The role of knowledge in the economy

The role of knowledge in the economy

Agustín Delgado – March 30, 2015

Knowledge and information have become the primary factors for the creation of wealth in a society. They have always been necessary to achieve economic growth, but they have never been as relevant as they are today.


The concept of knowledge economy is a concept that is not new, Peter Drucker popularized it in 1968 in his book The Age of Discontinuity, in which he warned about the forces that would transform and rule the economy of tomorrow.

Some years ago we reached “that tomorrow” and the forces to which he referred are present in the global economy. One of these forces is “the new universe of knowledge based on mass education and its implications in work, leisure, and leadership” (Peter F. Drucker, 1968). This report focuses primarily on this force.

First we must define what knowledge economy is, and to properly understand this concept we must comprehend separately what economy is and what knowledge is. Lionel Robbins explains economics as “the science that analyzes human behavior as a relationship between ends and scarce means which have alternative uses” (Viale, 2008). From this definition we can establish that an economy essentially is a system where humans allocates scarce or finite resources to achieve something. On the other hand, knowledge can be defined as the human ability to interpret information based on experience and prior learning.

With these two explanations we can define the knowledge society as a system in which the fundamental driver for the allocation of resources is the knowledge of people. This knowledge allows you to mix and use resources more effectively and generating more valuable goods or services.

Nowadays to expand an economy it is necessary to do things that are particularly new. This applies to every industry, from accounting to production. Recall that economic growth is basically increasing the value of goods and services produced by an economy. Everyone can do the basics, you can sell commodities -basic and without much differentiation- and this does not create as much value as developing a good or service where you can see the hours of research and development behind it.

Andres Oppenheimer, renowned journalist and journalism Pulitzer Prize, use the following example of this phenomenon in his book ¡Basta de historias! : “What percentage of a cup of Colombian coffee that a consumer takes in the US goes to the producer in Colombia? Less than 3%. 97% of the price the consumer pays for a cup of Colombian coffee goes to those whom worked in the genetics of the grain, marketing, distribution; anything having to do with the knowledge economy, while the people who put the coffee in bags take only 3% “(Oppenheimer, 2012).

Now, if we identify in a first instance who are the drivers of the economy of a country we find the companies. It’s amazing to think that companies like Google and Microsoft – that do not produce raw materials – are worth more than the GDP of many countries. However, if we go to a deeper level then we find that the real drivers are people -knowledge workers- who work in these companies and that ultimately generate the economic growth of a country.

Knowing that we are in an economy where knowledge is the main additive to generate value, countries like Japan, South Korea, Germany, and other countries with high GDP -which also do not have a lot of material resources- have opted for innovation, education and human capital to generate differentiators. Moreover, countries with large natural riches have fallen behind on these economies because they do not add enough value to their natural resources.

Finally, we already know what the knowledge economy is, but how is this related to any person or to any company? Well, it’s very interesting because this economy has created a more competitive environment, for both individuals and organizations. The technologies of information, a constituent of the knowledge economy, have a great effect on the transmission of information -almost instantaneously- making it accessible to everybody. As published in 2001 in an article in The Economist “Given the ease and speed with which information is transmitted, each institution in the knowledge society -not only businesses, but also schools, universities, hospitals and increasingly agencies government- has to be globally competitive”. The reason given is that “the Internet will keep customers informed everywhere about what is available anywhere in the world and at what price” (The Economist, 2001).

There is no doubt that this economy demands continuous learning and innovation. What are we doing different to compete? The world has proven to us that betting on knowledge is the best bet.


Oppenheimer A. (2012). ¡Basta de historias! Mexico: Debate.

Peter F. Drucker (2006). The Age of Discontinuity: Guidelines to Our Changing Society. New York: Harper and Row.

Viale, R. (2008). Las nuevas economías. De la economía evolutiva a la economía cognitiva: Más allá de las fallas de la teoría neoclásica. Mexico: FLACSO.

The Economist. (November 1st, 2001). The next society. Retrieved from:

The Knowledge Economy [Video]. (2012). United States of America: CBR Archives.