Investment in Knowledge: The OECD has produced a composite indicator of “Investment in Knowledge” which made of:

  1. Investment in R&D
  2. Investment in higher education
  3. Investment in IT software

By this measure, we can identify three groups of economies:

  • High knowledge investment economies, they are investing around 6 per cent of GDP
  • Middle knowledge investment economies, they are investing between 3 and 4 per cent of GDP
  • Low investment economies, they are investing between 2 and 3 per cent. of GDP.

The story of the past decade has been for most of the high investment economies to pull away from the rest. Most high investment economies stepped up their knowledge investment by between 1 and 2 percentage points of GDP while the middle and low investment economies showed relatively little change.

Globalisation and the knowledge economy

The development of the knowledge economy and the globalisation has been closely related. Global firms have built integrated international production chains, with their R&D facilities kept in the US and Europe creating new products that are built in assembly plants in China and india, then shipped back to the West for added value in “knowledge” areas such as design and marketing and providing associated services in Europe and the US.

The growth of the knowledge economy is seen as part of the strategic response to the threat to the jobs in the OECD from the low wage economies imports such as China and India.

As a response the low wage economies such as China and India are increasing their Investment in Knowledge heavily in, defined both as the share of GDP devoted to R&D and increasing the numbers of home grown graduates.

The implication is that through these investments in knowledge the lower wage economies will capture a much larger share of the “knowledge based” segments of the international production chain in the future unless the Western economies become even more competitive in these areas.

How to define and measure the knowledge economy

Without measurable definitions, the knowledge economy will remain a vague concept. The impact of the knowledge economy on industrial organisation, institutional structures, employment and society would remain more a matter of assertion and intuition rather than demonstrable proof based on hard facts. We can summarise the key features of knowledge economy and knowledge economy organisations as follows:

  • The knowledge economy represents a “soft discontinuity” from the past – it is not a “new” economy operating to a new set of economic laws
  • The knowledge economy is present in all sectors of the economy, not just the knowledge intensive industries
  • The knowledge economy has a high and growing intensity of ICT usage by well- educated knowledge workers
  • A growing share of GDP devoted to knowledge intangibles compared with physical capital
  • The knowledge economy consists of innovating organisations using new technologies to introduce process, organisational and presentational innovation
  • Knowledge economy organisations reorganise work to allow them to handle, store and share information through knowledge management practices.

Three ways in which the knowledge economy might be defined more precisely in ways that are measurable and therefore, in principle, testable against hard data:

  1. Industry sector definitions of knowledge intensive industries and services
  2. Occupational based definitions of knowledge workers
  3. Innovation related definitions of the share of innovating firms.