The knowledge economy is a term that refers either to an economy of knowledge focused on the production and management of knowledge in the frame of economic constraints, or to a knowledge-based economy. In the second meaning, more frequently used, it refers to the use of knowledge technologies (such as knowledge engineering and knowledge management) to produce economic benefits as well as job creation. The phrase was popularized by Peter Drucker as the title of Chapter 12 in his book The Age of Discontinuity, And, with a footnote in the text, Drucker attributes the phrase to economist Fritz Machlup and its origins to the idea of "scientific management" developed by Frederick Winslow Taylor.
The essential difference is that in a knowledge economy, knowledge is a product, while in a knowledge-based economy, knowledge is a tool. This difference is not yet well distinguished in the subject matter literature. They both are strongly interdisciplinary, involving economists, computer scientists, engineers, mathematicians, librarians, geographers, chemists and physicists, as well as cognitivists, psychologists and sociologists.
Various observers describe today's global economy as one in transition to a "knowledge economy," as an extension of an "information society." The transition requires that the rules and practices that determined success in the industrial economy need rewriting in an interconnected, globalized economy where knowledge resources such as know-how and expertise are as critical as other economic resources. According to analysts of the "knowledge economy," these rules need to be rewritten at the levels of firms and industries in terms of knowledge management and at the level of public policy as knowledge policy or knowledge-related policy.
By definition, a knowledge-based economy relies on the use of ideas rather than physical abilities and on the application of technology rather than the exploitation of cheap labor. It is an economy in which knowledge is created, acquired, transmitted, and used more effectively by individuals, companies, and communities to promote economic and social development. Today in industrial countries such as the U.S and Europe, knowledge-based industries are expanding rapidly where new technologies have been introduced, demand for high-skilled workers, particularly in information technology workers has increased significantly but at the same time, demand for lower-skilled workers has declined and this put a lot of pressure on the current education system of industrial countries to produce more high skilled people. http://www.hualong-info.com/Blog/JohnVu/2010/November/20101107-06.en.html
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