NEW ECONOMY (Encyclopedia)

Abstract

“New Economy” is a term used for the first time in the nineties to describe the result of the transition, in the West countries, from a manufacturing-based economy to a service-based one, mostly deriving from immaterial assets. Talented and qualified persons, with brand-new ideas and entrepreneurial attitude, have become the most prized components to succeed in the New Economy.

Description

In order to fully understand what the New Economy deals with, it is important to analyse how it differs from the Old Economy.

In the Old Economy, growth and development were driven by manufacturing companies with significant plants availability. The economic sector of a specific field used to be mainly defined by the manufacturing infrastructures and by the ability to accumulate the old and more common kind of capital (plant, equipment, land, lending capacity, etc.). Because of the huge capital required and the long-term planning involved in the construction of manufacturing deposits, communities tended to keep, as long as they could, whatever economic activity they were involved into, without facing any kind of innovation. 

Labor markets used to be locally confined, just like the competition among communities; therefore the talented ones had to adjust to the needs of a market regionally oriented. 

In the New Economy, the Old Economy paradigm has been completely overturned: because of the economic growth and the increasing prosperity, talent has replaced manufacturing plants. As a consequence, the talented ones tend to make up jobs rather than merely looking for them. They are driven by a variety of factors such as:

-    quality of life,
-    access to facilities,
-    recreational opportunities,
-    compact communities promoting an active lifestyle, thanks to trails, city parks  and cycle paths,
-    the proximity to working places and residencies to entertainment places,
-    the presence of other talented people,
-    an environment that promotes innovation, tolerance and diversity,
-    access to universities and different transit opportunities so that using a car is no longer necessary.

Their lifestyles allow less pressure on the environment and promote social justice. Better embedded in their culture than in the one of their elders, it is the concept of sustainability. Therefore, in the New Economy, economic development does not necessarily comes at the expense of depleted resources and social equality, but it is promoted by the culture of sustainability.

Furthermore, the main foundation of the New Economy is the awareness that economic competition and success are no longer determined on a local scale, but on a global one.

Globalization has also allowed rapid international and technological communication across distances which used not to be easily reachable. International transactions, that once took weeks, if not months to be carried out, can now be completed in just few seconds. Moreover, many sources of information are now available in networks as they are accessible to every users. Widespread technology and information innovations have shifted the relevance of the economic production from a local market to a global one. Countries with lower labor costs and fewer regulations, can manufacture products and distribute them to international markets at a moderate prize if compared to countries like the United States. The availability of investment dollars and capital, which used to be place-based, is now global. This globalization of the economy, due to the advances in communication and technology, has created, similarly, an increasingly “flat world,” a term coined by The New York Times columnist Thomas L. Friedman in 2005. Not only has it dramatically changed where a job can be found, but also what type of work can be carried out.

The manufacturing and labor force that used to be a kind of anchorage in the Old Economy, are no longer as relevant as in the past, thanks to current automation technology and international outsourcing. Manufacturing and engineering work that was previously carried out in the USA or in Europe, now is performed in China and India. While not all of the industries are global yet, and many service industries will probably remain regional for a quite long time, it is widely believed that there is no State that can prosper in the present world only by producing economic services for of its own region or nation. In the developed countries, the shift to the New Economy will necessitate innovation, with an increasing demand for skilled workers. As a matter of fact, talented individuals, new intellectual advancements and entrepreneurism are the most prized components to succeed in the New Economy.

The success of the Old Economy was mostly due to the fact that the economic activities took place where it was cheaper to carry on business. Companies were attracted by low costs and fixed competitive advantages (such as certain resources or skills),as they tended not to consider factors such as quality of life or an attractive and pleasant location which would have meant higher costs.

New Economy and Productivity

The New Economy can thus be described as the set of factors that gives the development and productivity a completely brand-new impulse in opposition to the Old Economy. Therefore, the New Economy is able to create the right conditions for a real and permanent growth.

Some scholars extend this feature including other characteristics, such as:

- the change of the role played by the State in the economy (from a player to a referee);
- the rise of NGO - Non-Governmental Organizations;
- the globalization process;
- the increasing diffusion of financial innovation in the international financial markets.

This process was indicated by the economist Paolo Savona as “LISCA Effect” - which stands for: Liberalization, Internationalization, Securitization, Computerization and Apoliticization - which was also strengthened by the development of ICT (Information and Communication Technology Innovation), nanotechnology, biotechnology and genetics.

The New Economy and Globalization can be considered as the result of the so-called "LISCA Effect ". This effect includes all the impulses caused by the liberalization of markets, the internationalization of economic activity and the globalization of choices, the securitization of ownership, the computerization of processes and finally, the Apoliticization (government intervention is lesser than in the past, provoking the retreat of the State as a direct provider).

For this reason, we can state that the New Economy embodies all of the new technological achievements as well as the new institutional arrangements that contribute to increase productivity.

