Technological developments in the last century have transformed a majority of wealth-creating activities which are now more “knowledge-based” and not so much physical-based.

In a knowledge-based economy, the capital is enhanced not only through the material production (manufacturing) but also by non-material production. The ratio of education and training is comparatively very high in knowledge- based economies and a considerable portion of GDP is invested in the skill development.

Now multinationals compete head-to-head locally as well as internationally. A substantial structural adjustment is required at local and regional level. The global knowledge has to be transferred into the local context and should be used for the enhancement of the local knowledge. It has to be globalisation of local knowledge and localisation of global knowledge.

By inter-connecting local, regional and global knowledge, an economy based on knowledge and innovation can be built.

The knowledge economy is differentiated from the industrial economy on basis of the following features: first:1) communication revolution has intensified the move towards knowledge codification.(2) Flexibility of organisation reduces waste and increases the productivity of both labour and capital by integrating the ‘thinking’ process. 3) intensive knowledge, skills development and constant learning process- knowledge is being created on an every increasing scale. (4) Innovation and knowledge networks.

These basic factors are cost reducing and the skills are rated. Therefore, investments become mandatory for human capital and use of information becomes more crucial. Now sources of economic productivity depend on the ideas more then the goods.

Pakistan’s is also working to move towards ‘knowledge based economy’. According to Medium-Term Development Plan (MTDP)2005-10, there is a strategy to move towards an efficient, balanced, internationally competitive, environmental friendly and technologically driven knowledge economy.

One can look forward to Pakistan’s pursuits for knowledge economy but with greater doubts in the given state of skill and knowledge attainment.

There are two major potential challenges in shaping the knowledge based economy- the quality and quantity of education and investment in skill development- to develop knowledge hubs.

As such there is no prescribed unit for quantifying knowledge to measure in numerical figures but it can be assessed on certain indicators which reflect in economic performance.

Peter Drucker, in 1966 in his book, ‘The Effective Executive’, described the difference between the manual worker and the knowledge worker and proved that it does make difference to produce product ‘by hand’ and by ‘head’.

That is why the patents, trademarks and other intellectual property rights(IPRSs) are considered critical by WTO as an incentive for investment and generation of new idea, information and knowledge.

According to the study of World Bank based on the indicators of knowledge economy on science and technology development table). It reflects where we stand in integrating our firms with the world.

The data on R&D development shows that Pakistan is behind comparable countries like India and China. Bangladesh is also performing better in some of the indicators. That is the reason why Pakistan has smaller number of applications for patents. The high technology exports exhibit the same trend.

The training of various skills is imparted through polytechnics and vocational training centres. And new centres of excellence are being established as a result of efforts made by Higher Education Commission.

But as Dr A. R. Kemal argues that cost-effective and demand-driven investment in education and skill was required but it alone would not suffice “until institutions were developed that recognise the value of investing in people and provide dignity, respect and fair deal for working men and women”.

Pakistan is a country with about 25 million youth of 18-25 years age group but a very small percentage of 1.7 are able to make contribution in national economy with their right kind of training and education.

Around 540 technical and vocational institutions have the capacity to produce only 200,000 skilled people every year which is inadequate as compared to the demand of the knowledge economy and the country’s population.

Just focusing on enhancing the enrolments in technical institutes is not enough. We need to emphasise on quality with quantity of skill development according to the need of the firms and entrepreneurs.

To make knowledge based economy, there is a need to have a change in strategy. Long term planning is mandatory based on a realistic assessment of our economic activities in the light of emerging trends and prudent investment polices.

This requires three generation of investment reforms: First generation reform calls for adoption of market friendly policies- to liberalize the investment regimes by reducing barriers to inward FDI, strengthening standards of treatment for foreign investors and giving a greater role to market forces in resource allocation.

Second generation reforms are the investment promotion policies which attracts investment by ‘marketing’ their locations.

To move to- wards third generation reforms, investment promotion policies framework is required for attracting investment to target key investors in the identified industries and firms.

Further to meet their specific vocational workforce, there is a need to have programmes of transfer of knowledge through global production networks and establishment of ‘knowledge hubs’, in the light of industry development priorities.

This is the only gateway for Pakistan to establish a successful knowledge- based economy.

Globalization of local knowledge and localisation of global knowledge are the pre-requisites of knowledge based economy.