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The Rise of the Knowledge-Based Economy

As the concept of work changes, so will the notion of how people should do their work. There will always be a need for direct physical labor, but there will also be an equal need to know when, how, and why that labor needs to be applied. This flow of information will not always be constricted to office buildings of the traditional corporate network structure. In fact, the new economics of a knowledge-based economy will eventually erode most of the financial incentives for extensive internal networks.

Most organizations, with the exception of some government agencies and some particularly large corporations, will become more and more reliant on the public Internet for access to all pertinent information, particularly as both security and filtering technologies advance. This information will be even further enhanced by the continued use of desktop applications. These applications won't be radically different from their current forms. The most notable difference will be their "thinness," since there will be less of a need to store large programs on everybody's personal systems. The main role of these applications will be to customize a user's information and give the user a better ability to handle and manage information. Since the applications themselves will not be bound to a specific system, they'll be used just as easily at home as at work.

Since nearly everybody in the workforce will be using some form of information technology, just about everybody will have some set of highly specialized skills that contribute to an organization or group of organizations. This system can be viewed as a series of interlinked value chains concentrating on select core businesses, such as entertainment, publishing, and manufacturing. The skill to navigate these value-chain webs will be highly prized, demanding both a strong individual knowledge base and even stronger teamwork efforts. As labor is replaced by knowledge, even the mythical boundaries that once defined industry segments will begin to melt away. If individuals or teams of people are skilled at navigating an organic value chain, it might not matter what the core business of the value chain is. The skill set for acquiring and utilizing doorknobs will be just as valuable in acquiring and utilizing widgets. The next logical step will be to move away from singular product delivery to delivering a group of products designed to solve problems or produce results on a much larger scale. As this new economy evolves, business in the information era will deliver total services packages.

So what does an era of customized economy actually mean for the future? What exactly will it be like when a person can press a button on a flat screen and order a custom-made suit for dinner that evening? What kind of CEO will one have to be to run an online clothier that supplies the suit, made to order in terms of size, material, and cut, in a matter of hours? To stay competitive in the industry, the clothier will introduce efficiencies in the manufacturing of these goods that are unheard of in the era of mass production. The Internet will eliminate market inefficiencies in terms of pricing, meeting demand for both the consumer and the supplier. Every item made will no longer simply be a manufactured good, but the sum of these new efficiencies that create not just a suit but a product of a universal problem-solver.

Will this mean an economic utopia? Hardly. Because markets will most assuredly be more efficient, they'll also become more complex. This complexity will provide the core of the problems we as individuals will face in the 21st century that we didn't face in the 20th. In 1900, wouldn't a world without polio, a world where people in the United States could go from coast to coast in a matter of hours instead of weeks, a world where communication anywhere in the world could happen instantaneously, seem like a utopia? Well, it's 100 years later and I'm sure the consensus is that we are by no means a utopia! But the real question is this: Are we better off now than 100 years ago? The answer is very subjective, but my vote would be yes.

Since Adam Smith, science has cautioned that as the world's population grew, the world's resources would diminish. Every economic theory based on production and consumption met this law of diminishing returns at some point, giving economics the nickname the "dismal science." One reason we may have not all perished today from our own overwhelming greed and avarice may be the advent of technologies. Technology allows us to eke out just a little bit more from less, giving us greater potential to add to our economic basket without drying up the resources that create it. Of course, technology can only do so much. But we are starting to see less of the global competition for natural resources (with the exception of crude oil) that has plagued mankind for centuries.

The 19th century imperialistic and nationalistic urges to extract resources wherever they could be found wreaked havoc on non–European economies and cultures until the violent upheavals of the 20th century ended European colonialism. Now the world is rapidly evolving toward an economic base where the most valuable resource is no longer oil or gold or natural gas, but knowledge. Knowledge is not a diminishing resource but, we hope, a resource that is continually replenished.

Mind you, this doesn't mean that new natural resources are becoming any less valuable. But the knowledge base to use them in the most economically efficient manner is growing. These resources will still be the basis for manipulation, redirection, and valuation for the new global economy. But it will be the knowledge of how to manage this ever-changing web of value that will pay the biggest dividends. Because of the ubiquitous nature of global electronic transactions, the free flow of information on the Internet, and, at least until recently, the continuous upward surge of the stock market, a good deal of the standard rigidity in financial and labor markets is beginning to dissolve. In the workplace alone, Internet startup companies are commanding extremely high stock market capitalization, strictly on the potential markets they're designed to tap.

