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Knowledge Age Economics

Knowledge Economics

What are the new laws of economics in the knowledge age?  In the manufacturing age, the quantity of goods or services demanded and subsequently supplied determine the price of goods or services.  The laws of supply and demand dictate at what price and quantity the economy operates most efficiently – the point of equilibrium.

Manufacturing Age Economics – Physical Assets


In the information age, the laws of supply and demand still apply.  In a true knowledge economy, knowledge and information are demanded and supplied. The economic system finds equilibrium. However, there exists a fundamental difference between economies based on physical assets and those based on knowledge assets.

Knowledge Age Economics – Knowledge Assets


The shape of the knowledge demand curve follows the same path as the manufacturing demand curve. The more one piece of information is demanded, the more value the market will place on that knowledge asset (directly proportional).

The shape of the knowledge supply curve, on the other hand, does not follow the same principles as the manufacturing supply curve.  For a manufacturing supply curve, the price of a physical asset decreases as its supply increases (inversely proportional).  For a knowledge supply curve, the price, or value, of a knowledge asset increases as its supply increases (directly proportional).

The knowledge supply function in this economic model is based on three principles.

  1. The more information on a subject that exists, the more it is valued.
  2. Knowledge follows a law of conservation. As knowledge is consumed, it does not disappear as a physical asset does. Rather, knowledge has infinite duration. (Side note: In physics, this law is known as the conservation of information. There also exists the information paradox which some physicists have argued exists at the singularity of a black hole. As matter collapses in a field of infinite gravity, does the information stored in atoms disappear?)
  3. As knowledge is utilized, more knowledge is generated.  Two pieces of knowledge come together to form new knowledge. The production of knowledge is an infinite, self-perpetuating process.

Equilibrium in the knowledge economy is achieved when the supply curve perfectly overlays the demand curve. As a result, an infinite number of equilibrium points occur.

What are the shapes of the supply and demand curves for the output of your industry?  What are the shapes of the supply and demand curves for the output of your business? Do you or your organization develop and distribute knowledge that follows the knowledge supply curve? Have you fully leveraged the new paradigm of supply in the knowledge age?

Harmony in Economic Transformation


Segregation of Work and Integration of Knowledge

Economic tides are shifting.  Industries based on physical assets are losing the economic high ground to industries based on intellectual assets.  We are in a time of massive, large-scale change and transformation – a transformation where we have one foot in the manufacturing age and one foot in the information age.  Major changes drive our transformation including the deployment of advanced technologies, the emergence of true global enterprises, and the uncertainty of the world’s political environment.

Different strategies and operating methods are required for maximizing economic value in the information age than in the manufacturing age.  The tried and true method of the manufacturing age is the segregation of work, also known as the division of labor exemplified by Henry Ford’s assembly line.  As we accelerate through the information age, time will show that the segregation of work by itself is no longer the ideal method for maximizing economic value.  In the information age, market leaders will successfully integrate knowledge through collaboration, utilization of transparent information technologies, and the leverage of strategic resources in a firm’s value network.

During the present transformational era, we have a duality of mission given the duality of existence in both the declining manufacturing age and the emerging information age.  The integration of knowledge must coexist with the segregation of work in order to achieve true maximization of economic value.  Senior executives must lead organizations into a new paradigm of information transparency, shared accountabilities, and communal benefit yet balanced within a culture which still values individual excellence.

Transformations do not just happen.  Leaders must manage their organizations through the uncertainties. Especially now in an era of mass consolidation, downsizing and restructuring, senior executives run the risk of rushing to a false “safe harbor” promised by the operating models of our past.

What is your current operating model and where is it headed?  How many of your people work in segregation of one another?  How many contribute to the integration of knowledge?  How will you manage harmony between the segregation of work and the integration of knowledge?  Where do you find equilibrium?  How do you spend your day?