1: Lay the Foundations For a Knowledge Society

Two trends point to the emergence of what has been called a ‘Knowledge Society’. The United States needs to deploy its extensive educational capacity to align its workforce and citizenry with these trends.

The first is a series of long-term structural shifts in the economy, reducing the relative need for unskilled labor and increasing the need and effective demands for those who are more highly educated, capable of adapting and using complex modern technologies. The evidence for this is substantial, and at times overwhelming.

An aspect of this involves reduction in the size of the agriculture and industry sectors compared to increased in the size of knowledge-intensive service sectors. This pattern is worldwide, and can be seen in all rapidly growing economies such as the fastest growing economies on the Pacific Rim. ‘Knowledge-intensive’ means that intellectual labor is a primary part of both the work of the employee and the service provided to society.

Notwithstanding this shift in the relative size of sectors, we will always need food and things that are made. Agriculture and industry are as important as always—however productivity levels in those sectors have increased, requiring less raw labor and increasingly more highly educated labor to create more product. The typical modern farmer for example has and is required to have many very advanced skills, ranging from agronomy and animal husbandry to accounting, management, and financing. Activities where advanced skills are not needed with almost the sole exception of home health care, have been shifted offshore to lower wage economies. There are even demands for home health care persons to acquire more skill and become ‘professionals’.

A related trend is the increasing economic significance of knowledge management systems. This includes services such as those applied to product design, service quality, reputation, brand, business systems, product or service aesthetics, customer loyalty, intellectual property, technology use, human resource management, and, from a organizational point of view, the capacities of the enterprise to capture, systematize, preserve and apply knowledge.

Together, these changes are variously called the information society, post-Fordist production, or the post-industrial economy. However, we cannot live by information alone. Far from becoming post-industrial, we still need and value made things. To an unprecedented extent, knowledge is now mixed with the making and using of things.

Of all the epithets that attempt to encapsulate the essence of our economic times, the one that seems to work best is the ‘knowledge society’ and ‘knowledge-based growth’. This concept rooted in the endogenous growth theory and research that has become the core of modern economic growth theory. ‘Knowledge society’ describes a transformation that is affecting every sector, every kind of work, every kind of relationship between producer and user—including transformations occurring in agricultural and industrial sectors. It is also a label which better highlights the connections between education, economic growth, and endogenous development which includes the wider benefits of learning and their impacts on broader development goals that permeate every aspect of our economic destiny.

In these difficult economic times, developing a knowledge advantage will be a key to recovery in every sector of the economy, and for individuals, workplaces, regions and nations. We need to infuse a spirit of knowledge and updated human capital skills into the middle class and into all sectors of human activity, both at home and in the workplace in all industries. This will increase productivity both at work and at home, and use knowledge to improve our international competitiveness.

For a long time, the US has been falling behind in the global educational race. For the moment at least, this is less the case at the top end of the system where the US still leads the world in so many fields of science, social science and technology. However, of major concern is the emergence of a long tail of underachievement that will block the pipeline to excellence and the new human capacities required of a broader spectrum of the workforce in order to compete in the world economy of the near future. This has corresponded with slipping back in the global economic race. Today’s economic crisis gives us reason to redouble our efforts to develop a renewed, knowledge-based economy, to take a leap in which knowledge-qualities of our people, products and services and our productivity in their making make for a decisive global-competitive edge.

To be concrete, moving from the general needs of a new economy to the specific impacts of education not just on earnings and employability, but also on development, what are the specific wider benefits of learning or ultimate outcomes of education? How can education best serve society’s need for economic growth, broader development, and nurturing the whole person for improved human welfare? What are the qualities of knowledgeability that our schools should teach? Here are just a few:

These are deep shifts in human capacity, transformations that have barely begun. It is incumbent upon educators to rethink quality and expand the ‘standards’ and accountabilities that underpin a knowledge economy, and the kinds of learning required by the kinds of people who will be its most productive members at the same time as contributing to the quality of working and community life for all.

— Mary Kalantzis, Bill Cope and Walter McMahon

Action Items

Action Item 1.1: Widen the Role of Educators in the Knowledge Economy

Educators—whose fundamental vocation is the business of how humans come to know—should take a leading role in framing the knowledge economy—in schools, human resource departments, in the theories and practices of the ‘learning organizations’. Education needs to be cast more broadly than the mechanics of skills (literacy, numeracy and disciplines), encompassing these legacy concerns to be sure, but deepening and broadening their concerns to address the needs of the emerging knowledge society.

