Globalisation and the Knowledge Economy : Some Observations on Recent Trends in Employment, Education and the Labour Market

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Working Paper Series
Paper 43



Globalisation and the Knowledge Economy :
Some Observations on Recent Trends in
Employment, Education and the Labour Market

Phillip Brown and Hugh Lauder

November, 2003

ISBN 1 904815 03 0

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‘Our future success depends upon mobilizing even more effectively the
imagination, creativity, skills and talents of all our people. And it depends on
using that knowledge and understanding to build economic strength and social
harmony’ (The Future of Higher Education’, DfES,2003).

The middle classes have run the world since the French Revolution, but they’re
now the new proletariat (Super Cannes, J.G.Bal ard).


Introduction

The dominant view of economic and social change assumes that the developed
economies are in the midst of a knowledge revolution, driven by the application
of new technologies. It is argued that innovation holds the key to the competitive
advantage of countries and the welfare of individuals. Consequently, in a global
economy the prosperity of countries such as Britain and America depends on the
skills, knowledge and intellectual capital of those capable of creating and
developing innovations. In this scenario, education becomes central to economic
policy because it is through education that the knowledge and creativity
necessary for innovation are developed. It is a view that ‘New’ Labour has
consistently and insistently broadcast. In 2000 the then Minister for Education,
David Blunkett claimed that:

‘We have entered a new century in which learning will define our lives
as never before. Whether we succeed and prosper, as individuals or as
a country or fail to progress and fall behind will depend on our
knowledge and skills, abilities and understanding’ (Blunkett, 2000).

A view echoed by the Department for Education and Skills:

To prosper in the 21st Century competitive global economy, Britain must
transform the knowledge and skills of its population. Every child,

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whatever their circumstances, requires an education that equips them
for work and prepares them to succeed in the wider economy and
society (DfES, 2001).


This view represents a rhetorical vindication of the prophets of the post-industrial
economy (Bell, 1973; Drucker, 1993). Bell predicted that the growing importance
of ‘knowledge’ work, reflected in the historical shift from blue-collar to white-collar
work, would significantly raise the demand for educated workers, who would
enjoy greater autonomy in their work. Drucker (1993) went further by arguing that
we have entered a new stage of post-capitalist development, where it is no
longer ownership of capital that generates wealth creation but knowledge.
Hence power shifts from the owners and managers of capital to knowledge
workers, thereby marking a new stage of capitalist development. While the
political classes around the world might not go as far as Drucker, they have
stressed the progressive potential of this revolution and hence the importance
of education, as the quotes above indicate.

The discourse also assumes that economic globalisation has transformed the
competition for high skilled, high waged jobs. The over-riding mission of
education is to raise the standards of all and facilitate greater access to higher
education in order to arm the workforce with the credentials, knowledge and skills
that are valued within the global labour market. However, education is not just
about raising standards because credentials regulate access to jobs. Holders of
higher credentials are more likely to gain access to jobs with greater status and
rewards (Hirsch, 1977). It is important, therefore that the competition for access
to credentials is fairly regulated but governments in Britain and America have
tended to assume that this question is less important than that of raising
educational standards. Accordingly, if workers gain the skills to function in the
new economy the distributional questions of ‘who does what’ and ‘who gets what’
in society is automatically solved, as educational credentials, economic efficiency
and social justice go hand-in-hand. The greater rewards attached to those at the

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top of the jobs pyramid is justified because they have the knowledge,
commitment and enterprise to ‘drive’ the economy forward; nevertheless,
everyone wins as the economy requires a much larger proportion of the
workforce to trade on their human capital rather than low-wages.

This article will examine whether the promise of the knowledge based economic
revolution can deliver justice, efficiency and meaningful work for all, or whether
this is another false dawn. After all, this view and related educational policies are
consistent with an optimistic ‘technocratic’ model of evolutionary social change
that has a long tradition within the social sciences. Clark Kerr and his colleagues
(1973), argued for the progressive nature of industrialization since it depended
on a greater role for science and technological innovation that demanded greater
equality of opportunity in education and new opportunities for rewarding and
enriching work.

