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