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Knowledge Economy

Definition

The knowledge economy is the use of knowledge to generate tangible and intangible values. Technology, and in particular, knowledge technology, helps to incorporate part of human knowledge into machines. This knowledge can be used by decision support systems in various fields to generate economic value. Knowledge economy is also possible without technology.

Knowledge Economy

What is 'Knowledge Economy'

The knowledge economy is a system of consumption and production that is based on intellectual capital. The knowledge economy commonly makes up a large share of all economic activity in developed countries. In a knowledge economy, a significant part of a company's value may consist of intangible assets, such as the value of its workers' knowledge (intellectual capital), but generally accepted accounting principles do not allow companies to include these assets on balance sheets.

Explaining 'Knowledge Economy'

Lesser-developed countries tend to have agriculture and manufacturing-based economies, while developing countries tend to have manufacturing and service-based economies, and developed countries tend to have service-based economies. Most countries' economies consist of each of these three major categories of economic activity but in differing proportions relative to the wealth of that country. Examples of knowledge economy activities include research, technical support and consulting.

Knowledge Workers vs. Manual Workers

The concept of the knowledge economy was first used by Peter Drucker in his 1966 book "The Effective Executive." In this book, the difference between a knowledge worker and a manual worker was discussed. According to Drucker, the manual worker uses his hands and other physical capabilities to produce and provide services and other goods. On the other hand, a knowledge worker uses his head and produces knowledge, information and ideas that may be beneficial for the overall system of the business or that may be the key source in building the business in the first place.


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