The New Economy at Port 80: Charthouse

Oh, yeah? Who says it even exists, a new economy? Is a new economy the same as a new economics? Is it all new rules? Or only some new industry sectors being responsible for most of the growth?

The new economy is the context for the Internet industry and the Internet economy. A fair place to start is 1980, when the U.S. information workforce (white-collar office workers) exceeded the production workforce (blue-collar factory workers, farmers, etc.).

Back then, the computer was a fancy typewriter for most businesses. VisiCalc, the first spreadsheet -- the first "what-if" software -- came out in the early 1980's and the Macintosh's graphical user interface (GUI) around 1984 ... and office work has never been the same.

he new economy of the late 1990s was an invention of the media and Wall Street." So writes Jeff Madrick in a paper recently published by Harvard's Kennedy School of Government. As Madrick sees it, the "new economy" was an ill-defined concept used to justify a stock market bubble. Proponents exaggerated changes in the American economy, overestimated the benefits of technology, and abandoned careful analysis in favor of blissed-out utopianism. By the end of the decade, he argues, new economy thinking had degenerated into "a frenzy of half-truths, bad history, and wishful thinking." ...

Don't count on it. In fact, the overall shallowness of the recession and strong productivity growth during the downturn show that the skeptics are wrong. Call it the myth of the myth of the new economy.

When we talk about the new economy, we're talking about a world in which people work with their brains instead of their hands.

A world in which communications technology creates global competition - not just for running shoes and laptop computers, but also for bank loans and other services that can't be packed into a crate and shipped.

A world in which innovation is more important than mass production.

A world in which investment buys new concepts or the means to create them, rather than new machines.

A world in which rapid change is a constant.

A world at least as different from what came before it as the industrial age was from its agricultural predecessor.

A world so different its emergence can only be described as a revolution.

A new set of economic indicators, gathered from existing public and private data, to illustrate fundamental structural changes in the U.S. economy, to show what those changes mean in the lives of working Americans, and to measure the nation's progress in several key foundation areas for future economic growth.

As America emerges from what may be the shortest slump in memory — largely because of New Economy forces — it's becoming clear that the New Economy was not just a flash in the pan, but rather a major economic transformation, the kind that comes about every half century or so. As a result, it's time for states to refocus their efforts on the task of restructuring their economies to meet the realities of the New Economy. The states that do well in five years will be those that continue to press to put in place a comprehensive state New Economy policy framework.

“Fishbowl” economics once provided the basis of corporate strategy, but no longer. New theories show that markets are “complex adaptive systems.” Can managers be more than blind players in an evolutionary business game?

"Don't solve problems, seek opportunities." When you are solving problems, you are investing in your weaknesses; when you are seeking opportunities, you are banking on the network. The wonderful news about the Network Economy is that it plays right into human strengths. Repetition, sequels, copies, and automation all tend toward the free, while the innovative, original, and imaginative all soar in value.

For the first time since the invention of printing, information processing and distribution has become one of the leading sectors. Previous leading sectors changed the conditions of life of weavers, spinners, transporters, framers, blacksmiths, and so on. Our leading sectors are changing the conditions of life of those who use information to direct enterprises -- managers -- and they are also changing the conditions of life of those who use information to decide what to buy -- consumers.

I laughed so hard my paradigm shifted and I spent a week in the hospital.
— Mark S.

Using the Bullshit Generator, we were able to replace our entire marketing staff. Thanks!
— Jay B.

A framework for patents and copyrights in the Digital Age. (Everything you know about intellectual property is wrong.) ...

Throughout the time I've been groping around cyberspace, an immense, unsolved conundrum has remained at the root of nearly every legal, ethical, governmental, and social vexation to be found in the Virtual World. I refer to the problem of digitized property. The enigma is this: If our property can be infinitely reproduced and instantaneously distributed all over the planet without cost, without our knowledge, without its even leaving our possession, how can we protect it? How are we going to get paid for the work we do with our minds? And, if we can't get paid, what will assure the continued creation and distribution of such work?

Since we don't have a solution to what is a profoundly new kind of challenge, and are apparently unable to delay the galloping digitization of everything not obstinately physical, we are sailing into the future on a sinking ship.

This vessel, the accumulated canon of copyright and patent law, was developed to convey forms and methods of expression entirely different from the vaporous cargo it is now being asked to carry. It is leaking as much from within as from without.

