Knowledge-based economy

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KNOWLEDGE BASED ECONOMY

The essence of the new economy. The rise of a new type of economy termed Knowledge-based economy (KBE) is one of interesting phenomena observed in the contemporary world. This is a significant reorientation of economy consisting in gradual transfer from material consuming economy to economy based on information and knowledge. As a result of this change, hitherto prevailing competition between countries and regions based on material resources is substituted by competition founded on intangible resources or more specifically on human resources, knowledge and new technologies. Developmental chances of countries and regions will be more often influenced by human intellectual potential and knowledge connected with the latest achievements of the contemporary science. The creation of this economy, in which the key role is played by innovations, is in the 21st century the basic challenge for countries the aim of which is to achieve a high development level and competitiveness.

The terms knowledge-based economy, and its equivalents, such as new economy, digital economy or network economy, are connected with the term of „an information society”, which appeared in the seventies of the 20th century and referred to the famous technological wave theory by Alvin Toffler (1928-), a distinguished American sociologist and futurist. Technology is a key element in Toffler’s theory. His concept of technological waves pertains to breakthrough inventions introduced by humans in the history. Toffler considered the history of humanity in three consecutive stages, technological waves: the agrarian one, the industrial one and post-industrial one. „The third wave”, the post-industrial, contemporary wave, described by Toffler, is characterised by mass implementation of new informatics and communication technologies which create unlimited possibilities of communication among people and transfer of information. „The third wave” represents post-industrial economy in which a significant role is played by information and what a man can do with it using his intellect. The changes to which Toffler directs the attention result among others from technological revolution connected with relatively newly created ICT Information and Communication Technologies, formation of global economy and closer and closer connection of contemporary economy to science and its achievements.

There are numerous definitions specifying what this new economy is. One of them is the definition formulated by the Organization for Economic Co-operation and Development (OECD), according to which the new economy is the economy which „[…] is directly based on the production, distribution and use of knowledge and information”. According to experts in the KBE sphere it is the economy in which enterprises base their competitiveness on knowledge and its construction is done by the creation of conditions favourable for the rise and success of enterprises basing their competitive advantage on knowledge (A. K. Koźmiński). Innovations and pro-innovation state policy are a foundation for the construction of this new kind of economy. According to A. Kukliński, in the new economy, a stimulus to the social and economic development are human knowledge and possibilities for its creation, which leads to particular feedback between the economy and the society. In the post-industry society, as D. Bell, an American sociologist, notices „[…] knowledge and information became the source of strategy and social changes, that is the same as capital and labour were in the industrial society”.

Innovations as the key to the new economy. Innovations are the foundation for KBE. For J. A. Schumpeter (1883-1950), one of the creators of modern economy and a forerunner of research on innovations, an innovation is a function consisting of creative thinking and action. In this sense an innovation is the introduction of a new product, of a new production method as well as opening of a new sales or delivery market or implementation of a new organisation form. Currently we have a wider view on innovations. On the one hand, we treat results in reference to various kinds of goods, services or new organisation ways as innovations. On the other hand, we understand innovations as a particular process and we talk about innovative phenomena. They encompass not only the final result but also all activities preceding the rise of a particular innovation, that is an idea, research and development, design, production, marketing and popularisation of the innovation. Thus, innovations rise in the effect of gathering information, transforming it into knowledge which subsequently we try to use in a practical way. Simultaneously innovations are a process of learning. Both single enterprises and regions take part in it. Each of these entities has particular possibilities of accumulating knowledge and its usage depending on human, scientific and technical resources. Innovation development is substantially influenced by technological progress, changing expectations of goods and services customers as well as increasing competition on markets.

Taking into account innovations which are necessary in the creation of KBE, we cannot forget about new technologies which are connected with them. Nowadays we should pay special attention to new types of technology, specifically to General Purpose Technology which has „[…] a breakthrough meaning and a wide range (with many forms and various applications and with many kinds of complementary connections with other technologies)”(K. Porwit, Features of Knowledge Based Economy, their contemporary meaning and effectiveness conditions, […] Knowledge Based Economy, edited by A. Kukliński, Warsaw: KBN 2001, p. 120). Today the most significant technologies for building KBE are technologies from the ICT group and more important role is played by intensively developing technologies of new materials and fuels, biotechnology and nanotechnology.

Innovations, unique technologies, the support of economic development by central and regional governments will turn out insufficient to build this new type of economy. In order to construct KBE it is necessary to surpass the economic and technical sphere, properly inspiring and organising the society and its human resources. Without adequate human resources it is impossible to create KBE. Human resources appropriate for building the new economy are basically employees with high professional qualifications based on solid education, acquainted with information technology, speaking foreign languages, mobile, and motivated to creative and effective activity in favour of modern economy. Only on the basis of such people it is possible to prepare and execute country’s effective pro-developmental policy and to create proper institutions assisting the creation of KBE.

