Shifting toward the Knowledge Economy

By Norah Sullivan

Norah Sullivan has worked on projects involving youth job-skills training and entrepreneurship for the Multilateral Investment Fund, with a recent focus on supporting tech-driven solutions to social problems. She has a master's degree in Latin American studies from The George Washington University.

The tech world is abuzz with advances in the IoT (Internet of Things), AI (artificial intelligence), robotics, and 3D printing. These headline-grabbing innovations are just part of the greater digital revolution that has been sweeping across the globe in the last decade.

Innovative technologies, abundant information, and vast quantities of data are now more accessible than ever, transforming economies around the world by disrupting how companies do business, how governments deliver services, how labor markets function, and how people interact with each other. These trends are culminating in a global shift toward knowledge-based economies.

Knowledge economies turn knowledge and innovation into value

While definitions vary, knowledge economies are essentially about turning knowledge and innovation into value. Knowledge economies are driven by the development, management, and spread of technologies that yield greater productivity and inclusive growth across economic sectors.
This new order brings many opportunities for spurring entrepreneurial activity, economic growth, and job creation across the world, and for using technology and new digital platforms to deploy innovative solutions to pressing societal problems that markets or governments lack the incentives or capacity to address. Examples range from mobile payments, to providing farmers with crop and weather data via mobile phones:

  • We are already seeing the transformative power of mobile payments in bringing previously unbanked populations into the financial fold. The Tigo Money mobile wallet service in Paraguay, with 1.3 million active users--nearly a third of the country's adult population--is one of the most successful mobile money products in Latin America.
  • In Kenya and elsewhere, new digital technologies and smart analytics are enhancing agriculture by bringing previously unattainable crop and weather data out of the cloud and down to earth where they can be put to practical use by small farmers to improve productivity and climate resiliency.


Rapid changes may increase the divide between knowledge economies and others

However, the sheer magnitude and speed of these changes, as well as the inevitable displacement brought by greater automation and ongoing challenges such as uneven Internet connectivity in developing economies, run the risk of increasing the divide between those able to access, effectively use, and benefit from technology and knowledge, and those trying to catch up. After all, in addition to greater access to knowledge, it is the ability of enterprises, industries, governments, and individuals to effectively adopt and apply this knowledge, data, and technology that results in tangible economic and societal gains. And, some countries have economic foundations, infrastructure, and innovation ecosystems that are more conducive to embracing and supporting such changes.

Of course, knowledge economies don't emerge overnight. Take South Korea, a knowledge economy with a capital K, which has transformed into a high-tech, consumer electronic and manufacturing powerhouse over the past 50 years, with the likes of home-grown giants Samsung, LG, and Hyundai. This transformation is in large part due to the country's focus on investing in knowledge-intensive industries capable of disseminating technology economy-wide.

The Korean approach to economic growth is in stark contrast to the agriculture and natural resource-focused path taken by countries in Latin America and the Caribbean, which did not make comparable investments in R&D, technology, and innovation. This distinction is noted in the recent publication, The New Imperative of Innovation. While many economies in Latin America and the Caribbean are still overly dependent on commodities, today's proliferation of digital technologies and emphasis on solving social problems--coupled with increasingly conducive innovation and entrepreneurship policies and investment strategies--can help accelerate the region's push towards the knowledge frontier in sectors such as ICT, health care, financial services, education, and energy.

Digital technologies and social focus push emerging economies toward the knowledge frontier

Innovative business models that tackle social issues are cropping up across Latin America and the Caribbean. For example, Kuepa, a regional adult education platform, provides affordable, personalized, blended learning--a combination of in-class and interactive online content--for a variety of vocational training and certification programs. The platform expanded into the United States in 2015, initially offering low-cost courses in preparation for tests of general educational development (GED), English as a second language, basic computer skills, and career skills.

In order for similar enterprises to emerge and grow, and for developing economies to shift toward and fully benefit from knowledge-based economies, it is critical to cultivate and support the driving forces of the knowledge economy: science, technology, innovation, entrepreneurship, and human capital. The best way to do this is to focus on three mutually reinforcing areas:

  • Strengthen the ecosystems for entrepreneurship and innovation--including social entrepreneurship--to encourage the creation and growth of startups, build links among key public and private actors, and catalyze greater access to financing for the early and scaling-up stages of small businesses;
  • Support innovative companies so they can test, validate, and scale up tech-driven solutions to social and environmental problems; and
  • Build a workforce with the technical and entrepreneurial skills needed to compete in knowledge-intensive sectors.

With concerted efforts in these areas, knowledge economy gains are sure to follow.

From the Multilateral Investment Fund Trends blog