Will copyright survive the Napster bomb? Nope, but creativity will. ...

We've won the revolution. It's all over but the litigation. While that drags on, it's time to start building the new economic models that will replace what came before. We don't know exactly what they'll look like, but we do know that we have a profound responsibility to be better ancestors: What we do now will likely determine the productivity and freedom of 20 generations of artists yet unborn. So it's time to stop speculating about when the new economy of ideas will arrive. It's here. Now comes the hard part, which also happens to be the fun part: making it work.

Consider, for example, the industrial revolution, the information revolution's role model. It was a period in which society learned how to process, sort, rearrange, recombine, and transport atoms in unprecedented fashion. Yet people didn't complain that they were drowning in atoms. They didn't worry about "atom overload."

Is there any place here for the traditional marketing wasteland: junk mail, highway billboards, and TV commercials? Will email spam and interstitial ads and streaming video be their next incarnation? Or will we have enough personal control over our Web experience that we'll never be mass consumers online?

The New Economy hasn't just changed business. It has fundamentally altered our views of wealth, innovation, and how far is up.

Fact is, folks, something changed on the way to the courthouse. It's the kind of change that will forever change the way people do things.

With Napster, Wrapster, Gnutella ..., the world order of a few years from now will be very different from today.

So let's play with the concept and see how far it can possibly go. Some of these things may seem farfetched, but it will suit our purposes on how one can apply these discontinuous innovations to his/her own field.

The New Models of Wealth Creation
from Digital Capital: Harnessing the Power of Business Webs
by Don Tapscott, David Ticoll, and Alex Lowy

Agoras - MP3
Aggregations - Peapod
Value Chains - Cisco
Alliances - Open Source
Distributive Networks -

It works in America. Will it go global?

This spectacular boom was not built on smoke and mirrors. Rather, it reflects a willingness to undertake massive risky investments in innovative information technology, combined with a decade of retooling U.S. financial markets, governments, and corporations to cut costs and increase flexibility and efficiency. The result is the so-called New Economy: faster growth and lower inflation.

How much will two bits be worth in the digital marketplace? Read Chapter One on Barnes&Noble's site or check out the info on Varian's site: InfoRules.com.

Extending existing copyright and patent law to apply to digital technologies can only be a stopgap measure. Law appropriate for the paper-based technology of the 18th century will not be adequate to cope with the digital technology of the 21st century.

on Ricci Street's Shoreline

First Monday articles

21st Century Markets: From Places to Spaces
by Peter Fingar, Harsha Kumar and Tarun Sharma
December 1999

Cooking Pot Markets: An Economic Model for the Trade in Free Goods and Services on the Internet
by Rishab Aiyer Ghosh
March 1998

There is a very tangible market dynamics to the free economy of the Internet, and rational economic decisions are at work. This is the "cooking-pot" market: an implicit barter economy with asymmetric transactions.

If one factor of production is increased while the others remain constant, the overall returns will relatively decrease after a certain point. Also called the law of decreasing returns and the law of variable proportions.

The Attention Economy

This series of articles was written for First Monday several years ago, before the dot-coms' TV advertising blitz and before the Internet IPO craze and the consequent dot-bomb phase. When these phenomena settle down, Goldhaber's ideas will ring truer than ever.

The growth of cyberspace heralds a new kind of economy, and with it, a new kind of economics, both based on the characteristics not of material, mass- produced goods, nor of money, nor of information, but of attention.

An argument against the very possibility that the "law of supply and demand" and other basic laws of classical economics might no longer hold.

The assumptions of classical and neo classical economics are inappropriate for the attention economy. ... Attention cannot meaningfully be quantified, even approximately, though the total available is still limited. ... Further evidence and argument that standard economics fails for the net.

Builds on the debate about the "attention economy" initiated by Michael Goldhaber and Rishab Aiyer Ghosh.

The valuing process, i.e. the process by which potential value can be translated in an economy. ... The valuing processes applicable to attention depend on the nature of the media through which attention can be given and looked for. ... The integration between attention and action, and the creation of a related literacy are the keys to the sustainable growth of an attention economy.

Enron

I'm not sure how long Enron's site will remain available, but you can read about its values of communication, respect, integrity, and excellence in its 1999 Annual Report.