To this end, we recommend the formation of a National Advisory Council of Educators for the Knowledge Economy, involving stakeholders from across the educational sectors and States (like the business round tables) to consider ways in which key Local, State and Federal programs interface. This would include annual face-to-face conference sessions plus online capacities to kick-start a new, national conversation about change and reform in American education.

This also needs to be a bottom-up, process, with educators playing a key role and collaborating with learners and the community to redesign American education. Schools could establish Community Knowledge Design Centers in which teachers and students work with local businesses, government agencies and community organizations to survey needs, research opportunities and devise practical programs of action.

Action Item 1.2: Define the Core Elements of Competence

Educational ‘standards’ are often described in ways that are narrowly focused on disciplinary content far removed from the needs of the knowledge economy. However, attempts to define the human capacities needed in the next phase of social and economic development are often vague and untestable. It is our challenge as educators to be clearer about what we mean by core elements of productive and social competence. What can we mean by the following elements of competence? How can they be taught, learnt and evaluated?

Or what about foundational knowledge processes?

To this end, we recommend the creation of a State Governors’ or Education Secretaries’ Commission on National Standards for the Knowledge Society to interrogate current State and Federal standards for their capacity to deliver for today’s social needs, and their commensurability from State to State.

We also recommend classroom-grounded, teacher-initiated inquiries into Community Knowledge Needs Audits (employers, community organizations, families), highlighting points of alignment and non-alignment of educational programs and standards with current and emerging community needs.

Agenda Item 1.3: Transform Work-Facing and Work-Embedded Education

Education nowadays must be lifelong and lifewide. People in work need their skills and capacities transformed to meet the demands of transformed employment demands. People out of work need education programs that will bridge them into new forms of employment. Vocational, professional and liberal arts education programs all need to be pitched at a level of substantive and cognitive generality that means they stay work-relevant to learners for longer. This will involve the development non-traditional sites of learning and the transformation of curriculum in traditional sites.

We recommend support for higher education and school education partnerships – for example K-20 Pathways Councils to review accreditation and certification procedures, to conceive and initiate multiple pathways, including flexible options such as work-based learning and to expand industry/higher education partnerships in the training and education of the workforce.

Supporting Evidence

Supporting Evidence 1.1: The Evolution of the Idea of the Knowledge Economy

It is important to distinguish a number of different strands and readings of the knowledge economy and important to do so because it provides a history of a policy idea and charts its ideological interpretations.1 Early attempts by Friedrich von Hayek2 to define the relations between economics and knowledge have been followed by the economic value of knowledge studies of the production and distribution of knowledge in the U.S. by Fritz Machlup3; Gary Becker’s4 analysis of human capital with reference to education; an emphasis on ‘knowledge workers’ by the management theorist Peter Drucker5 who coined the term in 1959 and founded ‘knowledge management’; Daniel Bell’s6 sociology of postindustrialism that emphasized the centrality of theoretical knowledge and the new science-based industries and Alain Touraine’s7 The Post-industrial Society which hypothesized a ‘programmed society’; Mark Granovetter8 who theorized of the role of information in the market based on weak ties and social networks; Marc Porat9 who defined ‘the information society’; Alvin Toffler10 who talking of knowledge-based production in the ‘Third Wave economy’; Jean-François Lyotard11 who defined The Postmodern Condition as an age marked by the contingency, complexity and dispersal of knowledge; David Harvey12 who talked of the large-scale shifts from Fordist to flexible accumulation; James Coleman13 analyzing how social capital creates human capital and Pierre Bourdieu14 and Robert Putnam15 further developed the notion; Paul Romer16 arguing that growth is driven by technological change arising from intentional investment decisions where technology as an input is a nonrival, partially excludable good; the OECD’s17 influential model based on endogenous growth theory which uses the term ‘knowledge-based economy’; Joseph Stiglitz18 who develops the World Bank’s Knowledge for Development and Education for the Knowledge Economy based on knowledge as a global public good; employers calling for new workforce skillsets19; and public policy applications and developments of the ‘knowledge economy’ concept.20

— Michael Peters

Supporting Evidence 1.2: The Economics of Knowledge

The modern conceptual framework for the “knowledge economy” is rooted in the endogenous growth models of Lucas21 and his student Romer22 who provided analytic proofs for the central role of human capital formation and education externalities in the economic growth process. This was accompanied by a flood of empirical research establishing the empirical evidence consistent with this theoretical basis. It now has arguably become the mainstream of modern economic growth theory, research, and the understanding of how longer run economic processes in modern economies work.23 The theory and research are more recently moving to extend endogenous growth to become endogenous development. The latter encompasses household production of final outcomes and hence the effects of the non-market private and social benefits of education on broader development goals and human welfare.

