» Archive for June, 2006

How Do We Know We Are in a Knowledge Economy – Part II

Friday, June 23rd, 2006 by Jonathan Spira and Sachin Anand

Last week, we considered the expanding role of knowledge in today’s economy.  This week we will look at how the changing roles of capital and labor define our economy.

With workers in today’s economy increasingly working outside of factories or even the traditional Dilbertian environment, how does capital serve the ordinary worker?  It is here where the  Collaborative Business Environment (CBE) addresses the idea of working capital for the knowledge worker.  Collaborative Business Environments are the nexus of all tools used by the knowledge worker today including e-mail, discovery, and real-time communications.  In an industrial economy, buying a new machine for a factory might result in more widgets flying out the factory door, a factor known as productivity.  In the knowledge economy, productivity is a concept not as easily defined (we’ll look more at productivity in future columns).  Several very important questions arise:
-    What is the output of a knowledge worker?
-    How does one define the productivity of a knowledge worker?
-    How can this productivity be increased?

We tried in the 1980s to increase knowledge worker’s productivity by using artificial intelligence, but that’s a topic for another day.

At the dawn of the U.S. industrial age in the mid 1800s, 95% of the workforce was comprised of agrarian workers.  Today, only 1.5% of the workforce is agrarian yet our productivity in this area has been increasing at the rate of 1.94% every year since 1960.  Similarly, whereas 19.6% of the workforce in 1979 was comprised of industrial workers, the highest since 1939, our industrial output today has increased since 1985 even though knowledge workers today represent a plurality of the workforce (today the industrial workers figure is closer to 10%).  We are of course getting much more out of our factories than ever before – and why is that?  We have applied knowledge to the factory environment.  Since 1987, the number of industrial workers has decreased by 20% yet output has increased by 50%.

One thing becomes clear: while it was possible to have had a pure agrarian economy, it is next to impossible to envisage a pure knowledge economy.  Instead, the outputs of the so-called knowledge economy will interact with the agrarian and industrial elements creating more of a hybrid economy than anything else.

Given the continuously changing structure of the economy we will need to find different ways of defining such terms as output and productivity.  So what about the knowledge economy?  After all, even if we use knowledge sharing and collaboration to design a better refrigerator, eventually the refrigerator will be built in a factory.  We will build it more efficiently, it may be a better refrigerator, but nonetheless it will still be a refrigerator.

We’ll continue to look at these questions in the coming weeks – in the meantime, I need to check the fridge.

Jonathan B. Spira is CEO and Chief Analyst at Basex.  Sachin Anand is an analyst at Basex.

How Do We Know We Are in a Knowledge Economy?

Friday, June 16th, 2006 by Jonathan Spira and Sachin Anand

It seems that every time we pick up a newspaper or business journal, the term knowledge economy is being discussed.  But what exactly is the knowledge economy and have we in fact migrated from an industrial economy to a knowledge economy?  If so, how do we know? If not, are we somewhere on the path to a knowledge economy and if so, where along the path are we?

To answer these questions one could consider the factors of production in this changing economy, i.e. capital and labor. The Cobb-Douglas function, considered to be the basic production function in microeconomics, states that output is a function of both capital and labor.  Within this function, capital and labor have a very basic definition. Labor is defined as the workers employed in the particular area of production being analyzed, and capital is defined as the stock of goods used in the means of production, such as machines, buildings, tools, etc.  But are these measurements relevant in today’s economy?

With the structure of the U.S. economy changing from an industrial base to one that is service oriented, many might consider the new economy to be a “knowledge economy”, an economy where information is both the commodity and activity.  In today’s economy, workers are no longer restricted to a factory floor or Dilbertian cubicle.  Since workers can operate from anywhere in the world given in part the ubiquity of the Internet, the traditional roles of capital and labor have changed.  The question to ask then is, how do capital and labor function within this globalized and decentralized economy?

Since the pace of production in this new economy cannot simply be measured by the output of a factory, the focus must be shifted towards improving the capital available to the knowledge worker.  With knowledge being the output in this new economy, investments in capital should be used to improve the productivity of the knowledge worker.  Investing today should focus on streamlining the working environment of the knowledge worker to eliminate existing inefficiencies and to progress in areas where the worker already excels.

We’ll look at this very issue and continue the discussion next week.

Jonathan B. Spira is CEO and Chief Analyst at Basex.  Sachin Anand is an analyst at Basex.


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