Meaning of New Economy
The term new economy is also referred to as K-economy or knowledge-based economy. According to OECD, knowledge-based economy is one that is directly based on the production, distribution and use of knowledge and information (OECD 1996). A knowledge-based economy is characterized by strong technological capabilities and an increasing emphasis on intellectual property, such as brand names, patents and software.
Knowledge is crucial for development, because everything we do depends on knowledge and that knowledge has overtaken as the most important factor determining a nation’s standard of living. Given such extensive proliferation of technological advancements and rapid globalization in recent years, transition to a knowledge-based economy has become a crucial factor for further prosperity and progress for a nation. In such an economy, knowledge has the key competitive advantage, so investment in human capital and development of an environment is conducive to continued learning and use of technology is of utmost importance.
The development of knowledge-based economy:
The creation and diffusion of knowledge, concurrent with the advances in information technologies is changing the way the goods and services are produced, distributed and consumed. This also alters the competitive economic landscape when nations transact with one another to maintain or upgrade their standard of living. The business environment and market demand are changing rapidly. Markets are opening up, with free flow of trade, capital, technology and goods and services and people. With the advent of the internet, the world is now connected and wired up.
Knowledge-based economy and knowledge-based industries:
There are differences between knowledge-based economy and knowledge-based industry. The distinction has important implications. A knowledge-based economy refers to all elements of the economy from education, the regulatory environment, the macro-economic setting and workplace changes through the issues of access to capital, science and technology and the encouragement of knowledge-intensive industries. Such a broad definition highlights the need for a whole government approach.
On the other hand the term knowledge-based industries refer to those industries which are relatively intensive in their inputs of technology and/or skills, i.e., human capital. There is generally a close correlation between research and development in an industry and investment in human capital. In addition to the commonly identified manufacturing industries, service activities such as finance, insurance and communications should be included in the category of knowledge-based industries.
Information management can dramatically reduce the costs of transacting business and deliver a substantial return to the economy, especially in information intensive sectors such as banking, insurance, finance, wholesale and retail trade, legal and accounting services and education and health.
The role of Government
Since the emergence of knowledge-based economics will have its impact on economic growth, the organization of production and employment, it does warrant consideration of both the private sector and the government. At the early stage, governments need to consider industry policy measures to create a framework that supports continued development of scientific and technological expertise, fosters competition and encourages a culture of enterprise and innovation. The government needs to ensure that impediments to KBE are removed, that regulations are consistent with the intensification and spreading of competition associated with KBE, and that knowledge-based activities are treated consistently with other activities. The government should consistently seek out ways to render its services at a lower cost.
Professor Rafiqul Islam
Advisor, Faculty of Business & Economics
Daffodil International University