THIS NEW ECONOMY

The tricks of the intangible trade…

…will become the tricks of your trade.

The new economy deals in wispy entities such as information, relationships, copyright, entertainment, securities, and derivatives. The U.S. economy is already demassifying, drifting toward these intangibles. The creations most in demand from the United States (those exported) lost 50% of their physical weight per dollar of value in only six years. The disembodied world of computers, entertainment, and telecommunications is now an industry larger than any of the old giants of yore, such as construction, food products, or automobile manufacturing. This new information-based sector already occupies 15% of the total U.S. economy.

Yet digital bits, stock options, copyright, and brands have no measurable economic shape. What is the unit of software: Floppy disks? Lines of code? Number of programs? Number of features? Economists are baffled. Walter Wriston, former chairman of Citicorp, likes to grumble that federal economists can tell us exactly how many left-handed cowboys are employed each year, yet have no idea how many software programs are in use. The dials on our economic dashboard have started spinning wildly, blinking and twittering as we head into new territory. It’s possible the gauges are all broken, but it is much more likely the world is turning upside down.

Remember GM? In the 1950s business reporters were infatuated with General Motors. GM was the paragon of industrial progress. It not only made cars, it made America. GM was the richest company on earth. To many intelligent observers, GM was the future of business in general. It was huge, and bigger was better. It was stable and paternal, providing lifetime employment. It controlled all parts of its vast empire, ensuring quality and high profits. GM was the best, and when the pundits looked ahead 40 years they imagined all successful companies would be like GM.

 

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This is a blog version of a book of mine first published in 1998. I am re-issuing it (two posts per week) unaltered on its 10th anniversary. Comments welcomed. More details here.
-- KK