Historically, building on Alfred Marshall24 and his dramatic statements about the key roles of education and also new knowledge created by leaders such as Newton, Darwin, and Beethoven, revolutionary developments in economics and the economics of education beginning in about 1960 continue to have enormous implications for new research. These advances were due to largely to Gary Becker25 and T.W.Schultz26, both Nobel Prize winners, who conceived of education including on-the-job training as the key means of creating human capital. This surged as Lucas, another Nobel Prize winner, and Romer developed endogenous growth theory, which, including the empirical evidence consistent with it, became the main foundation for modern growth theory and knowledge-based growth. To incorporate the wider benefits of learning, Becker’s analysis of the allocation of human time and the use of human capital in the household production of final outcomes has become the core element, and is consistent with empirical work tracing these non-market effects from education on development.27 The result is the extension of endogenous growth to become endogenous development.

Recently Lucas has re-addressed the contribution of ideas to growth.28 This encompasses both R&D and Schumpeterian innovation. The ideas are not exogenous ‘manna from heaven’, but instead are endogenously determined since they are the result of a large class of educated people spending their entire careers generating and exchanging ideas, solving problems, and generating new knowledge. Again education winds up with the central role essential to idea creation, innovation, and the success and sustained growth of modern capitalist economies.

The theoretical developments mentioned are the logical proofs of the effects of education. They are essential to inferring cause and effect. The empirical tests consistent with these then result in a scientific explanation. Without both there is no scientific basis for the knowledge economy or knowledge-based growth, or for what we are doing in education to foster development. Statistical regressions alone without the logic of the theory behind them are only empirical correlations.

— Walter W. McMahon

Supporting Evidence 1.3: International Knowledge Economy Policies

Understanding based upon the concept of the knowledge economy has recently helped the shaping of national policy constructions of the ‘knowledge economy’ in the West and the developing world. Knowledge was included by the World Bank as a theme in its 1998 World Development Report where it acknowledged that ‘knowledge has become perhaps the most important factor determining the standard of living’.29 More than 50 per cent of Gross Domestic Product (GDP) in the major OECD economies is now based on the production and distribution of knowledge. The growth of the Internet and other related new technologies has become the catalyst for the creation of ‘knowledge economies.’ Countries that have supported investment in education and life-long learning and by investing heavily in research and development (R&D) are well positioned to take advantage of these new global markets. The U.S., Canada, Denmark and Finland have already identified the growing importance of knowledge and reflected this in their approaches to economic policy. Neo-classical economics does not specify how knowledge accumulation occurs and thus cannot acknowledge externalities while also failing to consider human capital or that education has a direct role. In contrast, new growth theory has highlighted the role of education in the creation of human capital and in the production of new knowledge.30 In one of the earliest policy applications, the UK white paper Our competitive future: building the knowledge driven economy defined the knowledge-based economy not only in terms of wealth creation but also effective knowledge use and exploitation.31 ‘Knowledge economies’ are those economies directly based on the production, distribution and use of knowledge and information, reflecting the trend towards growth in high technology investments, high-technology industries, more highly-skilled labour and associated productivity gains. Knowledge, as embodied in people (as ‘human capital’) and in technology, has always been central to economic development but its relative importance is increasingly recognised as the basis of future growth. In short, while the evidence is far from conclusive at this stage, there is a consensus emerging in economic theory that: i) education is important for successful research activities (e.g., by producing scientists and engineers), which in turn is important for productivity growth; and ii) education creates human capital, which directly affects knowledge accumulation and thus productivity growth. Not only do research and development expenditures provide a positive contribution to productivity growth, but education is important in explaining the growth of national income. Education-based policies of the knowledge economy become critical during the current deepening recession where the role of government as investor in long-term growth and productivity strategies can promote competition, stimulating enterprise, flexibility and innovation by opening new global markets but also help to shape the creation of a culture of enterprise and encourage creative industry-education partnerships in the knowledge economy.32

