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1375.0 - Discussion Paper: Measuring a Knowledge-based Economy and Society - An Australian Framework, 2002  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 28/08/2002   
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Contents >> Chapter 4: Overview of Framework and proposed dimensions and characteristics

GENERAL DESCRIPTION

The proposed ABS framework draws on work done by a number of organisations and individuals. In particular, it builds on work of the APEC Economic Committee and the OECD Growth Project. See Chapters 2 and 3 for more information.

The ABS proposes a framework model with five dimensions. There are three core dimensions as follows:

  • Innovation and entrepreneurship
  • Human capital
  • Information and communications technology

In addition there are two supporting dimensions: a Context dimension and an Economic and social impacts dimension.

Within each dimension are characteristics; indicators are chosen to provide measures of the characteristics.

DIMENSIONS

The contextual dimension is very broad and incorporates a number of background elements and preconditions, such as business environment and effectively functioning markets as discussed in the APEC and OECD reports.

The three core KBE/S dimensions: Innovation and entrepreneurship, Human capital and Information and communications technology provide the focus of the framework. They define the key characteristics of a KBE/S.

Finally, there is a dimension on Economic and social impacts. It is included on the presumption that a KBE/S has an impact on the economy and society. A small number of indicators which reflect this impact are proposed for inclusion in the framework.

There are multiple relations and some overlaps between the dimensions. In particular, the economic and social impacts dimension has relations with all the other dimensions and, in turn, affects the other dimensions. Some of those relations will be simple causal links (but maybe not demonstrably); most will be far more complex.

A highly simplified diagrammatic representation of the dimension structure of the framework is shown in figure 1. It shows the context dimension as being pervasive, the three core dimensions as overlapping and the Economic and social impacts dimension as being affected by both the context and the three core dimensions. In reality, there are many more relationships than those shown.



Figure 1: Simplified dimension structure of the proposed ABS Knowledge-based Economy/Society Framework

CHARACTERISTICS

Each of the dimensions is described in terms of a number of characteristics. A characteristic is an aspect of a dimension which has been used to both further describe the dimension and to give it some structure by splitting it into more understandable elements. The characteristics are neither mutually exclusive nor intended to provide a comprehensive description of each dimension.

Characteristics are dimension specific but, as far as possible, have been based on familiar concepts. For instance, the ICT dimension has six characteristics which are broadly split into infrastructure and access (one characteristic), ICT demand (three characteristics) and ICT supply (two characteristics). Most characteristics are populated by one or more statistical indicators.

INDICATORS

An indicator provides a quantitative measure of a characteristic. In the proposed framework, an indicator is defined as a single figure or a small data set showing a broad dissection (for instance by broad industry, age group etc). A list of possible indicators for each dimension is presented in Chapter 5.


FRAMEWORK LIMITATIONS

The framework presented in this paper does not attempt to cover all knowledge in the economy and society. Not only would such a task be overly ambitious but would be misleading if it implied that all knowledge were measurable.

In particular, the proposed framework does not offer a comprehensive treatment of a knowledge-based society although it does address those social elements which potentially affect economic change or are affected by it.


THE CONTEXT DIMENSION

It is impossible to ignore the importance of a diverse range of contextual factors on a knowledge-based economy and society. We have grouped those into a context dimension which incorporates the 'Business environment dimension' of the APEC framework and the 'Economic and social fundamentals' dimension of the OECD Growth Project.

The Department of Industry, Tourism and Resources (2002) states that a stable and competitive business environment is an essential component of a modern economy. It cites effective competition policy, stable and credible regulatory and legal frameworks and an open environment for trade and investment as important factors in:
  • alleviating business uncertainty
  • increasing investment in knowledge
  • developing knowledge-based industries and their exports and
  • promoting growth in labour and multifactor productivity.

The Global Competitiveness Report produced by the World Economic Forum (WEF) also emphasises the importance of policies and institutions to knowledge-based economies. The 2001 report discusses the changing context of business, legal and political systems as nations move from resource-based to knowledge-based economies (WEF 2001). The World Competitiveness Year Book produced by the International Institute of Management Development (IMD) considers government efficiency, business efficiency and infrastructure as well as economic performance when assessing overall competitiveness (IMD 2001).

The context dimension in the current proposal is broad and includes a number of economic, social, cultural, legal, political, environmental and global factors which may stimulate, or act as preconditions for, a successful KBE/S.

The proposed characteristics of this dimension include:
  • Macro-economic factors (such as economic performance including monetary and fiscal macro-economic management to encourage stability of output growth, short-term interest rates and prices).
  • Social and cultural factors. These include a wide range of societal characteristics and structures, for example, social capital, age structure of the population, health status, crime levels and income distribution.
  • Product, financial and labour markets.
  • Openness (an economy's openness and international orientation).
  • Legal and regulatory frameworks.
  • Political institutions and transparency.

