1.1.

New basic conditions

§ Moreover, it takes many years for the payoffs from the IT revolution to
manifest.
§ But the Internet evolution has already created the “information society”.
§ And theories of the old economy that are based on the traditional factors of
production (land, capital, labor) need re-examination.
§ Nowadays, intellectual, creative, and innovative capital (basically
knowledge) drive development.
§ The basis for comparative advantage has changed: hence the paradigm
shifts.
1.2. The positive loop effect of knowledge creation
§ The first type of knowledge dominating the digital society is imaginary or
creative knowledge:
§ Presentation skills is an example of imaginary skills.
§ Team building is an example of creative knowledge.

§ The second type of knowledge is practical knowledge that is based on data

and information.
§ Mastery of algebra is practical knowledge – once internalized the student can
apply the new knowledge to physics, chemistry or economics.
§ This is necessary where knowledge is needed to obtain and to use (adoption
requirements) knowledge.
1.2. The positive loop effect of knowledge creation
§ The vast
cyberspace warehouses data and its network effect
increases interactive data exchange exponentially.
§ This
positive loop effect of knowledge creation is highly
accelerated.
§ Computers have increased the ‘brain power’ of humankind
magnificently.
§ So too are interconnectivity of computers and people via the
Internet.
1.2. The positive loop effect of knowledge creation
§ The generation, processing and distribution of knowledge and information
drive productivity.
§ All firms need ICT to be on the competitive technological frontier.
§ Thanks to the Internet, Knowledge is almost non-rival and non-excludable:
§ Knowledge cannot be kept secret for any possible long period;
§ the new economy is characterized by uncontrollable spillovers and externalities

§ It is now important that experts conceptualize how knowledge and

information can best be modeled.
1.3. The knowledge worker
§ The knowledge society requires a ‘knowledgeable worker’ with up-to-date
competencies.
§ Workers need to renew their skills through “life-long learning” and “on-
the-job-training”.
§ The Internet or virtual space is increasingly an important part of human
life.
§ It is also the dominant medium to create, transmit and share information
and ideas.
§ Nearly everyone is compelled to "think network", and live through the
liberalized sea of information flow.
1.3. The knowledge worker
§ However, many fear that the cyberspace
may someday collapse due to information
overload.
§ The volume and speed of flow of
information has been very high.
§ Many now focus just on synthesizing
information already provided.
§ Much less time is available for analyzing
coherences and creating new information.
1.4. The Internet as a converging force
§ The Internetengulfs all aspects of economic, political, social-
cultural and moral life.
§ Knowledge is converging. It is now more difficult to separate
professions and specialties.
§ It
not only loss of distance, but also loss of space. knowledge
knows no territorial boundaries.
§ Individuals, firms, and
countries are now under immense
pressure to be global players.
§ Measures of performance for the industrial age have become
ill equipped for the new economy.
1.4. The Internet as a converging force
§This is particularly so because network or
global effect are difficult to contextualize
and measure.
§Network externalities exist because the
utility from being connected increases
when more persons are connected.
§Subscription to the network is more
valuable as the network is
oversubscribed.
1.5. Layers of the Internet Economy
The Internet economy can be divided into four layers, namely;
Infrastructure Layer, Application Layer, Intermediary Layer, and
Commerce Layer
§ Infrastructure Layer – players in this layer provide the hard
infrastructure e.g., backbone providers and Internet service
providers, and manufacturers.
§ Application Layer – players in this layer build upon the
infrastructure provided. They include, Internet consultants, and
web/software developers, etc.
§ Intermediary Layer – players in this layer facilitate the meeting
and interaction of buyers and sellers over the Internet. These
include: online travel agents and brokers, content aggregators,
portals/content providers and online advertising,
1.5. Layers of the Internet Economy
§ Commerce Layer – players in this layer sell products and services to
consumers or businesses over the Internet. These include e-tailers,
manufacturers selling online, airlines selling online tickets, and online
entertainment and professional services.
§ Note that many companies are players at multiple layers.

§ For instance, Microsoft and IBM are important players at the Internet
infrastructure, applications, and Internet commerce layers.
1. Explain how the IT revolution has created new basic conditions.
2. Explain why imaginary skills, creative knowledge and practical
knowledge are relevant in the digital economy.
3. The internet has rendered the knowledge non-rival and non-
excludable. Discuss.
4. Do you agree with the view that the “knowledgeable worker” needs to
renew skills through lifelong learning
5. In what ways is the internet a converging force?