What is a knowledge-based economy and is it the way of the future?

A knowledge-based economy is often equated with high-tech and information technology, but it is more than that.

The International School of Economics at Tbilisi State University (ISET) in Georgia describes three traditional economic sectors: (1) agriculture (primary industries); (2) manufacturing (secondary sector); and (3) services (tertiary sector) – Finchannel.com, April 21, 2014). A knowledge-based economy fits under the tertiary sector because it is based upon human capital – education, knowledge, and other intellectual inputs – not solely high-tech. It is a service industry that aligns its labour force with its development and future needs. And more importantly, a knowledge-based economy promotes business, innovation, and entrepreneurship.

There are countries that have taken the high-tech approach to a knowledge-based economy within the last 30 years – with exceptional success. These include Israel (with over 60 Israeli companies listed on the American technology stock exchange NASDAQ – more than any other foreign country); Costa Rica (which attracted investment from Intel to build a semiconductor assembly and development plant); and Singapore. Other countries are following suit by developing government strategic plans that focus on knowledge sectors – such as Estonia’s “Success Estonia 2014” and Russia’s “Innovation Strategy 2020”.

Establishing a knowledge-based economy takes time; years, decades. It is a nation’s long term investment in education, research, technologies, and development.

Education and Skills

Israel and Costa Rica have take a predominantly agricultural economy leaps ahead into a knowledge-based economy. For success, the agricultural sector is not neglected – and they continue to promote and export their country’s well-known crops and products. Countries that can feed themselves in a sustainable manner – through diversity of agriculture – often fare better than those that can’t. The difference is that they have focused on skilling up their population. They have invested heavily in education.

Other successful countries have a highly skilled population, and have invested in literacy, numeracy, and bi-lingual curricula. At the same time, they have invested in information technology (in schools, government, and businesses), telecommunications, and innovation, as well as partnerships with other countries, foreign investment, and encouraging – often with incentives - skilled people to live and work in their countries. Public-private research is encouraged and developed in which universities contribute to the economic potential of their country – through marketable products and services. This kind of public-private partnership for research and development (R&D) also enables university students to put into practice their skills through direct involvement with entrepreneurial activities. They put scientific, agricultural, and social service potential into economic growth.

Skilled Teachers

Skills are not just for students – teachers require skills too. In fact, for high quality students there must be high quality teachers. However, it is not just about recruiting high quality teachers – for they will often start their own businesses, go overseas, or work elsewhere for higher salaries. Countries such as Germany and Switzerland offer adequate incentives and pay for teachers to retain them, develop their skills to maintain quality, and ensure longevity of service. This includes - for both teachers and students –working and studying environments that are conducive to teaching and learning.

Therefore a knowledge-based economy is not one that puts their effort solely into one or two high-tech sectors, but takes a more holistic approach to human capital, innovation, education, research, and development through good governance, transparency, and inclusivity.