The importance of the place 

However, the New Economy, tends to thrive in those places where there are lots of talented people and new ideas are constantly generated. It is no longer about attracting companies, but mainly about attracting talented people, therefore the quality of life plays a fundamental key-role. Areas which are currently seeking for economic prosperity are focused on creating a climate in which to come up with new ideas, enabling productive partnerships and attracting, at the same time, talented people rather than manufactured goods and services, which almost any country is now able to supply. In order to prosper in the New Economy, regions must become adaptable, and rather than benefit from an economic development mostly led by Government, as it used to be in the Old Economy, they must engage partnerships among various sectors (business, government and non-profit). Communities, committed to help building the New Economy are finding out that prosperity comes if the right balance between economic development and place making strategies is achieved. The differences between the Old and New Economy are summarized in Table 1. They suggest a whole new mindset for growth and prosperity.

Small entrepreneurial companies guided by skilled and talented staff, are replacing larger and more stable ones while taking the role of engine of the economic prosperity. Personalized quality products are replacing the mass produced ones, consequentially supporting the market place and the local communities. A changing dynamic environment is more attractive to qualified workers than a rigid and predictive one which was characterized by the Old Economy manufacturing plants. Finally, information, innovation and empowerment are taking over in order to achieve success and prosperity.

The formula for success in the New Economy, as noted before, starts first and foremost by investing in people and attracting the talented ones. In fact, young talents , hard workers are the ones who bring brand-new ideas and foster innovations. They are also the ones most likely to decide where their skills could be employed to the best according to the amenities of the surrounding location.

Strategic Growth and Economic Development

In the New Economy, communities grow by leveraging their assets, which are mostly derived by territory and qualified staff. Other assets that have been used to attract or create effective strategies for recruiting the talented and particularly creative people include:

-    technology,
-    innovation,
-    universities,
-    location of parks and trails,
-    entertainment centers,
-    the employment of lands,
-    clustering of historical and cultural places and activities,
-    image management,
-    access to amenities, 
-    attractive design.

Identifying the economic areas is fundamental for the success of the New Economy. First of all, identifying nearby similar economic activities makes it easy for the talented and qualified workers to shift from a job onto a different one; secondly, it also facilitates the employers in hiring skilled and qualified workers.

Since the young talents are necessary in the New Economy, it is essential also to take into consideration the quality of the working place. In fact, “strategic place-making” is the key in order to attract them to a particular city or region. Land use strategies, place-making, amenities and other quality of life factors have gradually replaced plant, equipment, capital and basic skills, becoming the main causes of growth and development.

Ten Smart Growth Principles

In order to succeed in the New Economy, communities must give prominence to the critical role of place-making. This involves creating the environment for talented people and innovative partnerships with the aim of growing and succeeding. For this reason, adopting land use strategies that are developed on the foundations of “Smart Growth” will allow the community to provide a variety of options and, at the same time, to be adaptable to change while becoming more sustainable. Smart growth is a collection of land use and development principles that aim to enhance quality of life, to preserve the natural environment and to save money over time. Smart growth principles ensure that growth is fiscally, environmentally and socially responsible, underlining the connections between development and quality of life.

The smart growth principles are:

1. Mix land uses. Each neighbourhood is made up of a set of homes, retails, businesses, and recreational opportunities.
2. Build well-designed neighbourhoods. Residents can choose to live, work, shop and entertain themselves in the close proximity. People can easily access to daily activities thanks to a viable transit. Local businesses are also supported.
3. Provide a variety of transportation choices. Neighbourhoods are attractive as they are also provided with safe infrastructures for walking, cycling and transit, in addition to driving.
4. Create different housing opportunities. People belonging to different family types, age groups and income levels, can afford a home in the neighbourhood of their choice.
5. Encourage growth in existing communities. Investments in infrastructure (such as roads and schools) have to be used efficiently, and developments do not have to take up new lands.
6. Preserve open spaces, natural beauty, and environmentally sensitive areas. Development respects natural landscape features and it has an higher aesthetic, environmental, and financial value.
7. Protect and enhance agricultural lands. A safe and productive land base provides food security, employment, habitat, while maintaining an urban containment boundary.
8. Utilize smarter, and cheaper infrastructures. Green buildings and other systems can save both money and the environment in the long run.
9. Foster a unique neighbourhood identity.
10. Involve citizens actively by participating in the community life as well as in the decision-making.
The Ten Tenets of Smart Growth, crucial elements for the New Economy, are fundamental to any community wishing to provide a high quality of life in a way that manages to balance economic growth with environmental preservation and social equity.

Bibliography
Adelaja S., J. L. Hannah (2007), Comparison of the Old Economy to the New Economy, Michigan, FAICP.
Atkinson R.D., R. H. Court (1998), The New Economy Index: Understanding America’s Economic Transformation, Washington DC, Progressive Policy Institute.
Porter M. (2002), Clusters and the New Economics of Competition, Cambridge, Harvard Business School Press.
Samuelson P, H. R. Varian (2001), The “New Economy” and Information Technology Policy, Berkley, University of California Press. http://people.ischool.berkeley.edu/~pam/papers/infopolicy
Savona.P (2002), Politica Economica e New Economy, Milano, McGraw-Hill

Editor: Francesca BERTI