Like with most new concepts, a period is needed before everybody will understand it in the same, authentic way. Basically, it refers to an economy where productivity depends to a large degree on knowledge used by actors in the production and service-provision processes, which is supported by proper government policies and programs.

A knowledge economy can operate successfully only under the following conditions:

  • Thanks to a very good educational system and favorable accessibility to its services, most of the active population is well educated and equipped with the competences and skills required in the present-day economy.

  • Governments are aware of the importance of knowledge and innovation for successful development and therefore systematically create regulatory and financial conditions supporting all efforts to increase productivity through policies and programs in all relevant domains: education and training, effective innovation ecosystems, support to entrepreneurship—from initial stages to communication with large corporations—and many others.

  • This implies that governments support the knowledge economy and its innovation performance with financial resources of at least 2.5% of GDP. Unfortunately, this is the practice in less than 15 countries worldwide, while there are more that don’t manage to reach even 1%.

Under these conditions, more than ever before, innovation is the leading force of progress. Everyone will contribute according to their 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.

It is to be recognized 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 present, still very few people are fully aware of the huge, positive potential of the knowledge economy/society.

These are the key features of the knowledge economy model:

  • Business and academia are closely interconnected, which allows both of them to follow the needs of society and pay in their innovative efforts the necessary attention to the criteria of sustainability.

  • Through adequate level and pattern of R&D funding, the national innovation ecosystems create the conditions for maximal engagement of the innovation potential, with a focus on priority areas where countries are in a favorable international competitive position;

  • The entrepreneurship support system encourages new entrepreneurs, as well as already successful ones, to engage in promising, though risky, projects. Particular attention deserves the domains of intense collaboration among private entrepreneurship, academia, and government-sponsored research, with the highest concentration of national research potential.

  • Knowledge-related industries represent a large share of the production and service activities in the knowledge economy, and education and training have to follow to provide an adequately qualified labor force.

The knowledge economy impacts not just global economics but also local and regional development, influencing everything from policymaking 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.

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 who do not continuously update 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 important and often also 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 economic, but cultural and social. This includes reshaping educational systems, rethinking worker rights, and adjusting to a new pace of life and work, which can be challenging for many people.

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 skills development may find themselves at a disadvantage, unable to participate fully in the new economy.

R. M. Unger specifically discusses the potential of 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, he advocates structural changes in both policy and institutional frameworks in order to democratize the benefits of the knowledge economy. This includes reforms in education to make it more accessible and relevant, innovations in labor 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 the 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 public interest.

While in the past innovation has followed the logic of a linear process, with limited intervention of government and other social actors, in the period of the knowledge economy, the involvement and indeed the role of government has 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 higher sophistication and complexity of innovation, many innovations are impacting simultaneously 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 in 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 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, requiring 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 to develop and disseminate new knowledge and innovations, but also requires respect for the rules of responsible behavior 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, the 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 contribution of individual 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 rewarded 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 in 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 to be 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 or to be able to develop all mechanisms to prevent potential threats and challenges that it may bring upon us. Both all 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.