The savvy employee/entrepreneur now wants a piece of the action and generally is getting it. New trends of providing stock options, generous profit-sharing plans, cars, and other non-cash bonuses seem to indicate that the dismal science is in reverse. Standards of living continue to rise, but at least so far, inflation doesn't. A highly skilled technology labor pool continues to shrink, but wages remain relatively low in nontechnology sectors and especially among blue collar workers. As more money is made, more money is reinvested. Financial markets are becoming 24-hour operations that are complex practically beyond human understanding. The Internet represents the latest "gold rush," and like most gold rushes, it will eventually peter out, but that doesn't mean that fortunes won't be made along the way.

The Internet and the expansion of the global economy are just the result of the 20th century mass-production society coming to a fitting end. With the decline of assembly-line manufacturing, it's only logical that assembly-line labor must eventually begin to fade. As economies become more liquid and freer from the direct control of a few well-placed, powerful individuals, so will the way in which individuals and groups view how they should work and how they should be compensated. In turn, organizations and businesses have to review how they recruit, hire, and compensate their workers as they try to remain competitive in this new web-based value-chain environment. This goes beyond just profit sharing to quality-of-life issues. In-house child care centers or even staying at home to work is not just a trend. Soon this will be commonplace.

Eventually, the swell of Internet and technology startups will undergo a form of social Darwinism. The stronger players will eventually force the weaker players out of business or absorb them through mergers and acquisitions. And as these new companies grow and prosper, they'll foster a "lean and mean" culture of independence and individual value. In short, they'll begin creating organic web value-chains from within. As larger railroads expanded by gobbling up smaller railroads throughout the 19th century, larger web value-chains will simply gobble up the smaller ones. Already, precedents are being set for these new labor markets.

Like any other change, this may bode well for some and ill for others, but on the whole, at least in terms of economics, this is a necessary and obvious evolution. Although the American workplace has been its most productive and creative over the last 50 or so years, the standard corporate structure of the time was almost as stifling. Innate cultural, social, and political boundaries would often seep into day-to-day business affairs. Sexism, racism, nationalism, and a slew of other "isms" permeated American industry, undermining a good amount of its overall productivity. Of course, these social ills are not going to disappear, but for the most part, at least in business, typical social ills will become more and more invisible. As organic value-chain webs begin to dominate the way in which we do business, they'll often be faceless—sometimes even nameless—entities that are simply nodes on a network. Like telephone operators that controlled the flow of telephone traffic across the U.S. in the early 20th century, they'll be indistinguishable.

Without social and political restraints, economies can begin to exploit their own cultural values in terms of what they can and want to produce. Since customization will be the goal for both manufacturing and service organizations; customers will have greater input as to how they want their products to look, feel, and behave. Of course, this will be a reflection of individual tastes and cultures. A chair manufacturer will be able to produce the same chair just as easily in kinte cloth as Japanese silk, depending on the extent of its material value-chain network. Ironically, this cultural shift will actually exist because of the Internet's ability to cross cultures seamlessly. Overall, the following will mark the general shift of this new faceless economy:

  • Shift from mass production to custom production

  • Change in the world division of labor for producing universal and culture-specific products

  • improved manufacturing productivity through the integration of management and organizational tools, and organizational strategies with technologies

In addition, without social "friction" getting in the way, organizations should find it easier to maximize efficiencies at a much lower cost. Until 15 years ago, manufacturing technologies were more advanced than the strategies for using them. Technology only affects the lives of the people and institutions that use it. Although the Internet is free or at least relatively inexpensive (a $20 monthly ISP fee is still considerably less than the average monthly phone bill), it's still a new—even emerging—technology. To use any new technology, as we've already learned, implies some level of investment. Not everybody will want to or even be able to make these investments in the near future. But the future will come nonetheless, and the individuals and institutions that make their investment in that future now will be far ahead of competitors who refused the necessary investments in technology and training.

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