The dominant view today is of a global knowledge-based economy, driven by the application of new technologies, accelerating the shift to high-skilled, high-waged European economies. This view is reflected in the expansion of higher education and the key role of higher education in national and European economic policy. The Lisbon agenda seeks to make the European Union "the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion". Not only is education believed to hold the key to international competitiveness but to the foundations of social justice and social cohesion. This article outlines the underlying assumptions of this mantra, which in many respects has changed little since the 1960s when human capital theory gained increasing prominence in education and economic policy (Halsey, 1961). It examines the prospects for the creation of high-skills economies throughout Europe in light of new realities of the global economy. This analysis is based on interviews with senior managers and executives in leading transnational companies and government policy makers in seven countries including China and India. In conclusion, the authors outline a series of issues as a contribution toward a new agenda for education and the knowledge economy within the European Research Area. Following this essay are two responses: (1) "Expanding the Higher Education System and Building World-Class Universities: China's Response to Globalization and the Knowledge Economy." (Wang Yingje); and (2) "Education, Globalisation and the Future of the Knowledge Economy: Three Comments" (Stephan Vincent-Lancrin). (Contains 1 figure, 1 table, and 25 notes.)