|
|
|
|
 |
BusinessWeek: January 10, 2000 |
|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads |
|
Economic Viewpoint
Though It's a New Economy, It's Got Some Old Flaws The evidence for change is strongest in the relationships that underlie economic growth. The main determinants of an economy's long-run growth are technological improvements that enhance the productivity of its basic inputs--land, capital, and labor. And the evidence is mounting that the information-technology revolution is productivity-enhancing. Revised estimates show a substantial pickup in productivity growth after 1990, with a marked acceleration beginning in 1996. Since then, the U.S. economy has enjoyed an unexpected surge in productivity growth averaging 2.5% per year, a full percentage point higher than the 25-year average. Skeptics question the permanence of these trends, arguing that they are the result of one-time corporate restructurings, and that they are largely limited to the computer and software sectors. But economic history suggests that productivity gains from new enabling technologies such as the Internet diffuse only gradually across the economy. If so, most of the economic benefits of information technologies are ahead of us, not behind. The case for an improved tradeoff between unemployment and inflation is also getting stronger. Remarkably, 1999 defied traditional forecasts, as both the unemployment rate and the core rate of inflation, excluding food and energy prices, continued to fall. This surprise is explained, in part, by temporary factors such as a strong dollar and continued weakness in global commodity prices. But pervasive labor market changes--such as the increasing importance of stock options and temporary workers--are holding down both the unemployment rate and the growth rate of labor costs. In addition, faster productivity growth is enabling wages to rise for most workers without triggering cost and pricing pressures. On the downside, worker insecurity fanned by skill obsolescence and job dislocation may be dampening wage demands. Another characteristic of the New Economy is increasing global interdependence. Despite being rocked by financial crises, emerging-market economies eschewed protectionism, and global trade continued to expand faster than global output. The turmoil at the World Trade Organization's Seattle meetings should not obscure the fact that the past few years have brought breakthrough global-trade agreements in financial services, telecommunications, and information-technology products. And rising trade fosters a virtuous cycle leading to greater competition and efficiency, more rapid diffusion of innovations, and even greater productivity gains. The challenge is to ease the pain of those dislocated in the process and to devise multilateral rules to fill the gaps caused by eroding national sovereignty. STILL VULNERABLE. What about the implications of the new technologies for the business cycle and for the distribution of income? Here, both economic logic and the evidence to date are not as promising. Information technologies have reduced inventories relative to output, but inventories remain as volatile as before. Services--which historically have been more stable than goods--continue to increase as a share of output. But the increasing dependence of services on a sophisticated infrastructure of hardware and software has probably increased their cyclical vulnerability. And it is foolish to assume that the New Economy is any less prone to financial-market bubbles and unexpected reversals in confidence than the old economy was. Indeed, it was old-fashioned economic policies like interest-rate reductions, not new technologies, that brought the world economy back from the brink of a liquidity crisis in 1998. Finally, the information technologies of the New Economy tend to increase income inequality by reducing the relative demand and wages for unskilled workers. The enormous market reach made possible by these technologies also leads to winner-take-all outcomes in which the most skilled companies, individuals, and countries command substantial premiums over those only slightly less qualified. It will take political will and imaginative policies in education, economic development, and social safety nets to harness the potential of the new technologies to reverse the trend of rising inequality. | |
|
|
|
|
|
Copyright 1991-2009 by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
