The Foundation of the U.S. Knowledge-Based Economy

Pool of Knowledge by Ian MuttooIn a recent academic journal article co-authored with Godwin Ariguzo and Angappa Gunasekaran, the ascension of the U.S. economy from service-based to knowledge-based is investigated and a foundational model offered. According to official U.S. sources reporting gross domestic product (GDP) data, the U.S. became a service-based economy (majority of Gross Domestic Product made up by services) at the end of 1958, beginning of 1959 ($211.2 billion GDP services, $200 billion GDP goods), much earlier than previously proposed. Today, services make up 70 percent of total U.S. GDP ($9.8 trillion out of $14.07 trillion).

Following the logic of total factor productivity, the argument can be made that the U.S. officially became a knowledge-based economy, simply measured as the point at which a majority of total service exports are made up of knowledge-based services, at the end of 1997, beginning of 1998. By the end of 1997, 50.74 percent of all U.S. service exports consisted of knowledge-based services. Today, knowledge-based service exports make up 64.6 percent of total U.S. service exports, accounting for $390.95 billion of $604.90 billion in annual service exports for 2011. The diffusion of the internet is thought to be the proximate trigger for the transition of the U.S. to a quaternary stage economy.

We attribute the establishment of the U.S. knowledge-based economy, based on the best available extent research, to the synergistic interaction of five components. The five components consist of a foundation of information and communications technology, plus open innovation, education, knowledge management and creativity. A visual representation of the foundational structure on which the U.S. knowledge-based economy is built is offered below.

Structural Components of the Knowledge-Based Economy

The proposed model is not exhaustive. Certainly other factors contribute to the ascension of the U.S. economy from primarily service-based to knowledge-based. However, while the five structural components offered above are well known and well researched individually, ours is one of the first manuscripts to suggest that the synergistic interaction of the five has provided the U.S. knowledge-based economy with its competitive advantage in the global market.

How long we will enjoy this competitive advantage remains to be seen and depends, in part, on the fate of our system of higher education and its ability to generate graduates with the knowledge and skills required to foster innovation.

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