As with many commonly used concepts, an effort to define the knowledge economy reveals that a precise understanding of it differs from person to person. Generally, since the concept was introduced in the late 1960s and has been increasingly intensely used over the last two decades, it refers to an economy with the main driving force being knowledge and innovation.

While this is the main distinguishing feature, to understand its deeper meaning, it is necessary to consult authors developing its proper definition. Rather prominent among them, Roberto Mangabeira Unger, is rightly pointing out in his recent OECD publication, The Knowledge Economy, that it is undoubtedly a highly productive economy thanks to a knowledge-based system. However, at the same time, he is also pointing out other changes in the broader socio-political domain. This is not so strongly emphasized by most other authors.

Actually, looking at economic history, we cannot miss the fact that each stage of the development of the economic system had its own specific social and political superstructure, based on—simplifying a bit – the pattern of control of the rich minority over the poor majority. One could say that there has always been a certain consistency and balance between the two systems, and throughout history, fortunately, the position of »have-nots« has gradually improved.

In the knowledge economy, which is so far only modestly and partially introduced in most advanced societies and economies, important changes are starting to happen, going beyond anything that has been experienced in the past. In this early stage, it is still difficult to anticipate and predict the scope of changes that will happen not just in economics but equally in social and political domains.

Since knowledge is a more democratic asset to be achieved than wealth and political power, it is logical to expect that the knowledge economy will imply a more fair and egalitarian society in the future than at any time in the past. And that will boost the growth potential to an extent unimaginable and provide the conditions where work will not be a way to survive but a way to live, create, and contribute to society. Under these conditions, societies will have the means to ensure that all basic needs of people will be provided free of charge. In these circumstances, personal wealth and material consumption will not represent the social status of an individual and his or her family. People will therefore not be so interested in accumulating wealth but will focus on satisfying their authentic, personal needs.

In these conditions—more than ever before—innovation will be the leading force of progress. Everyone will contribute according to his or her abilities, being morally rewarded for having contributed to cover the needs of the community. Consequently, there will be no classes to struggle for power and control, and politics will not be an instrument of power but the domain of serving the authentic needs of society. We are still at an early stage of this promising development, and it is in our interest to support it as much as we can.

Perhaps it is fair to say that only with a knowledge economy—with all of its attributes and implications—will human society really become truly humane, free of conflict and exploitation. At the moment, very few people are fully aware of the huge, positive potential of the knowledge economy and society.

Following are the key features of the knowledge economy model:

  • It refers to the contemporary commercialization of science and academic scholarship.
  • In the knowledge economy, innovation is based on research and commodified via patents and other forms of intellectual property.
  • It lies at the intersection of private entrepreneurship, academia, and government-sponsored research.
  • Knowledge-related industries represent a large share of production activities.
  • It depends on skilled labour and education, strong communications networks, and institutional structures that incentivize innovation.

The knowledge economy impacts not just global economics, but also local and regional development, influencing everything from policy-making to education and training systems, to meet its demands. It shifts focus from traditional industrial production to sectors that involve and promote information and knowledge activities.

The main characteristics of the knowledge economy are the following:

  • High reliance on intellectual capabilities: in a knowledge economy, the most critical assets are the skills, expertise, and knowledge of the people involved. Industries such as IT, biotechnology, and education are predominant.
  • Innovation as a driver: continuous innovation and the application of new technologies and ideas are essential for competitiveness and efficiency.
  • Information technology infrastructure: advanced information and communication technologies are fundamental in facilitating the effective communication, dissemination, and processing of information.
  • Education and learning: a strong focus on education and continuous skill development is vital, as the workforce needs to adapt to rapidly changing technologies and market conditions.

The knowledge economy is marked by an experimental approach to work, emphasizing creativity and continuous innovation. Despite its potential for transforming economic activities and boosting productivity, its effects have been limited due to its concentration in a small elite, often referred to as "insular vanguards."

One of the biggest challenges of the knowledge economy is the requirement for a highly educated and skilled workforce. There is a continual need for training and education to keep skills updated, especially as job requirements change rapidly due to technological advancements. This can lead to a divide where only those with access to continuous learning can thrive.

As the knowledge economy tends to reward those with high skills and education, it can exacerbate income inequality. Those unable to acquire the necessary education or skills may find themselves increasingly disadvantaged. Moreover, the rapid pace of technological change can make job security an issue, as certain skills may become obsolete quickly. This can lead to employment instability for workers not continuously updating their skills. There is also a digital divide between those who have access to the latest technologies and those who do not. Without access to the Internet and modern computing resources, many people cannot participate fully in a knowledge-based economy.

As ideas and knowledge become the primary commodities of this economy, issues around the protection of intellectual property become increasingly complicated. Balancing the protection of intellectual property with the need for shared knowledge to promote further innovation is a complex issue. Furthermore, the knowledge economy can lead to the geographical and corporate concentration of wealth. Technology hubs such as Silicon Valley illustrate how economic benefits can be concentrated in specific regions or within certain companies, potentially leading to economic disparities.

Adapting to a knowledge-based economy requires changes not just economically, but culturally and socially. This includes reshaping educational systems, rethinking worker rights, and adjusting to a new pace of life and work which can be challenging for many societies.

