SUMMING UP Have recent advances in technology such as artificial intelligence ushered in (finally) the "new economy?" Not so fast, answer James Heskett's readers.
Summing Up: What are the Earmarks of a “New Economy?”
Responses to this month’s column rightly focused on the need for measures and standards before deciding whether we are entering an era of social and economic change as significant as, say, the “industrial revolution.”
Most were skeptical of the notion that we have entered such an era. There were a few exceptions. DDB cited the example of publishing: “what took 300 people … in 1970s to do … at Umbroller took 100 at APC and 1 at Simply Media in eBooks & audiobooks. Plus contractors in each company but far fewer… (apparently for DDB) No physical business trips in 2017. No vehicle required… No printer or paper. Most companies have held on to their executive fat so management has something to do. But that is changing.”
Kamal Hossain was enthusiastic about the impact on his country: “Through 4G just recently launched, there is a huge potential for ecommerce growth in the country which relies (on) a lot of machine learning and AI… the growth rate through the new economy prospects is just starting to take off here in Bangladesh.” Jacob Navon added, “Is the New Economy here? Maybe… The industrial revolution caused much social stress as the economy shifted from a mainly rural, agrarian model, to a city focused, factory based one… We are witnessing the same happening now as we shift to the post information era. Not clear if enough new jobs will be created to replace the ones lost.”
In contrast, Edward commented, “We’re a society obsessed with the terms ‘new’ or ‘improved’. The economy simply changes… What we’re witnessing is… simply another evolution. Albeit a pretty significant one.”
Others found themselves unable to respond without criteria that they could apply. As Declan put it, “Is this a ‘new’ economy, or simply the old economy running at near peak efficiency because of the factors you mention? ... A new economy would have new governing rules, but I don’t see new rules taking hold today. Now, having a factory full of AI machines that learn and robot overlords WOULD change the economic ground rules.” Shann Turnbul joined this train of thought as he commented, “A new economy has not arrived, if we define it as one that will sustain humanity on the planet for eternity…” The reasons it has not arrived are many, he continued. “(Unsustainable) global population … terror …weapons of mass destruction… Pollution and reliance on non-renewable or non-recyclable resources… a sustainable economy will not emerge until graduate schools research and teach how to identify and manage the existential risks referred to above.”
Nick C teed up the appropriate question for us when he said, “Not quite clear what the tipping points are to ‘define’ a new economy—what are the discontinuities and what are the radical advances … that would build consensus about a new economy?” What are the earmarks of a “new economy?” What do you think?
Original Column
Whither the Information Economy? was the title of a column posted in this space in September, 2000. It described the enthusiasm at that time for a "New Economy," one driven by information technology and characterized by “greater growth and lower unemployment than ever before thought possible through the advances in productivity made possible by a shifting ‘mix’ featuring less product-centered and more information-centered economic activity.” It highlighted opinions at the time that “Growing ratios of market-to-book value that resulting stock prices produce can be justified as the monetization of valuable information assets that accountants have never seen fit to include as legitimate entries on balance sheets (other than as grossly misnamed ‘goodwill’).”
We all know what happened. The promise of significantly greater productivity and growth through technology was not realized. Market-to-book value ratios of tech companies fell rapidly as investors discovered that those valuable information assets either lacked value or were, in some cases, nonexistent. Old Economy problems involving misunderstood and overvalued financial instruments appeared, driving unemployment to heights not seen in over 20 years. These events produced the Dot.com Bust followed by the Great Recession. The New Economy proved to be vastly over-hyped.
In light of continued advances in such things as artificial intelligence, the sharing of resources enabled by new information platforms, and the mobilization of “crowd”-based work, it may be time to raise the question again. Companies in the tech sector now (unlike during the “bubble”) produce (or conserve) goods and services that people want. They have real business models that realize revenue and profit as well as growth.
"THE NEW ECONOMY PROVED TO BE VASTLY OVER-HYPED"
Two recent books tee up the question for us. The first of these, Machine/Platform/Crowd,explores the current and future impact of digital technology on people (the mind in relation to machine), product (in relation to digital platforms), and core (traditional organizations and companies) in relation to “the crowd”.
Its authors conclude that “Many decisions, judgments, and forecasts now made by humans should be turned over to algorithms… Even though machine learning systems … still lack common sense, they are accomplishing ‘useful work’ and are advancing rapidly.” The massive changes brought about by the Internet and related technologies are driving the shift from bricks (“atoms”) to clicks (“bits”), the economics of “free, perfect, and instant,” and the development of platforms (think “digital environments” such as Amazon Web Services) based on such economics.
Further, there is a significant shift in power and influence from the core (“the dominant organizations, institutions, groups, and processes of the pre-Internet era,” that, for example, produced our printed encyclopedias) to the crowd (“new participants and practices enabled by the net and its attendant technologies”) and the Wikipedia it has created and maintained.
The second of these books, Exponential Organizations (“ExOs”), explores the impact of new technologies on organizations. These are organizations driven by such things as AI, robotics, biotech and bioinformatics, data science, and 3D printing. Among other things, they staff on demand, utilize the crowd, create platforms to automate peer-to-peer engagement, and leverage assets by sharing and renting vs. owning. They emphasize experimentation (“fail fast” without career limiting consequences) versus long-range strategic planning, operate by means of “self-organizing, multi-disciplinary teams operating with decentralized authority,” and utilize “social technologies” that “foster horizontal interactions in vertically organized companies.”
As a result, ExO’s such as Google, Netflix, Airbnb, and Amazon double in price/performance ratios about every 18 months, growing in financial performance, but not employment, at 10 times the rate of organizations lauded in studies described in the books, Built to Last (Citicorp, Procter & Gamble, General Electric, etc.) and Good to Great(Abbott, Gillette, Nucor, etc.)
Authors of these recent books have extensive credentials in the field of information technology. Do they have a clearer vision than the one some of us thought we had eighteen years ago? Has the New Economy finally arrived? What do you think?
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