We are not seeing, as previously thought, a transformation from industrial production to services but rather from a resource-intensive to a knowledge-intensive economy.
We are not seeing, as previously thought, a transformation from industrial production to services but rather from a resource-intensive to a knowledge-intensive economy.
The knowledge revolution
by Graciela Chichilnisky
The engine of growth is knowledge, with profound implications for us all
http://www.chichilnisky.com/pdfs/papers/147.pdf
The knowledge revolution
Radical advances in information technology are an obvious manifestation of this change. Underlying these are changes in the management of human knowledge, in its creation and distribution, and corresponding changes in the organisation of society . The dynamics in the world economy today are in computing and software, in telecommunications and biotechnology, in entertainment and financial markets.
We are not seeing, as previously thought, a transformation from industrial production to services but rather from a resource-intensive to a knowledge-intensive economy.
In a sense, knowledge has always been the driving force of change in human societies. Tens of thousands of years ago, the shift from a hunter-gatherer society to the agricultural society was driven by the knowledge of how to use seeds to sow and harvest food. In the agricultural society the main fuel was fertile land, but the knowledge of how to use it changed the way humans lived, moving from smaller nomadic societies to more stable, organized and larger settlements.
The next shift, from agricultural to industrial society, occurred in the 18th century when people learned how to use machines, particularly the internal combustion engine and the steam engine, to transform fossil fuels into controlled physical power. In the industrial society the fuel was fossil fuels such as coal and oil . The industrial revolution was driven by knowledge about how to use the new fuels.
Both the agricultural revolution and the industrial revolution had one thing in common: the adoption of new fuels and new knowledge about how to use them. In both cases, an increasing level of economic advancement was associated with the increasing use of specific fuels : land in the agricultural society, and fossil fuels in the industrial society .
In a similar way, the current revolution is drivenby knowledge-knowledge abouthow to use a different fuel: information technology. This fuel is fundamentally different because it is not physical, unlike land and fossil fuels. Therefore economic progress no longer means using more physical resources in order to produce more. Instead, it means achieving more with less .
Changes in land use led to the agricultural society . Changes in the use of fossil fuels led to the industrial society . And changes in the use of information technology are leading to the knowledge society. The knowledge revolution leads inevitably to the advent of the knowledge society, a society which is global in nature, deeply innovative in, and dependent on, the use of human knowledge.
Just as the most dynamic sectors in the industrial society were those that benefitted from the use of fossil fuels as an inexpensive and abundant input, and those in the agricultural society were the sectors using inexpensive and abundant land products, the new dynamic sectors are those which produce goods making use of information technology to expand the ability of the human brain to save, process, retrieve and communicate information. Examples are computers and software, telecommunications and biotechnology, entertainment and financial markets, design and animation, and all services based on human knowledge such as medical services and education. Today more Americans make semiconductors than work in the construction machinery, and the North American Telecommunications industry employs more than the automobile and the automobileparts industries combined (Beck, 1992). The US health and medical industry is now larger than oil refining, aircraft, autos, auto parts, logging, steel and shipping put together. More Americans work in biotechnology than in the entire machine-tools industry.
These sectors will expand more quickly than others and therefore the resulting society will produce mostly goods which are knowledge-intensive, much as the agricultural society produced mostly agriculture-related goods, and the industrial society produced mostly industry-related goods. This is why this new society is the ‘knowledge society’.
What is knowledge?
As human knowledge becomes the main input of economic production, it is important to focus on some of its most striking properties from the point of view of society.
Knowledge is a ‘public good’ because, at the physical level, one can share it with-others without losing it . Knowledge is not rival in consumption as apples or oranges are. One can restrict access to knowledge to gain economic
advantage, a point discussed below. However, I can share my knowledge with the reader without losing it myself. Land and machines, by contrast, are ‘private goods’ because if I use them they are not available to others .
This difference with knowledge leads to a completely new calculus, a new mathematical framework, for socio-economic thinking . In the case of knowledge, 1+1 is not 2, rather 1-1=1. Because knowledge is a new type of input – a non-physical, public good – the knowledge revolution introduces a change in social and economic organization because markets for public goods behave fundamentally differently from the usual way we think of private goods.
The differences go further because knowledge is differ ent from other public goods, such as law and order, which is non-rival in consumption . But law and order is provided by governments, like most public goods, whereas knowledge is provided privately . Individuals create knowledge. This does not exclude socially-created knowledge, emerging from educational systems and the cultural heritage of society. But it points out the fundamental difference that the knowledge society’s key input of production is a public good that is privately produced.
All this is new. Sociology, political sciences and economics are still learning to explain a society based on such inputs. The economics of knowledge is in its infancy, and ready for growth. It has only recently been observed that in markets with privately produced public goods, efficiency and distribution are closely interlinked, in a distinctive way (Chichilnisky and Milgrom, 1996). For efficiency, the distribution of property rights must be relatively more egalitarian, assigning more public goods to those who own fewer private goods. This is in stark contrast with conventional markets where efficiency and distribution are divorced from each other.
In the new society based on knowledge, markets may require a more equal distribution of wealth to function efficiently . The knowledge society could be more egalitarian than the industrial and the agricultural societies, although this is only a well-informed hope requiring further investigation.
Another argument in favour of this hope is that knowledge puts humans rather than land or machines at the centre of economic growth. Knowledge is privately produced and, at the purely physical level, it is centred in the human brain from where the most interesting and innovative knowledge originates. Although much knowledge resides in physical and electronic media, such as books and CD-ROMs, the ability to create new knowledge and adapt or cross-fertilize across different areas resides in humans.
Capital and machines are crucial in the industrial society but knowledge and ideas are more important and more scarce than capital. Who owns the capital is no longer the main issue. Ownership of ideas is becoming more critical . The ownership of ‘intellectual capital’ is key and markets which trade property rights on knowledge, or’intellectual capital’ behave quite differently from classical markets.