Determinants of KBE development. The breakthrough, observed nowadays around the world, connected with the gradual transfer to KBE, is a fundamental change. In the previous epoch, the factors decisive for economic development were first of all resources, labour force (as cheap as possible), good technical infrastructure and organisation and efficiently functioning transport. Economy concentrated on describing and perfecting the processing of some material goods into new material goods. Currently, in the times of post-industrial economy based on knowledge and modern technologies, the above mentioned economic development factors are successively substituted by new factors such as highly qualified employees, universities and research institutions, informatics infrastructure as well as conditions favourable for the construction and development of the new economy created by governing authorities. The most important factors for the development of KBE are:

-human resources,

-universities and research institutions,

-financial and creditable institutions,

-telecommunication and informatics infrastructure.

Regions’ innovation creation and the construction of KBE. The construction of KBE is a complicated, long-lasting and regionally diverse process. Well developed regions are the best areas for the introduction of changes necessary for the creation of the new type of economy. In these regions there are conditions favourable for the creation and implementation of innovations, which, as we have already mentioned, are foundations for the construction of modern knowledge based economy. The best conditions for the development of innovation creation are in well developed and already competitive regions. A competitive region is a region which is able „ […] to adapt to changing conditions quicker than other regions, by which it improves its position in the competition with other regions.”(W. M. Gaczek, Z. Rykiel). Such regions can only be these regions in which authorities and entrepreneurs can properly interpret the requirements of economy and use their knowledge in order to develop and modernise economy. A region oriented on the implementation of innovations will always be a “learning” region. According to R. Florida, a distinguished American economist and town-planner, who in the nineties of the 20th century created the term of a “learning” region, a region of this type gets similar to a “learning enterprise”, that is introduces improvements, new solutions, upgrades its organisation structure. As some experts think, in “learning” regions knowledge is generated in a society thanks to mutual co-operation. It is practical knowledge and always connected with current requirements. Scientific and research units and specialists representing various sciences take part in the process of knowledge generation. For better effectiveness knowledge generation in a “learning” region should be managed by local authorities. An important factor for regions’ development and competitiveness increase, which is especially important for the construction of KBE, is the capability of regions (especially those that are poorly developed) to attract investments, particularly foreign investments which frequently are remarkably innovative.

Forerunners of the new economy. The creation of the new economy started at the earliest in highly developed countries and there we can observe the results of the process of the transfer from traditional material consuming economy to knowledge consuming economy based on technological and innovative potential. The most advanced in the creation of KBE are among other such countries as the United States of America, Japan, Singapore, South Korea and Finland. Although the European Union’s member states have achieved a lot on the way to creating KBE and are considered most technologically advanced countries in the world, they still have to overcome many barriers and make up for certain arrears when compared to the United States of America or Japan. One of the European Union’s member states which takes the lead in the race to building the new economy is Finland inhabited by fewer than 6 million citizens.

Finland is an example of a country, which found an effective way to constructing modern knowledge based economy from scratch. Till the beginning of the 20th century Finland was an underdeveloped country. After the World War II, as a result of specific political and economic conditions, Finnish economy was strongly connected with the Soviet Union’s economy. The basis of the traditional Finnish industry were poorly advanced timber and cellulose industries. The transformation of Finnish economy started at the turn of the eighties and nineties of the 20th century, in quite recent times, additionally connected with the disintegration of the Soviet Union, which had a particularly strong impact on Finnish underdeveloped economy connected with the USSR. 1990─1993 were a period of the worst recession in Finland, when GDP of this country dropped drastically and unemployment reached the level of 17% in 1994. The dramatic economic situation forced the Finnish authorities to undertake radical economic reforms which started from the repair of public finance and budget balancing. The financial means obtained that way were mainly directed to investments in education, science and research. At the same time the authorities revised the country’s developmental priorities, basing Finland’s economic development on knowledge and modern technologies. It meant a considerable increase of country’s expenditure on science and research and development. The increase of outlay on science and research enabled the creation of effective system of supporting economic development based on knowledge and innovations. This system quickly brought positive effects, stimulated country’s economic development, brought more and more profit and caused the fact that Finnish economy with passing time became more and more competitive. Thanks to the appropriate and consequently realised developmental policy of the Finnish authorities, this not very advantageously located and not possessing any special natural resources country accomplished an impressive „civilisation jump”, in a fairly short time (two decades!). Thanks to the creation of KBE Finland joined the group of the best developed and technologically advanced countries in the world. The example of this country shows how great development possibilities this new type of economy gives to even poorly developed countries.