The document discusses the shift from an industrial economy to a knowledge economy. It defines key aspects of the knowledge economy including that knowledge has become the main resource and innovation is accelerating. It also discusses differences between traditional, digital, and free economies. Specifically, it notes that in the knowledge economy, knowledge is both an input and output and tends to spread. It also examines challenges with classifying sectors in the transition and issues around measuring an information society.

1. The Economy
By Mapaseka Ayanda Dube

2. What is the knowledge economy?
Capital
Labor Knowledge
society - Andre Saito
The knowledge economy and
Agricultural age
Industrial age
Land Knowledge age
• 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

3. Are terms like Knowledge “Economy” and
“Information Society” useful? For what? Views vary ..
Manchester Institute of Innovation
A lot of change, some
All sound and fury - not fundamentals are
really much serious shifting
Research
change
A lot of action, but no A lot of change, shaking the
strong common foundations of institutional
themes, no central axis structures
for a new social
formation
Immense change in the nature of
A lot of action, but the societies – value creation,
ground-rules stay the equality, power, leadership, etc…
same

4. Universal
Things like….
- Laws of Nature
- Essential
natures of things
- Mathematical and logical theorems
Plato

5. Key Features
Manchester Institute of Innovation
TECHNOLOGICAL
•Information Society
Research
•Knowledge Economy
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

6. TRADITIONAL ECONOMY
Supply, Demand & Equilibrium
• Limited supply
• Unlimited demand
• Law of demand and supply
• Market mechanism of
coordination & ownership
• Price takers vs. price
makers
6
Figure: Craven, John (1990): Introduction to Economics, p.61

7. 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
society - Andre Saito
The knowledge economy and
• Knowledge is both input and output
Today’s innovations feed tomorrow’s
In other words…
• Knowledge is an infinite resource
• Knowledge tends to spread
7

8. DIGITAL ECONOMY
DIGITAL GOODS HAVE…
 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
8
 Bookshop: 40-100.000 books Figures: compiled by author, based on Stahler (2001): Geschaftsmodelle in der digitalen Okonomie, p.197

9. FREE ECONOMY
CHARACTERISTICS
 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 crucial 9

10. TRADITIONAL ECONOMY
Consumer Behavior
• Choice under scarcity
• Self interest vs max profit
• Max Utility with limited
budget
• Substitute & Income
effect influence demand
10
Figure: Mankiw, N. Gregory and Taylor, Mark P. (2006): Microeconomics: Microeconomics, p.432

11. Problems with this “Information
Sector” Approach
Manchester Institute of Innovation
 “Information Occupations” are not the only
Information-Processors. They are specialised and
Research
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?

12. 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
society - Andre Saito
The knowledge economy and
• Open channels with customers and society
• Internal issues
• Develop absorptive and innovative capacity
• Manage knowledge work and workers
• Explore contracting and outsourcing alternatives
12

13. Sectoral Workforce skills (educational levels)
HIGH SKILL
Data on EU workforce, 2000
Knowledge-intensive services
Low-skill services
Education
Medium-skill services
Business Sers._
Health & Soc. Sers.
Other Sers. FIRE
Manufacturing Trade
LOW Agriculture Transport MEDIUM
SKILL HORECA Pub. Admin. SKILL

14. 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

15. Firms and Sectors
Society
Formal Economy
Services Sectors
Knowledge-Intensive
Services
Business-Related
Services
Business Services
Knowledge-Intensive
Business Services

16. Porat’s Picture 4 sector
aggregation of
Manchester Institute of Innovation
US workforce
Agricultural  Industrial  Information
Info
Research
Serv
Mfg
Agr
1860 1880 1900 1920 1940 1960 1980

17.   Knowledge Economy
Manchester Institute of Innovation
• Less of a technological focus….
• Less specifically information technology…
Research
• 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.

18. 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.