Knowledge economy

The knowledge economy, or knowledge-based economy, is an economic system in which the production of goods and services is primarily driven by knowledge-intensive activities that contribute to the advancement of technical and scientific innovation. The key element of value in this paradigm lies in the increased reliance on human capital and intellectual property as primary sources of innovative ideas, information, and practices. Organizations are called upon to leverage this "knowledge" in their production processes to stimulate and consolidate their business development. This approach is characterized by reduced dependence on physical inputs and natural resources. A knowledge-based economy is founded on the crucial role of intangible assets within organisations as an enabler of modern economic growth.

A knowledge economy features a highly skilled workforce within both microeconomic and macroeconomic environment. Institutions and industries create employment opportunities that necessitate highly specialized skills to satisfy the demands of the global market. Knowledge is viewed as an additional input to labour, and capital. In principle, an individual's primary capital is constituted by knowledge, together with the ability to perform and to generate economic value.

In a knowledge economy, highly skilled jobs require excellent technical skills and relational skills such as problem-solving, the flexibility to interface with multiple discipline areas as well as the ability to adapt to changes as opposed to moving or crafting physical objects in conventional manufacturing-based economies. A knowledge economy stands in contrast to an agrarian economy, in which the primary economic activity is subsistence farming for which the main requirement is manual labour or an industrialized economy that features mass production in which most of the workers are relatively unskilled.

A knowledge economy emphasizes the importance of skills in a service economy, the third phase of economic development also called a post-industrial economy. It is related to an information economy, which emphasizes the importance of information as non-physical capital, and a digital economy, which emphasizes the degree to which information technology facilitates trade. For companies, intellectual property such as trade secrets, copyrighted material, and patented processes become more valuable in a knowledge economy than in earlier eras.

The global economy's transition to a knowledge economy is also referred to as the Information Age, bringing about an information society. The term knowledge economy was made famous by Peter Drucker as the title of Chapter 12 in his book The Age of Discontinuity (1969), which Drucker attributed to economist Fritz Machlup in 1962, originating in the idea of scientific management developed by Frederick Winslow Taylor.

In a knowledge economy, human intelligence is the key engine of economic development. It is an economy where members acquire, create, disseminate and apply knowledge to facilitate economic and social development.

An economic system that is not knowledge-based is considered to be inconceivable. It describes the process of consumption and production activities that are satisfied from the application of workers' expertise - intellectual capital and typically represents a significant level of individual economic activities in modern developed economies through building an interconnected and advanced global economy where sources of knowledge are the critical contributors.

The present concept of "knowledge" originates from the historical and philosophical studies by Gilbert Ryle and Israel Scheffler, who conducted knowledge to the terms "procedural knowledge" and "conceptual Knowledge" and identified two types of skills: "routine competencies or facilities" and "critical skills" that is intelligent performance; and it's further elaborated by Lundvall and Johnson who defined "knowledge" as falling in four broad categories: