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For countries in the vanguard of the world economy, the balance between knowledge and resources has shifted so far towards the former that knowledge has become perhaps the most important factor determining the standard of living - more than land, tools and labour. Today’s most technologically advanced economies are truly knowledge-based.

For the last two hundred years, neo-classical economics has recognised only two factors of production: labour and capital. Knowledge, productivity, education, and intellectual capital were all regarded as exogenous factors that are, falling outside the system.

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New Growth Theory is based on work by Stanford economist Paul Romer and others who have attempted to deal with the causes of long-term growth, something that traditional economic models have had difficulty with. Following from the work of economists such as Joseph Schumpeter, Robert Solow and others, Romer has proposed a change to the neo-classical model by seeing technology (and the knowledge on which it is based) as an intrinsic part of the economic system. Knowledge has become the third factor of production in leading economies.

Technology and knowledge are now the key factors of production. Romer’s theory differs from neo-classical economic theory in several important ways:

• Knowledge is the basic form of capital. Economic growth is driven by the accumulation of knowledge.

• While any given technological breakthrough may seem to be random, Romer considers that new technological developments, rather than having one-off impact, can create technical platforms for further innovations, and that this technical platform effect is a key driver of economic growth.

• Technology can raise the return on investment, which explains why developed countries can sustain growth and why developing economies, even those with unlimited labour and ample capital, cannot attain growth. Traditional economics predicts that there are diminishing returns on investment. New Growth theorists argue that the non-rivalry and technical platform effects of new technology can lead to increasing rather than diminishing returns on technological investment.

• Investment can make technology more valuable and vice versa. According to Romer, the virtuous circle that results can raise a country’s growth rate permanently. This goes against traditional economics.

• Romer argues that earning monopoly rents on discoveries is important in providing an incentive for companies to invest in R&D for technological innovation. Traditional economics sees “perfect competition” as the ideal.

Enhancing human capital is critical for GDP growth. But sustained GDP growth doesn’t just happen. In order to make investments in technology, a country must have sufficient human capital. Human capital is the formal education, training and on-the-job learning embodied in the workforce.

Various observers describe today’s global economy as one in transition to a

‘knowledge economy’, or an ‘information society’. But the rules and practices that determined success in the industrial economy of the 20th century need rewriting in an interconnected world where resources such as know-how are more critical than other economic resources.

Various management writers have for several years highlighted the role of knowledge or intellectual capital in business. The value of high-tech companies such as software and

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biotechnology companies is not in physical assets as measured by accountants, but in their intangibles such as knowledge and patents. The last few years have a growing recognition by accounting bodies and international agencies that knowledge is a crucial factor of production.

1.8.1 Background of knowledge economy

We are now living in a knowledge economy where the principal economic resource businesses have to offer their customer is knowledge. The nature of work in an organization has changed enormously with the shift from an industrial economy where the focus is production of commercial products to a knowledge economy where the main outcomes are service and expertise. The shift to a knowledge economy has increased the complexity of work activities. Employers have recognized the value of identifying and accessing a diversity of expertise and knowledge from different sources to work on common goals.

People increasingly work closely with others to accomplish common goals, particularly if they are working in service areas or are used as sources of expertise by others. The shift to a knowledge economy has also led to increasing concern for building strong interpersonal relationships with others. Many employees spend considerable time interacting with others:

collaborating with work colleagues, customers or people in other organizations through face-to-face meetings, online network, emails and many other mechanisms.

1.8.2 What is knowledge economy?

The World Bank Institute offers a formal definition of a knowledge economy as one that creates, disseminates, and uses knowledge to enhance its growth and development. The knowledge economy is often taken to mean only high-technology industries or information and communication technologies (ICTs). It would be more appropriate, however, to use the concept more broadly to cover how any economy harness and uses new and existing knowledge to improve the productivity of agriculture, industry, and services and increase overall welfare.

A knowledge economy uses data as it raw material and transforms it using technology, analysis tools, and human intelligence into knowledge and expertise. Fig. 1.5 illustrates the main phases of this transformation process.

Fig.1.5 Steps in the Knowledge Creation Process

A knowledge-driven economy is one in which the generation and exploitation of knowledge play the predominant part in the creation of wealth. In the industrial era, wealth was created by using machines to replace human labour. Many people associate the

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knowledge economy with high-technology industries such as telecommunications and financial services.

The term knowledge economy is a relatively new one, commonly used to refer to aspects of the service sector of the economy. This, however, is a restricted view of the term. To a significant extent, the linkages of the operations in the service sector lie in the hardware part. Thus, chips, integrated circuitry, and technology used in biosciences, for instance, are important aspects of knowledge economy. The space occupied by the Information Technology (IT) industry within the content of the term knowledge economy is significantly large, probably due to its being an early starter. However, a certain extent of grayness is associated with the term knowledge economy, primarily because, so far, it has not been adequately defined; nor have its boundaries been drawn with clarity.

According to Housel and Bell a knowledge based economy is the one where knowledge is the main source of wealth, growth and employment, with a strong reliance on information technology.

In knowledge economy citizens would be working in service industries rather than in manufacturing or agriculture. In knowledge-based economy there is a need to develop a national focus on innovation, research, education and information communication technologies. Further in the knowledge-based economy the shift in focus is from products to services where the greater recognition of the importance of the knowledge held within an organisation is responsible.

1.8.3 Impact of knowledge in the knowledge economy

1. Unlike capital and labour, knowledge strives to be a public good (or what economists call “non-rivalrous”). Once knowledge is discovered and made public, there is zero marginal cost to sharing it with more users. Secondly, the creator of knowledge finds it hard to prevent others from using it. Instruments such as trade secrets protection and patents, copyright, and trademarks provide the creator with some protection.

2. The implication of the knowledge economy is that there is no alternative way to prosperity than to make learning and knowledge-creation of prime importance.

There are different kinds of knowledge. “Tacit knowledge” is knowledge gained from experience, rather than that instilled by formal education and training. In the knowledge economy tacit knowledge is as important as formal, codified, structured and explicit knowledge.

3. According to New Growth economics a country’s capacity to take advantage of the knowledge economy depends on how quickly it can become a “learning economy’. Learning means not only using new technologies to access global knowledge, it also means using them to communicate with other people about innovation. In the “learning economy” individuals, firms, and countries will be able to create wealth in proportion to their capacity to learn and share innovation.

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1.8.4 Characteristics of knowledge economy

The knowledge economy differs from the traditional economy in several key respects:

1. The traditional economy is that of scarcity. The economics of knowledge economy is that of abundance. Knowledge is the resource which unlike other resources will not deplete when used. It can be shared and grow through its application.

2. In the knowledge economy the distances will be meaningless and the world will be considered as a global village where using appropriate technology virtual organisations, virtual teams and market places are possible in which operations will be faster than in the traditional economy.

3. In the knowledge economy, it is difficult to apply controls in terms of laws, taxes and barriers in the national level as the businesses become global in nature.

4. In the knowledge economy, the knowledge and information leak may be inevitable where the demand is highest and the barriers are lowest.

5. In the knowledge economy the products which are developed based on knowledge will attract premium price compared to the products with low embedded knowledge or knowledge intensity.

6. Price and value of knowledge depends heavily on context. The same knowledge can have different value to different people at different times.

7. Knowledge when locked into systems or processes has higher inherent value than when it can ‘walk out of the door’ in people’s heads.

8. Human capitals - competencies - are a key component of value in a knowledge-based company, yet few companies report competency levels in annual reports.

In contrast, downsizing is often seen as a positive ‘cost cutting’ measure.

These characteristics, so different from those of the physical economy, require new thinking and approaches by policy makers, senior executives and knowledge workers alike. To do so, though, requires leadership and risk taking, against the prevailing and slow changing attitudes and practices of existing institutions and business practice.

1.8.5 Key drivers of knowledge economy (a) The Importance of Intellectual Capital

Intellectual capital is a firm’s source of competitive advantage. To become knowledge driven, companies must learn how to recognise changes in intellectual capital in the worth of their business and ultimately in their balance sheets. A firm’s intellectual capital -employees’ knowledge, brainpower, know-how, and processes, as well as their ability to continuously improve those processes - is a source of competitive advantage. But there is now considerable evidence that the intangible component of the value of high technology and service firms far outweighs the tangible values of its physical assets, such as buildings or equipment. The physical assets of a firm such as Microsoft, for example, are a tiny proportion of its market capitalisation. The difference is its intellectual capital.

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(b) The Importance of ICT

ICT (Information Communication Technology) releases people’s creative potential and knowledge and are the enablers of change. They do not by themselves create transformations in society. ICT are best regarded as the facilitators of knowledge creation in innovative societies. The new economics looks at ICT not as drivers of change but as tools for releasing the creative potential and knowledge embodied in people.

However, the ICT sector has a powerful multiplier effect in the overall economy compared with manufacturing. A 1995 study of the effect of software producer Microsoft on the local economy revealed that each job at Microsoft created 6.7 new jobs in Washington State, whereas a job at Boeing created 3.8 jobs. Wealth-generation is becoming more closely tied to the capacity to add value using ICT products and services.

(c) The New Economics of Information

The rate of technological change has greatly increased over the past thirty years.

Three laws have combined to explain the economics of information. Moore’s Law holds that the maximum processing power of a microchip at a given price doubles roughly every 18 months. In other words, computers become faster, but the price of a given level of computing power halves. Gilder’s Law - the total bandwidth of communication systems will triple every 12 months - describes a similar decline in the unit cost of the net. Metcalfe’s Law holds that the value of a network is proportional to the square of the number of nodes. So, as a network grows, the value of being connected to it grows exponentially, while the cost per user remains the same or even reduces.

While Metcalfe’s Law has been applied to the Internet, it is also true of telephone systems. Gordon Moore first formulated Moore’s Law in the early 1970s. There can be no doubt that the cycle of technology development and implementation is accelerating and that we are moving inexorably onward, out of the Industrial Age and into the Information Age.

(d) Globalisation

ICT open up global markets and foster competition. With the advent of information and communication technologies, the vision of perfect competition is becoming a reality.

Consumers can now find out the prices offered by all vendors for any product. New markets have opened up, and prices have dropped. When businesses can deliver their products down a phone line anywhere in the world, twenty-four hours a day, the advantage goes to the firm that has the greatest value-addition, the best-known brand, and the lowest

“weight’. Software provides the best example: huge added value through computer code, light “weight” so that it can be delivered anywhere at any time.

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Competition is fostered by the increasing size of the market opened up by these technologies. Products with a high knowledge component generate higher returns and a greater growth potential. Competition and innovation go hand in hand. Products and processes can be swiftly imitated and competitive advantage can be swiftly eroded.

Knowledge spreads more quickly, but a firm must be able to innovate more quickly than its competitors in order to compete in the knowledge economy.

(e) Brands are critical.

Brands strengthen consumers’ trust in nations and their products. In a global marketplace where consumers are overwhelmed by choice, brand recognition assures their trust in both the tangibles and intangibles that a product will deliver. Like intellectual capital, brand equity can be hard to measure yet it may account for a significant proportion of a company’s value. It is intangible in the sense that it often consists of customers’

perceptions of the value they gain from using a product or service rather than any measurable benefit. A nation’s brand can be as important (or more) as the firm’s, and provide extra leverage for whichever firm’s brand is attached to the actual product – Indian tea, Swiss watches, Scotch whisky, German cars, Japanese appliances, New Zealand butter.

1.8.6 Growth of IT industry in the knowledge economy

IT industry in India has grown, and has had an impact on various segments of the economy. In addition to being a sunrise revenue-generating industrial sector, the IT industry has established linkages with hardware manufacturing industries thereby giving a fillip to that sector. The IT industry has also made its presence felt on the education sector from where it draws one of its main resources. Further, this industry has helped generate employment potentialities in the economy. The Business Process Outsourcing units are further expected to play a major role in the generation of additional employment. This by no means is a simple contribution. And yet these and other attributes have been emphasised to the extent that the industry has acquired a larger than life image. It is only a short step from here to attribute this industry with pan-economic relevance. As a proxy for the knowledge economy, this industry is often identified as a solution provider for shortcomings in the economy, which is quite far-fetched in the current scenario.

The impact of IT is best understood when the differences between industrial and knowledge-intensive ventures are recognised. Industrial growth derives from investments in large-scale infrastructure (such as railways, roadways, power grids and dams). Such infrastructure supports the growth of physical-asset intensive industries (such as the steel and transportation industries) that create and move physical entities (such as goods, water and people). These ventures employ numerous workers with limited education and skills, and can uplift large sections of society.

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In contrast, ventures in the knowledge economy usually involve the production of knowledge-intensive goods (like software), and the large-scale capture, movement and utilisation of information using sophisticated network infrastructure (such as computers, cable, fiber and routers). Beyond the physical labour required for initial construction, building and maintaining such infrastructure requires specialised knowledge.

1.8.7 Implications of knowledge economy

The evolving knowledge economy provides critical implications for policy makers of local and national government as well as international agencies and institutions concerned with the growth and development of an economy as well as the businesses concerned with creating knowledge based organization. Following are some of the important implications of knowledge economy.

Implications for policy makers

1. Traditional measures of economic success must be supplemented by new ones such as encouraging knowledge based industries with incentives and rewards.

2. Economic development policy should focus not on creation of jobs, but rather on infrastructure for sustainable ‘knowledge enhancement’ that act as an attraction to knowledge-based industries.

3. Development of policies for efficient regulation and taxation for information and knowledge trading at international level as well as looking to future knowledge-based industries rather than traditional industries.

4. Policies to promote collaboration to stimulate market development.

5. Strict policy measures to check information and knowledge frauds and thefts.

6. Wider policy support to knowledge based industries to remove regional imbalances.

7. Recognition and support of local talents to get into knowledge based industries and to prevent brain drain.

8. Policy support to promote education and training to take the challenges of knowledge economy and to promote R&D activities.

Implications for business

1. Recognition of the importance of knowledge to the organisational business bottom line.

2. Design and develop new measures of enhancing corporate performance based on knowledge.

3. Systematically enhance learning and knowledge, through new organisational structure and processes that is in tune with the changing global environment.

4. Building a technology infrastructure to enhance knowledge creation and sharing.

Example: Hewlett-Packard’s uses an intranet for knowledge sharing throughout the company on a global basis.

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5. To foster organisational wide dissemination of knowledge through effective Internet / Intranet technologies and business practices.

6. Recognising human contribution to knowledge such research and development, discovery, patents,etc.,

7. Many businesses are now realizing the role of knowledge and are creating knowledge management programmes and appointing CKOs (Chief Knowledge Officers). Such responses should be part of a coordinated effort that:

a) Recognizes the importance of knowledge to their business bottom line.

Example: Buckman Laboratories recognizes the value of solving customer problems by enhancing knowledge flows from their chemical experts direct to the customer interface.

b) Develops new measures of corporate performance based on knowledge:

b) Develops new measures of corporate performance based on knowledge:

In document Lei 7/2012, do 28 de xuño, de montes de Galicia (página 34-0)