New Economy - Which Way For The New Economy?

WHICH WAY FOR THE NEW ECONOMY?

While the end of the business cycle, the discarding of old valuation methods, dot-com mania, or profoundly altered economic laws may be consigned to relics of 1990s over-excitement, many analysts still insist that, minus these extravagances, there's still much to be said for the New Economy, and that it isn't going away. Generally, these analyses focus on the transformative power of information technology and the Internet, which have yielded, and will continue to yield, greatly enhanced productivity and efficiency to businesses across many sectors of the economy, particularly, of course, in high technology but in Old Economy sectors as well.

Meanwhile, brick-and-mortar firms were hardly retreating from the Internet in the wake of the dotcom bust. Rather, established firms were busy sifting through the wreckage of the Internet shakeout, swallowing up Internet-based firms in order to take advantage of their diversified leverage to make a quick inroad into the Internet market. While overall corporate IT investment retrenched substantially in the early 2000s as the U.S. economy (contrary to the expectations of many New Economy promoters) backtracked, the continuation of e-commerce was assured, albeit at a more measured pace of evolution.

The New Economy, at least its tremendous growth in IT investment, may be hard to revive even after the early 2000s slowdown irons itself out, in large part because the quadrupling IT investment of the late 1990s is extremely unlikely to repeat itself, although investment in such technology is expected to pick up again. In order to reignite the kind of growth about which economists, investors, and business leaders were so excited, it will be necessary for the New Economy to shift its main engines of growth away from the boom in IT investment, perhaps towards a greater surge in e-commerce. The latter possibility was certainly in the cards, as Internet penetration increases, bandwidth improves, inter-business networks are implemented and the novelty of online shopping graduates into common practice.

While the New Economy's sputtering in the early 2000s certainly gave skeptics the long-awaited opportunity to say "I told you so," several key features of economic organization lingered. As Computer World explained, the economy of most of the 20th century was built on a particular mode of business organization—the vertically organized corporation—and a physical infrastructure of storefronts, roads, railroads, and power grids. With the advent of late-20th century IT, and particularly the Internet, the traditional business model was being supplanted by more diffusely organized entities connected over sophisticated electronic networks irrespective of geographical boundaries, while the Internet infrastructure allowed for tremendous access to comparative information, networking, and shopping without regard for geography. In the process, the New Economy created tremendous—and ultimately superior—methods of competition, cost reduction, and wealth creation. Moreover, the New Economy model, according to Don Tapscott in Computer World, wasn't limited to high-tech or Internet firms. Instead of the business sector a company worked in, it was the kind of business thinking and organization a company engineered for itself that determined whether it was New Economy or Old Economy.