Palabras monosílabas

As indicated earlier, knowledge-based development leads to not only rapid economic growth but also to rapid social change. For example, the Industrial Revolution was the start of a major shift in populations from rural to urban areas, with the consequent growth of large cities and with sustained changes in income distribution and employment patterns. Similarly the current information and communication revolution is already beginning to have social ramifications of comparable proportions. Specifically, the impact of worldwide flows of information and knowledge, and changes to the labour market present significant social issues for policy makers to address. While earlier episodes of change have occurred in particular

products or industrial sectors, knowledge now impacts on every element of the economy and society (Neef, 1998; Lee et al., 2002).

The speed at which new knowledge and technologies are being developed and introduced onto the market and the increasing sophistication of these new elements is changing the way people interact and do business. The potential for these new elements to enable greater efficiency and flexibility in business, public services and life styles cannot be underestimated; however, these effects must be widely communicated to ensure that all segments of society are fairly included among the beneficiaries of new growth (UN, 2005a). Key concerns about today’s knowledge revolution are that it would lead to greater income inequalities and that it would benefit largely the urban population, leaving behind those who rely on agriculture or other rural industries (Al-Rahbi et al., 2008).

While it is widely accepted that education and training, and ICT can be used to empower disadvantaged societies, technology itself could cause further disadvantage to some sections of the population. The terms ‘knowledge divide’ and ‘digital divide’ are used to refer to the emerging gap between those people who have access to the new opportunities for benefiting from new technologies and acquiring skills and those who for one reason or another miss out on these opportunities.

From an equity perspective, people without access to education and ICTs are likely to become increasingly marginalised as these two elements become a fundamental form of social and economic participation (OECD, 2001; UNESCO, 2005b; World Bank, 2004).

The significance of these divides is threefold:

 there is a risk that those without access to knowledge and ICTs will lag further behind as knowledge evolves and technology progresses, with whole groups of society becoming less and less capable of participating in the economic development;

 this adds pressures towards wider income inequality, potentially eroding support for growth-enhancing policies and driving up costs of social programs; and

 moreover, one of the main advantages of knowledge and ICTs lies in their network effects, so that the more people obtain and use them, the greater the economic benefits; and given the importance of human capital to growth, closing these divides should by definition improve human capital and medium-term growth as well.

The literature indicates that inequalities in income, employment, skills, education, and access to information and modern communications are a part of every country’s experience, although their impact varies across countries and within countries (OECD, 2001; World Bank, 2002; IMF, 2007). There is evidence that such inequalities have grown during the past two decades and that this is attributable to economic globalisation and the knowledge economy. Evidence of an increasing gap between highly skilled and unskilled workers is supported by the argument that technological change has increased the demand for high skilled workers economy- wide as new technologies are biased towards this group of workers (IMF, 2007). As a result, technological changes over time would benefit the employment and wage prospects of high skilled workers relative to their lower skilled counterparts.

To illustrate, wages of knowledge workers in the USA has risen much faster than wages for other occupational groups. Between 1985 and 1998, real earnings of knowledge-intensive workers grew by almost 17 per cent cumulatively, compared with 5.25per cent for the average US employee. Similar income increases have also been recorded in Canada and the EU. As a result, across the OECD the gulf between ‘work-rich’ and ‘work-poor’ households is widening and the number of workers below the ‘poverty line’ in many OECD countries is growing. Similarly, the families in the USA that are below the poverty line level of US$13,000 dollars have risen by 50 per cent between 1979 and 1992 (Thurow, 1999; UN, 2005b).

This pattern is consistent with OECD analysis which suggests that as firms hire more skilled labour, the incentive to invest in technology rises. This leads to a

complementary technological advance that further increases the demand for skilled labor. The OECD also found that up-skilling is not only a consequence of technological change but also of the general increase in educational attainment levels. For example, over the last 30 years, employment in Australia’s manufacturing industries has declined from 45 per cent of total employment to 29 per cent, while employment of knowledge workers and professionals has increased from 25 per cent to 40 per cent. This suggest that people with low educational attainment face the consequences of structural changes in labor markets, via the increased risk of unemployment (Lee et al., 2002). Furthermore, Burniaux et al. (1998) studied 13 OECD countries and found that inequality (measured in disposable income) has risen in most of these countries between the mid 1970s and the mid 1990s which they relate to the economic globalisation and technological change.

Worldwide, the analysis of the World Income Inequality Database (WIID) for a sample of 73 countries shows that cross country income inequality rose in 48 countries – approximately two thirds – between the 1950s and the 1990s (UN, 2005b). The International Labor Organization (ILO) reveals similar results between 1993 and 2003, while 1.4 billion or half of the world’s workers still earn less than US$2 per day which is the poverty line, and 20 per cent of them actually earn less than US$1 per day (ILO, 2006).

In a recent paper, Al-Rahbi et al. (2008) have argued that the likelihood of increasing inequalities can be reduced by including the right type of economic reforms as a part of the overall strategy for a knowledge economy. They cite the example of the rapidly growing Asian countries, which have experienced high rates of growth during the past decades without rising income inequalities. The important point made by these authors is that a county should not turn its back on the knowledge economy, because of the risk of rising inequalities. Rather appropriate economic reforms should be implemented to ensure that the benefits of the knowledge economy are shared, as they can be, by all sections of the population. Progress towards the knowledge economy provides enormous opportunities to developing countries to raise the level of incomes of all inhabitants, provided that their development strategies are shaped properly with emphasis on social cohesion and equity.

3.7 Summary of the Chapter

This chapter has presented a critical review of the literature that addresses the concept of the knowledge economy. The review has highlighted the role and the importance of the various elements that together make up the knowledge economy.

The term knowledge economy refers to an economy in which the use of knowledge – as manifested in new technologies, better processes and higher workforce skills – is applied to a broad range of traditional and new industries, in which economic growth of all sectors of the economy is driven by these applications.

The apparent promise of the knowledge economy (for Oman and for the other developing countries) is not only that the economic contribution of physical resources can be greatly augmented through knowledge accumulation and utilisation, but it also represents real and achievable new opportunities for rapid and sustainable economic development. The literature shows a strong positive relationship between rapid economic growth and investment in the main pillars of the knowledge economy.

It has also been noted that Oman in particular is yet to benefit fully from this promise of the knowledge economy. This is indeed the core problem that is addressed in this thesis. The next chapter will explain the framework chosen to address this problem.