We will argue that while there has been a fundamental change in the relationship
between education, economy and society it is far removed from the policy
rhetoric of the knowledge economy. Trends in education, employment and
income distribution do not support the dominant view that the historical conflict
between justice and efficiency has been resolved, but points to an intensification
of the struggle for credentials, what Hirsch (1977) called the positional
competition. Of course, if we are in the midst of an economic revolution then it
may be that the trends we identify constitute no more than a short lived blip, so
this paper is best seen as an attempt at social forecasting (Bell, 1977) designed
to question the present orthodox view of the education-knowledge economy
relationship. For if our alternative account proves to be the more accurate then it
strikes at the heart of current educational and economic policy. Our account of
the social and economic realities of the early twenty-first century is contrary to
the core assumptions guiding the dominant policy discourse. These are: (i) The
idea that countries such as Britain and America can become high skilled, high
waged ‘magnet’ economies which will induce multinational corporations to

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concentrate their high skilled jobs in them because they have world class
education and training systems is seriously flawed. It underestimates the global
nature of knowledge based industries and it ignores the data which show that
even in developed economies the demand for graduates casts doubt on claims
that a knowledge-driven economy requires armies of highly qualified ‘knowledge’
workers.

(ii) The equation that high skills lead to high wages is also flawed. If there is an
excess demand of skilled workers over supply then a central part of the official
discourse is threatened. Education and economic policy is based on the high
skill, high income equation because it conveys a sense of justice: people earn
what they are worth as reflected in their credentials while at the same time
holding out the prospect of widespread prosperity by lifting the skills of the
population. People have also been encouraged to make significant financial
investments in their education to enhance their earnings potential. Yet the
empirical evidence leads to a different set of conclusions pointing to increased
disparities in the incomes of university graduates, including those based on
gender and ethnicity. In part, the explanation for the global reach of some of the
key knowledge industries like electronics and the oversupply of skilled workers
lies in the vigorous policies of educational expansion in developing countries,
especially at university level, that will enable them to compete for highly skilled
work but with significantly lower wage costs.

(iii) The anticipated powershift from employers to ‘knowledge’ workers has not
materialised. The view that knowledge-driven innovation will remain a major
source of wealth creation, and that knowledge workers will be encouraged to use
their creative energies to the full, is a-historical. It fails to take account of the
tendency for periods of rapid technological innovation to be followed by
standardisation (Weber, 1945). This is as true for ‘knowledge’ workers today as it
was for craft workers in the fledgling automobile industry at the beginning of the
twentieth century. A feature of paid work under capitalism is that the nature of

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jobs and skills change. There is no credential ladder-to-heaven which once
climbed leads to guaranteed high status and rewarding work. The competitive
pressures created by economic globalisation have led companies to limit the
discretion of knowledge workers and ‘devalue’ the contribution of many. It is,
therefore, not just a matter of the oversupply of skills that threatens the equation
between high skills and high income, where ‘knowledge’ is routinised it can be
substituted with less skilled and cheaper workers at home and further afield.

(iv) Mass higher education has led to graduate expectations of finding personally
and financially rewarding employment. However, as the oversupply of graduates
force many to enter employment that does not utilise their knowledge, skills or
creativity , the competition for elite jobs intensifies leaving employers with
problems of how to select between large numbers of highly qualified candidates
and how to legitimate their selection decisions. It has also led social elites to find
new forms of social closure to give them a competitive advantage. What this part
of our analysis also demonstrates is that issues of equality in education, work
and the job market have become more rather than less important. However,
these questions can no longer be restricted to the politics of individual nation
states but have increasingly global ramifications.

In sum, this analysis challenges the major tenets of the dominant discourse of
education, knowledge and the global economy. To grasp its full implications each
of the above points will be discussed in more detail.

(i) Globalisation and the High-Skills ‘Magnet’ Economy

The response by Western nations to the twin challenges of the knowledge
economy and globalisation has been to develop, implicitly, the idea of a
magnet economy (Brown and Lauder, 2001) that will attract foreign direct
investment (FDI) and skilled labour in order to develop leading edge
‘knowledge’ industries. It is a comforting picture of a globalised economy in

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which low skill, low wage work is shipped to developing countries while
prosperous western workers make good incomes through their knowledge and
creativity (Reich, 1991). It is this view that underlies the examples of political
rhetoric cited above and the UK government’s commitment to a high
proportion of graduates in the workforce (approx 50 per cent).

