Knowledge to build the world, knowledge to destroy the world. K.S.

Pang (2013)

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The Knowledge Economy



Chapter 2: Macroeconomic References: The Continuity of Knowledge

Economic historians point out that nowadays disparities in the productivity and
growth of different countries have far less to do with their abundance or lack of
natural resources than with the capacity to improve the quality of human capital and
factors of production: in other words, to create new knowledge and ideas and
incorporate them in equipment and people. Few characteristics of economic growth
are discussed in the following sections:

2.1 Growth in the Share of Intangible Capital
2.2 The Great Leap Forward in Learning
2.3 The Increase in Knowledge-Related Investments
2.4 The Upheaval of Information and Communication Technologies



Knowledge to build the world, knowledge to destroy the world. K.S. Pang (2013)

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2.1 Growth in the Share of Intangible Capital

This is growing of the relative importance of intangible capital in total productive
wealth and the rising relative share of GDP attributable to intangible capital.
Intangible capital largely falls into two main categories: on the one hand, investment
geared to the production and dissemination of knowledge (For examples: training,
education, R&D, information, and coordination); on the other, investment geared to
sustaining the physical state of human capital (health expenditure).

In the United States the current value of the stock of intangible capital (devoted to
knowledge creation and human capital) began to outweigh that of tangible capital
(physical infrastructure and equipment, inventories, natural resources) at the end of
the 1960s. As we can see from the below illustration:



2.2 The Great Leap Forward in Learning

One of the main characteristics distinguishing 20
th
century men and women from their
predecessors is their ability to read. The 20
th
century was the period of great learning
to quote a title in The Economist. Moreover, that this period of transformation is far
from over. The frontiers of education are constantly being pushed back in two
respects: education is gradually reaching new fringes of the population and appearing
at new stages of life (For examples: Education for retired people).
Knowledge to build the world, knowledge to destroy the world. K.S. Pang (2013)

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While the 20
th
century was one in which decisive advances were made in the former
respect, the present century will be characterized by a broadening of education to all
stages of life. This switch to lifelong learning for retiree will trigger a new
quantitative leap forward regarding efforts and resources devoted to education and
training for knowledge.

2.3 The Increase in Knowledge-Related Investments

On the recent researches done by the OECD has helped to produce stable categories
of knowledge related investment for given countries or sectors. Taking the simple yet
highly restrictive measure of investment in research and development, public/private
education and software, one can see that annual investment rates have grown strongly
since the 1980s (at an average annual rate of 3 percent in the OECD countries).

Between 1985 and 1992, the OECD countries spent an average of between 8 and 11
percent of their GDP on knowledge-related investments (public education, R&D, and
software). The following figure provides most recent data for total investment in
knowledge as a percentage of GDP for twenty-four OECD countries (1998). Total
investment in knowledge amounts to 8.8 percent of GDP. Refer to the illustration at
below for further details:

Knowledge to build the world, knowledge to destroy the world. K.S. Pang (2013)

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2.4 The Upheaval of Information and Communication Technologies

ICT is a Knowledge Instrument. The ICT revolution is crucial insofar as it involves
technologies geared to the production and dissemination of knowledge and
information. These new technologies, which first emerged in the 1950s and then
really took off with the advent of the Internet, have breathtaking potential. The
immense potential for economic change offered by the new ICT system is particularly
relevant to situations in which the main object of the transaction can be digitalized.

This is the case for knowledge and information for example: someone orders potatoes
on the Internet and pay with electronic money, but much of the transaction still
depends on traditional ways of delivering goods which, to be efficient, still require a
good truck and a skilled driver. By contrast, the full digitization of knowledge has the
potential to generate dramatic changes in the knowledge economy.

In addition to transmitting written texts and other digitizable items (music, pictures),
the new ICT also allow users to access and work upon knowledge systems from a
distance (e.g., remote experimentation), to take distance-learning courses within the
framework of interactive teacher-student relations (tele-education) and to have large
quantities of information (e-library).