Key attributes of the knowledge economy. 

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... of knowledge creation and the functional logic of business organization. We shall deal with these issues in the next two sections. There is a widespread agreement in academic literature that knowledge has become the main source of economic development in advanced regions and nations. Tödtling et al. (2006) argue that the rise of knowledge intensive sectors in production and services can be seen as a main feature of a new era of capitalism and as a role model for the future (Tödtling et al. 2006). In order to develop a better understanding of the functional logic of knowledge creation the meaning of knowledge and its different approaches have to be analyzed in greater detail. An early but seminal classification of knowledge has been made by Michael Polanyi (1966) who distinguished between explicit (or codified) and tacit knowledge (Polanyi 1966). In his classic work The Tacit Dimension , Michael Polanyi’s famous phrase “we can know more than we can tell” (1966:4) lays at the heart of his distinction between explicit and tacit knowledge (Gertler 2003). Explicit knowledge can be codified in formal and systematic language and shared in the form of data, scientific formulae, specifications, manuals, blueprints and the like. It can be processed, transmitted and stored relatively easily. Tacit knowledge , in contrast, refers to knowledge that is highly personal and hard to formalize. It comprises subjective insights, intuitions and hunches, and it is deeply rooted in action, procedures, routines, commitment, ideals, values and emotions (Nonaka et al. 2000). However, a strict distinction between explicit and tacit knowledge is problematic. Indeed, even Polanyi was at pains to stress that explicit and tacit knowledge should be accepted as the opposite ends of a continuum (Howells 2002). Polanyi (1966) saw explicit and tacit knowledge as essentially complementary because all forms of codified knowledge require tacit knowledge in order to be useful (Polanyi 1966). Hence, the binary argument of whether knowledge is codified or tacit in nature can be criticized as too narrow to understand knowledge creation processes; there is a need to go beyond this simple dichotomy. One way to overcome this conceptual oversimplification is to distinguish between synthetic, analytical, and symbolic types of knowledge (Laestadius 1998; Asheim and Coenen 2005). Analytical knowledge refers to activities where scientific knowledge based on formal models and codification is highly important. Thereby, knowledge inputs are ofen based on reviews of existing studies and on the application of scientific principles and methods. Knowledge processes are formally organized and the outcomes tend to be documented in reports, electronic files or patent descriptions. Synthetic knowledge refers to economic activities, where innovation mainly takes place through the application of novel combinations of existing knowledge, for example in plant engineering or advanced industrial machinery. In this case, new knowledge is created by solving specific problems during the interaction process with customers, suppliers or research establishments. And finally, symbolic knowledge is related to the aesthetic attributes of products. It involves the creation of designs and images in order to create economic value of cultural artefacts. The dynamic development of cultural industries such as media, design or fashion indicates the increasing significance of this type of knowledge (Cooke et al. 2007). As a result of the growing complexity of knowledge creation and the diversity of different knowledge types, firms increasingly need to acquire new knowledge to supplement their internal knowledge bases by collaborating with external firms. This leads us to the notion of the knowledge economy. There is no commonly accepted definition of what the knowledge economy is. According to Cooke et al. (2007) not only the use of knowledge is important to define the knowledge economy, but also the knowledge creation process (Cooke et al. 2007). Cooke (2002) argues that “knowledge economies are not defined in terms of their use of scientific and technological knowledge (...). Rather, they are characterized by exploitation of new knowledge in order to create more new knowledge” (Cooke 2002:4p). This explanation comes quite close to Castell’s (2000:17) finding that “the action of knowledge upon knowledge itself” is the main source of productivity. He argues that – in the new informational mode of development – the main source of productivity lies in the technology of knowledge generation and information processing (Castells 2000). Based on Cooke’s (2002) and Castells’ (2000) argument, we suggest a definition of the knowledge economy that additionally accounts for the strategic importance of knowledge in the innovation process. Therefore, we apply the following definition: This definition underlines that the knowledge economy is causally determined by four mutually reinforcing attributes (Figure 1). Firstly, the knowledge economy uses highly specialized knowledge and skills based on the combination of scientific knowledge and operating experiences. So, a key component of the knowledge economy is a greater reliance on intellectual capabilities than on physical inputs or natural resources. Secondly, as knowledge and technology have become increasingly complex, the knowledge economy establishes strategic links between firms and other organizations as a way to acquire specialized knowledge from different parts of the value chain. By taking such a network perspective, the knowledge economy is viewed as a dynamic process, characterized by continuous interactions and division of labour within a firm and between different firms of a production network. Thirdly, the outcome of these network activities are innovations in a Schumpeterian sense, that is to create new products, new production methods, new services, new markets or new organizational structures, and – most importantly – to transform them into marketable results. And finally, the continuous development of new knowledge and innovations enables the knowledge economy to benefit from temporary monopoly profits and to sustain competitive advantage. This feeds back to the core competencies and knowledge resources of the firm, enhancing the development of new specialized knowledge and skills. Two important pillars of the knowledge economy are Advanced Producer Services (APS) and High-Tech firms. Advanced Producer Services (APS) can be defined as “a cluster of activities that provide specialized services, embodying professional knowledge and processing specialized information to other service sectors” (Hall and Pain 2006:4). According to Wood (2002) they offer expertise in a wide range of areas: management and administration, production, research, human resources, information and communication, and marketing (Wood 2002). The essential common characteristic of these branches is that they generate, analyse, exchange and trade information making them to key intermediaries in the knowledge economy. Because they are increasingly provided by firms with offices in many cities worldwide, flows of information within and between APS firms have a crucial role in linking cities to the global economy (Pain and Hall 2008). However, Advanced Producer Services (APS) firms are not the only determining element in the process of structural change towards the knowledge economy. In order to understand the geographies of globalization processes, one has to account simultaneously for both the APS- and the High-Tech-sectors because both of them are integral parts of spatial development processes. Although the High- Tech sector has been analysed numerous times, its definition is highly variable. One of the most convincing definitions is provided by Rogers and Larson as far back as 1984: “A high- tech industry is characterized by: (1) highly skilled employees, any of whom are scientists and engineers; (2) a fast rate of growth; (3) a high ratio of Research and Development (R&D) expenditures to sales; and (4) a worldwide market for its products. Not only is the technology very advanced, but it also continuously changing, at a much faster rate of progress than other industries” (Rogers and Larsen 1984:29). All in all, the importance of the systemic interplay between Advanced Producer Services (APS) and High-Tech industries has to be emphasized. Wood (2005:430p) for example warns us to tab into the “sector fallacy”, separating service and manufacturing functions rather than recognizing them as essentially inter-dependent and complementary to each other (Wood 2005). The competitive advantage of firms never depends on a single input, but always on conjunctions of expertise in and between various phases of the production process. “Firms, not nations, compete in international markets. We must understand how firms create and sustain competitive advantage in order to explain what role the nation plays in the process” (Porter 1990:33). With this statement, Michael Porter (1990) starts his line of argument in his pioneering work about ‘ The Competitive Advantage of Nations’ (Porter 1990). The statement makes clear that firms and their strategic and organizational structures are the key players of economic and spatial development. Firms must be flexible to respond rapidly to competitive and market changes. They must benchmark continuously to achieve best practice. Often, they must outsource to gain efficiencies and they must nurture a few core competencies in the race to stay ahead of rivals. Increasing competitive pressure forces them to optimize the coordination between entrepreneurial tasks as well as the range of services and products that are provided (Picot et al. 2008). Dicken (2007) argues that production networks are coordinated and regulated primarily through the various forms of intra- and extra- organizational relationships of business firms that constitute the economic ...