Purpose The paper seeks to examine briefly the economic drivers of the past, how those drivers have changed, and how business and government leaders need to respond by transforming their organizations into knowledge-based enterprises. Design/methodology/approach The approach applies the principles of classical economic theory, which were grounded primarily in the valuation of tangible goods, to an economy in which intangible goods, such as information and knowledge, are the predominant forms of capital. Findings The perishability of intangible goods is accelerating, and is further exacerbated by increased globalization. Valuation-based theories of money and pricing, which have been overlooked in the past, have resurfaced, and must be understood and practised by business and government leaders alike. In response to these challenges, organizations must design and implement systems which support fast learning and rapid innovation. These new systems are called “knowledge factories”. Practical implications The major shifts in the economy are not readily visible on the surface. In order to compete in a flat world, business and government leaders must revisit classical economic theory and understand how to apply it to today's knowledge economy. For example, in the past, talent moved to where it was treated best. Now, the knowledge workforce lives where it chooses, and much of the work comes to them. This has significant human capital and supply chain consequences. Originality/value There are many positive outcomes, not the least of which is a more robust economy that takes full advantage of globalization, possibly to the point of approaching a system of near-perfect competition. With the eventuality of bringing six billion minds to bear on solving complex problems, the potential exists for a greatly improved lifestyle, continued explosive growth in human knowledge, and increased prosperity, especially for those at the bottom of the economic pyramid. © 2007, Emerald Group Publishing Limited
