JRAP 38(2): 117-129. © 2008 MCRSA. All rights reserved. The Evolution of the Knowledge Economy Hanas A. Cader South Carolina State University – USA Abstract. This paper revisits the definition of the knowledge economy (Beck, 1992) and investi- gates changes in knowledge-based industries between 1991 and 2001. Using the General Edu- cational Development Reasoning (GEDR) scale (1-6), non-farm industries were classified as higher knowledge-based industries (GEDR level ≥ 5). The 2001 U.S. national industry-specific occupational employment and wage estimates data were analyzed to identify knowledge- based industries and compared with the knowledge-based industries identified in 1991. There were 41 knowledge-based industries in 1991. In 2001, knowledge-based industries had in- creased by 50 % to 64. Between 1991 and 2001, 27 of the original industries remained classified as knowledge-based industries, and seven industries became non-knowledge-based indus- tries. In 2001, 37 new industries emerged as knowledge-based industries as a result of an in- crease in their knowledge ratio. Further, the composition of the knowledge-ratio of industries classified as knowledge-based has changed considerably over the period. 1. Introduction worker location decisions. Recently, several research studies focused on the relationship between the eco- In the late 20th century, national economies nomic landscape and transportation system. Sohn throughout the world experienced unprecedented (2002) found that as a result of telecommunication in- economic challenges and opportunities. Technological frastructure development, many economic activities advances in electronics, the revolution in software ap- that were formerly located in the urban core had be- plications, and the expansion of telecommunication gun to diffuse to either the urban periphery or other infrastructure have altered basic economic functions non-metro areas. Further, the recent trend indicates and agent interactions. The traditional shopping pat- that a considerable percentage of the labor force tele- tern, where a consumer travels to a shopping mall, is commute (work from where they reside) compared to no longer „the option‟ for shopping. Rather, E-retailing traditional office workers. In 2005, it was estimated has become popular among many consumers in both that there were about 45.1 million teleworkers com- urban and rural settings. Today, E-retailing and online pared to 44.4 million in 2004 (International Telework banking are two other important segments of econom- Advisory Council (ITAC), 2004). Drucker (1989) pre- ic activity that have overtaken traditional shopping dicted this trend long before the technology bubble and bill payment systems. E-retailing has changed in- suggesting that “office work, rather than office work- dividual purchasing behavior, while business-to- ers, will do the traveling” Drucker (1989, p. 38). In a business E-commerce has altered input purchase and 2006, U. S. General Services Administration (GSA) delivery systems. These transformations have a direct commissioned study it was found that the financial link to the movement of people, the shipment of final benefits of telework exceeded the technology expan- and intermediary goods and services, and firm and sion costs of facilitating the telework. household location choices. All these changes are symptomatic of a changing The collective changes have had an impact on the economy over the past two decades and showing no nature of transportation systems, as well as firm and indication that the pace of change will slow. This 118 Cader change is contrasted with the traditional economic gine of production” and the organization facilitates the proposition, where manual labor was considered an growth of knowledge (Marshall, 1890, p.115). In early important factor of production. However, in the cur- 20th century, Schumpeter considered the “new combi- rent economic condition, knowledge is considered an nation of knowledge” as an important element for in- important factor. The resulting economic conditions novation and entrepreneurship (1911, p. 57). are variously referred to as the “new” economy, Earlier in the 20th century, knowledge was neither “knowledge” economy, or “digital” economy. But, directly measured nor incorporated in the production such alternative terminology can have different mean- function. Researchers attempted to account for it ings for different people. There is neither a standard through the unexplained portion of economic growth. criterion to characterize the influence of advanced The unexplained portion was labeled “technical technologies on the economy, nor measures of its pe- change,” “the human factor,” “organization” or netration and performance. Hayek suggested that the “measure of our ignorance” (Skilbeck, 1964), or “resi- composition and intensity of knowledge-based indus- due” (Abramowitz, 1956; OECD, 1964). In the neoclas- tries depended on “how little the individual partici- sical economic literature, innovation and entrepre- pants need to know in order to be able to take the right neurship were considered essential ingredients of eco- action” (Hayek, 1948, p. 86). The assessment of the nomic growth, while Schumpeter argued that technol- knowledge-based economy is characterized by know- ogical change was the engine of economic growth ledge that individuals possess and its tacit nature (Schumpeter, 1939). Relating new knowledge to tech- made it harder to measure. Various methods have nical change, Antonelli (1998) suggested that the gen- been adopted to measure the knowledge-based econ- eration of new knowledge, in the form of technological omy, i.e. of knowledge assets (Machlup, 1962); value change, resulted from the interplay of generic know- of labor in knowledge intensive sectors (Eliasson et al., ledge (codified technological knowledge with direct 1990); labor qualification (Burton-Jones, 1999); and the scientific content) and tacit knowledge (learning share of knowledge workers (Beck, 1992). processes based on the specific experience of the inno- In this paper, we use the definition of the know- vator). Romer (1986; 1990) considered knowledge to be ledge economy offered by Beck (1992), and examine the third important factor of production. In an eco- the share of knowledge workers in industries in 2001. nomically-progressive society, general knowledge and The remainder of the paper is organized into four sec- tacit knowledge work together, where scientific know- tions. The next section discusses the history and defi- ledge generation (general knowledge) leads to innova- nitions of the knowledge economy. In the following tion (tacit knowledge). Although knowledge is impor- section, we proceed with a discussion of knowledge tant for economic development, it alone is not suffi- workers in the knowledge economy. In the final sec- cient to bring about change in the absence of necessary tion, the industries constituting the knowledge econ- infrastructure. Shapiro and Varian argued that omy are identified for 1991 and 2001. “...today‟s breathless pace of change and the current fascination with the information economy are driven 2. Knowledge economy form and history by advances in information technology and infrastruc- ture, not by any fundamental shift in the nature or National and regional leaders have increasingly even the magnitude of the information itself” (1999, focused on knowledge-based economic activities, pre- p.8). suming that future economic prosperity will depend All economies have some stock of knowledge, but on knowledge-based activities and a similarly capable those that are growing are distinguished by the gener- work force. Of course, in a sense, a knowledge-based ation of new knowledge derived from existing know- economy has existed since the dawn of human civili- ledge. Private knowledge (tacit knowledge), either in zation and its evolution has been based on its ever economies or in social organizations, may become the greater accumulation of knowledge over time. Socie- property of the institutions. Some sociologists argue ties benefited from knowledge in the form of the that such knowledge is the intellectual property of a goods and services that were produced and made labor (Locke, 1924), while others argue that it belongs available to meet socioeconomic needs. Knowledge to the public and needs to be communicated and was incorporated into the production function in the shared (McFarland, 2004; Buchanan and Campbell, form of human capital. In the early economic litera- 2005). Today, information that is commonly available ture, there were no specific references to the impor- tance of knowledge. Economists began to realize its importance in the late 19th century as Alfred Marshall suggested that “knowledge is our most powerful en- Evolution of the Knowledge Economy 119 (information commons1) and likely the result of the prised of certain managerial and profession- subsequent application of information, may become al/technical occupations (Wojan, 2000). Other research intellectual property. Information commons are more emphasized the influence and relative level of use of useful in either the economy or in an organization electronic communication and exchange, or E- when it is codified, stored in the proper form, and commerce (Forrester Research, 2000). These are only a made available for users. The advantage of storing few examples of the alternative conceptions of the new knowledge is it can be retrieved and used in the pro- economy. Despite the fact that each