— Michael Peters

Supporting Evidence 1.4: The Knowledge Demands of Today’s Workplaces

In contrast to Taylorist or Fordist modes of production, modern organizational charts are leaner and flatter, requiring more decision-making from front-line employees33. Supported by a host of information technologies, knowledge workers must synthesize complex information to provide increasingly customized products and services. The knowledge worker must be comfortable with abstraction and able to work effectively with a small team of professionals. Although specialized skills, particularly high tech skills, are often valuable, the knowledge worker particularly needs transferable skills that can be utilized in a wide variety of contexts. In older modes of production, front-line work was broken into discrete, repetitive tasks, but modern workers need to be able to identify and allocate resources, teach and collaborate with others, understand complex relationships in systems, and select, apply, and evaluate appropriate technology and information34. Also, as organizations have become leaner, the ability of their employees to efficiently link with a range of supporting suppliers and services has become increasingly important in production35. In these production arrangements, soft skills and applied skills are at least as important as hard skills and specific content mastery. Although there are some indications of basic skill deficiencies in low-skilled industries36, surveys of employers indicate that the greatest skill deficiencies are in employees’ soft skills like self-organization, communication, work ethic, and ability to learn37. However, it is important to note that additional, more extensive data are badly needed, particularly on the skill needs of high-skilled and professional occupations.

— Peter Weitzel

Supporting Evidence 1.5: Impacts of Technology and Globalization Fostering ‘Knowledge Work’ and the Plight of the Middle Class

The main reason both technical change and the international outsourcing of jobs adversely affects those with a high school education or less the most is that college graduates are in command of the more recent technologies in all fields. These are in higher demand by employers in the job markets. The same has occurred in agriculture as farming becomes more physical capital and human capital intensive, and lower skilled workers have moved to the cities. This embodiment of the new knowledge and technical skills in graduates through education creates an earnings advantage in the labor market as is well known and often studied since Bartel and Lichtenburg extensively documented it.38

In contrast the failure of demand to grow in occupations requiring a high school education or less reflects the fact that this group is displaced by automation. But it is also the group most adversely affected by imports and by international outsourcing. The result is an excess supply of persons with limited skills in the US. The pattern is similar in Britain and the EU. Although college enrollments have been increasing in the US and in other industrialized OECD nations, numbers of graduates have not increased fast enough. The number without college also has diminish too slowly. So the excess supply of the lower skilled has grown. Immigrants from Mexico (and from Turkey, India, Pakistan, and Africa in the EU) have increased this pool. The result is large numbers with skill deficits.

Given that financial aids for students from lower income families have not kept up with the size of this pool, and state support for institutions has fallen, this is leaving out the middle class and is a major higher education policy gap.

There are exceptions to this pattern favoring the more highly educated. But most of it is anecdotal. Unemployment of PhD’s in Silicon Valley followed the bursting of the technology bubble, for example. But this was transitory. Another is the international outsourcing of some medical procedures (medical tourism) and some jobs requiring college-level skills in bookkeeping, publishing, or telephoning, where these can be channeled over the internet. And college educated joined the unemployed during the 2008-9 recession. But those with a high school education or less are becoming unemployed in much larger numbers and much more as a percent of the labor force.

However, a few anomalies and transitory effects like this do not stand up against the overwhelming weight of the evidence produced by repeated nationwide surveys of the US labor force and other systematic evidence. The comparative advantage of the United States has been due to its human capital (i.e. more highly educated and highly skilled workers). But this comparative advantage is rapidly diminishing.

— Walter W. McMahon

Supporting Evidence 1.6: Increasing Demand for High-Skilled Workers

In the last 50 years, there have been significant shifts in the types of industries driving the U.S. economy and how production is managed within those industries. Both of these types of shifts have substantially increased the need for highly skilled workers. In 1960, 58% of employed civilians in the U.S. worked in service industries, and this figure increased to 79% by 2007.39 By 2000, 75% of U.S. GDP came from services.40 The increasingly specialized demands in affluent countries have played a key role in driving globalization41 and have increased the importance of value-added production in the U.S. economy.42 The increasing returns to skill and education since the 1960’s suggest that employment has shifted toward industries and final services that demand more skilled workers. Some calculations suggest that there has been at least a 50% increase in the demand for the most skilled in comparison to demand for the least skilled.43

One of the main causes of this increase in demand is believed to be skill-biased technological change (SBTC). SBTCs are changes in the formula for production that disproportionately affect the overall productivity of certain types of workers over others. These technologies strongly complement the non-routine or abstract tasks handled by more skilled workers but may directly substitute for the more routine tasks handled by workers in the middle and bottom of the wage distribution.44 In the last 20 years, computerization is of course the most substantial form of SBTC affecting worker productivity. Computer capital substitutes for some workers by performing or facilitating cognitive and manual tasks that involve following explicit rules45. Computers cannot substitute for non-routine tasks, but they can make such tasks more efficient by providing better routine inputs. In a sense, high skilled workers can spend more time on high skilled work because the routine work they depend on is accomplished faster and more thoroughly due to computerization. Accordingly, these workers are freed up for more front-line problem solving, professional interaction, innovation, and other high-skill activities.

