1. The Economy
By Mapaseka Ayanda Dube

2. What is the knowledge economy?
Capital
Labor Knowledge
society - Andre Saito
The knowledge economy and
Agricultural age
Industrial age
Land Knowledge age
• Knowledge has become the main resource
• The pace of innovation is accelerating
(not only in products and services, but also in
processes, markets, sourcing, business models, etc.)
2

3. Are terms like Knowledge “Economy” and
“Information Society” useful? For what? Views vary ..
Manchester Institute of Innovation
A lot of change, some
All sound and fury - not fundamentals are
really much serious shifting
Research
change
A lot of action, but no A lot of change, shaking the
strong common foundations of institutional
themes, no central axis structures
for a new social
formation
Immense change in the nature of
A lot of action, but the societies – value creation,
ground-rules stay the equality, power, leadership, etc…
same

4. Universal
Things like….
- Laws of Nature
- Essential
natures of things
- Mathematical and logical theorems
Plato

5. Key Features
Manchester Institute of Innovation
TECHNOLOGICAL
•Information Society
Research
•Knowledge Economy
1)Hard to differentiate; so common list:
Internet; computers, comm standards, e-devices; cross-discipline techs,
2) Diffusion of tech from large institutions to individuals, empowerment: Internet –
user-generated content and software
3) IS – advent of computers; KIS: mode 2; biotechnologies

6. TRADITIONAL ECONOMY
Supply, Demand & Equilibrium
• Limited supply
• Unlimited demand
• Law of demand and supply
• Market mechanism of
coordination & ownership
• Price takers vs. price
makers
6
Figure: Craven, John (1990): Introduction to Economics, p.61

7. Knowledge has different properties
• Low rivalry (usually said non-rivalry)
Use by one person does not diminish it
• Low excludability (usually said partial excludability)
It is difficult to prevent others from using it
society - Andre Saito
The knowledge economy and
• Knowledge is both input and output
Today’s innovations feed tomorrow’s
In other words…
• Knowledge is an infinite resource
• Knowledge tends to spread
7

8. DIGITAL ECONOMY
DIGITAL GOODS HAVE…
 High first-copy costs (Fixed costs)
 Low marginal costs
 Declining infrastructure costs
(processing, storage, bandwidth)
 Economies of networks
 Abundance rather than scarcity
 Amazon: 2,3 Mio books
8
 Bookshop: 40-100.000 books Figures: compiled by author, based on Stahler (2001): Geschaftsmodelle in der digitalen Okonomie, p.197

9. FREE ECONOMY
CHARACTERISTICS
 Over-supply
 Increasing storage & processing capacity
at decreasing costs
 Unlimited “shelf-space” of digital
businesses
 Demand
 Irrational behavior with free products
 No cost-benefit analysis at zero price
 Difficult to map utility
 No-cost = no disadvantage
 Power of competition
 Webmail: Google & Yahoo
 Critical mass crucial 9

10. TRADITIONAL ECONOMY
Consumer Behavior
• Choice under scarcity
• Self interest vs max profit
• Max Utility with limited
budget
• Substitute & Income
effect influence demand
10
Figure: Mankiw, N. Gregory and Taylor, Mark P. (2006): Microeconomics: Microeconomics, p.432

11. Problems with this “Information
Sector” Approach
Manchester Institute of Innovation
 “Information Occupations” are not the only
Information-Processors. They are specialised and
Research
visible ... but are they more significant, more
sophisticated? Would new IT be used to replace
human effort especially here?
 Problems of Classification:
(a) Boundary Cases
(b) Heterogeneity
 Periodisation issues – in what way is “information
society” (in this view) now a new stage rather
than a step in a trend?

12. Organizational level
• External issues
• Scan the environment (e.g., public policies, S&T development,
competitors’ behavior, etc.
• Improve knowledge creation and transfer through collaborative
arrangements and acquisitions
society - Andre Saito
The knowledge economy and
• Open channels with customers and society
• Internal issues
• Develop absorptive and innovative capacity
• Manage knowledge work and workers
• Explore contracting and outsourcing alternatives
12

13. Sectoral Workforce skills (educational levels)
HIGH SKILL
Data on EU workforce, 2000
Knowledge-intensive services
Low-skill services
Education
Medium-skill services
Business Sers._
Health & Soc. Sers.
Other Sers. FIRE
Manufacturing Trade
LOW Agriculture Transport MEDIUM
SKILL HORECA Pub. Admin. SKILL

14. Firms and Sectors
• Society (concept of eco-services, informal
economy and self-services)
• Formal Economy (in-house services, plus services
delivered to others - sometimes sold -
by non-service firms)
• Services Sectors (main activity concept of eco-services)
• Knowledge-Intensive Services
• Business-Related Services
• Business Services
• Knowledge-Intensive Business Services

15. Firms and Sectors
Society
Formal Economy
Services Sectors
Knowledge-Intensive
Services
Business-Related
Services
Business Services
Knowledge-Intensive
Business Services

16. Porat’s Picture 4 sector
aggregation of
Manchester Institute of Innovation
US workforce
Agricultural  Industrial  Information
Info
Research
Serv
Mfg
Agr
1860 1880 1900 1920 1940 1960 1980

17.   Knowledge Economy
Manchester Institute of Innovation
• Less of a technological focus….
• Less specifically information technology…
Research
• Greater reliance on innovation and thus on innovation-
facilitating knowledge in industry – increasing R&D,
dependence on hi-tech products and processes
• (Other types of knowledge important too – for innovation
and coordination – thus greater share of knowledge workers
and use of KIBS)
• Increased investment in knowledge production (=R&D),
distribution (=education), management (knowledge
management), etc.

18. References
• Christian Dahlhausen, Dirk Schreiber, Rainer
Clement(2008), Free Economy. University of Applied
Science
• Ian Miles(2008), Knowledge Economy and Information
Society.
• Ian Miles (2009), Knowledge Intensive Service
firms, sectors, systems.Centre for Service
Research & MIoIR,Manchester Business School
• Katsuhiro Umemoto (2006), The Knowledge Economy
and the Knowledge Society.
• Stephen Downes(2007), Future Knowledge Society.