Addressing all these challenges involves comprehensive policies in education, economic planning, and social welfare to ensure that the benefits of the knowledge economy are distributed broadly and equitably across all segments of society.

The knowledge economy has the potential to drive significant economic growth through innovations in technology and increases in productivity. As economies transition from traditional manufacturing to ones based on intellectual capabilities and knowledge creation, they can achieve higher levels of efficiency and output. The shift towards more knowledge-intensive industries such as IT, biotechnology, and digital services leads to substantial economic gains and job creation in these sectors.

However, R.M.Unger points out that the knowledge economy often benefits only specific sectors that have the capability and resources to leverage new technologies and innovations. This can lead to a dual economy where high-growth knowledge sectors coexist with more traditional sectors that do not experience the same level of growth and investment. The result can be a widening economic gap between different parts of the economy, which may lead to overall economic fragmentation rather than integration.

On the social front, the knowledge economy demands a workforce with high levels of education and specialized skills, which can lead to significant social changes. There is an increased emphasis on continuous learning and professional development, which can improve individual capabilities and life prospects for many. However, this also raises issues related to access to education and training opportunities. Individuals without access to the necessary resources for education or skill development may find themselves at a disadvantage, unable to fully participate in the new economy.

R.M. Unger specifically discusses the potential for the knowledge economy to lead to greater social stratification, where only a small, educated elite benefits from new opportunities, while a large portion of the population is excluded. This can exacerbate existing social inequalities and lead to social unrest. Furthermore, the rapid pace of change in the knowledge economy can lead to job displacement and instability, as traditional roles are automated or become obsolete, affecting those who are least able to adapt.

To address these challenges, R.M. Unger advocates for structural changes in both policy and institutional frameworks to democratize the benefits of the knowledge economy. This includes reforms in education to make it more accessible and relevant, innovations in labour rights and benefits to protect workers in a rapidly changing job market, and the development of policies that encourage economic diversification and integration rather than concentration in a few high-tech hubs.

By promoting a more inclusive approach to the knowledge economy, R.M. Unger believes that societies can mitigate the risks of inequality and fragmentation and instead harness the full potential of this economic transformation for the benefit of all sectors and populations.

There is little doubt that knowledge economy is the economy of the future. It is and cannot be limited to any country or region, but, though a global phenomenon, it does not come on its own. Knowledge actors and inventors are of course essential, but a proper legislative and institutional environment is equally important in order to make sure knowledge and innovations are able to optimally contribute to solving the relevant challenges and needs of modern society. This requires appropriate adjustments and changes in all domains of society, including politics, in order to protect the public interest.

While in the past innovation followed the logic of a linear process, with limited intervention of government and other social actors, in the period of knowledge economy, the involvement and indeed the role of government have become very important—in some aspects even crucial. This is the result of the complexities of the modern innovation ecosystem and the higher interdependence of all knowledge and innovation actors. With widespread digitalization and the introduction of artificial intelligence—through the higher sophistication and complexity of innovation—many innovations are simultaneously impacting numerous domains of the economic and social system. Consequently, this has increased the overall impact and dynamics of innovations and their consequences across all economic and technological sectors and domains of society. For example, the introduction of the Internet and various forms of online communication, have changed the knowledge and innovation environment more drastically in a matter of years than before over decades, if not centuries.

While the knowledge economy brings enormous advantages to the actors in the knowledge and innovation domains, it also brings new, big challenges, requesting additional attention to prevent harmful abuses of the huge potential of global communication and interaction by representatives of particular interests. In other words, the knowledge economy brings important opportunities for those interested in developing and disseminating new knowledge and innovations, but it also requires respect for the rules of responsible behaviour, in order to prevent harm and damage to potential victims of its abuse. Particularly for the socio-political changes implied by the introduction of the knowledge economy, society and its members have to be fully prepared and actively supportive. This will not be easy, since many of the values and perceptions have been with us for centuries, particularly since the industrial revolution. Knowledge society will go beyond the notion of material wealth determining the position of individuals in society; this will be replaced by the quality of knowledge and innovative contributions of members of the community. Society will become a knowledge-based meritocracy, with principles of solidarity replacing wealth-based hierarchy and exploitation.

In order to mobilize all the creative potential of society, access to knowledge will be free, and members of society will be appreciated and awarded according to their knowledge-based contribution in addressing the authentic needs of society, taking into account the differences in intellectual potential of each individual. In other words, members of the community will be expected to contribute to the best of their abilities, which will entitle them to their fair share of access to goods and services available to members of society.

For the present, this may sound unrealistic, but in a real knowledge economy, this is the logical result of the maturity of individuals—being able to understand that respect for the interests of the community brings about the best conditions for a full and satisfactory life for its members.

To conclude, the knowledge economy is opening a new phase in post-industrial civilization, and it is still too early to claim that we have understood how to fully benefit from all of its advantages, nor to be able to develop all mechanisms preventing potential threats and challenges which it may bring upon us. Both relevant authorities, as well as the knowledge and innovation actors themselves, need to be alert and prepare themselves to prevent or at least minimize the potential threats to public interest. Based on that, and provided we act responsibly, it is no exaggeration to expect that the knowledge economy has the potential to introduce greater improvement in our lives than we can even imagine.