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Created: 2000-02-27
Last Modified: 2000-03-07
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Tools for Thought: What Is New and Different About the "E-conomy"

Stephen Cohen, J. Bradford DeLong, and John Zysman
http://www.j-bradford-delong.net/
delong@econ.berkeley.edu

February 2000


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Executive Summary

There are eras when advancing technology and changing business organizations transform economies and societies. Such episodes do not just amplify productivity in one leading sector. Instead they give all economic sectors powerful new "tools." Today we are living through such a shift in our economic landscape, a shift that warrants a new name: the "E-conomy." Information technologies, data communication and data processing technologies, are tools to manipulate, organize, transmit, and store information in digital form. They are tools for thought that amplify brainpower in the way the technologies of the Industrial Revolution amplified muscle power.

The story of the revolution in information technology is at once a story of technology and a story of innovations in business organization and practice. The two stories are yoked together; they pull forward together. The technology story is underpinned, and measured, by the doubling of semiconductor capability and productivity every-eighteen-months —a rate that has carried us from the room-sized vacuum-tube computers to the modern Internet -- and by the complementary surge in the capacity of the communications network to transmit digital information. Changes in business organization and practice are the second driver of this transformation. The E-conomy is as much a story about changes in business organization, market structures, government regulations, and human experience as it is about new technology. While these changes are spreading across industries and countries, they are more difficult to measure. Taken together, the business innovations represent a new business ecology that includes a prominent role for venture capital, the start-up, the spinoff, and new option based ways of compensating skilled workers and entrepreneurs — innovations that have unleashed a tsunami wave of new business and new technology.

The E-conomy is generating substantial and unexpected increases in productivity that have motored our recent surge in economic growth and that have enlarged the margin for monetary policy. But the economic transformation is not about soft landings, smooth growth, permanently rising stock prices, government surpluses, and low rates of interest and inflation. It is about structural transformation and developments that carry disruption and change. The policy issues are moving rapidly from the narrowly technical through the narrowly legal into fundamental questions of how to organize our markets and society. Under the best of circumstances the risks of policy making are high.

This background briefing on the E-conomy is aimed to provide a context and a structure for policy debate by defining the stakes, the forces, the issues at play, and an agenda — not a choice of outcomes. For the past fifty years, US government policy has played a major role in enabling America to lead in developing information technology--and just as important--in creating the conditions for America to lead in the use of information technology throughout the economy. The American government largely got policy right under three important headings -- headings we use to structure the agenda that follows: 1) Public investment in science and technology and in the technological-age education of people needed to realize the benefits of the E-conomy. Included under this heading is the re-opened question of the role of government and the institutional structures that create the next generations of technology and equip them with launch markets. 2) Rule making for the E-conomy, which extends across such thorny issues as privacy, security, and the definition of new property rights and responsibilities necessary for markets to function effectively in consonance with enduring values and purposes. 3) Flexibility and inclusion: the basic issues of institutional and labor flexibility and fairness.

Compounding the policymaking challenge is the fact that the E-conomy is necessarily global. It is a network of networks that crosses borders in a world organized into nation-states. This requires, if not common rules, then harmonization, compatible rules that allow the economic networks to operate as a single large global system.

It is a tough agenda.


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Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
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delong@econ.berkeley.edu
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