The promise of the ‘knowledge economy’

During the 1990s, there was a veritable explosion in the use of the concept of the ‘knowledge economy’, even if the term had first been adopted in policy discourse decades earlier.1 In particular, the promise of the knowledge economy captured the imagination of a number of international organizations, notably the OECD and the World Bank (OECD, 1996; Stiglitz, 1999; World Bank, 1998).2 At its most basic, the concept refers to the need for developed, increasingly postindustrial countries to retain their competitive edge by investing, promoting, and encouraging those sectors of the economy that rely on ‘knowledge’ as the main component of their success. The supply of skilled labour, and hence the construction of support structures that play a key role in producing that skilled labour supply, are central to the idea of a knowledge-based economy, as well as this book. Education and training have always been important drivers of economic growth in the industrialized world, but the demands on post-industrial workers in terms of their ‘knowledge’ and, importantly, range of skills are considered to be greater as the result of the post-industrial shift. Workers in the knowledge economy are supposed to be skilled in information and computer technology, thus in some senses highly specialized, but also flexible and possessing a great deal of general and ‘tacit’ knowledge that is difficult to acquire.3 Flexibility and generalizability are also central to the vision because the idea of the knowledge economy is tied to that of globalization. Since globalization has intensified competition between countries (and increasingly with the rise of the newly industrialized economies, regions of the world), post-industrial economies need to avoid the tendency towards low-paid, low-skilled, service-sector growth that has come about as the result of the shift of industrial decline, out-sourcing, off-shoring, and the consequent end of the policy commitment to full employment in many wealthier societies.

A closely related concept to that of the knowledge economy is the notion of ‘competitive advantage’. Whereas the logic of comparative advantage dictated that countries rely on their ‘natural’ resources and abilities to gain from trade in the global economy, competitive advantage suggests that developmental success relies on gaining a competitive advantage through higher-quality inputs, to include a more highly skilled, a more flexible, and a more productive labour force (Porter, 1990). In other words, firms - and countries - can overcome natural disadvantages in terms of resources by concentrating on other aspects of their productive capabilities. In public policy terms, both the promise of the knowledge economy and the logic of competitive advantage point states in a similar direction when designing frameworks around meeting the labour market challenges of the early twenty-first century. The quality of labour, rather than simply its cost, is of special significance to a knowledge-based strategy for economic growth. Furthermore, the logic of knowledge-based growth strategies points towards certain sectors of the economy that governments should concentrate on expanding, as well as certain policy mechanisms that need to be adopted in order to expand these sectors. In terms of the economic sectors identified by policy-makers convinced of the promise of the knowledge economy, ‘technology intensive’ industries such as computing, biotechnology, and aerospace engineering are all singled out for intensive development. In terms of the policy mechanisms employed to promote such sectors, increased investment in, or, at the very least, stimulation of the information and communications infrastructure; research and development; and education at all levels, with a focus on computer- usage as well as science and technical skills, are prioritized. Policy-makers have also emphasized that a knowledge economy requires something frequently referred to as a knowledge society, characterized by a free flow of ideas; robust networks forged between producers, consumers, and researchers, in which these ideas can be exchanged; and a high level of knowledge about and access to information technology among the general population.

The idea of a transition not only to a knowledge economy but also a knowledge society has led some to claim that a fundamental, almost civilizational, shift has taken or is about to take place. Some of this is contained in the aforementioned visions of a number of World Bank and OECD officials during the 1990s, in which reference to the emergence of an entirely new phase of capitalism was frequently made. Some academics have gone further. Manuel Castells, for example, argues that the information and communications technology shift is symptomatic of a long-term shift to what he terms ‘the network society’, representing nothing less than a whole new stage of human development (Castells, 1996). Peter Drucker (1993) has similarly presented the knowledge society as taking us all not only to a new stage of capitalism, but somehow beyond capitalism: knowledge has ‘sidelined’ both labour and capital. Others, however, point out that there is a real danger in embracing the knowledge economy/society as a panacea for the inequalities and conflicts associated with capitalist development. Aside from the fact that the knowledge economy in no way seeks to alter basic relations of production, the belief that the rising tide of high-tech industries will automatically ‘raise all boats equally’ belies the fact that there are likely to be losers in the knowledge economy. Some marginalized groups are ill equipped to participate in the knowledge society and are unlikely to be able to catch up due to a lack of access to or lack of interest in accessing computing and information technologies in particular. Other problems include a continued mismatch between the skills required by companies and the ‘knowledge’ of available workers; coordination problems matching workers to jobs even where there is no actual mismatch; and the underlying threat of outsourcing as late-late- industrializing countries catch up in terms of technical ability, at a cheaper labour cost (Brown and Hesketh, 2004; Craig and Gunn, 2010). Arguably, the shift to the knowledge economy in fact has the potential to deepen inequalities within wealthier societies, as some workers are brought into the fold of the technology-intensive sector while others languish on the margins in sectors of the service economy that do not genuinely require the skills associated with the knowledge economy.

