In an event last spring in New York, I heard the story of a young man who received more than $90,000 for international software projects while he was collecting unemployment benefits. He hadn’t had a visible full-time job in three years. But without tools designed for the new knowledge world, the government was unable to track that he was working, right in his room, for a small software company in Vietnam.

In the last few decades, the world has experienced series of booms and busts. Sometimes, we could blame them on lack of regulations, excessive greed, and so on. But what if we are in this vicious cycle because the economy has advanced beyond the tools developed long ago to track it?

Alan Kay stated that “the best way to predict the future is to create it.” It is possible that governments can’t predict the future because they are not necessarily dominating its creation. They are using obsolete tools to measure a dynamic knowledge world.

Just as Peter Drucker saw more than half a century ago when he popularized the term “knowledge worker,” knowledge drives our world. It is potent with power to disrupt markets and bring on new classes of consumers through affordable and efficient goods and services.

Private companies are adapting, very quickly, in this global redesign. They are creating new tools to track most variables needed to stay competitive. They create the technologies which change them, while they are using them, at a speedy pace.

Unlike the industrial era, the players in the knowledge economy are very mobile, adaptive, and agile, with brainpower instead of muscles at their core. The Internet has turned nations into conduits of knowledge, having the power to become richer by trading knowledge. The U.S., for example, exports knowledge management but buys knowledge IT skills from India. The knowledge leads to a new society. We have already seen the effects as citizens willingly share private information.

Most of the economic tools in use today were formulated during the industrial economy. Despite the transition from industrial to knowledge economy, those tools remain in use. We have seen disproportionate failures of regulators to prevent chaos in the world economic system. From mortgage crises to EU debt problems, our world has become too complex to be properly vetted and understood using the current tools. The challenge is not necessarily the regulation, but the tools the regulators are using.

Today, across nations, there are people, classified unemployed, working through their computer terminals. They still collect government benefits because our tools cannot catch them. Indeed, governments must fund the development of new tools that stay ahead of economic transformations. How can governments predict the future if they are not part of creating it?

originally published in HBR