Knowledge economy: Myth, reality and how to put it right?

In knowledge-based economy, what you earn depends on what you learn: William J Clinton.

Saad Amanullah December 16, 2012


Knowledge economy is one of the hottest and most debated topics these days and how it is driving global growth and has the potential of defining future global economic powerhouses.

To me, traditionally economic growth is a function of four factors, namely population growth, capital accumulation, productivity and knowledge and its application.

There are two forces that are playing a key role in defining the knowledge economy, namely the intense need of knowledge in enhancing economic activities and the increasing globalisation of economic affairs. The intense need of knowledge is driven by the combined forces of information technology revolution and the increased pace of technological change. Globalisation, on the other hand, is driven by national and international deregulation and assisted by IT-related communication revolution.


But it it is not just education, it is also about systems, processes, regulations, discipline, trade, innovation, information technology, etc.

The million-dollar question is how to take full advantage of this latest revolution. Although Pakistan lost out in the earlier two, that is the agricultural and the industrial revolution – today we have one of the lowest yields and an industry which is resilient but neither competitive nor has global reach.

To evaluate a country’s status in this new knowledge economy, the World Bank has created a tool that it calls Knowledge Assessment Methodology (KAM) from which a Knowledge Economic Index (KEI) is created.

Per capita income of countries is directly proportional (correlation factor of 0.87), in fact exponentially proportional to KEI, ie higher the KEI, higher is the per capita income of that country and vice versa. Highest KEI is of Denmark at 9.58 on a scale of 1 to 10, and the lowest KEI is of Myanmar at 0.96 at rank 145. Pakistan is ranked 117th with a KEI score of 2.45, with India at 110th position and KEI of 3.06 and Bangladesh at 137th place and has KEI of 1.49.

The World Bank in its research to rank and quantify a knowledge economy has identified four pillars, namely economic and institutional regime, education and skills, information and communication infrastructure, and innovation systems.

The first pillar reflects the quality and independence of a country’s economic and regulatory environment. How strong are its institutions such as SECP, FBR, Competition Commission, Intellectual Property Organisation and State Bank? How well the government creates a level playing field for local and international corporations and entrepreneurs?

Second pillar is all about education and skill building. This is a key latent strength of our country being the 7th largest in the world in terms of population but education remains a promise unkept to millions of illiterates.

The third pillar is the strongest of all four pillars and is rated significantly higher than both India and Bangladesh. This aptly highlights the strength of our ICT sector and institutions on which we must build and positively impact our knowledge economy.

The final and fourth pillar is all about having an eco-system for driving innovation which includes having presence of high-tech firms, research institutes, universities, think tanks and other private and public organisations to tap into the growing global knowledge. A recent initiative, of which I am a founding member, Pakistan Innovation Foundation, is a step in this direction.

How do we now harness and use new and existing knowledge to improve productivity in our four key sectors, ie agriculture, industry, services and overall welfare. I would propose the following actions by knowledge economy pillars, namely:

Economic and institutional regime

Further strengthen government institutions, hire quality people with competitive salary and benefits, enhance tax-to-GDP ratio to 15 by 2015, lower sales tax to 10% and rationalise tariff, open trade barriers, improve logistics, improve rule of law, and eliminae of nepotism and preferential treatment.

Education and skills

Triple the percentage of GDP spending on education, open 25 additional technical and engineering institutes in next five years, encourage public and private partnerships, sign partnership with successful nations, make primary education mandatory until class five.

Information and communication infrastructure

Open new research facilities in public and private sectors, create an eco-system for innovators and entrepreneurs, encourage technology transfer and partnership, incentivise graduate and doctorate programmes, enhance scholarship programmes.

Innovation systems

Create indigenous computer manufacturing facilities, incentivise creation of patents and trademarks, strong incentives to drive high-tech innovation and remove regulatory and tariff hurdles in ICT.


Published in The Express Tribune, December 17th, 2012.


Karl | 8 years ago | Reply

You lost me with "incentivise", a corporate-jargon non-word.

amit | 8 years ago | Reply

@SK5: lol dady china's rank is 85 according to this index .knowledge economy index

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