Article
The ‘knowledge-based
economy’ and the
relationship between the
economy and society in
contemporary capitalism
Loris Caruso
University of Milan-Bicocca, Milan, Italy
Abstract
According to the main theories of the knowledge-based economy (KBE), the recent
transformations of capitalism are the origins of a general societal change. Managerial
theories consider KBE to be a series of win-win mechanisms that simultaneously favour
firms, workers and consumers. The cognitive capitalism theory perceives in the devel-
opment of cognitive capitalism signs of the formation of a post-capitalist economy. This
article discusses the main features of these two theoretical orientations and identifies
some core ambivalences in KBE. The relationship between the market and society in
KBE is marked by a dialectical process. The former incorporates mechanisms of potential
economic valorization generated by informal social relationships. To this end, it must
internalize actors, practices and cultures that are partially in conflict with it, given that it
must make ever greater attempts to bring the overall process back within the ownership
regime. One thus witnesses a reduction of the barriers between firms and society, that
can simultaneously engender a more subtle dominance of the former over the latter, or
the growth of autonomy, self-organization and peer cooperation among social actors.
This second possibility relies entirely upon politics and collective action.
Keywords
capitalism, class conflict, information and communication technology, knowledge
economy, new technologies
Corresponding author:
Loris Caruso, Department of Sociology, University of Milan-Bicocca, Via Bicocca degli Arcimboldi, 20126 Milan,
Italy.
Email: loris.caruso@unimib.it
European Journal of Social Theory
2016, Vol. 19(3) 409–430
ª The Author(s) 2015
Reprints and permission:
sagepub.co.uk/journalsPermissions.nav
DOI: 10.1177/1368431015611297
est.sagepub.com
In the 1970s, the theory began to spread that the contemporary economy was no longer
based on the production of material commodities, but rather on the quantity and quality
of knowledge that capital and labour contain and produce (Toffler, 1970; Bell, 1974).
According to theories of the knowledge-based economy (KBE), the recent technological
and organizational transformations of capitalism are causing a general societal change.
Toffler (1980) argued that the ‘knowledge age’ is a ‘massive historical shift’, Stehr
(1994) has claimed that it has put an end to the age of labour and property, Drucker
(2001) maintains that work, labour, society and politics will take forms that humanity
has never previously experienced, and Florida (2012) contends that the distinction
between capitalists and the proletariat has become obsolete. On the opposite side, other
interpretations, mainly Marxist (Garnham, 2004; Jessop, 2004; Thompson, 2005; Fuchs,
2012), deny that the knowledge economy represents a radical discontinuity in the social
organization and consider the theories of KBE as ideologies. Garnham (2004) traces the
ideological element of these theories to their denial of the continuation of class relations
and labour exploitation. According to this view, KBE implies a transformation in pro-
duction forces, but it does not substantially alter the capitalist production relationships.
The KBE is defined as the production of goods and services based on knowledge-
intensive activities that contribute to an accelerated pace of technological and scientific
advance as well as equally rapid obsolescence. Its key components include a greater reli-
ance on intellectual capabilities than on physical inputs or natural resources, combined
with efforts to integrate improvements at every stage of the production process (Powell
and Snellman, 2004). It is based on the constant production of new ideas and develop-
ment of new goods, services and organizational practices (Drucker, 1993, Prusak,
1997). Castells (1996) claims that an informational mode of development directed
towards the accumulation of knowledge and intellectual property, combined with self-
programmable labour in flat, networked organizations, is the fundamental source of pro-
ductivity and power. These processes apply not just to sectors of the economy that are
central to KBE (such as information technology, biotechnology and nanotechnology),
but also to manufacturing and services as a whole (Tapscott and Williams, 2006).
The most vindicatory interpretations of the KBE affirm that increases in the qualifi-
cations, autonomy and participation of workers are the main effects of the KBE on labour
(Adler, 1992, Kelly, 1998, Florida, 2012). Such changes in workers’ performances then
serve to ensure significant increases in productivity and to arrange processes where the
driving forces are fast problem-solving abilities, creativity, and the cognitive, linguistic
and social skills of workers. Excessively hierarchical structures and overly strict control
over labour, according to these views, impede production and the spread of knowledge.