— Peter Weitzel

Supporting Evidence 1.7: International Educational Comparisons

With a strong history of compulsory schooling, the United States has long been one of the leaders in educational attainment among industrialized countries. For decades, the U.S. enrolled a substantially greater proportion of its 18 to 29 year olds in post secondary education than most OECD countries. However, we have failed to maintain that advantage, and many industrialized countries are rapidly catching up on this indicator.46 The high school dropout rate in the U.S. has remained relatively stagnant for decades, although estimates of the exact dropout level vary considerably by methodology47. Moreover, the economic circumstances for workers lacking post secondary training have declined significantly during this time period48.

Data from international achievement tests indicate that the U.S. is at or below the OECD average on many outcomes, particularly math and science achievement.49 Although our reading scores tend to be slightly higher in comparison to OECD averages, these scores have remained basically stagnant while our math scores are trending upwards. Although the highest achieving students in the U.S. are very competitive internationally, U.S. average scores are weighed down by particularly poor performance toward the bottom end of score distributions. Severe stratification of this sort is also evident in high school dropout rates, where minorities in urban areas often have no better than a 50-50 chance of graduating high school.50

In short, the educational advantages that the U.S. has held for decades are rapidly eroding. Although we have not declined on most attainment and achievement outcomes, other countries are making improvements at considerably faster rates. Improving our overall outcomes on these measures will depend in large part on improving educational services and opportunities for disadvantaged students and workers.

— Peter Weitzel

Supporting Evidence 1.8: Rescuing the Middle Class

Demand for the highly skilled workers has been rising faster than the supply of college graduates in the US and most other OECD countries. So as job growth in skilled occupations requiring 2-4 years of college has risen, real earnings for this group have risen 49.5% and 48% in the US since 1980. Social rates of return that also take rising institutional costs into account have also risen significantly in the US and continue to rise.51

At the same time the demand in the occupations typically employing persons with a high school education or less, which is roughly 64% of the US population, has fallen. There is currently an excess supply of those without appropriate skills. The result is that real earnings of this group have stagnated since 1980, and fallen dramatically since the 2008-9 recession began in August 2008. These are also the persons in the lowest 3/5 of the income distribution. The social rates of return at the high school level have remained flat since 1980.52 These persons constitute a very large group. Many are members of the middle class in smaller towns and rural areas, although many are in the middle class neighborhoods of larger cities. They are not participating in the benefits of economic growth and are being increasingly economically and socially excluded.

There is another relevant kind of evidence of the exclusion of the less skilled middle class and the crucial role of education based on specific job markets. As secular economic growth occurs or even as more transitory economic recovery from a recession occurs the demand for workers rises and more job openings are created. The US Bureau of Labor Statistics analyzes the 30 occupations that are growing the fastest currently and expected to grow through 2016.53 All 30 occupations growing fastest percentage-wise except for home health care, medical, and pharmacy aides require a community college or four year college education or more. For the 30 occupations accounting for over half of the numerical growth in jobs, 11 are designated by the BLS as requiring an associate degree or more. And for the 30 occupations expected to account for over 2/3 of the numerical decline in jobs, 28 out of 30 are lower skilled requiring only on-the-job training after high school.54 So although it can be said that the largest number of openings is expected to be in the larger occupations, simply replacing those who retire with lower skills and not requiring a college education (e.g. food preparation, retail sales, stock clerks, farm workers, office clerks), it is also true that these are not growing as areas of employment.55

Expanding enrollment in 2 and 4 year higher education by Federal support of more and larger Pell Grants and also Federal institutional support through the states for those institutions that accept the increased enrollment are both investments in human capital formation vital to America’s future. They are also very profitable ones that will pay for themselves several times over time, just as did public investments in human capital under the GI Bill after WW II.

A 20% higher education enrollment rate in Korea than in the US, for example, has long been associated with a per capita growth rate there that is almost twice that of the US prior to the current recession, 5% compared to 2.6%.56 With respect to the public resources required, an increase of 20% in the higher education enrollment rate would within a few years result in an estimated $2.5-$3 billion in additional state and federal income and sales tax receipts each year.57 This and the saving in correlated state health, public assistance, and criminal justice system costs would go a long way toward covering the costs of the increase in Pell Grants and institutional support that would be needed to achieve this enrollment increase. Since financial aids also increase persistence, as the evidence shows that they do, the entire public costs might be covered over several years by the increased tax receipts alone.

— Walter W. McMahon