There are relatively few indicators for this dimension. However, as work on the framework and indicators progresses, it is likely that other indicators can be included to improve the statistical description of this dimension.


THREE CORE DIMENSIONS

The three KBE/S core dimensions are described below. They could alternatively be described as the core components of a KBE/S.


INNOVATION AND ENTREPRENEURSHIP

This dimension includes the support for, and performance of, innovative and entrepreneurial activities within the economy.

Proposed characteristics of the dimension are:
  • Research base and potential for knowledge creation. This characteristic deals mainly with the performance of basic research, research in relatively new fields and research by small and medium enterprises.
  • Knowledge creation with commercial potential (this includes invention and patenting activity).
  • Other knowledge creation.
  • Knowledge networks and flows. This refers to sharing and dissemination of knowledge within firms, and between firms and other organisations (other firms, government and education organisations). It includes cross border flows of knowledge.
  • Innovation. This characteristic covers the introduction of new or improved products or processes by businesses and non-technological innovation.
  • Entrepreneurial activity. This characteristic refers to the creation of new, fast growing businesses.
  • Support for innovation (support for R&D and provision of venture capital funding).


HUMAN CAPITAL

The skills and knowledge of people living in a society are clearly of central importance to its development as a knowledge-based economy and society.

The stock of human capital is reflected in the level of skills, competencies and knowledge of members of society. The stock is built up over time mainly through investment in education (public and private expenditure on education and training). A KBE/S framework is therefore concerned with education and training inputs, both formal and informal, as well as outputs in terms of the resulting skills and abilities of the population.

Proposed characteristics of the dimension are:
  • Stock of skilled people (information about the education and skill levels of the population and the potential stock of qualified people).
  • Flow of skilled people (this characteristic looks at knowledge workers, the level of educational attainment of the labour force, the extent of employer training and human capital loss/gain from the economy).
  • Investment in human capital (refers to expenditure on education and training by government and business).
  • Lifelong learning and access to education and training.


INFORMATION AND COMMUNICATIONS TECHNOLOGY

Information and communications technologies (ICTs) are enabling technologies of a KBE/S. They are vital tools for knowledge workers, allowing them to take full advantage of technology's capacity to access, manipulate and process information. ICTs are also an integral part of education, offering students access to information as well as a range of IT based learning tools.

Some commentators argued that a strong ICT production sector is essential for a KBE/S. However work by the OECD suggests that the pervasiveness of ICT use within an economy and society is more important than the production of ICT goods and services (OECD 2000b).

Proposed characteristics of the dimension are:
  • ICT infrastructure and access. This characteristic considers the ICT infrastructure in place and its availability and cost to members of society.
  • Household and individual use of ICT (looks at the extent of use of ICT and the ways it is being used by members of society for particular purposes and activities).
  • Business and government use of ICT (examines the penetration of ICT into business and government processes).
  • Prevalence of electronic commerce. This characteristic looks at business and individual use of the Internet, and other computer mediated networks, for buying and selling goods and services.
  • ICT skill base (refers to the share of ICT workers in the labour force as well as covering skill shortage issues).
  • Strength of the ICT industry. This characteristic describes aspects of ICT industries in Australia. In particular, it looks at revenue growth, contribution to value added and employment, R&D expenditure and trade in ICT goods and services.


ECONOMIC AND SOCIAL IMPACTS DIMENSION

This dimension deals with the effects on the economy and society of an increased emphasis on, and use of, knowledge. As such, the dimension seeks to inform how 'intermediate' KBE/S outcomes impact on broader measures of economic and social progress. (The 'intermediate' KBE/S outcomes are reflected under each of the three core dimensions.)

It is acknowledged that a cause and effect relationship between impacts and knowledge cannot necessarily be proven. Even when these relationships exist, there could be long lead times between a particular factor and the associated impact. It is also clear that other factors are likely to be involved in some of the impacts we are seeing. For instance, micro economic and labour market reforms as well as 'knowledge' are likely to be factors in labour productivity improvement and economic growth. In respect of Australia, Parham et al (2001) have suggested that recent productivity gains have come from both increased ICT use and non-ICT factors such as policy reforms.

The indicators chosen are those measures of economic and social progress that commentators have suggested should be impacted to some extent by a KBE/S. However, some of these indicators (eg. GDP per capita) are quite broad in nature and, as discussed above, are likely to be also influenced by many other factors. The ABS would welcome particular comment on the types of indicators that should be shown in this dimension. Only a small set of statistical indicators is initially proposed. The set of indicators may grow over time as relationships between dimensions become clearer and views develop on the implications of a KBE/S.

Proposed characteristics for this dimension are:
  • Economic and structural change (change in productivity, industry structure and trade).
  • Social change.

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