The KBE is more than a theory and a set of concepts. It has also become political
rhetoric and a set of public policies. According to Cushen and Thompson (2012), the
KBE gained momentum as American capitalists and government leaders sought an
effective reply to competitive threats. It was then translated into successful legal and
social campaigns and norms. From there it has been embraced as a master narrative
by virtually every international body of note – the OECD, the WTO, the IMF, the World
Bank, the EU, the APEC, the ASEAN and NAFTA. These international bodies have
adopted the KBE as a contemporary discursive resource to frame policy packages on
competitiveness (Warhurst and Thompson, 2006). Jessop (2004) argues that the KBE
410 European Journal of Social Theory 19(3)
was initially presented as a response to the crisis of Atlantic Fordism and its competitive
challenges from East Asia and Latin America, an economic imaginary able to invoke
wide-ranging institutional innovation that reorganizes an entire social formation, thus
becoming an effective solution to the search for a meaningful post-Fordist macro-
economic order.
Currently, it is possible to identify two main theoretical orientations among the the-
ories that consider the KBE to be a social ‘great transformation’. The first, generally
termed ‘managerial’, interprets the current economic change as a win-win process that
brings benefits to firms, workers and consumers alike. The second orientation is the cog-
nitive capitalism theory. This emphasizes the limitations and contradictions of the new
productive system, but it also grants that the system can lead to a progressive autonomi-
zation of work from capital and the market’s ‘colonization’ by peer and cooperative
social relationships. Though partially contrasting, these two orientations share some core
assumptions (Formenti, 2011): (1) the ‘digital revolution’ has sanctioned the end of the
capitalist monopoly on the means of production; (2) gratuitous work and free coopera-
tion play a key role in the new production model; (3) Web 2.0 favours the development
of ‘horizontal’ forms of cooperation as an alternative to the traditional hierarchical orga-
nization of firms; (4) the new forms of ‘cognitive’ labour are much more autonomous
and creative than traditional Fordist labour; and (5) the knowledge economy may evolve
towards a capitalism without ownership, or even towards a sort of ‘digital socialism’.
Do these assumptions correspond to the real functioning of the knowledge economy
and contemporary capitalism? To address this question, this article aims: (1) to illustrate
and discuss these two theoretical orientations, comparing their main features with other
analyses and empirical studies on business models and work in the KBE; (2) to identify
the main ambivalences in the KBE; and (3) to relate them to the relationship between
firms and society and to knowledge work. The first two sections analyse and discuss the
main theses of managerial literature and cognitive capitalism theory. The third section
addresses issues concerning the relationship between work, autonomy and creativity
in KBE. The Conclusion summarizes the main theoretical consequences of the previous
analyses.
Economy, knowledge and cooperation
The managerial paradigm
Literature from the managerial perspective (Drucker, 1993; Stehr, 1994; Blackler, 1995;
Nonaka and Takeuchi, 1995; Lessig, 2005; Benkler, 2006; Jenkins, 2006; Tapscott and
Williams, 2006; Shirky, 2009; Rullani, 2011; Florida, 2012) considers the KBE to be a
historical transformation in the mechanisms of value creation and in the relationship
between economy and society. These authors argue that all work has become cognitive.
In advanced capitalism there no longer exist jobs that do not require creativity or the use
of mental faculties that are not functional to mere execution (Drucker, 1993; Stehr, 1994;
Rullani, 2011; Florida, 2012). The value produced by cognitive work no longer depends
on objective data (cost of production factors, time employed), but on the subjective
meaning attributed to its products by their users. The direct correspondence between
Caruso 411
input (labour disbursed) and output (value produced) is thus interrupted. Value is cur-
rently produced by the combination of standardized knowledge with a situated, contex-
tual knowledge, which depends on the skills of individual workers and on the social
environments in which production takes place.
The value of the knowledge propagated through supply chains no longer works to the
exclusive advantage of the firms that produce it; rather, it reverts to its users: sub-
suppliers, imitators, consumers (Benkler, 2006, Tapscott and Williams, 2006). It there-
fore becomes increasingly difficult to bring value back within the confines of private
ownership. Cooperation and sharing become two decisive aspects of value production
in the knowledge economy. The production of knowledge relies on resources shared
by others – other firms or collaborators in the production chain – and in some cases
on expressly social resources, such as the basic knowledge furnished by a scientific sys-
tem or the social capital that generates trust in a particular territory. Moreover, the prod-
ucts of the cognitive process acquire value only through their use. These two ‘obligations
to share’ make it impossible to calculate the marginal productivity contributed by a sin-
gle firm in projects carried out by networks of businesses, or for that matter, by any sin-
gle economic actor participating in the value chain (Rullani, 2011). The only possible
measure is the overall contribution of the entire production chain to the production of
knowledge. Moreover, it is not possible to prevent, with certainty, those who do not par-
ticipate in the production chain (whether consumers, users or competing firms) from
using, enjoying or taking advantage of the knowledge produced.