You also might want to take a look in the same report at how it defines a New Economy company:

1. Its strength comes from knowledge, not just from physical assets.

Enron has become a pre-eminent energy and communications company not only by building and controlling physical assets, but also from our unique ability to add knowledge to those assets to create a market-making network, such as our electricity and natural gas markets in North America and Europe.

2. A New Economy player must operate globally--effortlessly transferring ideas, people and services from region to region.

Our knowledge and expertise crisscross the globe. What we've learned about natural gas pipelines in the United States helps us build new natural gas markets in South America and India. Our knowledge of optimizing capacity in energy networks will allow us to revolutionize the bandwidth market.

3. New Economy companies understand that constant innovation is their only defense against competition.

Enron often introduces a product before the competition even senses a market exists. Cross-commodity trading, weather derivatives, energy outsourcing and 1999's two major initiatives -EnronOnline and Enron Broadband Services- demonstrate our resourcefulness. No wonder a Fortune survey recently named Enron the "Most Innovative Company in America" for an unprecedented fifth year in a row.

4. Success in the New Economy requires the adroit use of information to restructure an organization and boost productivity.

The connectivity of our networks allows us to gather massive amounts of market data to provide instant market snapshots and to identify emerging trends. This information is available to, and accessed by, every Enron marketer and originator in every part of the world, ensuring that we make informed moves and spot opportunities at the first possible moment.

The fluidity of knowledge and skills throughout Enron increasingly enables us to capture value in the New Economy.

New Economics?

The most difficult concept to accept about the natural world is that it runs itself. No conscious force is needed to keep the ecosystem going. Life is a self-organizing phenomenon. From the interplay of hormones in the human body to the expansions and contractions of the great Arctic caribou herds, nature's intricately linked feedback loops automatically maintain a delicate, yet robust balance. Markets perform the same function in the economy. Without central planning, buyers and sellers constantly adjust to changing prices for commodities, capital, and labor. A flexible economic order emerges spontaneously from the chaos of free markets.

Needless to say, this thinking bears little resemblance to conventional economics. Two centuries of economic thought, both capitalist and socialist, are based on the concept of "economy as machine" rather than "economy as ecosystem." Nonetheless, history has demonstrated that no economy behaves like a simple, cyclical machine. Like ecosystems, economies are spectacularly complex and endlessly adaptable.

Although Darwin's own articulation of this theory was monumental, and its powers were immediately recognized by many of the scientists and other thinkers of his day [1860's], there really were large gaps in his theory that have only recently begun to be properly filled in.

The biggest gap looks almost comical in retrospect. In all his brilliant musings, Darwin never hit upon the central concept, without which the theory of evolution is hopeless: the concept of a gene.

Darwin had no proper unit of heredity, and so his account of the process of natural selection was plagued with entirely reasonable doubts about whether it would work.

Darwin supposed that offspring would always exhibit a sort of blend or average of their parents' features. Wouldn't such "blending inheritance" always simply average out all differences, turning everything into uniform gray? How could diversity survive such relentless averaging?

Darwin recognized the seriousness of this challenge, and neither he nor his many ardent supporters succeeded in responding with a description of a convincing and well-documented mechanism of heredity that could combine traits of parents while maintaining an underlying and unchanged identity.

The idea they needed was right at hand, uncovered by the monk Gregor Mendel and published in a relatively obscure Austrian journal in 1865, but, in the best-savored irony in the history of science, it lay there unnoticed until its importance was appreciated (at first dimly) around 1900.

What if Mendel had published on the Internet and Darwin had access to a search engine?

Buzzwords aside, will you as a business person behave differently because of the Internet? To the extent that business people collectively will behave differently because of the Internet, then perhaps the phrase "new economy" draws useful attention to that massive behavior shift.

What "savored ironies" await to be noticed?

The Internet and the human body share an interesting trait, they are both "distributed" in that every browser PC can also be a server PC and (almost) every cell in the body contains the complete genome. Compare the distributed or heterarchical network on the right above -- Web and living organisms -- to the two hierarchical networks in the center and on the left -- probably closer to your current workplace.

Maybe it's time our hierarchical organizations and zero-sum atom-based industries caught on to the structure of living organism and the Internet.


trends and currents for exploring webs


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modified: June 18, 2002 by Douglas Anderson http://RicciStreet.net/port80/charthouse/present/neweconomy.htm