This book takes the perspective that whether the shift to the knowledge economy further deepens or helps ameliorate distributional inequalities depends very much on the extent to which individual states adopt policy frameworks that deliberately incorporate goals of social inclusion. If knowledge-economy policies are designed with the twin objectives of economic growth and a broad- based sharing in the benefits of that economic growth in mind, the new phase of capitalism envisaged by national and international actors during the 1990s is potentially a kinder one. Part of such a strategy involves the construction of labour market support structures that embrace the needs of entire national populations, not simply the labour market requirements of key industries. Yet the extent to which national governments have combined these goals in their pursuit of the knowledge economy has varied enormously. Because, at least in some respects, states in Europe have tried to incorporate goals of social inclusion into their knowledge-economy policies, and because Greece, Portugal, and Ireland have been subject to this ‘Europeanizing’ influence, I briefly consider the European variant on the pursuit of a high-skill, high-wage, knowledge-based approach to economic and social development before addressing the issue of knowledge economy-supporting labour market structures specifically. While this book does not take the view that European integration has been the only, or even the main, influence on policy outcomes in Greece, Ireland, or Portugal over the past two decades, the ‘Europeanizing’ influence on these three countries cannot be ignored.

European-level policy debate during the 1990s and 2000s centred on exactly some of the concerns highlighted above. The overall goal was to orient regional and national development plans around the idea of the ‘knowledge economy’, but at the same time that goals of social inclusion were met (Rodrigues, 2003; Room, 2005). This also gave rise to the notion of ‘flexicurity’, which began as a concept promoted by the Danish government in the 1990s before gradually making an influence on EU discourse (Keune, 2008; Madsen, 2004; Wilthagen and Tros, 2004). Flexicurity emphasizes the need for labour market flexibility to be combined with a robust social security system, active labour market policies, and an emphasis on life-long learning and is thus more clearly linked to preserving the welfare states than non-European versions of the knowledge-based economy may be prone to doing.

Three basic elements of the European version of a knowledge-based strategy can be further summarized. First, in order to maintain high income levels, important for the tax base required by European countries since they favour larger welfare states, EU members need to develop ‘knowledge-based’ industries alongside their burgeoning service sectors. This has been more difficult for European players such as Greece, Ireland, and Portugal due to their status as formerly ‘peripheral’ European economies, but all European countries face competition in the technology sectors from such countries as Taiwan, South Korea, and, increasingly, China, India, and Brazil. Second, the European model has had a greater self-conscious commitment to integrating marginalized social groups and ensuring income equality than is found elsewhere. This is not to say that these goals are always achieved, or that they are not increasingly difficult to achieve under conditions of budgetary constraint, as the literature on reforming welfare states in Europe acknowledges.4 Rather, a great deal of policy debate and action around this topic does take place. Third, with obvious consequences for the second core feature just discussed, the basis of European integration has always been economic, aimed at promoting free trade at least within the region, so that goals of social equality and peace must be met within the confines of a basically liberal and open economic framework. There is no intrinsic reason why these goals are incompatible: the experiences of the Northern European social democracies have traditionally shown how corporatist labour relations and extensive state involvement in income redistribution can be combined with open trade policies (Katzenstein, 1985).

Labour market issues have gradually become central to the debate over the European variant of an economic and social development strategy for the twenty- first century, not least because sluggish European growth over the last two decades has also been combined with unemployment rates which have been persistently higher than the United States and elsewhere (Bermeo, 2001). An important reflection of these concerns, combined with a focus on knowledge- based growth, has been a policy programme known as the Lisbon Strategy. A cornerstone of European development policy between 2000 and 2010, this aimed at increasing productivity and stimulating job creation in order to deliver improved living standards in the region. While the Strategy was criticized on the grounds that it was too broad in scope, it singled out five specific policy areas for development: product and capital market reforms; investment in the knowledge- based economy; labour market reforms; social policy reforms; and, added later, environmental reforms (Council of the European Union, 2005: 9). Reform programmes at the national state level were supposed to be constructed around specific European-level targets: directly relevant to the development of policy for reconciling family and working life discussed shortly, the Lisbon Strategy includes a target of raising female workforce participation rates from 54 to 60 per cent by 2010 (Boeri et al., 2005: 2). A similar approach has been adopted in the subsequent Europe 2020 Strategy, although the timeframe of this later set of commitments falls outside the scope of this book. However, what is most important to note is that attention to the state’s role in promoting particular types of labour market outcomes, tied to concepts of innovation, flexibility, and knowledge-based growth, has been placed at the centre of the analysis.

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