If production is centred on innovation, scientific research and the application of spe-
cialized knowledge, then firms must seek skills, ideas and talents also externally. As a
consequence, the firm becomes a network where a set of heterogeneous actors (employ-
ees, contractors, suppliers, business partners and consumers) all participate in creating
value in the various phases of the production cycle: conceptualization, design, produc-
tion and marketing (Powell and Snellman, 2004). This can happen in two different ways.
The first model is the business web (b-web). B-webs are networks that form predomi-
nantly on the Internet and sometimes expand to encompass hundreds or even thousands
of companies. Unlike customary supply chains, suppliers in these webs may play an
active role in developing the projects and in providing the knowledge needed to accom-
plish them (Nonaka, 1991; Shirky, 2009). The lead company must also share information
and knowledge with its suppliers concerning the products to be made in the project. At
the major aircraft company Boeing, in the past, suppliers would produce single compo-
nents, but now, they deliver entire assembled portions of the final product, thanks to the
fact that Boeing has handed them control over a portion of the thousands of functions and
components that make up its airplanes. The car manufacturer BMW concentrates the
majority of its own R&D budget on innovation in software and electronic devices with
which the driver interacts, whereas mechanical engineering upgrades are increasingly
being entrusted to partnerships with networks of suppliers and other businesses. Net-
works such as these are subject to several problems. The lead companies often struggle
to find the right balance between which information and knowledge they should keep
confidential and what they should share, in order to make the network fruitful without
allowing partner firms to appropriate strategic knowledge and become competitors.
Also, suppliers find themselves competing against each other for permanent partnership
412 European Journal of Social Theory 19(3)
roles with the lead company. Finally, it is difficult to verify the contributions to total
value creation made by each of the various actors.
The second way in which production, knowledge development and information gath-
ering are spread, thereby extending the firm’s boundaries, is crowdsourcing. Crowdsour-
cing is defined as the outsourcing of work to a large group through an open call made
possible through advances in technology (Barnes et al., 2015). ‘Crowds’ thus perform
jobs that used to be assigned to a designated agent. This work can be paid or undertaken
voluntarily. The open source movement is considered to be the foundation of crowdsour-
cing. A wide range of services are being crowdsourced, such as software/product devel-
opment, design, writing and editorial services, and web development and design. In
2008, Apple itself released the iPhone Software Development Kit (SDK), which enables
third-party developers to create applications for the iPhone and the iPad, and Google
announced its open source Android platform for mobile phone development (OHA), a
business consortium that consists of around 50 technology and mobile firms committed
to open standards for mobile devices. By using the OHA to assemble mobile phone hand-
set makers, Google has mobilized a range of manufacturers to develop products for the
Android platform, outsourcing mobile applications development to a global base of free-
lancers (Bergvall-Ka
˚
reborn and Howcroft, 2013). In cases like these, the firm opens up
some of its software and databases through an application and programming interface
(API) to enable software developers to create new applications.
Other firms, such as Nokia, Microsoft, Amazon and BlackBerry, have emulated this
model. Amazon grants a network of 140,000 software developers access to its product
database so that they can create new product offers. The model is not limited to the infor-
mation technology sector. Procter & Gamble has outsourced 50 per cent of its products
and services ideation by creating InnoCentive, a network through which 90,000 scien-
tists work with Procter & Gamble on R&D projects, obtaining a monetary reward with-
out being directly employed by the firm. Similar experiences to InnoCentive have been
seen with NineSigma, Eureka Medical and YourEncore.
The crowdsourcing phenomenon sometimes takes over without any input from the
producer firm. Apple’s users, who had grouped together via Internet consumer forums,
autonomously created hundreds of applications for the iPod. One of these applications
was Podzilla, which in all respects prefigured the iPhone, which was in turn developed
by Apple itself. This type of mechanism has been referred to in the literature using the
term prosumers, indicating the active voluntary (and often unpaid) participation of con-
sumers in productive processes.
The overall picture that emerges in the KBE literature from the managerial perspec-
tive is that of an economy in which capital ownership and the exercise of control become
secondary in firms, while of prime importance is the actors’ participation in the learning
of new knowledge and their ability to access previous knowledge. In this context, soci-
ety, environment and people can give rise to bottom-up forms of development which do
not require the presence of concentrations of capital or pre-existing organizational
power.
According to Tapscott and Williams (2006), the KBE is a revolution centred around
the growing participation of social groups and individuals in the value chain. The infor-
mation technology needed to cooperate, create value and compete on the market is
Caruso 413