However, it is a view that is highly improbable. In order to understand why we
need to separate three distinct claims made by the proponents of the magnet
economy: the attraction of foreign direct investment (FDI), the skills required to
develop intellectual property, and the wider use of skills to develop key ideas
and their production. What underlies these elements and gives them an
apparent coherence is the vestigal legacy of economic nationalism (Brown and
Lauder, 2001). It is assumed the FDI, innovation and intellectual property
rights and the development of productive capacity from new ideas will all
reside in the same country, thereby benefiting its workers and especially
graduates. But in the modern world these three elements do not necessarily
coalesce in one country for ‘leading edge’ knowledge industries.
Consequently, the demand for high skills based on knowledge work will not be
concentrated in a few developed economies.

Given that our emphasis is on the knowledge intensive sectors of the
economy, we will use the electronics industry to expose the problems
underlying the idea of the magnet economy.

There is no doubt that the capital required for the development of knowledge
industries is substantial and hence FDI can be important in creating
innovation. For example, in the ‘take-off’ of the electronics industry in the
United States during the 1980s, the two major regional areas, Silicon Valley
and Route 128, attracted $12 billion in venture capital (Saxenian, 1994). At
todays prices that is a considerable sum, if thought of in terms of potential
Foreign Direct Investment (FDI). Investment of this magnitude can certainly

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produce high rewards and productivity for those who create intellectual
property. However, the nature of globalisation in the electronics industry has
meant that such investment does not translate into the employment of large
numbers of skilled workers concentrated in the West, far less one country.

Were the electronics industry to be vertically integrated in such a way that
there could be national champions, as there were in the 1960s and 1970s with
companies like IBM, then the idea of the magnet economy based on high
skilled workers would be credible. However, it is not. The IBMs of the post-war
period that controlled all elements of hardware and software production have
given way to a fragmented horizontal structure across national boundaries that
combine speed and flexibility, while off-loading corporate risk. Facilitated by
the personal computer, the internet and an increasing supply of highly
qualified employees in developing countries, these networks extend across the
globe, particularly to the Pacific Rim and India.

Saxenian (1994, 2000a, 2000b, 2002) has charted the development of this
industry. The story starts with an increasing numbers of Taiwanese, Indian
and Chinese students enrolled in Ph.D programmes in the United States.1
During the 1980s Taiwan sent more doctoral students to the United States
than any other country. The first generation of these students tended to stay in
the United States, working in the semi-conductor industry before returning
home to establish their own businesses. Encouraged by government policies
approximately 6,000 doctoral engineers were returning home each year by the
mid-1990s (Saxenian, 2002). The combination of the knowledge and networks
established in the United States by the first generation of IT entrepreneurs,
coupled with the critical mass of expertise of returnee graduates, enabled
Taiwan to capitalise on the possibilities of a horizontally structured industry
operating across national boarders.

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The emergence of the electronics industry in Bangalore in India, also
demonstrates how less-skilled employment in the IT industry was exported
from western economies to enclaves in the developing world (Kobrin, 2000).
The education and training of electronic engineers provided the necessary
human capital for the electronics industry in Bangalore to take off. But contrary
to the view that only lower skilled work would be subject to price competition,
the IT industry suggests that this is at best wishful thinking. India’s tertiary
education system now trains over 67,000 computer science professionals
annually and another 200,000 enrol each year in private software training
institutions.

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The cost advantage to companies employing computer programmers and
systems analysts in Indian as opposed to their counterparts overseas is
presented in Table 1:

Table 1. International Wage Rates (Annual), Software Industry,
1994

Country
Program-
Systems
mer
Analyst
U.S. $
U.S. $
India 4,002 5,444
U.S. 46,600 61,200
Japan 51,731 64,519
Germany 54,075 65,107
France 45,431 71,163
Britain 31,247 51,488
Hong
34,615 63,462
Kong
Mexico 26,078 35,851
Source: Business India (1995: 199) as cited in Parthasarathy, 2000, taken from
Saxenian, (2000b).

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