Two Decades Later, is the 'New Economy' Finally Here?

With recent advances in technology such as artificial intelligence improving how we do business, has the so-called New Economy finally arrived? asks Jim Heskett. What do YOU think?
by James Heskett

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 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?


Andrew McAfee and Erik Brynjolfsson, Machine, Platform, Crowd: Harnessing Our Digital Future (W. W. Norton & Company: New York, 2017)

James C. Collins and Jerry I. Porras, Built to Last: Successful Habits of Visionary Companies (Harper Business: New York, 1994)

Jim Collins, Good to Great: Why Some Companies Make the Leap … and Others Don’t (Harper Business: New York, 2001)

Salim Ismail, with Michael S. Malone and Yuri Van Geest, Exponential Organizations: Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it) (Diversion Books: New York, 2014)

Post A Comment

In order to be published, comments must be on-topic and civil in tone, with no name calling or personal attacks. Your comment may be edited for clarity and length.