experienced significant economic growth as in cases of India, China, Ireland and some Eastern European countries. The global economy also provided opportunities to smaller companies to take advantage quickly if they can adapt faster to changes comparing with larger companies because in this new knowledge-based economy, the bigger companies can not overcome the smaller one anymore but it is the faster will beat the slow.
Let me give you some examples: In the early day of the knowledge-based economy around 1990, it took six years to go from concept to production in the automobile industry but today that process takes just two years. Companies like Honda, Toyota create new cars every two years to compete with well established companies like GM, Ford, Mercedes, and Renault which introduce new cars every four to five years. Guess who come out as winners. The same thing happened in the mobile phone business, in the early day Motorola dominates this market by having a new phone every two years then Nokia created new phone every year and eventually took over the market. Today Samsung, LG, Sony and many Asian companies can produce ten to twenty new phones every six months and the competition for global cell phone market continue. How can they do things that fast? By having multiple teams working in incremental overlapping phases of building phone products and invest heavily in education and training or their workers. Many Asian companies such as Toyota, Honda, and Sony have invested significantly in education and training, they also invested a large part of their capital in research and development for the long term perspective where many U.S and European companies are so focus on the short term profits and do not consider education as the high priority.
A typical knowledge economy is based on four components:
1) A supportive government policy on economic to provide incentives for the efficient use of existing and new knowledge.
2) An educated and skilled workers to create, shares, and use knowledge for economic advantages
3) A dynamic information infrastructure to facilitate the effective communication, dissemination, and processing of information such as internet, mobile phones etc.
4) An efficient system of companies, university research centers and government agencies to tap into the growing global knowledge, assimilate and adapt it to local needs, and create new technology.
Prof. John Vu, Carnegie Mellon University