Knowledge Economy Definition: 3 Knowledge Economy Examples

A knowledge economy is a post-industrial economic system that relies more heavily on intellectual property (IP) than on natural resources or tangible assets. Just as the Industrial Revolution paved the way for the manufacturing economies of the twentieth century, the advent of the Information Age did the same for the knowledge economies of the twenty-first.

Science and technology patents have become more important to a company’s success in many cases than owning the physical capital necessary to engage in mass production of goods. On a macroeconomic scale, knowledge economies are becoming far more common worldwide.

Economists at the US Chamber of Commerce point out knowledge-related industries account for a full third of the country’s gross domestic product (GDP). Nearly all developed countries belonging to the Organization for Economic Co-operation and Development (OECD) are pivoting toward becoming knowledge-based economies.

Knowledge economies might differ from country to country, but they share certain aspects in common across the board. Here are characteristics you can expect from a knowledge-based economy:

• Highly educated labor force: Knowledge workers are skilled workers—and these skills generally derive from a high degree of education. In the knowledge economy, the more educated you are, the more competitive advantage you have. The industries of the future seem to split their workforce between those with a great degree of technical know-how and automation powered by artificial intelligence (AI), causing concern this might leave average workers behind in the economy as a whole.
• Information infrastructure: To tap into the reservoirs of global knowledge necessary to power an economy of this ilk, expansive communication technologies are essential. Through the use of cutting-edge information technology, people can communicate at rapid speeds across the globe and research more data than ever before.
• Intangible assets: Human capital and intellectual property are paramount in knowledge economies. To prevent the dissemination of IP into the wider world, companies take out extensive patents to protect their innovations. Other companies, however, allow anyone to use their technology for the betterment of humanity. In either case, knowledge economy entrepreneurship is more about ideas than anything you can replicate in a more typical mass production process.
• Multipronged innovation systems: The knowledge economy operates through a diffusion of resources from the public and private sectors all across the globe. Due to globalization, multinational corporations can now form partnerships with academic institutions and governments across the world to generate new ideas and bring new products and services to market.
• Rapid technological innovations: By every conceivable metric, technological progress is moving faster than ever. Each new technology serves as a fresh input for entrepreneurs to generate increased economic activity for their businesses. This informs the decision-making process for many companies, as they alter their current models to accommodate continuous innovations.

Certain industries act as standard-bearers for everything knowledge economies represent. For instance, these three sectors of the global economy engage in knowledge-intensive activities:

1. 1. The academic world: Universities sit at the heart of this economic system. By developing their own initiatives and partnering with companies and governments, they use knowledge to better the world. As they do their part to increase knowledge production, they contribute to specific projects, too.
2. 2. The healthcare industry: This sector of the economy utilizes new knowledge all the time to save people’s lives—for example, through biotechnology, artificial intelligence, and other means. Many governments provide incentives to this part of the knowledge economy to inspire productivity growth and foster research and development.
3. 3. The software development field: Algorithms and software are one of the primary engines of economic growth in the modern world. Information and communication technologies (ICT) are perhaps the firmest foundation and bedrock for the new economy as we know it. From big tech companies to Silicon Valley startups, software developers do what they can to make the world a more efficient, connected, and informed place.

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