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When making financial and investment decisions it is best to understand the economic context in which you are operating. If you live in a more highly developed country, such as the U.S., you should understand that much of the nation’s economy is actually what is known as the “knowledge economy.” This is an economic sector based on commodification of intellectual capital. 

Knowledge economy basics 

A knowledge economy is an economic system based on the production and consumption of intellectual capital. This type of economy assigns value on research which is applied towards a business endeavor, scientific discoveries, intellectual property, and workers’ knowledge. 

Intellectual property 

One way which knowledge is turned into profit is through leveraging intellectual property laws. Scientific discoveries, engineering innovations and technical inventions can be patented which prohibits others from using the patented knowledge without the permission of the owner of the patent. Those wishing to use patented innovations for business endeavors will have to pay a licensing fee to the patent owner. 

Human capital 

Within the context of a knowledge economy human resources are deemed valuable based upon worker education, training and knowledge of a subject or trade that a business is willing to pay for to leverage to earn profit. Rather than physical labor or material resources, intellectual capabilities are commodified in order for an enterprise to provide services and products to clients and customers. Commodification of intellectual ability can theoretically encourage further innovation throughout the economy. 

Pillars of a knowledge economy 

The World Bank has developed four pillars which the organization believes is evidence a knowledge economy is in existence. The first pillar is the existence of institutions which incentivize entrepreneurship and the leveraging of knowledge in business. Secondly, in order for a knowledge economy to be developed it should have a solid education system and skilled labor which can be tapped into. 

Infrastructure supporting communication technology as well as the ability for the community to access information is the third pillar necessary for a knowledge economy. Lastly, a developed knowledge economy will have structures in place to encourage innovation through academia, the public sector, and the private sector. 

What skills are valuable in a knowledge economy? 

It is important for workers in a developed economy to have an understanding of what skills are valuable within the knowledge economy context. Having this understanding can significantly increase worker chances of upward economic mobility. 

Higher education and training in technical skills are valuable in this type of employment market. However, strong communication skills and demonstrated ability to work as part of a team are deemed highly important in the knowledge economy. 

Investing within the knowledge economy 

When making investments the idea of leveraging the knowledge economy in some way to earn gains may be an attractive idea. Now that you have a basic idea of how the knowledge economy works you will need to research the various sectors within the knowledge economy which might present the best opportunities for you at this time. Whether you are looking to provide venture capital to a startup or just simply looking for promising technology stocks, please give us a call and we can help walk you through the intricacies of investing in various economies.