MEASURING THE KNOWLEDGE-BASED ECONOMY

Abstract

Economic indicators guide the policy decisions of governments and those of a broad range of economic actors, including firms, consumers and workers. The traditional economic indicators such as Gross Domestic Product (GDP) have never been completely satisfactory, mostly because they fail to recognize economic performance beyond the aggregate value of goods and services produced. Feminists challenge the concept of GDP because it fails to take into account household work. Environmentalists maintain that traditional indicators ignore the costs of growing pollution, the destruction of the ozone layer and the depletion of natural resource endowments. Social critics point out divergence between traditionally measured economic performance and other facets of human welfare. In response to these criticisms, work is proceeding on extending censuses to include a set of household activities, such as cleaning, food preparation and child care. Attempts are being made to 'green' the national accounts through indicators which track depletion of forests and minerals, and air and water pollution. Novel indicators have also been proposed to measure social welfare more directly, taking into account crime rates, low-income housing, infant mortality, disease and nutrition11

Measuring the performance of the knowledge-based economy poses an even greater challenge. There are systematic obstacles to the creation of intellectual capital accounts to parallel the accounts of conventional fixed capital. At the heart of the knowledge-based economy, knowledge itself is particularly hard to define, to quantify and also to price. Today, only very indirect and partial indicators of growth in the knowledge base itself exist. An unknown proportion of knowledge is implicit, uncodified and stored only in the minds of individuals. Terrain such as knowledge stocks and flows, knowledge distribution and the relation between knowledge creation and economic performance is still virtually unmapped territory''. This paper is only one of the many attempts to help draw that elusive map.

11 Examples of such indicators have been used in the Human Development Report and the World Development Repo11. For a detailed discussion of alternative economic indicators, readers can refer to Anderson, Victor ( 1991) A/temative Economic Indicaton. 'OECD (1996c), pg. 29.