The New Economy in East Asia and the Pacific

By Peter Drysdale | Go to book overview

3

The new economy: theory and measurement

Richard G. Lipsey


WHAT IS THE NEW ECONOMY?

The term 'new economy' means different things to different writers, which is a cause of some confusion when discussing it. Sometimes the term refers to an economy in which the laws of supply and demand no longer hold and there are neither business cycles nor inflations. Not many academic economists were gullible enough to take this view seriously. Nonetheless, new technologies do alter many economic relations, such as when 'natural monopolies' are turned into highly competitive industries, and vice versa.

Dale Jorgenson (2001) defines the new economy as the sector producing computing power and related things. He produces some valuable material on this sector, which is one of the driving forces of the information and communication technology (ICT) revolution. His approach shows the new economy as only a small fraction of the whole economy. It also leads him to argue that if progress stopped in the IT sector, the growth and change attributable to the new economy would slow or even stop.

Robert Gordon (2000) defines a new economy as occurring when the rate of improvement in new products and services is greater than in the past (p.39) and there is thus an acceleration in the rate of productivity growth. In doing this, he is following most growth economists who use models based on an aggregate production function in which technological change is visible only by its effects on productivity. Such models equate changes in technology with changes in productivity.

My brief is to present my own views on these issues. This I have done with a large number of references to my own published work-while not, of course, ignoring all other relevant material.

As I use the term, the new economy refers to the social, economic and political changes brought about by the current revolution in ICTs. 1 That revolution is being driven by the computer, lasers, satellites, fibre-optics, the internet and a few other related communication technologies, many of which were developed with the assistance of computers. It is an economy-wide process; it is not located in just one high technology sector, any more than the

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