Tim Wood Powell     The value of knowledge

Happy New Year!  Loyal readers will notice the new look, feel, and features of this site.  I want to acknowledge the talents and hard work of our developer, Tyler Gore, in making this all happen.

We’re also re-positioned the site.  It started life as a commercial site for the Knowledge Value Chain® and related activities.  While the KVC remains our “sponsor”, we feel that there is a higher purpose to be served.  Namely, observing and helping to foster an understanding of the massive economic shifts that we are now experiencing worldwide…in ways that we hope are informed, insightful, interesting—and most of all, useful to our readers.

Our economy has changed

What is the “knowledge economy”?  The term dates back over forty years to 1968, when management thinker Peter Drucker described it in detail in the chapter of the same name in his book The Age of Discontinuity.  In his words,  “From an economy of goods, which America was as recently as World War II, we have changed into a knowledge economy…The productivity of knowledge has already become the key to productivity, competitive strength, and economic achievement.”

Drucker goes on to say that, where the center of the American work force had until that time been the assembly-line factory worker, “Today the center is the knowledge worker, the man or woman who applies to productive work ideas, concepts, and information rather than manual skill or brawn” [my emphasis].  That general description probably applies to most of you reading these words.

Drucker acknowledges that many of his insights were inspired by earlier work done by Princeton economist Fritz Machlup.  Machlup’s 1962 groundbreaking book The Production and Distribution of Knowledge in the United States frames the concept and serves as a map, guidebook, and census to the knowledge economy as it was then.  By 1958, according to Machlup’s research, “Total knowledge-production in 1958 was almost 29 percent of adjusted GNP [Gross National Product]”

Economists have come to speak of knowledge as the fourth resource, in addition to land, labor, and capital.  (“Land” in this context includes real estate, but also plant, equipment, and raw materials.)

How does this affect our day-to-day economy?

This economic tectonic shift (TECHtonic?) has had, and continues to have, a huge impact on our workforce.  Nicolai Foss in his erudite 2005 book Strategy, Economic Organization, and the Knowledge Economy reports that “‘knowledge workers’ such as managers, professionals, and technical workers, increased from 10 per cent of the US workforce in 1900 to 17 per cent in 1950 to 33 per cent in 1999.”

This shift fundamentally changes how we compete—as businesses, as families, as individuals, and as beings living on Planet Earth. We’ll explore how, and what to do about it, in future posts.

These long-wave trends usually go on continually all around us, without regard to the shorter-wave business cycles of boom and bust.  But when a long-wave economic transition coincides with a shorter-wave sharp and deep recession—as we have now—it’s a “perfect storm” of disruptive forces, and can have nasty consequences.

On a day-to-day basis, the manifestations of this long-wave trend that many of us are experiencing are job loss, relatively slow job creation, and the erosion of our savings.  As painful as this may be on an individual basis, for a whole economy it’s at least partly an inexorable consequence of the long-wave trend towards an information-based economy.

It’s natural and, from a global perspective, even a positive thing to get rid of older-economy jobs—provided that they’re supplanted by new jobs that more adequately meet the demands of the new economy.  So what about the current recovery, which so far is relatively “jobless”?

As you’ve probably guessed, my hypothesis is we are “rebooting” into a new type of economy where many of these former jobs are not coming back because they are no longer needed. When the horse and buggy disappeared as the preferred form of transportation around the turn of the last century, the many industries that supported that way of life also disappeared.  The proverbial once-profitable “buggy whip” business dried up.  It wouldn’t have mattered how good their “competitor analysis” (if they’d had any such thing in those days) was – the industry just simply disappeared as an engine of value creation.

Where does value go?

When this happens, the value lost typically doesn’t just evaporate, it migrates to other industries. Understanding exactly how such migration happens and is likely to play out in your segment of the economy is key to surviving and thriving in a time of turbulence such as we now face.

We still need recorded music—but we no longer need “recorded music on a plastic disk”.  The whole plastic disk business—including manufacturers, suppliers, logistics, and retailers—is quickly sliding into buggy whip-dom.  The Apple iTunes store, though, is helping boost Apple’s profits to record levels.  The value created by recorded music has migrated from one sector into another.  It’s still migrating, in fact, as streaming may soon replace file purchase as the dominant business model.

The “news printed on large folded pieces of paper” industry is dying as its value migrates elsewhere.  We still want news, but increasingly from an electronic source.  We still use classified ads, but now they’re on Craigslist.  All the hard-copy support activities and resources—printing, shipping, delivering, paper, ink—will soon no longer be needed.  The jobs related to those functions are disappearing.  Other jobs, like web site design and maintenance, are created.  Still others, like news gathering and editorial functions, remain relatively unchanged.

Now we know what we don’t know

What is knowledge in an economic context?  Part of the problem is that—though many experts cite it as the basis of our new economy—as an economic resource, we don’t understand much about how it works.  At university I studied the “hard” sciences—biology, chemistry, and physics—the sciences of the tangible. These all have foundation principles, empirical reliability, and mathematical rigor.  Later I studied psychology, economics, and management—the “soft” sciences of people and organizations.

What really grabbed and held my interest, though, was knowledge as an economic resource.  OK, I’ve confessed my hard-core “Druckerian” roots.  But with knowledge, not only isn’t there much in the way of real economics—there is not even much real science.  At least not yet.

Am I saying our new economy is built on a resource that we don’t yet have the tools to even study rigorously?  Yes, Virginia, I am.  You can see why, long-term, things now seem so disrupted and crazy.

Our goal here is to develop and share our understanding of our current transition into the knowledge economy, and by so doing to help you compete in it more effectively—both as an organization and as an individual.

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