WITH RUSTY TOOLS
IN TODAY’S WORLD
By Alvin and Heidi Toffler
investors and students has been increasingly mistaken and misleading.
For some, this is old news, especially for economists themselves,who have long made fun of their errors. Their forecasts are so bad that Robert Reich, an economist and secretary of labor during the Clinton presidency, has suggested that "economic forecasters exist to make astrologers look good."
What is new is their increasing willingness to admit that the tools
they have been using for a century or more – theories and assumptions originally designed for probing smokestack economies – are becoming more and more irrelevant or useless for analyzing today's knowledge-hungry, no-longer-industrial economies.
With the U.S. in the lead, Asian countries racing to catch up and
Europe struggling to keep pace, advanced economies are shifting from
the reliance on Second Wave assembly lines and muscle power to Third
Wave brain power. This transition is typically symbolized by computers,
the Internet, mobile phones, digital production lines, networks,
ad-hocratic organization, heavy investment in research and development
and other knowledge-intensive tools and methods.
Put all these changes together with corresponding changes in
institutional boundaries, and the roles of managers, employees,
consumers and prosumers, and it is evident that we are inventing
something new on the face of the earth – a revolutionary wealth system.
Economists first caught sight of this as far back as 1962 when
Fritz Machlup of Princeton published a prescient book called "The
Production and Distribution of Knowledge in the United States." It
showed that even then the U.S. economy was becoming more and more
dependent on knowledge.
In the 1960s, the polymathic Kenneth Boulding and a small number of
other economists began showing an interest in the economics of
knowledge. But within their profession these leading minds were
intellectual outriders whose ideas were usually pooh-poohed or ignored.
As a result, even as many economies grew more and more dependent on
knowledge, conventional economists continued to rely on industrial-age
measures, models and notions.
In the 1970s and 1980s, we, along with other futurists and
economists, repeatedly called attention to the growing gap between the
emerging revolutionary economy and the obsolescence of mainstream
economics. Yet little was done to correct the problem.
In consequence, as knowledge – admittedly hard to measure – grew
more and more important, the picture of reality presented to
businesses, governments and key international organizations – right on
down to the World Trade Organization and the U.N. – grew more and more
detached from reality, reaching a point at which the discrepancy could
no longer be ignored.
The gap is now so wide that Business Week recently devoted a
lengthy cover story to it, detailing many of the distortions and
mischaracterizations of trade, unemployment and fiscal and monetary
policy that result from continued reliance on wildly out-of-date
theories and data. Nor is the problem just an American phenomenon.
Similarly poor numbers and models are used by economists in most of the
rest of the world, too.
A key reason why economics has not kept up with the changing
economy is the sheer difficulty of properly defining and measuring
knowledge and knowledge work. Who, for example, is a "knowledge
Many estimates about the workforce, present and future, for
example, focus on the most easily quantified employee categories. The
result is a very narrow notion of who is, and who is not, engaged in
A widely propagated categorization scheme suggests that to be a
knowledge worker one needs to be a scientist or an engineer, a
mathematician, an information technology specialist, a teacher or a
member of one of the professions. The assumption is that if we tally
these up, we have identified the "knowledge labor force." From that, it
is presumed, we can calculate their contribution to gross domestic
product and many other variables.
But this is crude at best and misleading at worst, radically
underestimating the extent of knowledge work in the real economy and
the number of workers doing knowledge work, as we'll see next.
Many economists are belatedly struggling to catch up with the increasing importance of knowledge in advanced economies.
Even among the most sophisticated, the true role of knowledge in
the creation of wealth is still, for the most part, underestimated. And
economists still don't grasp the often-hidden aspects of knowledge
Economists will have to subdivide knowledge into subtypes. Not all
knowledge is the same or has the same potential for creating wealth.
And building a knowledge economy doesn't require that every worker,
today or tomorrow, will need the cognitive or analytic skills of the
proverbial "rocket scientist."
Thus, economists must recognize that even many jobs categorized as
low skill – and therefore not counted in the "knowledge work" category
– have, in fact, a knowledge component. By ignoring that component, the
amount of knowledge work in the economy is radically underestimated.
Car mechanics may still install a new tire or a windshield wiper.
But, according to the U.S. Department of Labor, their work has changed
"from mechanical repair to a high technology job. As a result, these
workers are now usually called 'technicians.' . . . Technicians must
have an increasingly broad base of knowledge about how vehicles'
complex components work and interact, as well as the ability to work
with electronic diagnostic equipment and computer-based reference
materials." What percentage of these jobs consists of knowledge work?
What about farmers? Even the poorest peasants in history have
always needed knowledge about seeds, soil and weather. Today, in the
U.S., various agriculture organizations representing corn, cotton and
soybean growers have teamed up with the National Aeronautics and Space
Administration to teach "precision farming" made possible by data from
satellites and high-flying aircraft.
According to NASA, the farmers learn "where fertilizers are needed
– and where they're not needed. They discover pests – and spray only
infested areas. It's a remarkably 'green' approach to farming."
Precision farmers use GPS receivers, farm equipment with computerized
controllers and other digital equipment. As one farm-equipment dealer
puts it, today "it would help to have a college education just to
figure out the benefits in running the tractors."
Are farmers knowledge workers? Full-time or part-time?
Many other classes of employees also do part-time knowledge work.
Waiters punch orders into a computer, which not only sends instructions
to the kitchen, but provides data useful for purchasing, scheduling and
many other purposes. It has even been suggested that golf caddies are
"a simplified example of a knowledge worker" because "good caddies do
more than carry clubs. . . . A good caddie will give advice to golfers,
such as, 'The wind makes the ninth hole play 15 yards longer."'
If the definition of knowledge work is realistically broadened to
encompass part-time knowledge work, the role of knowledge in the
overall economy becomes far more important than current statistics
The extent of knowledge work in advanced economies would be still
further enlarged if economists recognize that there are many
economically essential forms of knowledge. These include tacit
knowledge, personal insight, the ability to care for the ill or elderly
with warmth and gut intelligence, a talent for leadership, persuasive
expression, adaptability, a gift for timing and many other skills that
are primarily social, cultural and psychological. These skills were
seldom required for repetitive tasks on yesterday's assembly line but
are extremely valuable, especially in tomorrow's service sector.
Not all of these carry the same weight or have the same effect on a
company's bottom line or on the national economy, and they are even
harder to define and quantify.
Yet another way of categorizing knowledge work is according to
whether it is being generated, stored, exchanged or transformed. Or by
the different degrees of abstraction required by different jobs – from
data entry all the way up the abstraction ladder to research scientist,
financial "quant" or corporate strategist.
Knowledge workers in the same firm also perform different
functions. Some are good "knowledge importers" – they bring knowledge
from outside the firm, from customers, critics, competitors and others.
They are good gatherers. Others are "knowledge exporters" – they bring
data, information and knowledge to the outside world from inside the
organization. They might be publicists or salespeople, for example.
Others are "knowledge relayers" – they pass data, information and/or
knowledge back and forth within the firm. Still others can be regarded
as "knowledge creators."
Our knowledge about knowledge is so poor that we all – not just
economists – are unprepared for what lies ahead. One forecast that is
reasonably safe is that economists, trying to answer questions like
these, will devote more and more attention to the work being done in a
new branch of their own profession – neuroeconomics, the study of how
the brain itself works when making economic decisions.
With or without help from that quarter, however, until economists
understand all these dimensions of knowledge work, they will continue
to drastically underestimate not only the contribution of knowledge
work to the money economy, but the role it plays in the truly
revolutionary wealth system emerging on the planet.