Is There a Real Knowledge Economy?
So how does this affect the knowledge economy? First, there are many differences of opinion as to precisely what it is. Sure, there is some trading purely in knowledge assets - the licensing of patents, the purchase of shares on start-ups, but this is nothing on the scale of financial trading. However, much of what we call the knowledge economy is the transfer of knowledge inputs into other economic goods and services. When we buy advice from management consultants, we expect their knowledge to be put to use in better business processes or better services, which will be reflected in an improved 'bottom line'. When a country invests in R&D, education and technology infrastructure (the initial focus of most national knowledge economy programmes) they expect it (though it often doesn't since the right 'recipes' are not used) to create greater economic wealth or (especially in Scandinavia) an improved "quality of life".
This last outcome is interesting, since more and more people assess their wealth not so much by their financial assets, but by their well-being - a cluster of social, environment, cultural and relationship factors. Companies too are developing holistic and sustainability reports that assess measures that go beyond financials (the 'triple bottom-line' - see for example The Shell Report at http://www.shell.com). Part of this well-being is sustained by a thriving knowledge economy, the exchange of valued knowledge in conversations, learned dialogue and advice from friends, but since there is no financial exchange or physical barter, this social knowledge economy is not counted as part of the real economy. In other words, many of the ingredients and recipes of our quality of life are part of a virtual economy.
At one time it was suggested that the dot.com businesses were archetypes of the new economy with new economic rules and new ways of valuing. Yet, while many pure dot.coms have faded away, the Internet is becoming a more integral part of most established businesses. If this represents a facet of the knowledge economy, then it is not as disconnected from the real economy as the financial economy. On the other hand, knowledge is not yet flowing as freely as it should and boosting the real economy as much as it could. In its 1998 World Development Report, the World Bank identified knowledge as a key driver of wealth in the developing world, citing the different economic growths of Korea and Ghana, that both had similar GDPs per head 40 years previously. But today the plight of coffee farmers in Ghana is worse than it was even a few years ago. For every $2 cup of coffee you buy, the farmer is lucky to get 1 cent. As the price of the coffee we drink has gone up, the price of the raw material has dropped. This is a consequence of a relatively free but imperfect market, with just a few large buyers dominating, and a surplus of new supplies from places like Vietnam. Yet the Ghanaian farmer is typically one of a family whose only business for generations has been to grow coffee. They feel victims of 'the system'. What they need is knowledge of how to climb up the coffee value chain, to change the balance of power in the supply chin or (may be the best) knowledge of how to diversify into more profitable businesses. As well as knowledge, they may well need some other kinds of support to make this change.
Minimizing the Disconnects
So here we are today, with global corporations like IBM making billions of dollars (some 15 per cent of their revenues) from licensing their R&D knowledge, while at the other end of the scale, many people in the developing world barely scratch a living. The knowledge gaps and financial gaps are as wide as ever, and probably widening. Our collective challenge is surely not to create a knowledge economy per se, where we trade ever more esoteric knowledge, but to apply existing and new knowledge more effectively in the existing economy - to improve our quality of life, to close the gaps between feel-good and feel-bad (rich and poor in old economy terms), and to create sustainable prosperity and a more caring global society.
What we must be careful to avoid are the disconnects that are evident in financial markets and those caused by the loss of trust between those who operate in these markets and their investing stakeholders.
As pure knowledge trading increases, as surely it will - "want to buy a knowledge future: an option on a percentage of the earnings of bright but poor person in exchange for funding their education?" - then we must take heed of what we have seen unfold over the last few years.
Here are my suggestions:
- Aim for simplicity - avoid impenetrable jargon, perhaps even prohibit the trading of complex derivatives. If a knowledge asset cannot be easily explained, it should not be sold to the general public.
- We must place a duty of care on knowledge sellers to explain to knowledge investors in simple terms the sources of value of the knowledge asset they are buying and the risks - the common prospectus disclaimer of all liability is simply not adequate.
- Limit the needless trading of knowledge assets per se, perhaps through the introduction of a Tobin tax, that exacts a tax on every single transaction; since knowledge assets are generally for the long-term, a sliding scale of sales tax depending on the length of time you hold a knowledge asset may be an alternative (of course in our global trading environment, we do need a degree of global harmonization of tax approaches).
- Develop our knowledge about how to value knowledge and how it adds value to other activities and assets.
Beyond pure knowledge markets, we must focus our knowledge efforts on integrating knowledge into the real economy and the values of society at large.
So for 2003, there's no better place to start than developing insights and articulating how knowledge assets and knowledge flows contribute to your own organizations triple bottom line - economic, environmental and social.
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